repeated moral hazard and contracts with memory the case of risk neutrality we consider a repeated moral hazard problem where both the principal and the wealth constrained agent are risk neutral in each of two periods the agent can exert unobservable effort leading to success or failure incentives provided in the second period act as carrot and stick for the first period so that the effort level induced in the second period is higher after a first period success than after a failure if renegotiation cannot be prevented the principal may prefer a project with lower returns i e a project may be too good to be financed or similarly an agent can be overqualified this article offers a new perspective on dynamic moral hazard problems consider a riskneutral principal who can hire a risk neutral but wealth constrained agent the agent can exert unobservable effort which increases the likelihood of success in the one shot problem there is a well known trade off between effort incentives and rent extraction which leads to a downward distorted effort level compared to the first best solution we extend the standard model by assuming that there is a second period in which the principal can make an investment to continue the project and the agent can again exert unobservable effort it turns out that there are several interesting insights that so far have escaped the literature on repeated moral hazard which was focused on the case of risk averse agents in particular if the principal can commit not to renegotiate the second period incentives can be used to partially circumvent the limited liability constraint in the second period the principal induces the agent to choose a particularly high effort level following a first period success and a particularly low effort level following a first period failure the prospect of a higher second period rent following a first period success motivates the agent to exert more effort in the first period i e rents in the second period act as reward and punishment for the first period it should be emphasized that we assume no technological impact of a first period success or failure on the second period technology nevertheless an optimal dynamic contract exhibits memory hence if an outsider observed today a principal agent pair that was successful and another identical pair that was not successful he would be right to predict that the first pair also is more likely to succeed tomorrow in other words a serial correlation across periods which we sometimes refer to as a hot hand effect is generated endogenously merely based on incentive considerations 2

trust trustworthiness and information sharing in supply chains bridging china and the united states whether and how trust and trustworthiness differ between a collectivist society e g china and an individualistic one e g the united states generates much ongoing scientific debate and bears significant practical values for managing cross country transactions we experimentally investigate how supply chain members countries of origin china versus the united states affect trust trustworthiness and strategic information sharing behavior in a cross country supply chain we consider a two tier supply chain in which the upstream supplier solicits demand forecast information from the retailer to plan production but the retailer has an incentive to manipulate her forecast to ensure abundant supply the levels of trust and trustworthiness in the supply chain and supplier s capability to determine the optimal production quantity affect the efficacy of forecast sharing and the resulting profits we develop an experimental design to disentangle these three aspects and to allow for real time interactions b

contract complexity and performance under asymmetric demand information an experimental evaluation exploring the tension between theory and practice regarding complexity and performance in contract design is especially relevant the goal of this paper is to understand why simpler contracts may commonly be preferred in practice despite being theoretically suboptimal we study a two tier supply chain with a single supplier and a single buyer to characterize the impact of contract complexity and asymmetric information on performance and to compare theoretical predictions to actual behavior in human subject experiments in the experiments the computerized buyer faces a newsvendor setting and has better information on end consumer demand than the human supplier the supplier offers either a quantity discount contract with two or three price blocks or a price only contract contracts that are commonplace in practice yet different in complexity results show that contrary to theoretical predictions quantity discounts do not necessarily increase the supplier s profits we also observe a more equitable distribution of profits between the supplier and the buyer than what theory predicts these observations can be described with three decision biases the probabilistic choice bias the reinforcement bias and the memory bias and can be modeled using the experience weighted attraction learning model our results demonstrate that simpler contracts such as a price only contract or a quantity discount contract with a low number of price blocks are sufficient for a supplier designing contracts under asymmetric demand information this paper was accepted by christian terwiesch operations and supply chain management

designing price contracts for boundedly rational customers does the number of blocks matter when designing price contracts one of the major questions confronting managers is how many blocks there should be in the contract we investigate this question in the setting of a manufacturer retailer dyad facing a linear deterministic consumer demand theoretical marketing models predict that the manufacturer s profits rise dramatically when the number of blocks in the contract is increased from one to two because both channel efficiency and its share of channel profits increase however increasing the number of blocks to three yields no incremental profits we test these predictions experimentally and find that increasing the number of blocks from one to two raises channel efficiency but not the manufacturer s share of profits surprisingly having three blocks in the contract increases channel efficiency even further and also gives the manufacturer a slightly higher share of profits we show that these results can be explained by a quantal response equilibrium model in which the manufacturer accounts for noisy best response due to nonpecuniary payoff components in the retailer s utility we also show that the retailer is sensitive to the counterfactual profits it could have earned if it were charged a lower marginal price for earlier blocks in the multiple block contract

