information and incentives in computing services supply the effect of limited system choices abstract every organization has only limited computing resources that need to be shared by members of the organization rationing mechanisms such as pricing usually are used to regulate the demands for such resources however to derive an effective mechanism for determining the usage or the scale of an organization s computing service is difficult since there are many informational and incentive problems that need to be overcome by incorporating these problems into a game theoretic model this study analyzes the effects of limited system choices on an organization s net value generated from computing service based on the mechanism design approach the optimal incentive compatible mechanism is derived and contrasted with the case where the is department is evaluated as a profit center the results show that limited system choices can have significant effects on the value generated by an organization s computing service also depending on whether the is department is governed by the optimal mechanism or is evaluated as a profit center the effects oflimited system choices can be different managerial implications derived from the study are provided

cost allocation revisited an optimality result the resource manager of a firm is faced with capacity and pricing decisions with regard to a congestion prone system such as computer communication facilities difficulties arise since the manager is uninformed of the system demand when the capacity decision is to be made a game theoretic model is developed to analyze the effects of different accounting rules on the elicitation of relevant information and ex post efficiency in acquisition and allocation decisions the key result is that the cost allocation method aided by an anonymous reporting scheme is indeed as asserted by zimmerman zimmerman j 1979 the costs and benefits of cost allocations accounting rev 54 july 504 521 a full information efficient rule achieving optimality both in acquisition and allocation decisions discussions of the main assumptions underlying this result are provided

self organising behaviour in the presence of negative externalities a conceptual model of commuter choice abstract we use a model with local interaction a one dimensional cellular automaton to study how commuters choose among alternative roads commuters have information about their neighbours most recent experience local interaction and they remember their own experiences memory we illustrate how a simple self organizing system based on local information and locally rational agents can in some cases outperform the nash equilibrium while the social optimum is unenforceable without a central planner due to the variations in individual travel times i e the social optimum is not individually rational variations across commuters in the steady state of our self organising system are at least equivalent to and mostly significantly larger than those required for the social equilibrium increasing the neighbourhood size illustrates that more information without co ordination leads to worse overall performance

execution risk in high frequency arbitrage in this paper we investigate the role of execution risk in high frequency trading through arbitrage strategies we show that if rational agents face uncertainty about completing their arbitrage portfolios then arbitrage is limited even in markets with perfect substitutes and convertibility using a simple model we demonstrate that this risk arises from the crowding effect of competing arbitrageurs entering the same trade and inflicting negative externalities on each other our empirical results provide evidence that support the relevance of execution risk in high frequency arbitrage this paper was accepted by wei xiong finance

information technology and time based competition in financial markets this paper studies time based competition in imperfect securities markets linking it investment decisions information processing delays and trading strategies at the it investment stage traders trade off the cost of it against their anticipated trading profits at the trading stage each trader devises a trading strategy based on his new information while taking into account the impact of both his own trades and those of other traders in the market our results illustrate how traders react to market imperfections due to trading costs and information processing delays and how superior traders convert a timeliness advantage into higher trading profits they also shed light on the relationship between the price adjustment process and traders information processing delays timeliness imposes an interesting structure on trader competition traders with longer information processing delays trade less frequently submit smaller orders and enjoy lower profits per trade our analysis of traders it investment decisions demonstrates how factors such as it costs number of traders and the frequency and nature of new information affect the level of it investments we further illustrate how improved it infrastructure translates into competitive advantage

endogenous quality differentiation in congested markets firms selling a product with congestion externalities to a heterogeneous population of customers have an incentive to offer differentiated levels of quality in a price competitive market differentiation arises endogenously through the prices chosen by firms in equilibrium firms offer a range of prices which induce an efficiency improving range of quality levels and allow customers to self select their preferred price quality combinations additional results suggest that with many firms in the market the choice of prices dominates the choice of service capacities in determining congestion levels copyright 1991 by blackwell publishing ltd

information revelation and market incompleteness this paper introduces a theory of market incompleteness based on the information transmission role of prices and its adverse impact on the provision of insurance in financial markets we analyse a simple security design model in which the number and payoff of securities are endogenous agents have rational expectations and differ in information endowments and attitudes toward risk when markets are incomplete equilibrium prices are typically partially revealing while full relevation is attained with complete markets the optimality of complete or incomplete markets depends on whether the adverse selection effect the unwillingness of agents to trade risks when they are informationally disadvantaged is stronger or weaker than the hirshleifer effect the impossibility of trading risks that have already been resolved as new securities are issued and prices reveal more information when the hirshleifer effect dominates an incomplete set of securities is preferred by all agents and generates a higher volume of trade hirshleifer 1971 was the first to point out that revelation of information can reduce risksharing opportunities in insurance markets resulting in a welfare loss in this paper we build on hirshleifer s insight to develop a theory of endogenous market incompleteness we show that in an economy with asymmetric information in which agents learn from prices an incomplete financial structure may be optimal the reason is that less information is revealed by prices when markets are incomplete than in an otherwise identical economy with complete markets 1 paradoxically a greater degree of incompleteness may result in better risk sharing since the only risks that can be traded are those whose resolution is not common knowledge at the time of trade for the same reason incompleteness of markets may also foster a higher volume of trade the connection between security design asymmetric information trading volume and welfare in financial markets is a subtle one and it is important to isolate its various facets the efficacy of security markets in aggregating and transmitting private information depends on the characteristics of the financial structure and especially on the number of tradeable assets indeed within the rational expectations paradigm informational differences disappear in equilibrium generically when the price vector has

a method for taking models to the data abstract this paper develops a method for combining the power of a dynamic stochastic general equilibrium model with the flexibility of a vector autoregressive time series model to obtain a hybrid that can be taken directly to the data it estimates this hybrid model via maximum likelihood and uses the results to address a number of issues concerning the ability of a prototypical real business cycle model to explain movements in aggregate output and employment in the postwar us economy the stability of the real business cycle model s structural parameters and the performance of the hybrid model s out of sample forecasts

an equilibrium queuing model of bribery it is sometimes argued that bribery is inefficient because bureaucrats may cause delays for attracting more bribes this hypothesis is examined in the context of a queue where customers having different values of time are ranked by their bribe payments to the queue s server the nash equilibrium strategies of the customers are derived it is shown that the server is unlikely to slow down the allocation process when bribery is allowed the model does not have stringent informational requirements and the equilibrium outcome minimizes the average value of time costs of the queue it also suggests a useful auctioning procedure

