optimal pricing and return policies for perishable commodities this paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life a hierarchical model is developed and the results of the single period inventory model are used to examine possible pricing and return policies the paper shows that several such policies currently in effect are suboptimal these include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted the paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination but that the optimal return allowance will be a function of retailer demand therefore such a policy cannot be optimal in a multi retailer environment it is proven however that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi retailer environment this article was originally published in marketing science volume 4 issue 2 pages 166 176 in 1985

determinants of the equilibrium real exchange rate n b professor neary was based at university college dublin and queen s university ontario canada when this article was first published the full text of this article is not available in ora at this time citation neary j p 1988 determinants of the equilibrium real exchange rate american economic review 78 1 210 215

environmental protection rare disasters and discount rates the stern review s evaluation of environmental protection stresses low discount rates and uncertainty about environmental effects an appropriate model for analysing this uncertainty and the associated discount rates requires sufficient risk aversion and fat tailed uncertainty to account for the observed equity premium calibrations based on epstein zin preferences and existing analyses of rare macroeconomic disasters suggest that optimal environmental investment can be a significant share of gdp even with reasonable rates of time preference optimal environmental investment increases with risk aversion and the probability and typical size of environmental disasters but decreases with uncertainty about policy effectiveness

control and enforcement in order to increase supplier inventory in a jit contract abstract prompt response to customer demand has long been a point of major concern in supply chains inventory wars between suppliers and their customers are common owing to cases in which one supply chain party attempts to decrease its stock at the expense of the other party in order to ensure that suppliers meet their commitments to fulfill orders on time customers must formulate incentives or alternatively enforce penalties this paper deals with a customer organization that has a contract with a supplier based on just in time strategy initiating a policy of sanctions the customer becomes the lead player in a stackelberg game and forces the supplier to hold inventory which is made available to the customer in real time using a class of sanctioning functions we show that the customer can force the supplier to hold inventory up to some maximal value rendering actual enforcement of sanctions unnecessary however contrary to expectations escalation of the enforcement level can in fact reduce the capacity of the supplier to replenish on time consequently the customer must sanction meticulously in order to receive his inventory on time having the possibility to devote a few hours each day to sanctioning activity significantly reduces the customer s expected cost in particular numerical examples show that the customer s costs under an enforcement level may be only 2 percent higher than his costs in a situation in which all inventory is necessarily replenished on time

solutions for flexible container leasing contracts with options under capacity and order constraints abstract the container shipping market becomes prosperous with the development of the global economy as shipping networks become more complex and heterogeneous container capacity planning becomes more difficult this paper tackles the container planning problem from the carrier s perspective in a two echelon container shipping service chain cssc which includes one carrier and one upstream rental company a flexible contract with options is introduced into the one period container planning mechanism with the flexible options contract the rental company requires the carrier to make a commitment or place an order in advance options give buyer the right to modify the initial orders to better match the supply with the demand based on the carrier s decision tendency i e aggressive or conservative we analyze the application strategies of the unilateral options and the bidirectional options in different practical scenarios in particular for the applicability of the decision models we further consider the shipping capacity and the minimum order constraints and formulate the carrier s option policies with constrained nonlinear programs numerical examples show that the proposed decision strategies with option contract cannot only effectively increase the container trading quantity between the rental company and the carrier but also significantly reduce the carrier s container capacity risk while increasing its profit

strategic behaviour and the rules for international taxation of capital this paper examines the welfare of a capital exporting or source country and a capital importing or host country under tax credit and tax deduction systems for the international taxation of capital because the two tax systems may create quite different strategic incentives for the countries the authors compare the equilibria in the tax setting game played by the two countries under each system they find that the tax credits system introduces an antitrade bias into the equilibrium contrary to initial impressions and that both capital exporting and capital importing countries will prefer the tax deductions scheme to tax credits copyright 1989 by royal economic society

coordination of supply chains by option contracts a cooperative game theory approach manufacturer retailer supply chains commonly adopt a wholesale price mechanism this mechanism however has often led manufacturers and retailers to situations of conflicts of interest for example due to uncertain market demand retailers prefer to order flexibly from manufacturers so as to avoid incurring inventory costs and to be able to respond flexibly to market changes manufacturers on the other hand prefer retailers to place full orders as early as possible so that they can hedge against the risks of over and under production such conflicts between retailers and manufacturers can result in an inefficient supply chain motivated by this problem we take a cooperative game approach in this paper to consider the coordination issue in a manufacturer retailer supply chain using option contracts using the wholesale price mechanism as a benchmark we develop an option contract model our study demonstrates that compared with the benchmark based on the wholesale price mechanism option contracts can coordinate the supply chain and achieve pareto improvement we also discuss scenarios in which option contracts are selected according to individual supply chain members risk preferences and negotiating powers