managing channel profits a channel of distribution consists of different channel members each having his own decision variables however each channel member s decisions do affect the other channel members profits and as a consequence actions a lack of coordination of these decisions can lead to undesirable consequences for example in the simple manufacturer retailer consumer channel uncoordinated and independent channel members decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated in addition the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer this paper explores the problems inherent in channel coordination we address the following questions what is the effect of channel coordination what causes a lack of coordination in the channel how difficult is it to achieve channel coordination what mechanisms exist which can achieve channel coordination what are the strengths and weaknesses of these mechanism what is the role of nonprice variables e g manufacturer advertising retailer shelf space in coordination does the lack of coordination affect normative implications from in store experimentation can quantity discounts be a coordination mechanism are some marketing practices actually disguised quantity discounts we review the literature and present a simple formulation illustrating the roots of the coordination problem we then derive the form of the quantity discount schedule that results in optimum channel profits this article was originally published in marketing science volume 2 issue 3 pages 239 272 in 1983

a classification of literature on determining the lot size under quantity discounts abstract determining a lot size in the presence of either all units or incremental discounts has represented one of major interests of materials managers it is a common practice that the suppliers offer quantity discount to entice the buyers to purchase more and to achieve economies of scale for transportation and processing costs this paper will classify the literature on lot sizing determination under several types of discount schemes and discuss some of the significant literature in this area over two decades also some future research areas have been identified

quantity discounts under demand uncertainty to motivate buyers to increase their order quantity suppliers often rely on a well established and widely used approach they offer quantity discounts this practice is in large part driven to obtain improved economies in transportation through higher truckload utilization recently transportation rates which are increasing faster than other costs have become a larger portion of total net landed cost placing the traditional quantity discount practices under scrutiny many suppliers are left perplexed as to why their approach is not effective anymore and some are even concerned that their overall profits may have actually decreased due to their discount parameters in this paper we study a multiperiod model with a buyer facing stochastic end item demand and a supplier offering an all units quantity discount to him to understand better the dynamics of such systems we provide guidelines and insights on how to set effective discount parameters and when not to expect much from them we derive the opt

a note on optimal procurement contracts with limited direct cost inflation abstract laffont and tirole s using cost observation to regulate firms j polit econ 94 1986 614 641 pioneering analysis identifies the optimal procurement contract when the supplier can readily inflate his innate production cost without detection when the buyer has some ability to limit such cost inflation an alternative contract can outperform the contract identified by laffont and tirole the alternative contract induces substantial pooling discontinuous production costs and effort supply and rent that varies non monotonically with innate cost

retail gasoline price dynamics and local market power using monthly data from the 48 contiguous states except nevada for the 1988 2002 period it is shown that retail gasoline prices respond faster to wholesale price increases than to equivalent wholesale price decreases moreover markets with high average retail wholesale margins experience a slower adjustment and a more asymmetric response since gasoline is the only variable input average margins in a state likely reflect the degree of retail market power this suggests that sticky prices and response asymmetries in the gasoline market are at least partially a consequence of retail market power

private versus verifiable interim performance evaluations under uncertainty i study the trade off between private and verifiable interim performance evaluations under uncertainty more uncertainty leads to higher agency costs if the interim evaluation is public and verifiable but lower agency costs if the interim evaluation is private and unverifiable

the effect of production versus consumption based emission tax under demand uncertainty abstract emission tax is an instrument widely adopted by countries and regions to incentivize emission abatement by emission intensive firms including manufacturers however policies differ in how they allocate emission responsibilities among stakeholders for example the chile emission tax directly penalizes manufacturers for the emissions they generate during their production production based emission tax whereas the sweden electricity emission tax penalizes the consumption of electricity rather than its production consumption based emission tax these two methods have potentially varying implications on manufacturers profits their emission abatement decisions as well as the resulting emission levels especially when demand uncertainty is involved in this paper we investigate the impact of the two distinct methods by studying a profit maximizing manufacturer facing stochastic demand under either production or consumption based emission tax the manufacturer s optimal decisions on its selling price production quantity and emission abatement investment are derived perhaps surprisingly we show that under either tax it is possible for an increase in the emission tax to discourage the manufacturer from investing in emission abatement the impact of tax rate abatement technology efficiency and demand uncertainty on the manufacturer s profitability and abatement decision are also studied interestingly higher demand uncertainty may motivate the manufacturer to invest more in emission abatement under production based emission tax using a numerical example of an electricity power generator we offer further insights into the comparison between the two taxes and find that there exist cases for either tax to dominate the other in terms of both profit and emissions

