optimal dynamic pricing of inventories with stochastic demand over finite horizons in many industries managers face the problem of selling a given stock of items by a deadline we investigate the problem of dynamically pricing such inventories when demand is price sensitive and stochastic and the firm s objective is to maximize expected revenues examples that fit this framework include retailers selling fashion and seasonal goods and the travel and leisure industry which markets space such as seats on airline flights cabins on vacation cruises and rooms in hotels that become worthless if not sold by a specific time we formulate this problem using intensity control and obtain structural monotonicity results for the optimal intensity resp price as a function of the stock level and the length of the horizon for a particular exponential family of demand functions we find the optimal pricing policy in closed form for general demand functions we find an upper bound on the expected revenue based on analyzing the deterministic version of the problem and use this bound to prove that simple fixed price policies are asymptotically optimal as the volume of expected sales tends to infinity finally we extend our results to the case where demand is compound poisson only a finite number of prices is allowed the demand rate is time varying holding costs are incurred and cash flows are discounted the initial stock is a decision variable and reordering overbooking and random cancellations are allowed

economic liberalization and income inequality further evidence on the sri lankan experience abstract a recent paper by the author in this journal argued that inequality in sri lanka was lower after the 1977 economic liberalization policies were adopted this conclusion was based on two household surveys taken in 1969 1970 and 1980 1981 this note re examines the argument using five household surveys from 1969 1970 and 1981 1982 although the conclusionstill holds in general it is necessary to put it in a proper perspective

analysis of seat allocation and overbooking decisions with hybrid information abstract we investigate a single leg airline revenue management problem where an airline has limited demand information and uncensored no show information to use such hybrid information for simultaneous overbooking and booking control decisions we combine expected overbooking cost with revenue then we take a robust optimization approach with a regret based criterion while the criterion is defined on a myriad of possible demand scenarios we show that only a small number of them are necessary to compute the objective we also prove that nested booking control policies are optimal among all deterministic ones we further develop an effective computational method to find the optimal policy and compare our policy to others proposed in the literature

nonrenewable resource scarcity nonrenewable resource theory often is summarized by hotelling s rule this paper reviews theoretical extensions and empirical investigations of resource extraction models observed data are often inconsistent with the hotelling rule suggesting that other characteristics of nonrenewable resource supply including exploration heterogeneous ore quality technological progress and capital investment are important determinants of the dynamic behavior of resource prices given the persistent recurrence of concern about nonrenewable resource scarcity measures of nonrenewable resource scarcity and the empirical evidence for the time trends of those measures are reviewed finally the implications of nonrenewable resource scarcity for economic growth are examined

expectations capital gains and income i introduction this article argues that the distinction between expected and unexpected capital gains losses is fundamental to the measurement of income the way capital gains are treated can have a significant impact on major macroeconomic statistics such as national income and saving the balance of payments government income and saving and depreciation see gale and sabelhaus 1999 joisce and wright 2001 the recent sale of spectrum licenses is a case in point the spectrum a natural asset over which governments enforce property rights became unexpectedly valuable as a result of the development of mobile telephones in 2000 and 2001 some governments realized gains of 30 billion or more in a day by auctioning licenses to use sections of the spectrum see un statistics division 2000 the concept of income although widely used remains vague it is necessary to inquire why the concept of income is needed and what use it serves the main purpose of income is to provide guidance to households or other economic units including government on the rate at which they can afford to consume when there is uncertainty about future resources the more successfully measured income meets this requirement the greater its power as an explanatory variable for the analysis of consumer behavior the treatment of expected and unexpected capital gains in income measurement is a continuing source of controversy 1 even in a perfect foresight setting the concept of income is not straightforward hicks 1946 considered a number of definitions two in particular command support in the literature hicksian income no 1 is the maximum amount that can be consumed while maintaining wealth intact 2 hicksian income no 2 is the maximum sustainable level of consumption the general consensus that emerges from the literature is that with perfect foresight all capital gains are included in hicksian income no 1 however asheim 1996 shows that some capital gains are excluded from hicksian income no 2 when the interest rate varies over time both income concepts coincide when the interest rate is fixed when the perfect foresight assumption is relaxed a distinction must be drawn between expected and unexpected capital gains it is important that we move beyond a perfect foresight setting because the concept of income has been developed primarily to assist decision taking under uncertainty if income is meant to act as a budget constraint indicating the resources available for consumption each period the important question is how should a rational consumer react to unexpected capital gains this article develops a general theoretical framework for the measurement of hicksian income no 1 under uncertainty that is capable of handling all kinds of capital gains on all kinds of assets ranging from money market assets to mineral deposits 3 first the concept of income with perfect foresight is developed and analyzed in the following section uncertainty is introduced income depends on expectations of future receipts that are liable to be revised with the passage of time the time at which income in a particular period is measured is therefore crucial income can be measured at any time but attention has tended to focus on the beginning and end of the period hicks 1946 178 79 described income as measured at these times as ex ante and ex post income ex ante income as noted by eisner 1990 p 1180 is essentially the same as friedman s 1957 concept of permanent income ex post income as defined by hicks now usually described as haig simons income after two earlier proponents of the concept is a widely used objective measure familiar to most economists however it is conceptually flawed because it utilizes two different and generally inconsistent set of expectations those held at the beginning and end of the period we define a family of conceptually consistent income measures each based only on the expectations held at the time of measurement that we describe as generalized hicksian income