stability and chaos in input pricing for a service facility with adaptive customer response to congestion we consider the stability of the equilibrium arrival rate and equilibrium admission price at a service facility using a generalization of an input pricing model introduced by dewan and mendelson and further examined by stidham at the equilibrium the marginal value of service equals the admission price that is the sum of the admission fee and the expected delay cost stability means roughly that the system returns to the equilibrium after a perturbation assuming the customers base their join balk decisions on previous prices we extend the discrete time dynamic system pricing model of stidham to allow adaptive expectations in which customers predict the future price based on a convex combination of the current price and the previous prediction we show that this can lead to chaotic behavior when the equilibrium is unstable that is the price and arrival rate can follow aperiodic orbits which appear to be completely random our results suggest an alternative explanation for observed variations in the mean arrival rate to a queueing system which are often modeled by means of a random exogenous e g markovian environment process

cyclical factor utilization abstract we introduce procyclical labor and capital utilization as well as costs of rapidly increasing employment into a business cycle model plausible variations in factor utilization enable us to explain observed variability of real gnp with considerably smaller economy wide disturbances the costs of adjustment create very interesting and realistic lead and lag relationships employment does not peak until a full quarter after output workweeks effort capital utilization and productivity all sharply lead the business cycle

corruption is bad for growth even in the united states we estimate the impact of corruption on growth of output per worker in u s states we improve on existing studies of the cost of corruption by using a better specified empirical model focusing on a study population that is less likely to be affected by parameter heterogeneity and controlling for endogeneity using political variables to instrument for corruption we find that corruption plays a significant and causal role in lowering growth and investment across the states

revenue management model for on demand it services abstract this paper presents a model for applying revenue management to on demand it services the multinomial logit model is used to describe customer choice over multiple classes with different service level agreements slas a nonlinear programming model is provided to determine the optimal price or service level for each class through a numerical analysis we examine the impacts of system capacity and customer waiting incentives on the service provider s profit and pricing strategies

ambiguity aversion and incompleteness of financial markets it is widely thought that incomes risks can be shared by trading in financial assets but financial assets typically carry some risk idiosyncratic to them hence disposing incomes risk using financial assets will involve buying into the inherent idiosyncratic risk however standard theory argues that diversification would reduce the inconvenience of idiosyncratic risk to arbitrarily low levels this argument is less robust than what standard theory leads us to believe ambiguity aversion can exacerbate the tension between the two kinds of risks to the point that classes of agents may not want to trade some financial assets thus theoretically the effect of ambiguity aversion on financial markets is to make the risk sharing opportunities offered by financial markets less complete than it would be otherwise

nonlinear pricing of information goods this paper analyzes optimal pricing for information goods under incomplete information when both unlimited usage fixed fee pricing and usage based pricing are feasible and administering usage based pricing may involve transaction costs it is shown that offering fixed fee pricing in addition to a nonlinear usage based pricing scheme is always profit improving in the presence of nonzero transaction costs and there may be markets in which a pure fixed fee is optimal this implies that the optimal pricing strategy for information goods is almost never fully revealing moreover it is proved that the optimal usage based pricing schedule is independent of the value of the fixed fee a result that simplifies the simultaneous design of pricing schedules considerably and provides a simple procedure for determining the optimal combination of fixed fee and nonlinear usage based pricing the introduction of fixed fee pricing is shown to increase both consumer surplus and total surplus the differential effects of setup costs fixed transaction costs and variable transaction costs on pricing policy are described these results suggest a number of managerial guidelines for designing pricing schedules for instance in nascent information markets firms may profit from low fixed fee penetration pricing but as these markets mature the optimal pricing mix should expand to include a wider range of usage based pricing options minimum fees quantity discounts and adoption levels across the different pricing schemes are characterized strategic pricing responses to changes in market characteristics are described and the implications of the paper s results for bundling and vertical differentiation of information goods are discussed

the incidence and persistence of corruption in economic development abstract economic development and bureaucratic corruption are determined jointly in a dynamic general equilibrium model of growth bribery and tax evasion corruption arises from the incentives of public and private agents to conspire in the concealment of information from the government these incentives depend on aggregate economic activity which in turn depends on the incidence of corruption the model produces multiple development regimes transition between which may or may not occur in accordance with recent empirical evidence the relationship between corruption and development is predicted to be negative

capacity and lead time management when demand for service is seasonal and lead time sensitive in today s competitive business environment quick service with minimal waiting time is an important factor for customers when choosing a service many service organizations guarantee a uniform lead time to all customers in order to gain competitive advantages in the market in selecting a lead time to quote the firm has to take into consideration not only how customers will react to the delivery time guarantee but also whether it has adequate capacity to fulfill the commitment a short lead time can bring both benefits and costs it can increase customer demand but might require a higher capacity level we present a mathematical model and a solution method for determining the optimal quoted lead time and capacity level for a profit maximizing firm with time varying and lead time sensitive demand the firm incurs convex capacity costs and pays lateness penalties whenever the actual lead time exceeds the quoted lead time a few studies have been conducted on the relationship between uniform lead time capacity demand and overall profitability however none of them takes the time variation of demand into account our work differs from previous research in that we explicitly model such a demand pattern

forecasting canadian time series with the new keynesian model this paper assesses the out of sample forecasting accuracy of the new key nesian model for canada we estimate a variant of the model on a series of rolling sub samples computing out of sample forecasts one to eight quarters ahead at each step we compare these forecasts with those arising from vector autoregression var models us ing econometric tests of forecasting accuracy we show that the forecasting accuracy of the new keynesian model compares favourably with that of the benchmarks particularly as the forecasting horizon increases these results suggest that the model could become a useful forecasting tool for canadian time series jel classification e32 e37

labor and investment frictions in a real business cycle model abstract this paper develops a prototype real business cycle model in which labor and investment frictions may compete directly with technology shocks in accounting for fluctuations in the postwar us economy using ireland s 2004a a method for taking models to the data journal of economic dynamics and control 28 1205 1226 methodology we establish that both types of friction are quantitatively important technology shocks still explain a substantial fraction of the fluctuations in aggregate output as the baseline real business cycle model predicts formal hypothesis tests suggest that changes in the recurrence of shocks frictions and structural parameters all play a role in accounting for the shift in the time series properties of the data between the periods before and after 1980