selling costs and switching costs explaining retail gasoline margins recent theoretical work has shown that price discrimination can take place in imperfectly competitive as well as monopoly markets the persistence of higher retail margins on unleaded than on leaded gasoline during the 1980s suggests that discrimination may occur even in very competitive markets this article studies a number of cost based explanations for such gasoline pricing as well as the possibility of price discrimination the analysis indicates that gas stations discriminate against groups of customers who are less likely to switch to another station the conclusions highlight the influence of shopping or search costs on pricing decisions even in markets thought to be quite competitive

biofuel related price transmission literature a review abstract in this article an extensive review of the rapidly growing biofuel related time series literature is carried out the data used the modeling techniques and the main findings of this literature are discussed providing a review of this flourishing research area is relevant as a guidepost for future research this literature concludes that energy prices drive long run agricultural price levels and that instability in energy markets is transferred to food markets

the impact of global warming on agriculture a ricardian analysis reply we measure the economic impact of climate on land prices using cross sectional data on climate farmland prices and other economic and geophysical data for almost 3 000 counties in the united states we find that higher temperatures in all seasons except autumn reduce average farm values while more precipitation outside of autumn increases farm values applying the model to a global warming scenario shows a significantly lower estimated impact of global warming on u s agriculture than the traditional production function approach and in one case suggests that even without co sub 2 fertilization global warming may have economic benefits for agriculture 16 refs 5 figs 5 tabs

technical note robust newsvendor competition under asymmetric information we generalize analysis of competition among newsvendors to a setting in which competitors possess asymmetric information about future demand realizations and this information is limited to knowledge of the support of demand distribution in such a setting traditional expectation based optimization criteria are not adequate and therefore we focus on the alternative criterion used in the robust optimization literature the absolute regret minimization we show existence and derive closed form expressions for the robust optimization nash equilibrium solution for a game with an arbitrary number of players this solution allows us to gain insight into the nature of robust asymmetric newsvendor competition we show that the competitive solution in the presence of information asymmetry is an intuitive extension of the robust solution for the monopolistic newsvendor problem which allows us to distill the impact of both competition and information asymmetry in addition we show that contrary to the intuition a competing newsvendor does not necessarily benefit from having better information about its own demand distribution than its competitor has

contract preferences and performance for the loss averse supplier buyback vs revenue sharing prior theory claims that buyback and revenue sharing contracts achieve equivalent channel coordinating solutions when applied in a dyadic supplier retailer setting this suggests that a supplier should be indifferent between the two contracts however the sequence and magnitude of costs and revenues i e losses and gains vary significantly between the contracts suggesting the supplier s preference of contract type and associated contract parameter values may vary with the level of loss aversion we investigate this phenomenon through two studies the first is a preliminary study investigating whether human suppliers are indeed indifferent between these two contracts using a controlled laboratory experiment with human subjects taking on the role of the supplier having to choose between contracts we find that contract preferences change with the ratio of overage and underage costs for the channel i e the newsvendor critical ratio in particular a buyback contract is preferred for products wit

information distortion in a supply chain the bullwhip effect this article originally appeared in management science april 1997 volume 43 number 4 pp 546 558 published by the institute of management sciences consider a series of companies in a supply chain each of whom orders from its immediate upstream member in this setting inbound orders from a downstream member serve as a valuable informational input to upstream production and inventory decisions this paper claims that the information transferred in the form of orders tends to be distorted and can misguide upstream members in their inventory and production decisions in particular the variance of orders may be larger than that of sales and distortion tends to increase as one moves upstream a phenomenon termed bullwhip effect this paper analyzes four sources of the bullwhip effect demand signal processing rationing game order batching and price variations actions that can be taken to mitigate the detrimental impact of this distortion are also discussed

