on the impact of shock persistence on the dynamics of a recursive economy abstract the present note relies exclusively on numerical computation of a parametric version of a stochastic version of the one sector neoclassical growth model to derive the qualitative properties of the optimal consumption investment policy functions and of the resultant steady state and to study the manner in which these properties are affected by an increase in the degree of shock persistence in particular we measure the effects of differing degrees of shock persistence on the means and variances of the resulting stationary distributions on output consumption and capital stock furthermore we explore the effects of increasing degrees of shock persistence on the dynamic time path of the economy

the consequences of doubling the minimum wage the case of indonesia minimum wages in indonesia were tripled in nominal terms and doubled in real terms in the first half of the 1990s the author evaluates the effects of this hike on wage earnings wage employment and investment after describing indonesia s minimum wage policy and surveying the literature on the effects of minimum wages the author applies relatively simple statistical tools to individual and aggregate data he visually inspects the wage distribution for full time laborers and employees to assess the extent of compliance with minimum wages he uses regression analysis involving minimalist specifications and data aggregated by province to estimate the elasticity of wage earnings wage employment and investment with respect to the minimum wage a wide dispersion in the ratio of minimum wages to labor productivity across the 27 indonesian provinces can be used to identify the effects of the minimum wage the results suggest that minimum wages have a moderate effect on outcomes in indonesia s labor market taken at face value these results imply that doubling the minimum wage led to a 10 percent increase in average wages a 2 percent decrease in wage employment and a 5 percent decrease in investment the disemployment effect appears to be considerable in small firms but employment may actually increase in large firms

the highs and lows of the minimum wage effect a time series cross section study of the canadian law we examine the effects of minimum wage legislation in canada over the period 1975 93 for teenagers we find that a 10 increase in the minimum wage is associated with roughly a 2 5 decrease in employment we also find that this result is driven by low frequency variation in the data at high frequencies the elasticity is positive and insignificant the difference in the elasticity across the bandwidth has implications for the interpretation of employment dynamics as a result of minimum wage policy and experimental design in minimum wage studies it also provides a simple reconciliation of the new minimum wage research which reports very small negative or positive elasticities

designing supply contracts contract type and information asymmetry this paper studies the value to a supplier of obtaining better information about a buyer s cost structure and of being able to offer more general contracts we use the bilateral monopoly setting to analyze six scenarios three increasingly general contracts wholesale pricing schemes two part linear schemes and twopart nonlinear schemes each under full and incomplete information about the buyer s cost structure we allow both sides to refuse to trade by explicitly including reservation profit levels for both for the supplier this is implemented through a cutoff policy we derive the supplier s optimal contracts and profits for all six scenarios and examine the value of information and of more general contracts our key findings are as follows first the value of information is higher under two part contracts second the value of offering two part contracts is higher under full information and third the proportion of buyers the supplier will choose to exclude can be substantial

stochastic growth with correlated production shocks this paper extends the stochastic growth model of brock and mirman j econ theory 4 1972 497 513 to allow the production shocks to be correlated over time the resultant optimal savings and consumption policies depend not only upon the current level of output but also upon the most recent realization of the random shock the properties of these policy functions are studied and it is shown that the markov process on output capital stock and consumption resulting from the application of these policies converges to a stationary distribution

the impact of minimum wages on employment in a low income country a quasi natural experiment in indonesia the extensive literature on the employment impact of minimum wages has focused heavily on industrialized nations and very little on the developing world despite the importance of minimum wages in many low income countries one such country indo nesia was the setting for an unusual quasi natural experiment not only did minimum wages in indonesia increase sharply between 1990 and 1996 but the resultant increment in average wages varied markedly across different areas in greater jakarta the authors use household level labor market data to determine the extent of compliance with the legislation then estimate the employment impact in the clothing textiles footwear and leather industries based on a census of all large and medium sized establishments the evidence suggests that there was no negative employment impact for large establish ments either foreign or domestic but that workers in smaller domestic establishments may have suffered job losses as a result of minimum wage increases

effects of the minimum wage on the employment status of youths an update the large decline in the relative value of the minimum wage during the 1980s makes that period a valuable one for identifying the impact of variation in the minimum wage on youth employment this study produces the robust finding that when the experience of the 1980s is included a 10 percent increase in the minimum wage is estimated to reduce teen employment by less than 1 percent the lower end of the range of previous estimates because this small employment effect is offset by a labor force withdrawal effect the study finds no discernible effect on measured unemployment the study also finds no apparent effect of the minimum wage on the employment of young adults aged 20 24

pricing and the news vendor problem a review with extensions in the newsvendor problem a decision maker facing random demand for a perishable product decides how much of it to stock for a single selling period this simple problem with its intuitively appealing solution is a crucial building block of stochastic inventory theory which comprises a vast literature focusing on operational efficiency typically in this literature market parameters such as demand and selling price are exogenous however incorporating these factors into the mode l can provide an excellent vehicle for examining how operational problems interact with marketing issues to influence decision making at the firm level in this paper we examine an extension of the newsvendor problem in which stocking quantity and selling price are set simultaneously we provide a comprehensive review that synthesizes existing results for the single period problem and develop additional results to enrich the existing knowledge base we also review and develop insight into a dynamic inventory extension of this problem and motivate the applicability of such models