dynamic pricing for network service equilibrium and stability consider a data communication network owned and operated by a single organization the network has an infinite number of small users and is managed by a system manager sm whose objective is to maximize the net value of the system as a whole the objective of this paper is to study pricing mechanisms that induce the optimal arrival rates when the sm has no full knowledge of the demand in advance we investigate the system behavior under three alternative dynamic pricing rules and users expectations models and characterize the equilibrium and its stability conditions

competition and outsourcing with scale economies scale economies are commonplace in operations yet because of analytical challenges relatively little is known about how firms should compete in their presence this paper presents a model of competition between two firms that face scale economies i e each firm s cost per unit of demand is decreasing in demand a general framework is used which incorporates competition between two service providers with price and time sensitive demand a queuing game and competition between two retailers with fixed ordering costs and pricesensitive consumers an economic order quantity game reasonably general conditions are provided under which there exists at most one equilibrium with both firms participating in the market we demonstrate in the context of the queuing game that the lower cost firm in equilibrium may have a higher market share and a higher price an enviable situation we also allow each firm to outsource their production process to a supplier even if the supplier s technology is no better than the firms technology and the supplier is required to establish dedicated capacity so the supplier s scale can be no greater than either firm s scale we show that the firms strictly prefer to outsource we conclude that scale economies provide a strong motivation for outsourcing that has not previously been identified in the literature

adverse selection and security design this paper studies the problem of optimal security design by a privately informed entrepreneur in the context of a simple parametric model it is shown that the entrepreneur does not find it profitable to float an asset that affords her an informational advantage the reason is that with rational uninformed outside investors the entrepreneur faces adverse selection in the security market which prevents her from exploiting her position as an insider this is true whether or not she has market power in trading the asset consider a risk averse entrepreneur who is contemplating what security to issue the entrepreneur anticipates that during subsequent trading in the secondary market she will have private information on the payoff of her investment as well as on other risks in the economy the design of the asset is therefore influenced not only by a desire to share risk but also by informational considerations involving the potential for insider trading profits this paper studies the problem of optimal security design in the context of a simple parametric model with gaussian risks and cara utility trading in the secondary market is modelled via the static reduced form concept of rational expectations equilibrium in which uninformed outside investors use market prices to try to infer the private information of the entrepreneur or insider as she will sometimes be called it is shown that the entrepreneur does not find it profitable to float an asset that affords her an informational advantage an optimal asset entails a fully revealing rational expectations equilibrium and is perfectly correlated with the issuer s endowment risk the reason is that with rational outside investors the entrepreneur faces adverse selection in the security market which prevents her from exploiting her position as an insider she is better off foregoing her informational advantage and concentrating on her hedging motive alone in the particular setting described in the paper equity2 is an optimal asset since the entrepreneur has no privileged information regarding its payoff and it allows efficient risk sharing the issue of security design when prices have an informational role to play is just beginning to be researched closely related to this paper is the work of demange and laroque 1995 who use a competitive rational expectations model with noise traders to analyse the problem posed above except for some special cases however they are able to get only numerical results in comparison the present paper obtains partially revealing equilibria in a model in which all agents are rational furthermore demange and laroque

the role of intratemporal adjustment costs in a multisector economy abstract in this paper we construct a multisector business cycle model which is capable of reproducing the procyclical behavior of cross sector measures of capital employment and output we start by documenting the difficulty that a standard variant of a conventional real business cycle model has in accounting for these facts we then show how the introduction of intratemporal adjustment costs for investment can significantly enhance the performance of such a model these costs make it difficult to alter the composition of production of new capital goods the presence of these costs eliminates many counterfactual observations of the model that would otherwise be present the dynamic response of variables in the model is different from what one would observe in the standard one sector model we also examine the implications of imposing intratemporal adjustment costs for labor the model can also account for the cross sector behavior of employment observed in the data

trading in derivatives when the underlying is scarce abstract regulatory restrictions and market frictions can constrain the aggregate quantity of long and short positions in a security when these constraints bind we refer to the security as scarce and its price becomes distorted relative to its value in a frictionless market we show that an otherwise redundant derivative can reduce the price distortion of the underlying security by relaxing its scarcity we also show that it is especially important to analyze the underlying and derivative markets jointly when evaluating the impact of regulation such as short sales bans and position limits in derivatives that restricts trade

waiting line auctions if prizes are to be awarded simultaneously at a specified time on a first come first served basis then individuals who queue for them will choose different waiting times through their arrivals at the queue this choice of arrival time at a queue is similar to the choice of a sealed tender in an auction an equilibrium for this waiting line auction is obtained here using methods for analyzing sealed tender auctions when individuals are risk neutral it is shown that several alternative waiting line allocation procedures result in the same transactions cost associated with waiting in line

an efficiency and welfare classification of rationing by waiting in the presence of bribery abstract governments often allocate commodities at low prices and on a first come first served basis rationing by waiting while bureaucrats who distribute the commodities usually take bribes a model is developed to classify the efficiency implications of bribery and socially optimal pricing schemes in rationing by waiting if the rationed good and individual income spent on other goods other income are complements then bribery may enhance allocative efficiency and a dual pricing scheme can augment social welfare however if the rationed commodity and other income are substitutes then bribery may not improve allocative efficiency and distributing the rationed commodity free is socially optimal

sensitivity of optimal prices to system parameters in a steady state service facility we consider the problem of maximizing the long run average reward in a service facility with dynamic pricing we investigate sensitivity of optimal pricing policies to the parameters of the service facility which is modelled as an m m s k queueing system arrival process to the facility is poisson with arrival rate a decreasing function of the price currently being charged by the facility we prove structural results on the optimal pricing policies when the parameters in the facility change namely we show that optimal prices decrease when the capacity of the facility or the number of servers in the facility increase under a reasonable assumption we also show that optimal prices increase as the overall demand for the service provided by the facility increases or when the service rate of the facility decreases we illustrate how these structural results simplify the required computational effort while finding the optimal policy

concurrent pricing and lot sizing for make to order contract production abstract this paper develops a model for the simultaneous i e concurrent determination of the inventory and pricing policies of a supplier which produces and supplies a product to a buyer on the basis of a contractual agreement calling for the delivery of a specific quantity periodically assuming that the customer is rational i e it follows its own optimal purchasing policy the objective of the supplier is to determine the product s selling price in conjunction with an appropriate production inventory policy so that a predetermined gross profit level is achieved it is further assumed that the supplier s production batch size is an integer multiple of the buyer s order quantity in formulating a mathematical model of this situation the interactions between the product s price the buyer s economic order quantity and the supplier s selling price costs and profit are taken into account for solving this model a simple iterative algorithm is proposed which is illustrated through a numerical example sensitivity analysis performed on the model demonstrates that it is relatively robust and quite insensitive to errors in estimating the buyer s ordering to carrying cost ratio on the part of the producer