equilibrium valuation of natural resources the purpose of this paper is to provide a theoretical investigation of equilibrium spot and futures price behavior in a nonrenewable commodity market the underlying commodity is nonrenewable in the sense that the reserve level of the commodity is expected to decline over time in the absence of successful discoveries of additional reserves i wish to understand how the nonrenewable nature of the commodity influences the intertemporal extraction of the commodity equilibrium spot price behavior and the prices of derivative assets traded on the nonrenewable commodity there is considerable disagreement among economists whether resources are exhaustible in the sense of resource constraints becoming binding on our society in the foreseeable future some economists have argued that natural resources are being depleted at

market structure and the value of overselling under stochastic demands in the operations management literature traditional revenue management focused on pricing and capacity allocation strategies in a two period model with stochastic demand inspired by travel and lodging industries we examine a two period model in which each seller may also adopt the overselling strategy to customers whose valuations are differentiated by timing of arrivals widely seen as a popular hedge against consumers skipping reservations we extend the stylized approaches of biyalogorsky carmon fruchter and gerstner 1999 and lim 2009 to understand the value of overselling under various market structures we find that contrary to existing literature the impact of period two pricing competition from overselling spills over to period one such that overselling may not always be a weakly dominant strategy once unlimited early demand ceases to hold in a duopoly regime we provide some numerical studies on the existence of multiple equilibria at the capacity allocation level which actually lead to different selling strategies at the equilibrium despite identical market conditions and firm characteristics

stochastic convenience yield and the pricing of oil contingent claims this paper develops and empirically tests a two factor model for pricing financial and real assets contingent on the price of oil the factors are the spot price of oil and the instantaneous convenience yield the parameters of the model are estimated using weekly oil futures contract prices from january 1984 to november 1988 and the model s performance is assessed out of sample by valuing futures contracts over the period november 1988 to may 1989 finally the model is applied to determine the present values of one barrel of oil deliverable in one to ten years time

a microeconometric test of the theory of exhaustible resources abstract this paper generalizes extant developments of the economic theory of exhaustible resource production derives and extends a halvorsen and smith 1991 quarterly journal of economics 106 123 140 type test of the theory and applies the test to a sample of natural gas resources to facilitate our empirical test we extend the model developed in chermak and patrick 1995 journal of environmental economics and management 28 174 189 to explicitly account for the fact that the extracted resource gross product must be processed to obtain the final saleable product duality theory is used to derive econometric models with which the theory is statistically tested using panel data from 29 natural gas wells shadow prices of the resource stock through time which are generally unobservable but necessary for the test are estimated via the indirect cost function contrary to the extant literature we find inter alia that i at any point in time ceteris paribus the in situ resource price a decreases with gross production and b increases with final production and ii we cannot reject the theory of exhaustible resources i e producer behavior is consistent with the theory

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

the political economy of opec abstract we develop a conceptual model that captures opec pricing behavior and apply it to explain the large gap observed between domestic fuel prices in opec countries and prices in the rest of the world we model opec as a cartel of nations not firms and assume that politicians use two instruments production quotas and domestic fuel consumption subsidies the cartel of nations model suggests that introduction of alternatives to petroleum products may lead opec to reduce exports and increase domestic fuel consumption the empirical analysis suggests that when opec sets production quotas it places similar weights on consumer and producer surplus but when opec countries set domestic fuel subsidies on average 6 more weight is given to consumer surplus with some of the opec countries pursuing very aggressive domestic cheap fuel policies

what s in a name hotelling s valuation principle and business school namings almost 50 prominent business schools were named in the 1980s and 1990s in exchange for sizable donations we view this as an interesting example of the exhaustible resource market examined in hotelling 1931 schools face a trade off that involves a possible benefit from waiting to receive a larger gift against the opportunity cost of delay we find schools wait to accept a name until the annualized rate of increase in offered gifts is around 5 in keeping with hotelling s principle and a market in school names we also find generally lower ranked schools receive smaller gifts and delay their namings longer

on the optimal pricing policy of a monopolist the paper presents a simple explanation of price dispersion by a monopolist assuming only that consumers arrive in a random order and are served on a first come first served basis a firm can sometimes increase its profits by charging two different prices for the same good and rationing sales at the lower price however it is never necessary to charge more than two prices and a single price is sufficient as long as either the marginal revenue curve is everywhere downward sloping or the marginal cost of production is constant

aggregate consumer behaviour and the measurement of inequality this paper presents an approach to inequality measurement based on an econometric model of aggregate consumer behaviour the novel feature of this model is that systems of individual demand functions can be recovered uniquely from the system of aggregate demand functions we present methods for evaluating social welfare based on an explicit social welfare function this social welfare function incorporates measures of individual welfare based on indirect utility functions for all consumer units we develop indexes of inequality based on actual and potential levels of social welfare

valuing mineral reserves when capacity constrains production abstract we add a capacity constraint and heterogeneous reserves to the hotelling valuation principle this produces a more general version of the principle that is more consistent with empirical valuations while retaining the underlying relationship between net price and reserve value