arbitrating a dispute a decision analytic approach many collective decision making and bargaining situations can be described through the set of the feasible joint evaluations of all conceivable settlements attention should then be restricted to that subset pareto optimal frontier from which no joint gains are possible hence the focal issue becomes which element of the pareto optimal subset should be chosen as a solution to the dispute this paper proposes an arbitration procedure to address this issue the proposed approach decision analytic in its nature is inspired by lavalle s lavalle i h 1978 fundamentals of decision analysis holt rinehart and winston new york allocation function approach which is not specific on how to obtain an allocation function and by eliashberg and winkler s eliashberg j r l winkler 1981 risk sharing and group decision making management sci 27 november 1221 1235 work which does not accommodate probability differences within the group after the new approach is presented its implications are examined for some likely scenarios and examples are considered

the real exchange rate under various systems of international capital taxation international organizations such as the organization for economic co operation and development oecd and the european community ec have promoted to varying degrees the liberalization of capital movements among their member countries the code of liberalization of capital movements an agreement drawn in 1982 by the oecd sets different degrees of capital liberalization among its member countries depending on the nature of capital transactions e g direct or portfolio investment the treaty of rome 1957 recommended among other things the liberalization of capital movements among the ec countries chapter iv articles 67 72 by and large capital movements in the ec have been liberalized since 1990 the remaining restrictions in the capital markets of some member countries such as greece ireland portugal and spain were to be eliminated by the end of 1992 2 these developments in the world capital markets have prompted a renewed interest among trade theorists regarding the response of key economic variables e g national income employment and welfare to the liberalization of capital movements with capital becoming more mobile internationally capital flows in a country depend among other things on the domestic and the foreign capital tax rate and on the prevailing system of taxing net repatriated capital earnings in the capital exporting countries frequently capitalexporting countries tax the net repatriated capital earnings according to a system i of tax credits under which tax payments by foreign capital invested in a capital importing country are credited toward its tax liability to the source capital exporting country 3 ii of tax deductions under which

co op advertising models in manufacturer retailer supply chains a game theory approach abstract in the literature of cooperative co op advertising the focus of research is on a relationship in which a manufacturer is the leader and retailers are followers this relationship implies the dominance of the manufacturer over retailers recent market structure reviews have shown a shift of retailing power from manufacturers to retailers retailers have equal or even greater power than a manufacturer when it comes to retailing based on this new market phenomenon we intend to explore the role of vertical co op advertising efficiency with respect to transactions between a manufacturer and a retailer through brand name investments local advertising expenditures and sharing rules of advertising expenses three co op advertising models are discussed which are based on two noncooperative games and one cooperative game in a leader follower noncooperative game the manufacturer is assumed to be a leader who first specifies the brand name investment and the co op subsidization policy the retailer as a follower then decides on the local advertising level in a noncooperative simultaneous move game the manufacturer and the retailer are assumed to act simultaneously and independently in a cooperative game the system profit is maximized for every pareto efficient co op advertising scheme but not for any other schemes all pareto efficient co op advertising schemes are associated with a single local advertising level and a single brand name investment level but with variable sharing policies of advertising expenses the best pareto efficient advertising scheme is obtained taking members risk attitudes into account utilizing the nash bargaining model we discuss two situations that a both members are risk averse and b both members are risk neutral our results are consistent with the bargaining literature

supply contract with bidirectional options the buyer s perspective abstract this paper develops a single period two stage supply contract with bidirectional options by which the buyer can adjust the initial order both upward and downward at the beginning of the planning horizon the buyer places an initial order and purchases options after updating the demand forecast the buyer exercises options to adjust the initial order we analyze the contract from the buyer s perspective and formulate the buyer s optimal policies in particular we obtain closed form formulae to describe the buyer s optimal behavior when the demand is uniformly distributed we also analyze how the parameters affect the buyer s behavior and prove numerically that using bidirectional options can improve the buyer s profit