congestion and network externalities in the short run pricing of information system services transfer pricing provides management with an efficient tool for coordinating the use of information system services in practice these services if they are charged out to end users are priced via an allocation of historical costs based on individual usage or are assigned a price based on the fair market value of outside alternatives both approaches encourage suboptimal usage of information systems resources they ignore three constituents of optimal transfer prices 1 the reaction of other users to any change in a given user s consumption of service 2 the technical response to additional use of an information system service in the form of congestion and network externalities and 3 end user preferences for the information system service together these influences on demand contribute to an externality two types of externalities are significant in information systems congestion externalities decrease and network externalities increase the utility of services this research provides a complete model for computing optimal transfer price which corrects several existing problems in information system service valuation when full absorption cost allocations contain significant fixed precommitted or sunk cost components it is not possible to balance the budget direct costing improves on full absorption costing but misspecifies costs when demand is nonlinear to balance the budget with a minimum of disutility to end users management must resort to second best pricing inefficiency arises from two sources when externalities are ignored in transfer pricing end users cannot plan service usage and thus encounter unanticipated congestion which lowers morale and efficiency and increases costly expediting where congestion effects are highly nonlinear congestion may effectively shut down the system on the other hand incorrect transfer prices can motivate usage too low to take advantage of network benefits end users may confuse externality effects and intrinsic value of an information system service in these cases the price and performance of outside alternatives exert a complex and subtle influence on use and pricing of services where there exist identical outside and inside processing alternatives and transfer pricing does not reflect this there is a significant tendency to overprice and underutilize internal services in this case there may be a tendency to outsource when processing should be kept in house future markets for information systems will favor technologies which exhibit strong network externalities and pricing of these technologies will become increasingly complex because of the interrelationship of hardware software and data originated externalities the models provided in this research will allow management to take advantage of these opportunities

optimal internal pricing and capacity planning for service facility with finite buffer abstract an economic model is developed for exploring optimal internal pricing and capacity planning for service facility with finite buffer capacity because of the limited buffer capacity jobs finding the system full upon their arrival would be rejected such rejections create a gap between the value collectively perceived by users and the actual achievement of the organizational value this gap called a loss externality has never been studied before and plays an important role for designing optimal pricing scheme in general the underlying economic structure may involve multiple equilibria and it is unclear whether or not the system can be controlled through internal pricing in this regard a sufficient condition is given under which the system administrator can find two separate prices for accepted and rejected users at any demand level to be desired so that the desired demand level becomes the unique equilibrium of the system for a short run problem it is shown that the optimal pricing scheme can be expressed as the sum of the congestion and the loss externalities for a long run problem the optimal pricing scheme is expressed in a unified manner so that a structural relationship between the short run problem and the long run problem at optimality can be readily observed a necessary and sufficient condition is also given for the marginal capacity pricing to be optimal i e the optimal long run pricing consists of the marginal cost for processing capacity and the marginal cost for buffer capacity without involving any externality at all

strategic financial innovation in segmented markets rohit rahi obtained his ph d in economics from stanford university in 1993 he is a reader in finance and economics and a member of the financial markets group at the london school of economics his research interests are in the theory of financial markets in particular arbitrage in segmented markets security design and asset pricing with asymmetric information and in general equilibrium theory with incomplete markets he has published articles in the review of economic studies journal of economic theory and journal of business he served a nine year term on the editorial board of the review of economic studies jean pierre zigrand is a lecturer at the london school of economics his research interests are asset pricing financial intermediation theory and general equilibrium theory any opinions expressed here are those of the authors and not necessarily those of the fmg the research findings reported in this paper are the result of the independent research of the authors and do not necessarily reflect the views of the lse

pricing and lead time decisions in decentralized supply chains this paper studies a decentralized supply chain consisting of a supplier and a retailer facing price and lead time sensitive demands a stackelberg game is constructed to analyze the price and lead time decisions by the supplier as the leader and the retailer as the follower the equilibrium strategies of the two players are obtained using the performance of the corresponding centralized system as a benchmark we show that decentralized decisions in general are inefficient and lead to inferior performance due to the double marginalization effect however further analysis shows that the decision inefficiency is strongly influenced by market and operational factors and if the operational factors are dominating it may not be significant this shows that before pursuing a coordination strategy with retailers a supplier should first improve his or her own internal operations

externalities tangible externalities and queue disciplines externalities are the marginal costs that a user of a common resource imposes on others we introduce the efficient measure of tangible externalities that are the costs that a user imposes on others while being served then for a single server queueing system under various service disciplines we compute the expected externalities and the expected tangible externalities conditioning on the length of the service requirement

corruption and development a review of issues in this paper we start with a discussion of some of the different denotations of the problem of corruption we then consider the ways in which the damaging consequences of corruption operate in a developing economy while not ignoring its possible redeeming features in some cases we pursue the question of why corruption is perceptibly so different in different societies and also persistent finally we examine the feasible policy issues that arise in this context

factor hoarding and the propagation of business cycles shocks this paper analyzes the role of variable capital utilization rates in propagating shocks over the business cycle to this end we formulate and estimate an equilibrium business cycle model in which cyclical capital utilization rates are viewed as a form of factor hoarding we find that variable capital utilization rates substantially magnify and propagate the impact of shocks to agents environments the strength of these propagation effects is evident in the dynamic response functions of various economy wide aggregates to shocks in agents environments in the statistics that we construct to summarize the strength of the propagation mechanisms in the model and in the volatility of exogenous technology shocks needed to explain the observed variability in aggregate u s output other authors have argued that standard real business cycle rbc models fail to account for certain features of the data because they do not embody quantitatively important propagation mechanisms these features include the observed positive serial correlation in the growth rate of output the shape of the spectrum of the growth rate of real output and the correlation between the forecastable component of real output and various other economic aggregates allowing for variable capital utilization rates substantially improves the ability of the model to account for these features of the data

on controlling crime with corrupt officials abstract this paper attempts to synthesize the recently developed strategic approach towards modeling corruption and the classical views the following propositions are sought to be proved a if reward schemes are introduced the classical and the strategic approaches yield similar results so far as controlling crime is concerned b with probability of detection being dependent on the effort of a corrupt official crime cannot be controlled and c in the context of an infinitely repeated game of crime the corrupt law enforcing agent might choose less bribes and lower effort level than the myopic optimal and hence would strategically pamper crime

