supply chain relationships and contracts the impact of repeated interaction on capacity investment and procurement consider a firm developing an innovative product due to market pressures production must begin soon after the product development effort is complete which requires that an upstream supplier invests in capacity while the design of the product and production process are in flux because the product is ill defined at this point in time the firms are unable to write court enforceable contracts that specify the terms of trade or the supplier s capacity investment however the firms can adopt an informal agreement relational contract regarding the terms of trade and capacity investment the potential for future business provides incentive for the firms to adhere to the relational contract we show that the optimal relational contract may be complex requiring the buyer to order more than her demand to indirectly monitor the supplier s capacity investment we propose a simpler relational contract and show that it performs very well for a broad range of parameters finally we identify characteristics of the business environment that make relational contracting particularly valuable

equilibrium in the labor market with search frictions christopher a pissarides delivered his prize lecture on 8 december 2010 at aula magna stockholm university this abstract was borrowed from another version of this item

are ethical banks different a comparative analysis using the radical affinity index this article studies the differences between traditional financial intermediaries commercial banks savings banks and cooperative banks and ethical banks based on property rights in which the owner decides the ideology principles standards and objectives of the organisation in ethical banking affinity centres on positive social and ethical values the article consequently focuses on an index proposed both to differentiate ethical banks from other types of banks and also to pinpoint the differences between the various ethical banks themselves this is the radical affinity index rai which groups banks together in terms of their stance on ethical commitment concentrating on ethical ideology and principles information transparency placement of assets guarantees and participation and using a sample of 114 european banks the evidence shows that transparency of information and placement of assets are factors that differentiate ethical banks from other financial intermediaries guarantees and participation are characteristics specific to ethical banks these variables however do not offer clear evidence to our analysis

a comparison of milestone based and buyout options contracts for coordinating r d partnerships we analyze optimal contractual arrangements in a bilateral research and development r d partnership between a risk averse provider that conducts early stage research followed by a regulatory verification stage and a risk neutral client that performs late stage development activities including production distribution and marketing the problem is formulated as a sequential investment game with the client as the principal where the investments are observable but not verifiable the model captures the inherent incentive alignment problems of double sided moral hazard risk aversion and holdup we compare the efficacy of milestone based options contracts and buyout options contracts from the client s perspective and identify conditions under which they attain the first best outcome for the client we find that milestone based options contracts always attain the first best outcome for the client when the provider has some bargaining power in renegotiation and identify their applicability to different r

relational contracts and the theory of the firm relational contracts informal agreements sustained by the value of future relationships are prevalent within and between firms we develop repeated game models showing why and how relational contracts within firms vertical integration differ from those between nonintegration we show that integration affects the parties temptations to renege on a given relational contract and hence affects the best relational contract the parties can sustain in this sense the integration decision can be an instrument in the service of the parties relationship our approach also has implications for joint ventures alliances and networks and for the role of management within and between firms

strategic commitments for an optimal capacity decision under asymmetric forecast information we study the important problem of how to assure credible forecast information sharing between a supplier and a manufacturer the supplier is responsible for acquiring the necessary capacity before receiving an order from the manufacturer who possesses private forecast information for her end product we address how different contracts affect the supplier s capacity decision and hence the profitability of the supplier and the manufacturer we fully develop two contracts and provide explicit formulae to enable credible forecast information sharing the first is a nonlinear capacity reservation contract under which the manufacturer agrees to pay a fee to reserve capacity the second is an advance purchase contract under which the manufacturer is induced to place a firm order before the supplier secures the component capacity used to build the end product these contracts serve a strategic role in information sharing the capacity reservation contract enables the supplier to detect the manufacturer s private forecast information while the advance purchase contract enables the manufacturer to signal her forecast information we show that channel coordination is possible even under asymmetric forecast information by combining the advance purchase contract with an appropriate payback agreement through our structural and numerical results we also show that the degree of forecast information asymmetry and the risk adjusted profit margin are two important drivers that determine supply chain efficiency and which contract to adopt

banking with ethics strategic moves and structural changes of the banking industry in the aftermath of the subprime mortgage crisis this paper explores the behavior of the banking industry in the new business environment that arose after the subprime crisis the main hypothesis is that there are two major types of banking institutions conventional banks and ethical banks each has a distinct business model to test how they have reacted to the new environment factor analysis techniques have been used the main findings are twofold firstly the new financial context has indeed caused the behavior of mainstream banks to change within this group one can further distinguish between those that have tried to anticipate the changes by adopting a more responsible financial attitude and those that have merely modified their banking practice to comply with the new regulatory framework secondly there are the so called ethical banks interestingly their behavior has scarcely been altered by the new financial context the main conclusion is that the different response of both types of banks reflects the existence of a distinct business model