the competitive newsboy we consider a competitive version of the classical newsboy problem in which a firm must choose an inventory or production level for a perishable good with random demand and the optimal solution is a fractile of the demand distribution and investigate the impact of competition upon industry inventory a splitting rule specifies how initial industry demand is allocated among competing firms and how any excess demand is allocated among firms with remaining inventory we examine the relation between equilibrium inventory levels and the splitting rule and provide conditions under which there is a unique equilibrium our most general result is that if all excess demand is reallocated i e there is perfect substitutability then competition never leads to a decrease in industry inventory

resource curse or not a question of appropriability this thesis presents three self contained essays focusing on empirical questions in growth and development economics each article addresses specific questions on why countries perform differently in particular i analyse the effect of democracy on economic development the relationship between natural resources and growth and the efficiency of foreign development assistance in the first essay democracy consolidation and growth i analyse the effect of democracy on economic growth in this context i argue that an important aspect to consider is how consolidated political systems are put simply i find that it is not only a question of how democratic countries are but also how long they have been democratic in other words economic performance tends to improve with the duration of uninterrupted democracy the performance of autocracies on the other hand tends to deteriorate over time however for newly established political systems there seems to be a cost of being democratic this implies that democracies only bear their fruit after some time the analysis has important policy implications to overcome initial straits international assistance focused on democratic consolidation may be important and a very good investment in fostering long run development the second essay resource curse or not a question of appropriability together with anne boschini and jesper roine is concerned with the relation between natural resources and economic development for most laymen as well as for most economists it would seem reasonable that countries richly endowed in natural resources also benefit from this wealth however a large literature has found a systematic negative effect of natural resource abundance on economic growth we suggest that this so called resource curse is not determined by resource endowments alone but rather by the interaction between the type of resources a country possesses and the quality of institutions in the country this combination of factors determines what we call the appropriability of a resource the concept of appropriability captures the likelihood of natural resources leading to rentseeking corruption or conflicts which in turn will harm economic development our results suggest that if institutions are good enough the curse may be turned into a blessing this may explain why some countries such as norway and botswana tend to benefit from their resources while others such as angola and sierra leone do not the third and final essay of this thesis foreign sectoral aid fungibility growth and poverty reduction is a contribution to the aid efficiency literature which is concerned with the question of whether aid helps or hinders economic development foreign development assistance is often targeted on specific public expenditure sectors if this aid is not used in the sector for which it was granted e g health education it is said to be fungible and donors may end up financing something completely different from what they intended e g military expenditures the major concern about sectoral fungibility is that the alternative use of aid may be less productive or less socially useful however measuring fungibility is not sufficient to determine whether foreign sectoral aid fungibility is actually harmful what is important is how the funds treated as fungible are used the essay starts by obtaining estimates of fungibility for 57 countries the results suggest that sectoral aid is indeed largely treated as fungible by recipient countries next to assess the economic and health effects of fungibility these estimates are incorporated into an empirical model of aid and growth as well as into a model of aid and infant mortality altogether i find no evidence of more fungible sectoral aid leading to worse performance

liberalization and inequality in sri lanka a comment abstract paul glewwe has recently argued against the widely held view that the liberalizing policy reform in sri lanka in the late 1970s increased inequality we contend here that glewwe has not convincingly discredited the household income distribution data that he has misinterpreted the expenditure distributions and that he has not considered the welfare distributional effects of the relative price changes induced by the policy reforms furthermore we argue that a sound basis remains for the contention that the policy reforms of the late 1970s increased inequality

price scarcity rent and a modified r per cent rule for non renewable resources since hotelling s seminal paper on the optimal depletion of exhaustible resources much has been published yet confusion remains about whether scarcity rent and price increase or decrease as a resource is depleted when costs tend to rise with depletion we show that hotelling s fundamental results of rising scarcity rent and price paths are sustained and that the path of scarcity rent converges on the r per cent rule provided the objective function is concave predictions of non monotonic or declining scarcity rent paths are due to implicit assumptions that lead to a non concave objective function we identify the sources of these non concavities jel classification q30 d90 c60 prix rente de rarete et une regle modifiee du r pourcent pour les ressources non renouvelables malgre la volumineuse litterature specialisee qui a fleuri depuis qu hotelling a ecrit son memoire fondateur sur l epuisement optimal des ressources renouvelables une grande confusion regne toujours quand il faut etablir si la rente de rarete et le prix augmentent ou chutent a proportion que la ressource s epuise quand les couts tendent a croitre avec l epuisement ce memoire montre que les resultats fondamentaux obtenus par hotelling quant aux sentiers de croissance de la rente de rarete et du prix tiennent toujours et que le sentier de croissance de la rente de rarete converge vers la regle du r pourcent pourvu que la fonction objective soit concave les predictions de sentiers de croissance non monotone ou de declin de la rente de rarete presentees dans la litterature specialisee sont attribuables a des postulats implicites qui engendrent une fonction objective non concave les auteurs identifient les sources de ces non concavites

