nonlinear pricing to produce information we investigate the firm s dynamic nonlinear pricing problem when facing consumers whose tastes vary according to a scalar index we relax the standard assumption that the firm knows the distribution of this index in general the firm should determine its marginal price schedule as if it were myopic and produce information by lowering the price schedule bunching consumers at positive purchase levels should be avoided as a special case we also consider a market characterized by homogeneous consumers with a static but unknown demand curve we show that when there are repeat purchases the forward looking firm should tend towards penetration pricing otherwise its strategy should tend towards skimming we extend our insights to more general settings and discuss implications for pricing product lines

using state pension shocks to estimate fiscal multipliers since the great recession has government spending raised income and employment since 2008 i use new data on state pension returns during the great recession to recover exogenous changes in spending instrumenting with these return shocks i estimate that each dollar of windfall financed spending raised local incomes by 1 43 and every additional 22 011 of spending created one contemporaneous job these estimates are similar to those found in shoag 2010 despite the non overlapping datasets unlike shoag 2010 however the bulk of the employment increase post 2008 stems from decreases in unemployment rather than increased labor force participation

inventory and sales effort management under unobservable lost sales a retailer needs to make decisions regarding how much to order and how much sales effort to exert in an environment with uncertain demand one intrinsic complexity in a typical retail environment is caused by the fact that the retailer can obtain information about demand only based on sales as demand itself is unobservable taking a bayesian approach lariviere and porteus 1999 show that in such a setting a retailer should stock more to increase the probability of an exact demand observation in this article we extend their work by allowing the retailer to control both the stocking quantity and sales effort which can be used to affect demand we show that their insights with respect to information stalking carry over to this setting in addition our model allows gaining a better understanding of optimal sales effort strategies we find that demand management has a dual role in supporting information gathering while at the beginning of a product life cycle it is optimal to support learning effects by sharply reducing sales effort at later stages of the product life cycle an aggressive strategy of increased promotional activities can be used to harvest the information gathered in earlier periods

product differentiation and entry timing in a continuous time spatial competition model abstract we extend the well known spatial competition model d aspremont gabszewicz thisse 1979 to a continuous time model in which two firms compete in each instance our focus is on the entry timing decisions of firms and their optimal locations we demonstrate that the leader has an incentive to locate closer to the center to delay the follower s entry leading to a non maximum differentiation outcome we also investigate how exogenous parameters affect the leader s location and firms values and in particular numerically show that the profit of the leader changes non monotonically with an increase in the transport cost parameter

debt deleveraging and the liquidity trap a fisher minsky koo approach in this paper we present a simple new keynesian style model of debt driven slumps that is situations in which an overhang of debt on the part of some agents who are forced into rapid deleveraging is depressing aggregate demand making some agents debt constrained is a surprisingly powerful assumption fisherian debt deflation the possibility of a liquidity trap the paradox of thrift a keynesiantype multiplier and a rationale for expansionary fiscal policy all emerge naturally from the model we argue that this approach sheds considerable light both on current economic difficulties and on historical episodes including japan s lost decade now in its 18th year and the great depression itself

investment under uncertainty with price ceilings in oligopolies abstract we study the impact of price cap regulation on the level and timing of investment in an oligopolistic cournot industry facing stochastic demand we find that a price ceiling affects investment decisions in two mutually competing ways it makes the option to defer investment more valuable but at the same time it reduces the incentive for firms to strategically underinvest in order to raise prices we show that while sensible price cap regulation speeds up investment a low price cap can be a disincentive for investment there exists an optimal price cap independent of market concentration the competitive investment price trigger that maximizes investment incentives and in the long term increases industry installed capacity this optimal price cap becomes less effective and less robust as the market becomes more competitive and as demand volatility increases errors in estimation of the optimal price cap have asymmetric effects underestimation has more dire consequences than overestimation

state responses to fiscal crises the effects of budgetary institutions and politics this paper explores the dynamics of state taxes and spending during the late 1980s when regional economic downturns and increased expenditure demands led to substantial state budget deficits more restrictive state fiscal institutions such as no deficit carryover rules and tax and expenditure limitations are correlated with more rapid fiscal adjustment to unexpected deficits political factors are also important when a single party controls the state house and the governorship deficit adjustment is much faster than when party control is divided in gubernatorial election years tax increases and spending cuts are both significantly smaller than at other times