the evolutionary stability of auctions over bargaining this paper considers equilibrium in transaction mechanisms in an environment with homogeneous buyers and sellers which eliminates the advantage auctions possess of matching buyers and sellers both auctions and bargaining are equilibria however only auctions are evolutionarily stable this identifies a new advantage of auctions over bargaining arising from the division of the gains from trade journal of economic literatureclassification numbers c78 c73 d44

coordinating investment production and subcontracting we value the option of subcontracting to improve financial performance and system coordination by analyzing a competitive stochastic investment game with recourse the manufacturer and subcontractor decide separately on their capacity investment levels then demand uncertainty is resolved and both parties have the option to subcontract when deciding on their production and sales we analyze and present outsourcing conditions for three contract types 1 price only contracts where an ex ante transfer price is set for each unit supplied by the subcontractor 2 incomplete contracts where both parties negotiate over the subcontracting transfer and 3 state dependent price only and incomplete contracts for which we show an equivalence result while subcontracting with these three contract types can coordinate production decisions in the supply system only state dependent contracts can eliminate all decentralization costs and coordinate capacity investment decisions the minimally sufficient price only contract that coordinates our supply chain specifies transfer prices for a small number 6 in our model of contingent scenarios our game theoretic model allows the analysis of the role of transfer prices and of the bargaining power of buyer and supplier we find that sometimes firms may be better off leaving some contract parameters unspecified ex ante and agreeing to negotiate ex post also a price focused strategy for managing subcontractors can backfire because a lower transfer price may decrease the manufacturer s profit finally as with financial options the option value of subcontracting increases as markets are more volatile or more negatively correlated

relational incentive contracts standard incentive theory models provide a rich framework for studying informational problems but assume that contracts can be perfectly enforced this paper studies the design of self enforced relational contracts i show that optimal contracts often can take a simple stationary form but that self enforcement restricts promised compensation and affects incentive provision with hidden information it may be optimal for an agent to supply the same inefficient effort regardless of cost conditions with moral hazard optimal contracts involve just two levels of compensation this is true even if performance measures are subjective in which case optimal contracts terminate following poor performance jel c73 d82 l14

the folk theorem with imperfect public information the authors study repeated games in which players observe a public outcome that imperfectly signals the actions played they provide conditions guaranteeing that any feasible individually rational payoff vector of the stage game can arise as a perfect equilibrium of the repeated game with sufficiently little discounting the central condition requires that there exist action profiles with the property that for any two players no two deviations one by either player give rise to the same probability distribution over public outcomes the results apply to principal agent partnership oligopoly and mechanism design models and to one shot games with transferable utilities copyright 1994 by the econometric society

competition or compensation supplier incentives under the american and japanese subcontracting systems two fundamentally different subcontracting systems arise as distinct solutions to the quality control problem facing an input buyer the american system involves competitive bidding on each contract large orders and inspections the japanese system involves repeat purchases from a supplier who earns a premium small orders and no inspections both systems may coexist as local solutions but the global optimum is determined by the ratio of set up to inspection costs this suggests that the adoption of flexible manufacturing equipment and rising product complexity may be responsible for the shift from the american to the japanese system observed in many industries copyright 1997 by american economic association

effective interim collaboration how firms minimize transaction costs and maximise transaction value this study of automotive transaction relationships in the u s a and japan offers abta which indicate that transaction costs do not necessarily increase with an increase in reiation specijk investments we empirically examine the conditions under which transactors can simultaneously achieve the twin benejits of high asset specificity and low transaction costs this is possible because the dtfferent safeguards which can be employed to control opportunism have different set up costs and result in different transaction costs over dl erent time horizons we examine in detail the ractices of javanese firms which result in effective inteq n collaboration 1997 by john wiley sons ltd