on a multi period supply chain system with supplementary order opportunity abstract this paper considers a supplementary supply order system in a multi period situation in each period the buyer first places an initial order based on the demand prediction he has the opportunity to place a supplementary order with the supplier after the demand of that period is realized the supplier maintains an inventory and decides the quantity to be produced and the quantity to be provided for the supplementary order in each time period we formulate the problem as a multi period inventory game and derive the optimal production and order policies for the supplier and buyer respectively the existence and uniqueness of nash equilibrium is proved in the generalized multi period setting and the closed form nash equilibrium solution is obtained when the parameters are stationary numerical study is performed to reveal more managerial insights we find that the supplementary supply order mechanism if designed properly can effectively improve the multi period supply chain performance

tariffs transfers and the real exchange rate the deviation of exchange rates from purchasing power parities ppp s has recently become the subject of theoretical and empirical attention the massive body of data collected and presented by the international comparisons project icp under the direction of kravis heston and summers khs 9 11 has permitted new empirical investigation of an old topic and has stimulated the construction of theoretical models to account for observed patterns in the icp project and the related literature the focus is on the ratio of the exchange rate to the ppp the concept of this ratio is closely related to the concept of the real exchange rate which is defined as the actual exchange rate multiplied by the ratio of an index of foreign prices to an index of domestic prices the term real exchange rate a term widely employed in both economics journals and in the financial press is frequently used to describe changes over time in a particular country and its calculation requires only time totime changes in exchange rates and price indexes the ratio of the exchange rate to the ppp on the other hand refers to a comparison of the levels of the exchange rate and the ppp at a moment in time and its calculation requires the availability of a ppp survey of the kind performed by the icp the purpose of the present paper is to analyze the effects of tariffs and transfers on the real exchange rate of a small country in this theoretical endeavor we shall hold constant the prices in foreign countries in this context it can easily be seen that the real exchange rate and the ratio of the exchange rate to the ppp are identical concepts provided that the expenditure weights used in the index of domestic prices are the same as those used in the calculation of the ppp

abrupt positive feedback and the social cost of carbon optimal climate policy should act in a precautionary fashion to deal with tipping points that occur at some future random moment the optimal carbon tax should include an additional component on top of the conventional present discounted value of marginal global warming damages this component increases with the sensitivity of the hazard to temperature or the stock of atmospheric carbon if the hazard of a catastrophe is constant no correction is needed of the usual pigouvian tax the results are applied to a tipping point resulting from an abrupt and irreversible release of greenhouse gases from the ocean floors and surface of the earth which set in motion a positive feedback loop convex enough hazard functions cause overshooting of the carbon tax but a linear hazard function gives rise to undershooting a more convex hazard function and a high discount rate speed up adjustment

consumption pollution tradeoffs in an environment vulnerable to pollution related catastrophic collapse abstract this paper considers the consequences of an avoidable risk of irreversible environmental catastrophe for society s optimal long run consumption pollution tradeoffs the risk is assumed to be a nondecreasing function of pollution concentration which evolves as a dynamic environmental renewal process the main objective of the paper is to derive qualitative insights regarding the effects of such risk on optimal management

controlling for supplier switching in the presence of real options and asymmetric information abstract applying a real option approach this paper examines how asymmetric information alters key variables of a firm s supplier switching process such as the timing of contracting hurried versus delayed contracting transfer payments set up switching and abandonment decisions in a symmetric information setting delayed contracting is unambiguously beneficial abandoning the once established relation with the entrant supplier is never an issue in contrast under asymmetric information hurried contracting with potentially abandoning the relation can be beneficial consistent with adverse selection models we find that under delayed contracting in equilibrium the firm switches less frequently to the entrant supplier switching inertia surprisingly we also find that under hurried contracting the firm switches more frequently to the entrant supplier switching acceleration and may abandon the relation finally we study how these key variables of the supplier switching process change when also the incumbent supplier has private information two sided asymmetric information case

climate tipping and economic growth precautionary capital and the price of carbon the optimal reaction to a climate tipping point that becomes more imminent with global warming is to be precautionary in adjusting capital to prepare for the calamity and to price carbon to make catastrophic change less imminent the saving response can be positive or negative if the mean lag for the impact of the catastrophe is long enough the saving response will be negative because the precautionary return in the keynes ramsey rule becomes negative we also show the separate effects of the elasticity of intertemporal substitution eis and the relative risk aversion rra using duffie epstein preferences focusing on a productivity catastrophe we calibrate our model and show how sensitive the policy responses are to the degrees of eis and rra the trend rate of economic growth the hazard rate and how long it takes for the catastrophe to have its full impact