did technology shocks cause the 1990 91 recession real business cycle theory has been used to determine the statistical properties of aggregate fluctuations induced by technology shocks the finding is that technology shocks have been an important contributor to fluctuations in the u s economy for example finn e kydland and prescott 1991 estimate that if the only impulses were technology shocks the u s economy would have been 70 percent as volatile as it has been over the postwar period in this paper we employ the theory to answer the question did technology shocks cause the 1990 1991 recession answering this question requires the determination of the effects of technology shocks on the path of the economy the procedure that we use to make this determination is as follows first we construct a model economy and calibrate it so that its steady state matches actual 1987 values data for other years are used to determine the realizations of the shocks and the nature of the stochastic processes generating these shocks given these stochastic processes the equilibrium decision rules for our calibrated economy are computed we then construct the path for the economy implied by the model for the period 1984 1 1992 3 we set 1984 1 model values of the state variables equal to actual 1984 1 values and use the decision rules and the realized shocks to construct this path finally we examine whether the model economy experiences a recession in 1991 as did the u s economy business cycles are variations in output per adult that are in large part accounted for by variation in the per adult time allocated to market production figure 1 plots the time path of the per adult labor input during the 1983 1 1989 1 period there was a remarkable 12 percent increase in the labor input per adult beginning in 1990 2 there has been a decline of nearly 6 percent in this per adult labor input an unusual feature of the recovery subsequent to the 1990 1991 recession is that this labor input variable has continued to decline well into the recovery this unusual behavior leads to a related question did technology shocks cause the slow recovery we found it necessary to modify the standard real business cycle model in four ways in order to answer the posed question first given the enormous changes in the relative prices of durables as depicted in figure 2 we could not treat technology change as being neutral with respect to different types of final goods following john b long and charles plosser 1983 and jeremy greenwood et al 1992 we consider multiple production sectors with technology change differing across sectors second we assume that there is a technology employed within the household sector that produces a consumption flow from the stock of consumer durables third we consider land to be a factor of production in addition to labor and capital our fourth modification is to introduce population growth

explaining business cycles a multiple shock approach abstract aiyagari 1992 and prescott 1986 1991 claim that a large fraction of the variance of united states quarterly detrended real gnp is attributable to an unobservable shock to total factor productivity this paper argues that the importance of a productivity shock in explaining the variance of output is fundamentally indeterminate any model that is in accord with the several time series that make up united states macroeconomic data must feature multiple shocks that are correlated at all leads and lags sorting out the separate effects of these various shocks on a single variable such as real gnp is impossible we illustrate this argument using a multiple shock version of the king plosser rebelo 1988 benchmark real business cycle model

user delay costs and internal pricing for a service facility this paper studies optimal pricing and capacity decisions for a service facility in an environment where users delay cost is important the model assumes a general nonlinear delay cost structure and incorporates the tradeoff between the delay cost and capacity cost we find necessary and sufficient conditions for the optimality of a pricing rule that charges out service resources at their marginal capacity cost we examine the issue of budgetary balance and find that net value maximization entails a budget deficit for the service facility that is the service facility should be evaluated as a deficit center the results provide guidelines under which the optimal magnitude of the deficit can be determined

pricing and capacity decisions for a service facility stability and multiple local optima we consider a model for optimal pricing and capacity for a service facility the problem is formulated as one of optimal design of a single server queueing system in which the design variables are the service rate and the arrival rate equivalently the price charged for admission the model is a variant of one introduced by dewan and mendelson we allow for an upper bound on the arrival rate and consider slightly more general user value functions we show that an optimal solution may not lie in the interior of the feasible region and thus may not be characterized by the first order differential conditions moreover the first order conditions typically have several solutions some of which may be relative minima and produce a negative value of the objective function customer value minus the sum of expected delay cost and capacity cost per unit time we also examine the stability of the equilibrium arrival rate and the convergence of a dynamic adaptive algorithm for finding the optimal service rate in the context of a model in which the distribution of customers value of service is uniform we show that the equilibrium arrival rate is stable if and only if the service rate is above a threshold value which depends on the price charged for admission and the parameters of the uniform distribution of value of service the dynamic adaptive algorithm always converges to a relative maximum of the objective function if the service rate can be adjusted every time the arrival rate changes otherwise the algorithm will start to diverge if and when the service rate ever falls below the threshold value associated with stability of the equilibrium arrival rate

keynesian impulses versus solow residuals identifying sources of business cycle fluctuations we employ a neoclassical business cycle model that builds on the greenwood hercowitz and huffman 1988 variable utilization framework to study two sources of business cycl e fluctuations marginal efficiency of investment shocks and total factor productivity shocks the parameters of the model are estimated using a bayesian procedure that accommodates prior uncertainty about their magnitudes from these estimates posterior distributions of the two shocks are obtained the postwar u s experience suggests that both shocks are important in understanding fluctuations but that total factor productivity shocks are primarily responsible for beginning and ending recessions

allocating spending between advertising and information technology in electronic retailing this study examines coordination issues that occur in allocating spending between advertising and information technology it in electronic retailing electronic retailers run the risk of overspending on advertising to attract customers but underspending on it thus resulting in inadequate processing capacity at the firm s website in this paper we present a centralized joint marketing it model to optimally allocate spending between advertising and it and we discuss an uncoordinated case where marketing and it make suboptimal advertising and capacity decisions we show how these decisions can be coordinated either by reducing the value of a customer session or by designing an optimal processing contract between marketing and it both the coordination methods can be implemented with only local knowledge of the it function yet they generate a solution that almost matches the quality of the centralized solution we extend our basic model to consider demand uncertainty lagged advertising effects and uncertainties in the lead time to acquire it capacity with demand uncertainty electronic retailers should reduce spending on advertising and increase it capacity if there is potential for a demand upswing and the cost of it capacity is relatively low the value of a customer session should be further reduced when uncertainties exist this is required to share the risk of excess or inadequate it capacity

pricing production scheduling and delivery time competition this paper studies competition between firms that produce goods or services for customers sensitive to delay time firms compete by setting prices and production rates for each type of customer and by choosing scheduling policies the existence of a competitive equilibrium is proved the competitive equilibrium is well defined whether or not a firm can differentiate between customers based upon physical characteristics because each customer has incentive to truthfully reveal its delay cost further insights are derived in two special cases a unique equilibrium exists for each of the cases in the first case firms are differentiated by cost mean processing time and processing time variability but customers are homogeneous the conclusions include that a faster lower variability and lower cost firm always has a larger market share higher capacity utilization and higher profits however this firm may have higher prices and faster delivery time or lower prices and longer delivery time in the second