pricing and rebate policies in the two echelon supply chain with asymmetric information under price dependent stochastic demand abstract this paper analyzes the manufacturers strategy of optimizing the direct rebate to the final customer and the wholesale price to a profit maximizing retailer with a price dependent stochastic demand the manufacturer possesses full information about the cost and the functional relationship among demand price and rebate but may or may not know about the nature of the underlying demand uncertainty faced by the retailer the conditions under which a retailer benefits from passing on such information are identified the main features of the model are illustrated analytically and numerically using linear or iso elastic demand functions with additive or multiplicative error structures several important implications have been derived especially those dealing with price and rebate pass throughs and with the cost to the manufacturer of asymmetric information

employment effects of minimum and subminimum wages panel data on state minimum wage laws using panel data on state minimum wage laws and economic conditions for the years 1973 89 the authors reevaluate existing evidence on the effects of a minimum wage on employment their estimates indicate that a 10 increase in the minimum wage causes a decline of 1 2 in employment among teenagers and a decline of 1 5 2 in employment for young adults similar to the ranges suggested by earlier time series studies the authors also find evidence that youth subminimum wage provisions enacted by state legislatures moderate the disemployment effects of minimum wages on teenagers

price competition for retailers with profit and revenue targets abstract price competition for retailers has been extensively studied in the literature assuming the objective of expected profit maximization in this paper we make a major contribution by studying price competition for retailers with both profit and revenue targets consequently each retailer maximizes her profit and revenue probability namely the probability of achieving the profit and revenue targets simultaneously more specifically we analyze a scenario where two competing retailers purchase a perishable product from a common supplier and sell to a common market employing the isoelastic demand model we derive the closed form solutions of the optimal order quantity the optimal selling price and the maximal profit and revenue probability for each retailer it is shown that when revenue is a relevant performance measure positive and non positive salvage values lead to different optima for competing retailers moreover as price elasticity and or price competition intensity becomes higher the optimal retail price decreases and the optimal order quantity increases for each retailer

a joint optimal pricing rebate value and lot sizing model delayed incentives in the form of mail in cash rebates are very popular among manufacturers and more recently among retailers one of the main advantages of rebates is that while they increase demand a small proportion of consumers redeem them in this paper we formulate and solve models for jointly determining the optimal price rebate face value and the optimal order quantity for a price and rebate sensitive deterministic demand the models show that under realistic conditions offering rebates can have significant pricing and inventory policy implications and can lead to a significant increase in profit

the role of rebates in the hybrid competition between a national brand and a private label with present biased consumers abstract over the past years rebates have been increasingly used by national brand nb manufacturers conventional wisdom suggests that rebates are beneficial to firms as long as positive slippage exists based on the present biased preference theory we investigate the performance of nb rebates as a counterstrategy to the retailer s private label pl game theoretic models are developed to characterize channel dynamics involving consumers knowledge levels of the present biased preferences our model reveals multiple insights first a positive slippage rate does not necessarily benefit the nb manufacturer if the rebates fail to expand the demand of the nb second the retailer s commitment to the original nb price plays a positive role in improving the equilibrium profits of both parties third for loss averse consumers under preference uncertainties the nb manufacturer and the retailer prefer a low redemption cost in contrary to the conventional idea that sellers take advantage of consumers with high redemption costs

risk information and incentives in telecom supply chains supply chain management involves the selection coordination and motivation of independently operated suppliers the central planner s perspective in operations management translates poorly to vertically separated chains where suppliers recurrently seem to object to benevolent information sharing and centralized decision rights seen from the supplier s perspective such resistance may very well be rational a downstream assembly line disclosing reliable information on actual and forecasted sales puts itself at a disadvantage when bargaining on share of chain profits in this paper we use a minimal agency model to contrast known optimal mechanisms with the actual practice in the telecommunications industry a three stage supply chain under stochastic demand and varying coordination and information asymmetry is modeled a two period investment production game addresses the information sharing and specific investment problem in the telecom industry the observed price quantity contracts under limited commitment are shown to be inadequate under realistic asymmetric information assumptions more a result of gradually evolving changes in bargaining power than coordination efforts the upstream urge to coordinate may further deteriorate performance in terms of our model c 2003 elsevier science b v all rights reserved