fair electricity transfer price and unit capacity selection for microgrids abstract microgrids are defined as an area of electricity distribution network that can operate autonomously from the rest of the network in order to achieve the best economic outcomes the participants in a microgrid can benefit from cooperation in microgrid design and operation in this paper a mathematical programming formulation is presented for fair optimised cost distribution amongst participants in a general microgrid the proposed formulation is based on the game theory nash bargaining solution approach for finding optimal multi partner cost levels subject to given upper bounds on the equivalent annual costs the microgrid planning problem concerning the fair electricity transfer price and unit capacity selection is first formulated as a mixed integer non linear programming model then a separable programming approach is applied to reform the resulting mixed integer non linear programming model to a mixed integer linear programming form the model is applied to a case study with a microgrid involving five participants

accounting for global warming risks resource management under event uncertainty abstract optimal management of atmospheric pollution is discussed with a special emphasis on the uncertainty concerning the occurrence of undesirable events associated with the greenhouse effect the uncertainty considered here stems from our ignorance of the exact pollution level required to trigger the event rather than from the genuinely stochastic nature of the processes involved taking atmospheric pollution level as the state variable it is found that uncertainty implies the existence of an equilibrium interval within which the emission rate of the greenhouse gases should be kept equal to the natural removal rate of these gases processes initiated outside the equilibrium interval must converge monotonically to its nearest endpoint the determination of the interval requires no knowledge of the optimal policy in contrast ignoring event occurrence risk implies a single equilibrium level attracting the optimal process from any initial level

a review of the stern review on the economics of climate change the stern review calls for immediate decisive action to stabilize greenhouse gases because the benefits of strong early action on climate change outweighs the costs the economic analysis supporting this conclusion consists mostly of two basic strands the first strand is a formal aggregative model that relies for its conclusions primari ly upon imposing a very low discount rate concerning this discount rate aspect i am skeptical of the review s formal analysis but this essay points out that we are actual ly a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged the review s second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertain ties that are difficult to quantify concerning this uncertainty aspect i argue that it might be recast into sound analytical reasoning that might justify some of the review s conclusions the basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consump tion smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings

efficient investment incentives in the presence of capital flight abstract this paper examines the efficiency of quantity restrictions on capital exports and the accompanying set of taxes when a government can effectively tax foreign source income then it is not efficient to impose restrictions on capital exports and the optimal tax rates on foreign source and domestic source income are the same an efficient allocation of domestic savings between foreign and domestic investment is obtained however when the government cannot tax foreign source income it is optimal to impose such a restriction so as to induce overinvestment in domestic capital

tariffs terms of trade unemployment and the real exchange rate the less developed countries ldcs have been subjected to major exogenous shocks and drastic domestic policy changes in recent years these shocks include changes in the terms of trade and or a policy shift away from the pervasive protectionism of the previous decades the implementation of trade liberalization programs is likely to follow in many more developing countries a large body of theoretical and empirical literature has developed which attempts to analyze the consequences of these changes utilizing models which explicitly incorporate the main structural and institutional characteristics of the ldc economies the behavior of the real exchange rate defined in various ways but most commonly as the relative price of tradeables to non tradeables has been identified as being of central analytical and policy importance while the literature on this subject recognizes the key link between the real exchange rate and domestic wages the analytical models used generally suffer from serious limitations in terms of their characterization of the labor markets the models used in the literature can be categorized into two groups a flex price models that give rise to full employment and b models that assume full or partial wage rigidity thereby generating some form of unemployment conventional wisdom suggests that a rise in import tariffs or an improvement in the terms of trade would always lead to an appreciation of the real exchange rate however it is shown by clague 3 and edwards and van wijnbergen 11 that the above result does not necessarily hold in more general models however these analyses were restricted to models with flexible wages wage rigidity is often ascribed to the existence of some form of wage indexation or other forms of government inter

risk hedging in a supply chain option vs price discount abstract in this research two risk hedging strategies the option contract and the advance purchase discount contract are investigated within a manufacturer retailer two echelon supply chain context this study offers three contributions first the optimal decisions under the two contracts from the perspectives of both the manufacturer and the retailer are determined second circumstances under which supply chain coordination can be reached are identified third the scenario of loss averse manufacturer has been explored the results of the analysis provide practical insights to the manufacturer when she plans production quantity and to the retailer when he replenishes inventory