sustaining long term supply chain partnerships using price only contracts abstract in this paper we study how an informal long term relationship between a manufacturer and a retailer performs in turbulent market environments characterized by uncertain demand we show that the long term partnership based on repeated interaction is sustainable under price only contracts when the supply chain partners are sufficiently patient that is the channel can be coordinated over a long time horizon when the factor whereby the members discount the future value of this trusting relationship is sufficiently high second above the minimum discount factor a range of wholesale prices exists that can sustain the long term partnership and there are different possible profit divisions between the two players third when the market is turbulent i e either the expected demand or the demand variance changes from period to period according to a probabilistic law it is typically less possible to sustain the long term partnership in a booming market or in a market with low demand variability finally obtaining more information about future market fluctuation may not help the supply chain to sustain the long term partnership due to partners strategic considerations with the availability of the market signal total supply chain profits increase but the retailer may even be worse off

evolutionary stability of auction and supply chain contracting an analysis based on disintermediation in the indian tea supply chains abstract the purpose of this paper is to show that evolutionary stable market equilibrium is achievable through complete disintermediation of auctioneers if the option of bargaining based supply chain contracting exists the paper analyzes the evolutionary dynamics of a market that caters both the scopes of auction intermediation and supply chain contracting to a set of homogeneous buyers and sellers the motivation of this work developed from the contradiction between the theoretical framework of lu and mcafee 1996 that identifies auction to be evolutionary stable over bargaining and the real instance of sustained disintermediation of auctioneers in the world s largest tea industry in india where supply chain contracting is the other option of trading

sequential correlated equilibria in stopping games in many situations such as trade in stock exchanges agents have many opportunities to act within a short interval of time the agents in such situations can often coordinate their actions in advance but coordination during the game consumes too much time an equilibrium in such situations has to be sequential in order to handle mistakes made by players in this paper we present a new solution concept for infinite horizon dynamic games which is appropriate for such situations a sequential normal form correlated approximate equilibrium under additional assumptions we show that every such game admits this kind of equilibrium

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

information sharing in a long term supply chain relationship the role of customer review strategy in this paper we study the practice of forecast sharing and supply chain coordination with a game theoretical model we find that in a one shot version of the game forecasts are not shared truthf

does collective wage bargaining restore efficiency in a search model with large firms existing search and bargaining models show that firms hire an inefficiently large number of workers we ask whether decentralised collective wage bargaining may result in a second best allocation collective bargaining restores efficiency when the bargained wage is independent of employment conditions that we characterise firms then behave as if collective bargaining was over both wages and employment thus linking the large firm search and bargaining environment to the efficient bargaining model mcdonald and solow 1981 under more realistic conditions workers can bargain for a share of output so that the wage is then a function of employment in equilibrium firms are too large and firm entry is inefficient

measuring imputed cost in the semiconductor equipment supply chain we consider the order fulfillment process of a supplier producing a customized capital good such as production equipment commercial aircraft medical devices or defense systems as is common in these industries prior to receiving a firm purchase order from the customer the supplier receives a series of shared forecasts which are called soft orders facing a stochastic internal manufacturing lead time the supplier must decide at what time to begin the fulfillment of the order this decision requires a trade off between starting too early leading to potential holding or cancellation costs and starting too late leading to potential delay costs we collect detailed data of shared forecasts actual purchase orders production lead times and delivery dates for a supplier buyer dyad in the semiconductor equipment supply chain under the assumption that the supplier acts rationally optimally balancing the cancellation holding and delay costs we are able to estimate the corresponding imputed cost parameters based on the observed data our estimation results reveal that the supplier perceives the cost of cancellation to be about two times higher and the holding costs to be about three times higher than the delay cost in other words the supplier is very conservative when commencing the order fulfillment which undermines the effectiveness of the overall forecast sharing mechanism

on the relationship between inventory costs and variety benefits in retailassortments consider a category of product variants distinguished by some attribute such as color or flavor a retailer must construct an assortment for the category i e select a subset variants to stock and determine purchase quantities for each offered variant we analyze this problem using a multinomial logit model to describe the consumer choice process and a newsboy model to represent the retailer s inventory cost we show that the optimal assortment has a simple structure and provide insights on how various factors affect the optimal level of assortment variety we also develop a formal definition of the level of fashion in a category using the theory of majorization and examine its implications for category profits

a stackelberg model of pricing of complementary goods under information asymmetry abstract we consider a duopoly market where two separate firms offer complementary goods in a leader follower type move each firm has private forecast information about the uncertain market demand and decides whether to share it with the other firm we show that information sharing would benefit the leader firm but hurt the follower firm as well as the total system if the follower firm shares information unconditionally we then devise a simple to implement information sharing scheme under which both firms and the total system are better off we also provide several interesting managerial insights and establish the robustness of the model in managing a supply chain through our analytical and simulation results