supply chain performance anomalies fairness concerns under private cost information abstract this work investigates how fairness concerns influence supply chain decision making while examining the effect of private production cost information and touching on issues related to bounded rationality we conduct laboratory work utilizing a supply chain dyad with an upstream supplier feeding a downstream retailer under a simple wholesale price contract we perform human computer h c experiments where human subjects play the role of the supplier paired with the computerized retailer as well as human human h h experiments where human subjects play the role of both supplier and retailer these experiments allow us to isolate other effects like bounded rationality from the effects of fairness concerns on supply chain decision making we find that compared to standard analytical model the bounded rationality slightly reduces overall supply chain profit without changing its distribution between the supplier and the retailer while fairness concerns lead to greater supply chain profits and a more balanced supply chain profit distribution we further illustrate that under private cost information the retailer s fairness concern is suppressed by the lack of reciprocity from not being able to observe her rival s profit information but that the supplier s fairness concern from altruism persists based on our experimental results we modify classical supply chain models to include utility functions that incorporate both bounded rationality and fairness concerns the estimated other regarding coefficients are significantly lower under private information than under public information for the h h experiments and we find no evidence of inequity aversion for the h c experiments

technical note optimal long term supply contracts with asymmetric demand information we consider a manufacturer selling to a retailer with private demand information arising dynamically over an infinite time horizon under a backlogging model we show that the manufacturer s optimal dynamic long term contract takes a simple form in the first period based on her private demand forecast the retailer selects a wholesale price and pays an associated upfront fee and from then on the two parties stick to a simple wholesale price contract with the retailer s chosen price under a lost sales model we show that the structure of the optimal long term contract combines a menu of wholesale pricing contracts with an option that if exercised by the retailer reduces future wholesale prices in exchange for an immediate payment to the manufacturer the online appendix is available at https doi org 10 1287 opre 2017 1626

retail gasoline pricing what do we know abstract we use a data set consisting of a three year panel of prices from a sample of gasoline stations located in suburban washington dc and a corresponding census of the region s stations to develop three new empirical findings about retail gasoline pricing first while average retail margins vary substantially over time by more than 50 over the three years we analyze the shape of the margin distribution remains relatively constant second there is substantial heterogeneity in pricing behavior stations charging very low or very high prices are more likely to maintain their pricing position than stations charging prices near the mean third retail gasoline pricing is dynamic despite the heterogeneity in station pricing behavior stations frequently change their relative pricing position in this distribution sometimes dramatically we then relate these three findings to relevant theories of retail pricing while many models of retail pricing are consistent with some of our findings we find that all have serious shortcomings

designing pricing contracts for boundedly rational customers does the framing of the fixed fee matter the format of pricing contracts varies substantially across business contexts a major variable being whether a contract imposes a fixed fee payment this paper examines how the use of the fixed fee in pricing contracts affects market outcomes of a manufacturer retailer channel standard economic theories predict that channel efficiency increases with the introduction of the fixed fee and is invariant to its framing we conduct a laboratory experiment to test these predictions surprisingly the introduction of the fixed fee fails to increase channel efficiency moreover the framing of the fixed fee does make a difference an opaque frame as quantity discounts achieves higher channel efficiency than a salient frame as a two part tariff although these two contractual formats are theoretically equivalent to account for these anomalies we generalize the standard economic model by allowing the retailer s utilities to be reference dependent so that the up front fixed fee payment is perceived as a loss and the subsequent retail profits as a gain we embed this reference dependent utility function in a quantal response equilibrium framework where the retailer is allowed to make decision mistakes due to computational complexity the key prediction of this behavioral model is that channel efficiency decreases with loss aversion for sufficiently nash rational retailers consistent with this prediction the estimated loss aversion coefficient is 1 37 in the two part tariff condition significantly higher than 1 27 in the quantity discount condition at the same time loss aversion dominates contract complexity in explaining the data lastly we conduct a follow up experiment to confirm the central role of loss aversion as a behavioral driver in one condition the retailer becomes less loss averse when we temporally compress the fixed fee payment and the realization of retail profits which supports the loss aversion theory in the other condition the retailer s contract acceptance rate does not decline when we reward the manufacturer a higher cash payment for each experimental point earned which rules out the competing hypothesis that the retailer rejects contract offers due to fairness concerns