using yield management to shift demand when the peak time is unknown traditional peak load and stochastic peak load models assume firms have prior information about when peak demand occurs however price dispersion such as is typically used by firms practicing yield management can achieve some of the same efficient demand shifting even when the peak time is unknown equilibrium price dispersion arises because of stochastic demand and price rigidities but a previously unexplored benefit of price dispersion is its ability to reduce equilibrium capacity costs through demand shifting the model also suggests how yield management now more commonly called revenue management might actually benefit business travellers contrary to the popular prejudice

the green paradox of the economics of exhaustible resources abstract the green paradox states that an increasing tax on emissions of carbon dioxide consonant with the expected increase in their marginal damages may induce oil producers to shift their production toward the present and thereby to exacerbate the problem of climatic change the model is based on hotelling models of resource use that do not take the natural and technical features of oil production into account natural features include the decline of production through time according to a decline curve technical features include the requirement to sink investment in productive capacity a model of a profit maximizing firm indicates that if these features are taken into account the prediction of the green paradox is unlikely

economic indicators of resource scarcity a critical essay abstract the theoretical arguments of the conceptual and empirical literature on economic indicators of long run resource scarcity are logically flawed if resource allocators were informed of the nature of resource scarcity their behavior and the economic indicators it generates would reflect the scarcity but if they were so informed we could simply ask them if resources were scarce if they are not informed their behavior and economic indicators are as likely to indicate their ignorance as the reality unfortunately there is no way of knowing whether they are informed or not unless we already know whether resources are scarce

use value exchange value and resource scarcity abstract i review the literature on natural resource scarcity indicators scarcity indicators can be classified by what is being measured value of the resource stock or value of extracted resource commodities who s value is considered social vs private scarcity and by the mode of valuation considered exchange value and use value prices and rents are common measures of exchange value or indicators of exchange scarcity and unit costs can be seen as use value indicators or indicators of use scarcity the major aim of this paper is to demonstrate the links between productivity indicators such as unit costs and the classical concept of use value the two classes of indicator relate to john commons discussions of scarcity and efficiency and a marginal vs a non marginal approach to value and scarcity the classical use value concept also has wider relevance for issues of valuation in energy resource and environmental policy

testing the efficiency of extraction from a stock resource the theoretical conditions for efficient extraction from a known stock resource by a competitive mining firm are reviewed these conditions are tested using proprietary data from a mining firm output price data and coefficient estimates from a translog cost system are used to compute the in situ value of the resource and the stock effect changes in the in situ value over time are then statistically compared with the expected price path the results reject the hypothesis that the data are consistent with the theoretical model and the maintained hypotheses variations of the basic model that incorporate a time varying discount rate an alternative expected price series and a constraint on the rate of output are also tested and rejected 46 references 10 tables

the pricing of oil and gas some further results the hotelling valuation principle hvp implies that the unit value of an exhaustible natural resource can be written as a function of its current price net of extraction costs other variables such as interest rates have no additional explanatory power the results of earlier tests using data from 1979 1981 strongly support the hvp this paper presents a series of follow up tests using time series cross section data covering the period august 1981 to december 1983 because the variance of petroleum prices in this period was substantially less than in the earlier period the follow up sample proved generally noninformative the sample also contains some observations on oil and gas royalty trusts tests of the hvp using these trust data yielded generally satisfactory results although given the limited sample size the results must be viewed with caution the purpose of this paper is to present follow up tests of the hotelling valuation principle hvp for exhaustible resources the hvp and the earlier tests are described in detail in an earlier paper miller and upton 5 and we will limit ourselves here to a brief summary the principle that the unit price of an exhaustible natural resource less the marginal cost of extraction will tend to rise at the rate of interest was first stated by harold hotelling 2 it follows from intertemporal profit maximization on the part of a price taking owner of an exhaustible natural resource if the unit price of resources net of extraction costs is expected to rise by less than the rate of interest why not extract it now and if it will rise by more why extract any today the hotelling principle has become the standard paradigm for natural resource economics although perhaps more from the absence of any viable alternative than from strong empirical validation earlier tests of the hotelling principle generally based on time series of resource prices have yet to provide convincing support

economic indicators of resource scarcity comment abstract a recent article in this journal by richard norgaard j environ econom management 19 19 25 1990 concludes that the literature on economic indicators of resource scarcity is not a scientific endeavor we argue the contrary by surveying two research literatures omitted by norgaard but inspired by the resource indicators literature and by investigating norgaard s claim to have found a logical flaw we conclude that the research on economic indicators of resource scarcity is a scientific endeavor and that it is a distinguishing feature of the sub discipline of environmental and resource economics

exploration and development of u s oil and gas fields 1955 2002 we study the exploration and development of oil and gas fields in the u s over the period 1955 2002 we make four contributions to explain the economic evolution of the oil and gas industry during this period first we derive a testable model of the dynamics of competitive oil and gas field exploration and development second we show how to empirically distinguish hotelling scarcity effects from effects due to technological change third we test these hypotheses using statewide panel data of exploration and development drilling we find that the time paths of exploration development and total wells drilled are dominated by hotelling scarcity effects finally we offer an explanation for why fixed costs from exploration can make the contracting equilibrium in the mineral rights market efficient