incentive compatible pricing for a service facility with joint production and congestion externalities this paper considers the pricing problem of a service facility when services are jointly produced by the customers and the facility building on the work of mendelson 1985 we model the facility as a gi gi 1 queue with customer chosen service rates and linear delay costs we show that the service rates chosen by the customers based on their self interest are always suboptimal for the facility due to congestion externalities we derive optimal incentive compatible pricing schemes that can achieve optimal arrival rates and induce customers to choose optimal service rates for the case of systemwide net value maximization we show that the optimal incentive compatible pricing scheme consists of a variable fee that is proportional to the actual service time and a fixed rebate that is equal to a customer1s expected delay cost in the queue for the case of profit maximization of the facility we show that the optimal pricing scheme again consists of a fixed fee and a variable fee one insight from our analysis is that it may be appropriate for a service facility to reimburse each customer for his actual delay cost in the queue

how does corruption affect public debt an empirical analysis summary this paper investigates the relationship between corruption the shadow economy and public debt it additionally examines whether the shadow economy increases the adverse effects of corruption on public debt the model is empirically tested for 126 countries over 1996 2012 using ordinary least squares ols fixed effects system generalized method of moments gmm and instrumental variable estimation and two measures of corruption the transparency international corruption perceptions index and the kaufmann et al corruption index results confirm that increased corruption and a larger shadow economy lead to an increase in public debt results additionally indicate that the shadow economy magnifies the effect of corruption on public debt suggesting that they act as complements results also suggest that a larger shadow economy reduces tax revenues and thus increases public debt similarly higher government expenditure enhances the effects of corruption on government debt hence reducing corruption should be a primary policy goal of governments given the complementarity detected between corruption and the shadow economy reducing corruption would also lead to a fall in the size of the shadow economy and public debt reducing corruption will also minimize the adverse effects of corruption on government debt through government expenditure

capacity allocation using past sales when to turn and earn consider a supplier selling to multiple retailers demand varies across periods but the supplier s capacity and wholesale price are fixed if demand is high the retailers needs exceed capacity and the supplier must implement an allocation mechanism to dole out production we examine how the choice of mechanism impacts retailer actions and supply chain performance in particular we analyze turn and earn allocation a method commonly used in the automobile industry this scheme bases current allocations on past sales and thus enables retailers to influence their future allocations they compete for scarce capacity even if they do not compete for customers we show that turn and earn induces the retailers to increase their sales when demand is low and the supplier s capacity is otherwise underutilized supplier profits thus increase the impact on the supply chain depends on how restrictive capacity is with mildly tight capacity the retailers higher sales rate does not significantly lower their profits but does reduce the cost of idle capacity supply chain performance improves with extremely tight capacity the retailers intense competition dissipates more profits than the supplier gains and supply chain performance suffers consequently turn and earn does not generally coordinate the system it is best characterized as a means for the supplier to increase her profits at the expense of the retailers and potentially even the supply chain furthermore these results hold even if the retailers can hold inventory in anticipation of scarce capacity

cost allocation and opportunity costs one explanation for the widespread use of allocated fixed costs is that they can serve as a proxy for difficult to calculate opportunity costs this explanation is pursued by modeling a service department as an m m s s queueing system two main results are that the expected value of opportunity costs equals both the incremental productivity of capacity and the optimal transfer price when the cost of capacity is of the form cs as and is close to one we show that allocated fixed costs are a good proxy for average opportunity costs however if there are great economies of scale is close to zero then a method which charges users only for the variable costs of the service department is recommended finally the economic efficiency of transfer prices based on either variable cost or full cost is compared with optimal transfer pricing policies

labor hoarding and the business cycle this paper investigates the sensitivity of solow residual based measures of technology shocks to labor hoarding behavior using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption we estimate the fraction of the variability of the solow residual that is due to technology shocks our results support the view that a significant proportion of movements in the solow residual are artifacts of labor hoarding behavior specifically we estimate that the variance of innovations to technology is roughly 50 percent less than that implied by standard real business cycle models in addition our results suggest that existing real business cycle studies substantially overstate the extent to which technology shocks account for the variability of postwar aggregate u s output

modeling bounded rationality in capacity allocation games with the quantal response equilibrium we consider a supply chain with a single supplier and two retailers the retailers choose their orders strategically and if their orders exceed the supplier s capacity quantities are allocated proportionally to the orders we experimentally study the capacity allocation game using subjects motivated by financial incentives we find that the nash equilibrium which assumes that players are perfectly rational substantially exaggerates retailers tendency to strategically order more than they need we propose a model of bounded rationality based on the quantal response equilibrium in which players are not perfect optimizers and they face uncertainty in their opponents actions we structurally estimate model parameters using the maximum likelihood method our results confirm that retailers exhibit bounded rationality become more rational through repeated game play but may not converge to perfect rationality as assumed by the nash equilibrium finally we consider several alternative behavioral theories and show that they do not explain our experimental data as well as our bounded rationality model this paper was accepted by loana popescu guest editor operations management

on measuring the welfare cost of business cycles lucas 1987 argues that the gain from eliminating aggregate fluctuations is trivial following lucas a number of researchers have altered assumptions on preferences and found that the gain from eliminating business cycles are potentially very large however in these exercises little discipline is placed on preference parameters this paper estimates the welfare cost of business cycles allowing for potential time non separabilities in preferences where discipline is placed on the choice of preference parameters by requiring that the preferences be consistent with observed fluctuations in a model of business cycles that is a theoretical real business cycle world is constructed and the representative agent is then placed in this world the agent responds optimally to exogenous shocks given the frictions in the economy the agent s preference parameters along with other structural parameters are estimated using a bayesian procedure involving markov chain monte carlo methods two main results emerge from the paper first the form for the time non separability estimated in this paper is very different than the forms suggested and used elsewhere in the literature second the welfare cost of business cycles is close to lucas s estimate