a bargaining model for a first time interaction under asymmetric beliefs of supply reliability we consider the case of a first time interaction between a buyer and a supplier who is unreliable in delivery the supplier declares her estimate of the ability to meet the order obligations but the buyer may have a different estimate which may be higher or lower than the suppliers estimate we derive the nash bargaining solution and discuss the role of using a down payment or nondelivery penalty in the contract for the case of buyer overtrust the down payment contract maximizes channel profits when the suppliers estimate is public information if the suppliers estimate is private information a nonsymmetric contract is shown to be efficient and incentive compatible for the case of buyer undertrust the contract structure is quite different as both players choose not to include down payments in the contract when delivery estimates are public information a nondelivery penalty contract is able to maximize channel profits if the buyer uses the suppliers estimate in making the ordering decision if estimates are private information channel profits are maximized only if the true estimates of both players are not far part we also discuss the effect of different risk profiles on the nature of the bargaining solution in three extensions of the model we consider the following variants of the basic problem first we analyze the effect of early versus late negotiation on the bargaining solution then we study the case of endogenous supply reliability and finally for the case of repeated interactions we discuss the impact of updating delivery estimates on the order quantity and negotiated prices of future orders

a reassessment of the new economics of the minimum wage literature with monthly data from the current population survey we estimate the employment effects of federal minimum wage increases using monthly current population survey cps data from 1979 through 1997 we find that the empirical differences in the new minimum wage literature based on cps data primarily can be traced to alternative methods of controlling for macroeconomic conditions we argue that the macroeconomic controls commonly included in models where no employment impact is found are inappropriate we consistently find a significant but modest negative relationship between minimum wage increases and teenage employment using alternative controls or allowing employer responses to the policy to occur with some delay

minimum wages for ronald mcdonald monopsonies a theory of monopsonistic competition recent empirical work on the effects of minimum wages has called into question the conventional wisdom that minimum wages invariably reduce employment we develop a model of monopsonistic competition with free entry to analyse the effects of minimum wages and our predictions fit the empirical results closely under monopsonistic competition we find that a rise in the minimum wage raises employment per firm causes firm exit and may increase or reduce industry employment minimum wages increase welfare if they raise industry employment but welfare effects are ambiguous if employment falls

the craft of labormetrics using a wide array of examples from the literature and from original estimates the author examines the pitfalls that make good empirical research in labor economics at least as much craft as statistical technique among the subjects discussed are the appropriateness and cleanliness of data problems of extreme observations the validity of attempts to produce exogeneity using instrumental variables natural experiments and structural models and the treatment of selectivity and unobservable individual effects the author stresses the importance of testing empirical results to ensure that they make sense and of presenting them clearly and economically

effects of a demand curve s shape on the optimal solutions of a multi echelon inventory pricing model abstract when a price demand relationship is needed in inventory pricing models very often a convenient typically linear function is arbitrarily chosen the common wisdom implication is that any downward sloping demand curve would lead to similar conclusions this paper applies different demand curve functions to a simple inventory pricing model and shows that while the common wisdom implication is valid for a single echelon system assuming different demand curve functions can lead to very different results in a multi echelon system in some situations a very small change in the demand curve appearance leads to very large changes in the model s optimal solutions other significant but counter intuitive effects of the demand curve form are also revealed this paper does not completely resolve the difficulties revealed by the counter intuitive effects reported here but establishing the existence of these effects represents a first step towards developing procedures to handle such effects these procedures will be necessary to ensure the reliability of many multi echelon models for products having price sensitive demands

pricing and rebate strategies for an e shop with a cashback website abstract a cashback website cw is a type of reward website that pays its members a rebate when they purchase goods via affiliate links the website receives a commission from an e shop when a customer makes a purchase by following a link instead of visiting the e shop directly with the rapid rise in e shops cws are becoming increasingly popular however these cws value to e shops is still somewhat unclear in both theory and practice to clarify the process we consider a system in which an e shop sells a product to consumers and a cw provides the link to the e shop based on consumers utility we develop a model to study the value of the cw to the e shop in both centralized and decentralized settings and demonstrate and compare the two parties optimal strategies and their corresponding profits in both settings our main findings are as follows 1 the cw can always bring the e shop more profits whether the setting is centralized or decentralized by playing the role of price discrimination 2 in contrast to the centralized setting the decentralized setting does not lead to a higher sales price in many cases it offers a lower sales price which is opposite of the case typically seen in traditional supply chain literature 3 compared with the decentralized setting the centralized setting does not allow all consumers to have more consumer surplus which again differs from traditional supply chain literature but rather yields more total profit to the system which implies that it is better for the e shop to have its own cw than to use a third party cw 4 the degree of decrease in utility for consumers who buy via the cw significantly influences both parties pricing strategies more interesting is that a smaller degree of decrease in utility for consumers who buy via the cw is always beneficial to the e shop but may be detrimental to the cw

note the role of returns policies in pricing and inventory decisions for catalogue goods manufacturers often use returns policies to encourage retailers to stock and price items more aggressively we focus on the effect that such policies have on both a retailer s and a manufacturer s profits when the retailer must commit prior to the selling season to both a stocking quantity and a price at which to sell an item such a commitment is often necessary for retailers who sell primarily through catalogues

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

comparative dynamics of an equilibrium intertemporal asset pricing model this paper uses recursive competitive theory to develop a general equilibrium asset pricing model in this framework all prices and rates of return are endogenously determined thus enabling us to analyze the effects of changes in preferences technological uncertainty and expectations on the structure of security prices in particular we focus on how the market risk premium varies with changes in the underlying economic environment an issue which other asset pricing models have chosen not to address