collusive pricing with capacity constraints in the presence of demand uncertainty we explore the response of collusive prices to changing demand conditions when firms operate under capacity constraints in the presence of demand uncertainty we find support for the conventional view that periods of low demand lead through the emergence of excess capacity to a breakdown of collusive pricing we also find that the nature of price wars depends on the degree of excess capacity in the industry while small amounts of excess capacity can lead firms to engage in mild price wars characterized by uniform price reductions and market share stability more severe price wars characterized by price undercutting and market share instability can emerge if excess capacity is sufficiently great finally our results lend support to the view that market share instability is a symptom of ineffective collusion

population growth externalities to childbearing and fertility policy in developing countries government financed family planning programs that assist individual couples to attain their desired number of children are easily justified but government policies that coerce or use financial incentives to influence couples to alter their desired number of children require stronger justification such justification may reside in the externalities to childbearing the costs and benefits of children that are passed on by parents to society externalities to childbearing might include public costs of education health and pensions as well as taxes to be paid by children in the future cost sharing for public goods and social infrastructure over an enlarged tax base the dilution of per capita value of various forms of collective wealth and the reduction of wages and per capita incomes in the future the authors estimated these externalities for a number of developing countries although the net total estimated externality was typically negative it dominated measurement error only when public holdings of natural resources were important public expenditures on health education and pensions financed by proportional taxes led to negative externalities in most developing countries there are many sources of positive and negative externalities and each estimate is uncertain so the total externality is itself highly uncertain and often does not provide a clear case for policies going beyond family planning inclusion of environmental effects might alter this conclusion

cost specification and firm behaviour in a hotelling model of resource extraction in applied resource economics much attention has been focused on the ability of the hotelling model to explain observed firm behavior in this paper a preliminary specification search is performed to determine the appropriate cost function parameterization for the firms in the sample before proceeding to the estimation of the euler equation once a cost function specification is chosen the corresponding euler equation is estimated via the generalization method of moments gmm which allows for better estimates of the euler equations than in previous studies even with the preliminary specification search and the use of gmm estimation the behavior of the panel of fourteen canadian copper mining firms in the data set examined does not seem to be consistent with the basic hotelling model used

on using current information to value hard rock mineral properties we reformulate the hotelling valuation principle to take into account the special production characteristics of hard rock minerals the data requirements of the revised model are still parsimonious but the resultant valuations are some 40 below those produced by the hotelling valuation principle our valuation equations are also user friendly allowing the valuer to specify price and cost expectations that need not comply with the hotelling rule empirically our model provides estimates of market value for producing mineral properties that are more accurate than those produced by the hotelling valuation principle

strike when the force is with you optimal stopping with application to resource equilibria optimal investment in a nonrenewable resource project occurs when the rate of increase of the project s forward value falls to the force of interest this stopping rule yields a financial interpretation of resource quality as being a property of the project rather than of individual units of reserves it also leads to re interpretations of a rent as the present value of the project rather than of units of reserves and b hotelling s insight as not a rule for the path of rents but an equilibrium algorithm for price the analysis is extended to sequential development of pesticides antibiotics and forests

optimal pricing with speculators and strategic consumers this paper studies a monopolist firm selling a fixed capacity the firm sets a price before demand uncertainty is resolved speculators may enter the market purely with the intention of resale which can be profitable if demand turns out to be high consumers may strategically choose when to purchase and they may also choose to purchase from the firm or from the speculators we characterize equilibrium prices and profits and analyze the long run capacity decisions of the firm there are three major findings first the presence of speculators increases the firm s expected profits even though the resale market competes with the firm second by facilitating resale the firm can mimic dynamic pricing outcomes and enjoy the associated benefits while charging a fixed price third speculative behavior may generate incentives for the seller to artificially restrict supply and thus may lead to lower capacity investments we also explore several model extensions that highlight the robustness of our results

competitive promotional strategies this article analyzes the equilibrium pricing strategies of brands engaged in a pricing game each brand has a monopoly market loyal consumers and competes with others in a common market called brand switchers in the case of a duopoly it is shown that the behavior of the brand switchers characterizes the equilibrium behavior of the duopolists this article focuses on two key comparative statics namely the depth of discounts away from a regular high price and the probability of giving a deal or the frequency of deals how these properties vary with the size of the loyal markets and the behavior of the brand switching population is discussed copyright 1988 by the university of chicago

combined pricing and inventory control under uncertainty this paper addresses the simultaneous determination of pricing and inventory replenishment strategies in the face of demand uncertainty more specifically we analyze the following single item periodic review model demands in consecutive periods are independent but their distributions depend on the item s price in accordance with general stochastic demand functions the price charged in any given period can be specified dynamically as a function of the state of the system a replenishment order may be placed at the beginning of some or all of the periods stockouts are fully backlogged we address both finite and infinite horizon models with the objective of maximizing total expected discounted profit or its time average value assuming that prices can either be adjusted arbitrarily upward or downward or that they can only be decreased we characterize the structure of an optimal combined pricing and inventory strategy for all of the above types of models we also develop an efficient value iteration method to compute these optimal strategies finally we report on an extensive numerical study that characterizes various qualitative properties of the optimal strategies and corresponding optimal profit values