technology shocks and aggregate fluctuations in an estimated hybrid rbc model this paper contributes to the on going empirical debate regarding the role of the rbc model and in particular of technology shocks in explaining aggregate fluctuations to this end we estimate the model s posterior density using markov chain monte carlo mcmc methods within this framework we extend ireland s 2001 2004 hybrid estimation approach to allow for a vector autoregressive moving average varma process to describe the movements and co movements of the model s errors not explained by the basic rbc model the results of marginal likelihood ratio tests reveal that the more general model of the errors significantly improves the model s fit relative to the var and ar alternatives moreover despite setting the rbc model a more difficult task under the varma specification our analysis based on forecast error and spectral decompositions suggests that the rbc model is still capable of explaining a significant fraction of the observed variation in macroeconomic aggregates in the post war u s economy

distribution and development in a model of misgovernance abstract this paper presents an analysis of bureaucratic corruption income inequality and economic development the analysis is based on a dynamic general equilibrium model in which bureaucrats are appointed by the government to implement a redistributive programme of taxes and subsidies designed to benefit the poor corruption is reflected in bribery and tax evasion as bureaucrats conspire with the rich in providing false information to the government in accordance with empirical evidence the model predicts a positive relationship between corruption and inequality and a negative relationship between corruption and development

a dynamic model of corruption deterrence abstract this paper presents a model of corruption deterrence with a simple overlapping generations structure built into it a crucial assumption is that when corruption becomes more prevalent in the economy it is harder to audit a corrupt official effectively it is shown that this assumption may give rise to several stationary equilibrium levels of corruption this possibility has been exploited to explain why sometimes a government may temporarily resort to an extremely severe deterrence policy and why the same deterrence scheme may imply quite different levels of corruption a case study is provided to give empirical support to the model

integration of capacity pricing and lead time decisions in a decentralized supply chain abstract we consider a decentralized supply chain consisting of a supplier and a retailer facing price and lead time sensitive demand the decision process is modelled by a stackelberg game where the supplier as a leader determines the capacity and the wholesale price and the retailer as a follower determines the sale price and lead time the equilibrium strategy of these two players is obtained by comparing with the performance of the corresponding decentralized chain without capacity decision as a benchmark we characterize the impact of capacity decision on the players profit i e the supplier s profit may be always significantly increased while the retailer s profit is only increased when the capacity is underestimated in the benchmark model further we demonstrate that the integration of capacity decision can also significantly reduce the profit loss caused by double marginalization finally we find that the revenue sharing and two part tariff contracts cannot coordinate the decentralized channel instead we propose a franchise contract with a contingent rebate that can achieve channel coordination and a win win outcome

what do residuals from first order conditions reveal about dge models the first order condition foc associated with labour in many dynamic general equilibrium models involves only current period variables residuals constructed from this foc are inconsistent with aggregate us data in that they are very large and highly persistent the persistence suggests that models which introduce dynamic terms in the labour foc may be more consistent with the data three such models one with learning by doing one with habit formation and one with labour adjustment costs confirm that they can reduce the persistence in the residuals making the models more consistent with the joint dynamics of consumption output and hours

a model of bureaucracy and corruption we analyze bureaucracy and corruption in a market with decentralized exchange and lemons exchange is modeled as a sequence of bilateral random matches agents have private information about the quality of goods they produce and can supplement trade with socially inefficient bribes bureaucracy is modeled as a group of agents who enjoy centralized production and consumption transaction patterns between the bureaucracy and the private sector are fully endogenous centralized production and consumption in the bureaucracy give rise to low power incentives for the individual bureaucrats as a result private agents might bribe bureaucrats whereas they do not bribe each other an equilibrium with corruption and an equilibrium without corruption can coexist we discuss some welfare implications of the model

a contract and balancing mechanism for sharing capacity in a communication network we propose a method for determining how much to charge users of a communication network when they share bandwidth our approach can be employed either when a network owner wishes to sell bandwidth for a specified period of time to a number of different users or when users cooperate to build a network to be shared among themselves our proposed contract and balancing mechanism can mediate between rapidly fluctuating prices and the longer time scales over which bandwidth contracts may be traded an advantage of the process is that it avoids perverse incentives for a capacity provider to increase congestion

relevant costs congestion and stochasticity in production environments abstract conventional management accounting principles used to evaluate relevant costs have been developed under the assumption of deterministic manufacturing settings manufacturing operations however are complex and stochastic in this paper we examine the impact of stochasticity in the production process on relevant costs based on a dynamic assessment of capacity constraints we develop a model to analyze the behavior of relevant costs with respect to changes in the expected duration and variability in set ups and processing an implication of this analysis is that for profit maximization capacity will exceed expected demand if production rates or demand are stochastic

optimal futures innovation in a dynamic economy the discrete time case abstract we study the optimal futures innovation in a dynamic economy and investigate how the results obtained in a static economy should be modified due to the possibility of dynamic trading we analyze three different notions of ex ante optimality depending on the authority s ability to redistribute wealth among the investors and characterize the optimal futures innovation in each sense journal of economic literature classification numbers d52 d60 g10

intermediate inputs and sectoral comovement in the business cycle abstract the post war us business cycle is characterized by positive comovement of employment and output across sectors it has been argued that multi sector growth models are inconsistent with this observation when changes in relative productivities are the main source of fluctuations we suggest that the input output structure of an economy in particular the pervasive use of intermediate inputs can induce positive comovement in sectoral employment and output following changes in relative productivities we calibrate a model of the us economy for the durable and nondurable goods producing sectors and show that sectoral employment and output move together if intermediate inputs are used in production the model is also consistent with the observation that the relative price of nondurable goods is procyclical

promised delivery time and capacity games in time based competition we investigate firms competitive behaviors in industries where customers are sensitive to both promised delivery time pdt and quality of service qos measured by the on time delivery rate to study the competition in pdt at the marketing level we construct an oligopoly game with an external qos requirement we show that there exists a unique nash equilibrium and the equilibrium qos exhibits a switching surface structure with respect to capacities to study the competition in capacity at the strategic level we construct a two stage game in which the firms compete in terms of their capacities in stage 1 and in terms of pdt in stage 2 we show the existence of two different types of pure strategy equilibria and characterize them this study provides the following insights an index of time based competitive advantage itca and the first mover advantage determine the positions of the firms in time based competition either the well known prisoner s dilemma or off equilibrium behaviors due to different preferences for equilibria when multiple equilibria exist may lead the firms to overinvest in capacity but no one may gain a competitive advantage a uniform improvement in internal efficiency i e a uniform capacity cost reduction may harm everyone quality differentiation i e going beyond the qos benchmark plays a dual role in time based competition either helping a firm with a larger itca to compete more effectively or helping a firm possibly with a smaller itca to preempt competitors and protect its market advantage this paper was accepted by paul h zipkin operations and supply chain management