dynamic business share allocation in a supply chain with competing suppliers this paper studies a repeated game between a manufacturer and two competing suppliers with imperfect monitoring we present a principal agent model for managing long term supplier relationships using a unique form of measurement and incentive scheme we measure a supplier s overall performance with a rating equivalent to its continuation utility the expected total discounted utility of its future payoffs and incentivize supplier effort with larger allocations of future business we obtain the vector of the two suppliers ratings as the state of a markov decision process and we solve an infinite horizon contracting problem in which the manufacturer allocates business volume between the two suppliers and updates their ratings dynamically based on their current ratings and the current performance outcome our contributions are both theoretical and managerial we propose a repeated principal agent model with a novel incentive scheme to tackle a common but challenging incentive problem in a multiperiod s

bringing the market inside the firm academics consultants and practitioners have long advocated bringing the market inside the firm for example in the 1950 s and 1960 s economists proposed that the transferpricing problem should be solved by charging market prices for internal transactions similarly in the 1980 s financial economists suggested that the capital allocation problem should be solved by charging the external cost of capital for internal investments and wave after wave of organizational restructuring has advocated radical decentralization empowerment intrapreneurship and the like in short making employees feel like owners proponents of making transactions within firms more market like often seem to ignore the factors that brought these transactions inside firms in the first place but bengt holmstrom and paul milgrom 1991 1994 holmstrom and jean tirole 1991 and holmstrom 1999 hereafter referred to collectively as hmt remind us that in some cases integration is efficient precisely because it eliminates market incentives in such cases bringing the market inside the firm would clearly be undesirable in this paper we show that bringing the market inside the firm is often not feasible even if it would be desirable more precisely if some aspects of the market transaction are noncontractible as we define below then it is impossible to replicate spot market payoffs inside a firm this result would be trivial if the firm s only instruments were court enforceable contracts it is impossible by definition for such contracts to replicate payoffs that were noncontractible in a spot market our contribution is to show that this result also applies to relational contracts i e self enforcing agreements in repeated games to establish this result we follow sanford grossman and oliver hart 1986 hart and john moore 1990 and hart 1995 hereafter referred to collectively as ghm in using asset ownership to determine whether a particular transaction is inside a firm and hmt in adding court enforceable contracts to asset ownership models we also draw on our own work baker et al 2001 to model relational contracts the resulting model is the first we know of that simultaneously analyzes asset ownership courtenforceable contracts and relational contracts

coming out of the niche social banking in germany an empirical analysis of consumer characteristics and market size the social banking market constitutes a small but rapidly growing submarket of the global banking sector due to an explicit commitment to sustainability social banking is a segment of banking services which is not exclusively focused on economic performance criteria but pursues ecological and social goal dimensions on an equal footing information on the number and reachability of potential social banking customers is essential for social banks to further promote sustainable consumption in finance in scientific research social banking is considered a relatively new field still lacking empirical analyses regarding the market size and specific consumer behaviour this study addresses the research gap by generating first insights into the german social banking market based on an online survey using an adaptive conjoint analysis a large data set covering 3537 respondents was compiled sample 1 comprises 2896 respondents who are customers of three major social banks in germany sample 2 covers the remaining 641 respondents who represent the german adult population and exclusively buy from conventional banks logistic regression modelling reveals that social banking customers differ significantly from their conventional counterparts regarding several socio demographic behavioural and psychographic factors in comparison with conventional banking customers social banking customers tend to be younger higher educated and located in larger places of residence contrary to existing research on socially responsible investors they are male to a higher proportion than female moreover social banking customers demonstrate stronger sustainable buying patterns and weaker preferences for financial but stronger preferences for social return than conventional banking customers the results further indicate a considerable untapped growth potential for social banks by uncovering a market size ranging between 10 and 26 of the german adult population finally suggestions for marketing strategies and future research are given

historical evolution and benefit cost explanation of periodical fluctuation in coal mine safety supervision an evolutionary game analysis framework abstract the periodical fluctuation phenomenon appears in coal mine and other fields of government safety supervision the paper provides a theoretical explanation by building an evolutionary game model between coal mine industry and governmental supervision institutions moreover the paper provides a numerical example to demonstrate how the initial state and the costs or gains influence the fluctuation amplitude and the equilibrium position we find that the initial state and the payoffs of different strategies are the two main determinants of periodical fluctuation phenomenon the successful experience of coal mine safety supervision in china shows the importance of highly efficient government safety governance in developing countries