overselling in a competitive environment boon or bane in this paper we study the practice of overselling in a competitive environment where late arriving consumers value the good higher than early arriving ones but the former s arrival is uncertain we show that overselling is a dominant strategy for the firms however it can lead to a prisoners dilemma situation in which all firms are worse off overselling we further show that only when demand from the late consumers far exceeds the supply and there is a sufficiently high profit margin from reselling does overselling result in a pareto dominant outcome for the firms

optimal service speeds in a competitive environment this is a study of the economic behavior of vendors of service in competition a simple model with two competing exponential servers and poisson arrivals is considered each server is free to choose his own service rate at a cost per time unit that is strictly convex and increasing there is a fixed reward to a server for each customer that he serves the model is designed to study one specific aspect of competition namely competition in speed of service as a means for capturing a larger market share in order to maximize long run expected profit per time unit a two person strategic game is formulated and its solutions are characterized depending on the revenue per customer served and on the cost of maintaining service rates the following three situations may arise i a unique symmetric strategic nash equilibrium in which expected waiting time is infinite ii a unique symmetric strategic equilibrium in which expected waiting time is finite and iii several nonsymmetric strategic equilibria with infinite expected waiting time an explicit expression for the market share of each server as a function of the service rates of the two servers is also given

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

mineral depletion with cost as the extraction limit a model applied to the behavior of prices in the nickel industry abstract this article follows papers by pindyck and heal and barrow in applying a hotelling type depletion model to a particular resource industry in this case that of nickel by means of the model the resource rent per ton of nickel is calculated as the proper index of extractive resource scarcity the time path of this resource rent indicates that the model explains industry behavior well and that as in the two previous studies depletion has been an important determinant of prices and rents in this industry

the capital gains from trade are not enough evidence from the environmental accounts of venezuela and mexico abstract in principle a country cannot endure negative genuine savings for long periods of time without experiencing declining consumption nevertheless theoreticians envisage two alternatives to explain how an exporter of non renewable natural resources could experience permanent negative genuine savings and still ensure sustainability the first one alleges that the capital gains arising from the expected improvement in the terms of trade would suffice to compensate for the negative savings of the resource exporter the second alternative points at technological change as a way to avoid economic collapse this paper uses the data of venezuela and mexico to empirically test the first of these two hypotheses the results presented here prove that the terms of trade do not suffice to compensate the depletion of oil reserves in these two open economies

more oil less democracy evidence from worldwide crude oil discoveries this article exploits variations in the timing and size of oil discoveries to identify the impact of oil wealth on democracy i find that discovering 100 billion barrels of oil approximately the initial endowment of iraq pushes a country s democracy level almost 20 percentage points below trend after three decades the estimated effect is larger for oilfields with higher quality oil and lower exploration and extraction costs however the estimates become less precise when oil abundance is measured by oil discovery per capita suggesting politicians may care about the level instead of the per capita value of oil wealth

a taxonomy and research overview of perishable asset revenue management yield management overbooking and pricing this paper proposes the term perishable asset revenue management to denote the field that combines the areas of yield management overbooking and pricing for perishable assets after summarizing the characteristics common to problems in this field the paper discusses the objectives and constraints faced by decision makers then it offers a comprehensive taxonomy with 14 different elements and reviews the research that has been done related to each element finally it suggests some important areas of future research that can help bridge the gap between theory and application

the distribution of income in sri lanka in 1969 1970 and 1980 1981 a decomposition analysis abstract in 1977 the sri lankan government implemented a comprehensive policy of economic liberalization removing many government controls on the economy and providing incentives for both foreign and domestic investment the previous policies were often justified as necessary to maintain an equitable distribution of income income data from 1969 1970 and 1980 1981 surveys indicate that inequality has increased but these data are shown to be unreliable for drawing conclusions on changes in the distribution of income expenditure data from the same surveys indicate that inequality has declined in the 1970 s both in the economy as a whole and within all sectors and ethnic groups

resource nationalism meets the market political risk and the value of petroleum reserves this paper investigates the effect of resource nationalism on the value of petroleum crude oil and natural gas reserves we develop a framework for treating resource nationalism as political risk and utilize data on reserve transactions from john s herold and political risk ratings from international country risk guide and institutional investor for the period 2000 2006 controlling for other factors that affect reserve value we demonstrate the value destruction of political risk and estimate the political risk discount for 37 countries the paper contributes to both the international business literature and practitioner approaches to political risk analysis in demonstrating use of publicly available market data from real asset transactions to measure the cost of political risk we also show that the discount depends on market conditions the higher expected future petroleum prices are the larger is the discount at any level of political risk this insight adds a new dimension to analysis of political risk which is typically measured and examined without regard to market conditions

studying firm specific effects of regulation with stock market data an application to oil price regulation regulations are often introduced and reformed in response to unanticipated changes in market forces in late 1973 for example opec quadrupled the world price of oil and u s policy makers responded by imposing oil price regulation such events pose a fundamental problem of interpretation for studies that use stock prices to identify the economic effects of regulation what portion of the capital gains or losses experienced by investors in regulated firms is due to regulation and what portion is due to unanticipated economic events to answer these questions we use microeconomic theory to derive hypotheses about how the capital gains and losses created by opec pricing and u s regulatory policies are related to the underlying characteristics of petroleum firms we test the hypotheses by including a model of firm specific abnormal returns in the standard market models of common stock returns earned by investors in petroleum firms the results indicate the u s oil production and refiner access to price controlled crude oil were sources of capital gains and that u s and foreign refining were sources of capital losses