the economic effects of climate change greenhouse gas emissions are fundamental both to the world s energy system and to its food production the production of co2 the predominant gas implicated in climate change is intrinsic to fossil fuel combustion specifically thermal energy is generated by breaking the chemical bonds in the carbohydrates oil coal and natural gas and oxidizing the components to co2 and h2o one cannot have cheap energy without carbon dioxide emissions similarly methane ch4 emissions an important greenhouse gas in its own right are necessary to prevent the build up of hydrogen in anaerobic digestion and decomposition one cannot have beef mutton dairy or rice without methane emissions climate change is the mother of all externalities larger more complex and more uncertain than any other environmental problem the sources of greenhouse gas emissions are more diffuse than any other environmental problem every company every farm every household emits some greenhouse gases the effects are similarly pervasive weather affects agriculture energy use health and many aspects of nature which in turn affects everything and everyone the causes and consequences of climate change are very diverse and those in low income countries who contribute least to climate change are most vulnerable to its effects climate change is also a long term problem some greenhouse gases have an atmospheric life time measured in tens of thousands of years the quantities of emissions involved are enormous in 2000 carbon dioxide emissions alone and excluding land use change were 24 billion metric tons of carbon dioxide tco2

a value based approach to option pricing the case of supply chain options chapter 6 explores the pricing issue for supply chain options in classical research this issue is generally considered in the stackelberg game framework such a pricing scheme however is usually unacceptable to the follower since the leader always captures all the surplus derived from the options being different from the existing literature this chapter develops a value based pricing scheme for supply chain options with two modeling scenarios including a single retailer and multiple retailers the intuition behind such a pricing scheme is to price the option based on the value inherent in the option right as shown in the research such a pricing scheme can assure that each of the contracting partners captures a share of the surplus derived from the options as a result the pricing schemes developed in this chapter are more objective and fair and consequently are more likely to be accepted by the contracting partners as compared with those that follow the stackelberg game approach

optimal tax and tariff policies with tax credits abstract this paper examines the optimal tax and tariff policies for a small open economy when mobile capital receives a tax credit for taxes paid to the host country for a capital importing country a tax on capital equal to the source country tax rate to capture tax revenue combined with a subsidy to encourage capital imports is the optimal policy results are also derived for cases in which only one of the instruments can be varied for a capital exporting country that cannot reduce its capital tax rate a subsidy to the sector using exported capital is desirable

a cooperative game theory model of quantity discounts quantity discounts offered by a monopolist are considered in the context of a bargaining problem in which the buyer and the seller negotiate over the order quantity and the average unit price all units and incremental quantity discounts that permit transaction at a negotiated outcome are described the effects of risk sensitivity and bargaining power on quantity discounts are discussed for alternative bargaining models

mean variance analysis of option contracts in a two echelon supply chain abstract this paper studies the implications of risk considerations for option contracts in a two echelon supply chain under the mean variance framework we first investigate the conditions for coordinating the supply chain by using option contracts we find that supply chain coordination is not always achieved contrasting with the result that properly designed option contracts can always coordinate a supply chain in the absence of risk considerations second we analyze the stackelberg game for a decentralized supply chain in two cases depending on whether the retailer s risk aversion threshold is known to the supplier we show that when the threshold is public information there exists a unique equilibrium in which the supplier with a higher risk tolerance prefers to reduce the exercise price and thus the retailer s order quantity increases when the retailer s risk aversion threshold is private information the retailer has an incentive to pretend to be less risk averse to curb this incentive distortion we design a new minimum option quantity commitment for the supplier we complement our theoretical results with numerical simulations

the quantity flexibility contract and supplier customer incentives consider a supply chain consisting of two independent agents a supplier e g a manufacturer and its customer e g a retailer the latter in turn serving an uncertain market demand to reconcile manufacturing procurement time lags with a need for timely response to the market such supply chains often must commit resources to production quantities based on forecasted rather than realized demand the customer typically provides a planning forecast of its intended purchase which does not entail commitment benefiting from overproduction while not bearing the immediate costs the customer has incentive to initially overforecast before eventually purchasing a lesser quantity the supplier must in turn anticipate such behavior in its production quantity decision this individually rational behavior results in an inefficient supply chain this paper models the incentives of the two parties identifying causes of inefficiency and suggesting remedies particular attention is given to the quantity flexibility qf contract which couples the customer s commitment to purchase no less than a certain percentage below the forecast with the supplier s guarantee to deliver up to a certain percentage above under certain conditions this method can allocate the costs of market demand uncertainty so as to lead the individually motivated supplier and customer to the systemwide optimal outcome we characterize the implications of qf contracts for the behavior and performance of both parties and the supply chain as a whole

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