a supplier s optimal quantity discount policy under asymmetric information in the supply chain literature an increasing body of work studies how suppliers can use incentive schemes such as quantity discounts to influence buyers ordering behaviour thus reducing the supplier s and the total supply chain s costs various functional forms for such incentive schemes have been proposed but a critical assumption always made is that the supplier has full information about the buyer s cost structure we derive the optimal quantity discount policy under asymmetric information and compare it to the situation where the supplier has full information

contracting in supply chains a laboratory investigation the coordination of supply chains by means of contracting mechanisms has been extensively explored theoretically but not tested empirically we investigate the performance of three commonly studied supply chain contracting mechanisms the wholesale price contract the buyback contract and the revenue sharing contract the simplified setting we consider utilizes a two echelon supply chain in which the retailer faces the newsvendor problem the supplier has no capacity constraints and delivery occurs instantaneously we compare the three mechanisms in a laboratory setting using a novel design that fully controls for strategic interactions between the retailer and the supplier results indicate that although the buyback and revenue sharing contracts improve supply chain efficiency relative to the wholesale price contract the improvement is smaller than the theory predicts we also find that although the buyback and revenue sharing contracts are mathematically equivalent they do not generally result in equivalent supply chain performance

why do venture capital firms exist theory and canadian evidence executive summary this paper investigates the role of venture capitalists we view their raison d etre as their ability to reduce the cost of informational asymmetries our theoretical framework focuses on two major forms of asymmetric informa tion hidden information leading to adverse selection and hidden ac tion leading to moral hazard our theoretical analysis suggests four em pirical predictions 1 venture capitalists operate in environments where their relative efficiency in selecting and monitoring investments gives them a comparative advantage over other investors this suggests strong industry effects in venture capital investments venture capitalists should be prominent in industries where infor mational concerns are important such as biotechnology computer software etc rather than in rou tine start ups such as restaurants retail outlets etc the latter are risky in that returns show high variance but they are relatively easy to monitor by conventional financial intermediaries 2 within the class of projects where venture capitalists have an advantage they will still prefer projects where monitoring and selection costs are relatively low or where the costs of informational asymmetry are less severe thus within a given industry where venture capitalists would be expected to focus we would also expect venture capitalists to favor firms with some track records over pure start ups

pricing games and impact of private demand information in decentralized assembly systems this paper analyzes decentralized assembly systems under asymmetric demand information and sequential contracting we reveal new insights on the value of contract type price only versus complex demand information complete versus asymmetric and contract sequence first mover versus second mover to different players our results for the basic model show the following 1 complex contracts increase the suppliers aggregate profit however individual suppliers do not necessarily benefit from a complex contracting equilibrium we identify the conditions under which each supplier benefits from such an equilibrium 2 eliminating information asymmetry is not always beneficial for the suppliers because obtaining information might bring only marginal value and hence might not be realistically justified furthermore a downstream supplier might prefer information asymmetry to complete information especially when demand variability is moderate 3 unless there is a high demand risk the first mover advantage is prevalent when the assembler is a price taker we extend our basic model to analyze two additional scenarios first we study cases where the suppliers may offer contracts of different complexity beyond enriching our understanding of contract choice in decentralized assembly systems such variations enhance the analysis beyond the standard methodology of principal agent models and utilize solution techniques from optimal control second we analyze the situation where the suppliers may possess different levels of information on demand under complex contracts we show that an upstream supplier always benefits from a downstream supplier s superior information however the additional information might decrease the downstream supplier s profit especially when the forecast variability is low compared to the total demand variability in the system our results for the basic model and its extensions confirm that studying interactions between suppliers specifically under different contract types and information structures in assembly systems presents rich opportunities for future research