policy watch the food stamp program and welfare reform major changes have been proposed for the food stamp program including replacing the program with block grants to the states cashing out the benefits and reducing program funding from baseline levels this paper will explore the impacts of food stamp reform on food spending income support welfare reform agriculture and the rest of the economy a comprehensive set of scenarios is used to examine the potential economic consequences the analysis shows that the effect of cashing out the food stamp program can be as much as four times larger than the effects of program reduction alone

a test of the hotelling valuation principle time series tests of the hotelling r percent rule for natural resource prices have not been strongly supportive but the tests and the data are subject to serious difficulties we propose here an alternative testing strategy based on another but less widely known implication of the hotelling model we test this implication which we call the hotelling valuation principle by regressing the market values of the reserves of a sample of u s domestic oiland gas producing companies on their estimated hotelling values we find that the estimated hotelling values account for a significant portion of the observed variations in market values and that the hotelling measures are better indicators of the market values of petroleum properties than two widely cited publicly available alternative appraisals

price versus production postponement capacity and competition this article presents a comparative analysis of possible postponement strategies in a two stage decision model where firms make three decisions capacity investment production inventory quantity and price typically investments are made while the demand curve is uncertain the strategies differ in the timing of the operational decisions relative to the realization of uncertainty we show how competition uncertainty and the timing of operational decisions influence the strategic investment decision of the firm and its value in contrast to production postponement price postponement makes the investment and production inventory decisions relatively insensitive to uncertainty this suggests that managers can make optimal capacity decisions by deterministic reasoning if they have some price flexibility under price postponement additional postponement of production has relatively small incremental value therefore it may be worthwhile to consider flexible ex post pricing before production postponement reengineering while more postponement increases firm value it is counterintuitive that this also makes the optimal capacity decision more sensitive to uncertainty we highlight the different impact of more timely information which leads to higher investment and inventories and of reduced demand uncertainty which decreases investment and inventories our analysis suggests appropriateness conditions for simple make to stock and make to order strategies we also present technical sufficiency and uniqueness conditions under price postponement these results extend to oligopolistic and perfect competition for which pure equilibria are derived interestingly the relative value of operational postponement techniques seems to increase as the industry becomes more competitive

research note overselling with opportunistic cancellations in many business sectors such as airlines hotels trucking and media advertising customers arrivals and willingness to pay are uncertain managers must decide whether to quote a price low enough to guarantee early sales or to quote a higher price and risk that some units remain unsold in allocating capacity they face a trade off between two types of potential losses 1 yield loss selling at a low price and losing a better price later and 2 spoilage loss waiting in vain to sell at a high price and losing the opportunity of an earlier low price offer yield loss means that consumers who value the product most do not get to use it and spoilage loss means that valuable products are wasted because no consumers get to use them sellers typically hedge against the risk of spoilage loss by selling some units early at low prices and against the risk of yield loss by blocking some units in hope of selling them later at a high price in this paper we show that the use of overselling with opportunistic cancellations can increase expected profits and improve allocation efficiency under this strategy the seller deliberately oversells capacity if high paying consumers show up even when capacity is already fully booked the seller then cancels the sale to some low paying customers while providing them with appropriate compensation we derive a new rule to optimally allocate capacity to consumers when overselling is used and show that overselling helps limit the potential yield and spoilage losses yield loss is reduced because the seller can capture more high paying customers by compensating low paying customers who give up their right to the product spoilage loss is reduced because the compensation decreases the price spread perceived by the seller and as a result the seller is less anxious to speculate and block units overselling with opportunistic cancellations assures that the product will be sold to consumers who value it most this means that everybody wins and resources are allocated more efficiently than in conventional selling

on the global economic potentials and marginal costs of non renewable resources and the price of energy commodities a model is presented in this work for simulating endogenously the evolution of the marginal costs of production of energy carriers from non renewable resources their consumption depletion pathways and timescales such marginal costs can be used to simulate the long term average price formation of energy commodities drawing on previous work where a global database of energy resource economic potentials was constructed this work uses cost distributions of non renewable resources in order to evaluate global flows of energy commodities a mathematical framework is given to calculate endogenous flows of energy resources given an exogenous commodity price path this framework can be used in reverse in order to calculate an endogenous marginal cost of production of energy carriers given an exogenous carrier demand using rigid price inelastic assumptions independent of the economy these two approaches generate limiting scenarios that depict extreme use of natural resources this is useful to characterise the current state and possible uses of remaining non renewable resources such as fossil fuels and natural uranium the theory is however designed for use within economic or technology models that allow technology substitutions in this work it is implemented in the global power sector model ftt power policy implications are given

information and exhaustible resources a bayesian analysis abstract we develop a continuous time bayesian model of investment in information about an exhaustible resource because of the way that information affects expectations the deterministic hotelling rule turns out to be more appropriate as a description of how resource owners forecast the value of their stocks than as a predictor of observed changes in the resource price a flow of information generates both unanticipated changes in expectations which cause the mean rate of change in the resource price to deviate systematically from the deterministic hotelling rule and reductions in uncertainty which do not affect the hotelling prediction