optimal incomplete markets with asymmetric information abstract this paper provides a simple parametric framework for comparing alternative incomplete asset structures in a productive economy focusing on the role of assets in allocating risk and transmitting private information it characterizes asset structures that are constrained efficient in the sense that no other asset structure with the same number of securities leads to a pareto dominating allocation in equilibrium specifically a constrained efficient asset structure must be efficient with respect to both risk sharing and information transmission explicit optimality criteria are developed and used to evaluate innovation by volume maximising futures exchanges journal of economic literature classification numbers g14 d52 d82

investigating sensitivity and the impact of information on pricing decisions in an m m 1 queueing model we consider a model for optimal pricing for a job shop the problem is formulated as a single server queueing model where an arriving customer enters the system if his reward drawn from a stochastic variable exceeds the sum of the price charge of his job plus the expected waiting costs the optimal price is found with respect to profit optimization and welfare optimization two models are formulated the first model called ninf contains only steady state queue information the other model called ql contains more detailed information because here an arriving customer is informed about the number of customers already in the system the main interpretation of the models is how complex an information system should the job shop provide to its customers we show that for both criteria functions it pays off except for a special case to use the more detailed information system in the paper we also investigate how sensitive the pricing decision and its outcome on the criteria functions are on the variance of the reward distribution which in the paper is assumed to be uniformly distributed concerning welfare optimization we show that a decreased variance always results in a decreased welfare contribution while concerning profit optimization a decreased variance can result in both a decreased as well as an increased profit contribution

how corruption influences foreign direct investment a panel data study abstract this article analyzes the sign and development of the effect of corruption on foreign direct investment fdi economic theory distinguishes grabbing hand corruption from helping hand corruption the former suggests a negative impact of corruption on fdi the latter one a positive effect empirically we apply a data set of 21 home and 59 developed and less developed host countries covering between 1983 and 1999 to investigate the corruption impact we employ a panel data model that particularly refers to the knowledge capital model of multinational activity we find a negative relationship between corruption and fdi this in turn suggests that the helping hand effects of corruption are outweighed by the grabbing hand effects further we observe that corruption is an important impediment of fdi in developed economies but not in less developed ones finally we demonstrate that the importance of corruption has decreased over the years

long run implications of investment specific technological change an attempt is made to disentangle its effects from the more traditional hicksneutral form of technological progress the balanced growth path for the model is characterized and calibrated to u s national income and product account nipa data the quantitative analysis suggests that investment specific technological change accounts for the major part of growth jel e13 030 041 047

mechanism design for free but no free disposal services the economics of personalization under privacy concerns online personalization services belong to a class of economic goods with a no free disposal nfd property where consumers do not always prefer more services to less because of the privacy concerns these concerns arise from the revelation of information necessary for the provision of personalization services we examine vendor strategies in a market where consumers have heterogeneous concerns about privacy in successive generalizations we allow the vendor to offer a fixed level of personalization variable levels of personalization and monetary transfers coupons to the consumers that depend on the level of personalization chosen we show that a vendor offering a fixed level of personalization does not offer a coupon unless his marginal value of information mvi is sufficiently high and even when personalization is costless the vendor does not cover the market under a fixed services offering the vendor serves the same market with or without couponing next we demonstrate that in the absence of couponing the vendor s optimal variable personalization services contract maximizes surplus for all heterogeneous consumers which is in contrast to standard results from monopolistic screening when the vendor can offer coupons that vary according to personalization levels the optimal contract is not fully revealing unless his mvi is high and he will not offer coupons when this mvi is low however a vendor with a moderate mvi between certain thresholds offers a bunched contract wherein consumers with low privacy concerns receive a variable services coupon contract those with moderate privacy concerns receive a fixed services coupon contract and those with high privacy concerns do not participate in the market the coupon value is decreasing in privacy sensitivity of consumers

using theory for measurement an analysis of the cyclical behavior of home production abstract a significant amount of economic activity takes place within the home unfortunately it is difficult to assess the cyclical properties of home production because the available data are too sporadic using a real business cycle rbc model we construct quarterly data on three variables that are unobservable at a quarterly frequency hours worked in the home sector hours spent in leisure and the consumption of home produced goods three results emerge leisure is countercyclical while nonmarket hours are acyclical hours spent in home production have declined significantly since the 1970s fluctuations in market output are a good measure of fluctuations in individual utility as long as home and market consumption are either extreme complements or extreme substitutes in the production of utility

competition in multiechelon assembly supply chains in this paper we study competition in multiechelon supply chains with an assembly structure firms in the supply chain are grouped into homogenous sectors nodes that contain identical firms with identical production capabilities that all produce exactly one undifferentiated product that may itself be a kit of components each sector may use several inputs to produce its product and these inputs are supplied by different sectors the production process within any sector is taken to be pure assembly in fixed proportions the number of firms in each sector is known the demand curve for the final product is assumed to be linear as are production costs in all sectors competition is modeled via a coordinated successive cournot model in which firms choose production quantities for their downstream market so as to maximize profits given prices for all inputs and all complementary products production quantities for sectors supplying the same successor are coordinated through pricing mechanisms so that complementary products are produced in the right proportions under these assumptions equilibrium prices for any multiechelon assembly network are characterized by a system of linear equations we derive closed form expressions for equilibrium quantities and prices in any two stage system i e a system with multiple input sectors and a single assembly sector we show that any assembly structure can be converted to an equivalent larger structure in which no more than two components are assembled at any node finally large structures can be solved either by direct solution of the characteristic linear equations or through an iterative reduction compression to smaller structures

price delivery time guarantees and capacity selection this paper studies the impact of using delivery time guarantees as a competitive strategy in service industries where demands are sensitive to both price and delivery time we assume that delivery reliability is crucial and investment in capacity expansion is plausible in order to maintain a high probability of delivering the time guarantee a mathematical framework is proposed to understand the interrelations among pricing delivery time guarantee and capacity expansion decisions specifically an optimization model is developed to determine the joint optimal selection of these three important decision variables with an objective of maximizing the average net profit we characterize the optimal decisions and study their qualitative behaviors as various parameters change we further present a numerical example to illustrate how the results of our model can be used to provide useful managerial insights for selecting the best competing strategies for firms with different operating characteristics our model and results are also applicable to a make to order manufacturing environment

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