a model of venture capitalist investment activity the paper describes the activities of venture capitalists as an orderly process involving five sequential steps these are 1 deal origination the processes by which deals enter into consideration as investment prospects 2 deal screening a delineation of key policy variables which delimit investment prospects to a manageable few for in depth evaluation 3 deal evaluation the assessment of perceived risk and expected return on the basis of a weighting of several characteristics of the prospective venture and the decision whether or not to invest as determined by the relative levels of perceived risk and expected return 4 deal structuring the negotiation of the price of the deal namely the equity relinquished to the investor and the covenants which limit the risk of the investor 5 post investment activities the assistance to the venture in the areas of recruiting key executives strategic planning locating expansion financing and orchestrating a merger acquisition or public offering 41 venture capitalists provided data on a total of 90 deals which had received serious consideration in their firms the questionnaire measured the mechanism of initial contact between venture capitalist and entrepreneur the venture s industry the stage of financing and product development ratings of the venture on 23 characteristics an assessment of the potential return and perceived risk and the decision vis i vis whether to invest the modal venture represented in the database was a start up in the electronics industry with a production capability in place and seeking 1 million median in outside financing there is a high degree of cross referrals between venture capitalists particularly for the purposes of locating co investors factor analysis reduced the 23 characteristics of the deal to five underlying dimensions namely 1 market attractiveness size growth and access to customers 2 product differentiation uniqueness patents technical edge profit margin 3 managerial capabilities skills in marketing management finance and the references of the entrepreneur 4 environmental threat resistance technology life cycle barriers to competitive entry insensitivity to business cycles and down side risk protection 5 cash out potential future opportunities to realize capital gains by merger acquisition or public offering the results of regression analyses showed expected return to be determined by market attractiveness and product differentiation r2 0 22 perceived risk is determined by managerial capabilities and environmental threat resistance r2 0 33 finally a discriminant analysis correctly predicted in 89 4 of the cases whether or not a venture capitalist was willing to commit funds to the deal on the basis of the expected return and perceived risk the reactions of seven venture capitalists who reviewed the model s specification were used to test its validity

who did the ethanol tax credit benefit an event analysis of subsidy incidence abstract at the end of 2011 the volumetric ethanol excise tax credit veetc which had subsidized the blending of ethanol in gasoline was allowed to expire during its tenure the subsidy was the subject of intense scrutiny concerning who benefited from its existence using commodity price data we estimate the subsidy incidence accruing to corn farmers ethanol producers gasoline blenders and gasoline consumers around the time of expiration our empirical approach contributes methodologically to the event studies literature by analyzing futures contract prices as opposed to spot prices when possible ultimately we find compelling evidence that at the date of veetc expiration ethanol producers captured about 25 of the 45 subsidy per gallon of ethanol blended we find suggestive albeit inconclusive evidence that a portion of this benefit about 5 per gallon was passed further upstream from ethanol producers to corn farmers most of the remainder seems most likely to have been captured by the blenders themselves on the petroleum side we find no evidence that oil refiners captured any part of the subsidy we also find no evidence that the subsidy was passed downstream to gasoline consumers in the form of lower gasoline prices

on the positive role of financial intermediation in allocation of venture capital in a market with imperfect information this paper develops a theory of financial intermediation that highlights the contribution of intermediaries as informed agents in a market with imperfect information we consider a venture capital market where the entrepreneurs select the qualities of projects and their perquisite consumptions about which the investors are imperfectly informed it is shown that when all investors have positive search costs the entrepreneurs are induced to offer the unacceptable inferior projects lemons only and the investors will not enter the venture capital market but put their funds in other low return investments an undesirable allocation of resources beginning with an initial undesirable situation the financial intermediaries may evolve as informed agents that induce a pareto preferred allocation leading the investors to a higher welfare state we focus our analysis on the existence of intermediation equilibra when the market for intermediation services is competitive the distribution of returns on projects the fees charged by intermediaries and the fraction of institutional holdings are all endogenous in equilibrium it is shown that i there cannot be a competitive intermediation equilibrium with very high institutional holdings and ii in other cases multiple equilibra may exist but the one with the highest institutional holdings dominates the others in a pareto sense

the effectiveness of field price discretion empirical evidence from auto lending in many markets it is common for headquarters to create a price list but grant local salespeople discretion to negotiate prices for individual transactions how much if any pricing discretion headquarters should grant is a topic of debate within many firms we investigate this issue using a unique data set from an indirect lender with local pricing discretion we estimate that the local sales force adjusted prices in a way that improved profits by approximately 11 on average a counterfactual analysis shows that using a centralized data driven pricing optimization system could improve profits even further up to 20 over those actually realized this suggests that centralized pricing if appropriately optimized can be more effective than field price discretion we discuss the implications of these findings for auto lending and other industries with similar pricing processes this paper was accepted by serguei netessine operations management

designing choice sets for stated preference methods the effects of complexity on choice consistency abstract we vary the complexity of choice sets used in stated preference methods to evaluate the impact on choice consistency we define five measures of complexity that capture either the amount of information or the correlational structure of information in a choice set using these measures as randomly assigned treatments in a large experiment we analyze the consistency of respondents choices using a heteroskedastic multinomial logit model we find that i all of our measures of choice set complexity affect choice consistency ii changes in the correlational structure of information have the largest impact on choice consistency and iii choice complexity significantly distorts welfare estimates our results confirm economists initial worry that moving from contingent valuation to conjoint methods will increase complexity induced choice inconsistency however our analysis also shows that these negative impacts may be mitigated if precautions are taken at the design and estimation stages of stated preference methods