a hotelling faustmann explanation of the structure of christmas tree prices we examine the relationship between a tree price and a tree age height using a hotelling faustmann type model of optimal plantation management which accounts for the possibility of replanting and biological growth the model predictions are tested using the data on christmas tree prices in north carolina collected in december 1997 the estimates show that in general the rates of change in prices between adjacent age cohorts reflect a competitive equilibrium in the capital market thus supporting the hotelling faustmann paradigm rigorous empirical testing of the basic economic models of optimal natural resource pricing has proven to be difficult the source of the difficulty has been the unavailability of micro level data on either prices or extraction harvest rates for in situ resource stocks 1 for nonrenewable resources hotelling s famous pricing rule has rarely been tested with firm level data stollery s study of the international nickel company of canada supported hotelling s rule and miller and upton s study of oil company values supported a corollary called the hotelling valuation principle most other studies such as halvorsen and smith and farrow have refuted this bedrock of natural resource economics in fact two studies of old growth timber essentially a nonrenewable resource provide some of the most compelling support for the hotelling model berck johnson

uncertainty and the convenience yield in crude oil price backwardations abstract this study examines why firms hold stocks of crude oil particularly during price backwardations when spot prices exceed prices for forward delivery using a stochastic control model this paper shows that the equilibrium value of inventories contains the conventional hotelling principle the convenience yield from the classical theory of storage and an option value related to price uncertainty our empirical results suggest that a convenience yield and risk premium are important elements of crude oil price backwardations

anatomy of financial retardation in a less developed country the case of sri lanka 1951 1976 abstract an attempt is made in this paper to analyse the experience of sri lanka during 1951 1976 particularly in relation to its financial sector development it is shown that the interventionist regime held the key to the pace and pattern of the economy s development whether it was the skimpy growth of the financial system the faltering progression of gnp the precarious foreign exchange position or the persistence of inflationary pressure they were all traceable to the impact on the financial system of a particular set of policies pursued the year 1977 however marked a watershed in sri lanka s long quest for economic development the government began to unwind the entire paraphernalia of administered controls on consumption investment and foreign exchange most of the price controls were removed subsidies phased out and public corporations were allowed greater autonomy in their pricing and distribution policies it is necessary to contrast this situation with what existed prior to 1977 in order to assess its impact on the real economy of sri lanka only then can the cost of financial retardation be measured

option premiums in mineral asset pricing are they important mineral assets consistently trade at market values greater than their discounted cash flow dcf values one explanation is that dcf analysis does not and cannot incorporate the asset value generated by asset management under uncertainty this paper surveys the attempts to empirically quantify the option premium associated with optimal mineral asset management the option premium appears to explain at most half of the observed gap between dcf value and market value and adds at most 3 percent to a mineral asset s gross worth asset management option premiums therefore have only a second order impact on mineral asset pricing

revenue management under customer choice behaviour with cancellations and overbooking abstract in many application areas such as airlines and hotels a large number of bookings are typically cancelled explicitly taking into account cancellations creates an opportunity for increasing revenue motivated by this we propose a revenue management model based on talluri and van ryzin 2004 that takes cancellations into account in addition to customer choice behaviour moreover we consider overbooking limits as these are influenced by cancellations we model the problem as a markov decision process and propose three dynamic programming formulations to solve the problem each appropriate in a different setting we show that in certain settings the problem can be solved exactly using a tractable solution method for other settings we propose tractable heuristics since the problem faces the curse of dimensionality numerical results show that the heuristics perform almost as good as the exact solution however the model without cancellations can lead to a revenue loss of up to 20 percent lastly we provide a parameter estimation method based on newman et al 2014 this estimation method is fast and provides good parameter estimates the combination of the model the tractable and well performing solution methods and the parameter estimation method ensures that the model can efficiently be applied in practice

on measuring natural resource scarcity conclusions concerning trends in natural resource scarcity may depend critically on the choice of scarcity index unfortunately the prevalence of vertical integration in natural resource industries has hindered the use of some otherwise desirable scarcity measures in this paper duality theory is used to derive an econometric procedure for estimating one such measure the shadow price of the resource in situ empirical results for the canadian metal mining industry indicate that resource scarcity as measured by this shadow price has decreased substantially over time

growth and equity in developing countries a reinterpretation of the sri lankan experience in the important debate between the proponents of direct basic needs and indirect economic growth measures of promoting welfare sri lanka has frequently been cited as one country which has successfully pursued the direct approach it has raised living standards without much cost in terms of reduced growth this conclusion however is based on analyses which do not account for the initial conditions of the countries being compared after methodologically incorporating these concerns neither the improvement in living standards nor the 2 0 percent per capita growth rate during the period of direct policy measures 1960 78 was exceptional in contrast during the period of more indirect growth promoting policies 1977 84 i economic growth more than doubled to an average rate of 4 3 percent per capita per annum ii expenditure inequality did not significantly change iii consumption expenditures of the population and the poor generally increased and iv several living standard indicators continued to improve