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

pricing strategies and mechanism choice in reward based crowdfunding abstract with consideration of the ambiguity and overfunding effects this study develops generalized models to compare the sequential and simultaneous mechanisms in reward based crowdfunding ambiguity effect is a negative psychological perception of customers since they lack the information to infer the product s quality however overfunding effect is a positive psychological perception that enhances customers confidence in the product s quality theoretically we show that the two mechanisms may dominate each other in terms of entrepreneur and the two opposite effects can play significant roles in deciding the optimal crowdfunding mechanism furthermore we propose a simple compensation mechanism to improve entrepreneur s expected payoff and the crowdfunding s success rate under both mechanisms finally we analyse the informational cascade in crowdfunding and show how entrepreneur can use this phenomenon to maximize her expected payoff

rational choice under an imperfect ability to choose we consider an individual who lacks the information processing capacity required for a direct comparison of all feasible allocations instead of finding at once a best allocation the individual myopically adjusts his current allocation toward higher utility the individual makes adjustment errors inversely proportional to his ability to choose we compare the stationary state of this process with the standard model we see how an imperfect ability to choose modifies both positive and normative predictions of the standard model and how the standard model can be obtained from our more general one as the special case corresponding to perfect ability jel d 11

entrepreneurial ability venture investments and risk sharing a number of issues that relate to the desirability and implications of new venture financing are examined within a principal agent framework that captures the essence of the relationship between entrepreneurs and venture capitalists the model suggests 1 as long as the skill levels of entrepreneurs are common knowledge all will choose to involve venture capital investors since the risk sharing provided by outside participation dominates the agency relationship that is created 2 the less able entrepreneurs will choose to involve venture capitalists whereas the more profitable ventures will be developed without external participation because of the adverse selection problem associated with asymmetric information 3 if a costly signal is available that conveys the entrepreneur s ability some entrepreneurs will invest in such a signal and then sell to investors these entrepreneurs however need not be the more able ones the implications for new venture financing of these and other findings are discussed and illustrated by example

identifying supply and demand elasticities of agricultural commodities implications for the us ethanol mandate we present a new framework to identify supply elasticities of storable commodities where past shocks are used as exogenous price shifters in the agricultural context past yield shocks change inventory levels and futures prices of agricultural commodities we use our estimated elasticities to evaluate the impact of the 2009 renewable fuel standard on commodity prices quantities and food consumers surplus for the four basic staples corn rice soybeans and wheat prices increase 20 per cent if one third of commodities used to produce ethanol are recycled as feedstock with a positively skewed 95 percent confidence interval that ranges from 14 to 35 per cent jel q11 q16 q42 q48

learning and incentive problems in repeated partnerships this paper analyzes optimal contracts for financing risky new projects in a two period agency model the principal and t he agent both learn about the project quality and the agent s unobservable actions affect the learning process the parties have access to the credit market compared to the short term contracts the long term contract induces the agent to work harder less hard in period one if his marginal effort in the first period increases reduces the value of information in both cases the long term contract enables the parties to learn more about the project type copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

channel coordination and quantity discounts this paper presents a model for analyzing the impact of joint decision policies on channel coordination in a system consisting of a supplier and a group of homogeneous buyers the joint decision policy characterized by the unit selling price and the order quantity is coordinated through quantity discounts and franchise fees both the annual demand rate and the operating cost including the purchase ordering and inventory holding costs depend on the joint decision policy employed this paper contributes by integrating work addressing quantity discounts on inventory and ordering policies and work focusing on the control mechanism provided by quantity discounts in channel coordination it is shown that the optimal all unit quantity discount policy is equivalent to the optimal incremental quantity discount policy in achieving channel coordination furthermore it is shown that quantity discounts alone are not sufficient to guarantee joint profit maximization the analyses of the general models are illustrated by specific analytical results obtained for a given demand function