investment and capacity choice under uncertain demand this paper extends the real options literature by discussing an investment problem where a firm has to determine optimal investment timing and optimal capacity choice at the same time under conditions of irreversible investment expenditures and uncertainty in future demand after the project is installed with a certain maximum capacity this capacity is fixed as an upper boundary to the output and cannot be adjusted later on it turns out that in the framework of this once and for all decision uncertainty in future demand leads to an increase in optimal installed capacity but on the other hand it causes investment to be delayed to an extent that even small uncertainty makes waiting and accumulation of further information the optimal decision for large ranges of demand limiting the capacity which may be installed weakens this extreme effect of uncertainty

confidence based optimisation for the newsvendor problem under binomial poisson and exponential demand abstract we introduce a novel strategy to address the issue of demand estimation in single item single period stochastic inventory optimisation problems our strategy analytically combines confidence interval analysis and inventory optimisation we assume that the decision maker is given a set of past demand samples and we employ confidence interval analysis in order to identify a range of candidate order quantities that with prescribed confidence probability includes the real optimal order quantity for the underlying stochastic demand process with unknown stationary parameter s in addition for each candidate order quantity that is identified our approach produces an upper and a lower bound for the associated cost we apply this approach to three demand distributions in the exponential family binomial poisson and exponential for two of these distributions we also discuss the extension to the case of unobserved lost sales numerical examples are presented in which we show how our approach complements existing frequentist e g based on maximum likelihood estimators or bayesian strategies

household debt and fiscal multipliers we study the size of government spending multipliers in a general equilibrium model with search and matching frictions in which we allow for different levels of household indebtedness the main results are a the presence of impatient households and private debt helps to generate government spending multipliers greater than 1 b as financial conditions worsen the size of the government spending multiplier falls c conversely employment vacancies and unemployment multipliers are larger in a credit crunch d the model explains the observed pattern of responses of labour market variables housing prices and private debt to a fiscal shock reasonably well

learning experimentation and the optimal output decisions of a competitive firm this paper considers the effect of learning from experience on the output decisions of a perfectly competitive firm faced with the demand uncertainty specifically a bayesian framework for expectations formation and demand forecasting by a perfectly competitive firm is presented focusing the analysis on the determination of optimal sequential output decisions it is shown that through output experimentation the experimenting firm will select a non myopic sequential policy and will tend to overproduce the exact magnitude of the overproduction and the economic value of experimentation are contingent upon model parameters and the length of the planning horizon

real options with constant relative risk aversion real options problems have recently attracted much attention worldwide one such problem is how to deal with claims on non traded assets often there is another traded asset which is correlated to the non traded asset and this traded asset is used as a proxy for hedging purposes we introduce a second non traded log brownian asset into the well known merton investment model with power law utility the investor has a claim on units of the non traded asset and the question is how to price and hedge this random payoff the presence of the second brownian motion means that we are in the situation of incomplete markets we propose an approximation to the solution for the optimal reservation price and hedge which is accurate when the position is small in comparison to wealth the resulting loss when a suboptimal proxy strategy is followed is shown to be approximately quadratic in 1

note the newsvendor model with endogenous demand this paper considers a firm s price and inventory policy when it faces uncertain demand that depends on both price and inventory level the authors extend the classic newsvendor model by assuming that expected utility maximizing consumers choose between visiting the firm and consuming an exogenous outside option the outside option represents the utility the consumer forgoes when she chooses to visit the firm before knowing whether or not the product will be available the authors investigate both the case in which the firm s price is exogenous and the case in which price is chosen optimally the paper makes two contributions first the authors show that the firm holds more inventories provides a higher fill rate attracts more customers and earns higher profits when it internalizes the effect of its inventory on demand second the authors show that in the endogenous price case the firm s two dimensional decision problem can be reduced to two sequential single variable optimizations as a result the endogenous price case is as easy to solve as the exogenous price case

inventory management under market size dynamics we investigate the situation where a customer experiencing an inventory stockout at a retailer potentially leaves the firm s market in classical inventory theory a unit stockout penalty cost has been used as a surrogate to mimic the economic effect of such a departure in this study we explicitly represent this aspect of consumer behavior incorporating the diminishing effect of the consumers leaving the market upon the stochastic demand distribution in a time dynamic context the initial model considers a single firm we allow for consumer forgiveness where customers may flow back to the committed purchasing market from a nonpurchasing latent market the per period decisions include a marketing mix to attract latent and new consumers to the committed market and the setting of inventory levels we establish conditions under which the firm optimally operates a base stock inventory policy the subsequent two models consider a duopoly where the potential market for a firm is now the committed market of

private debt overhang and the government spending multiplier evidence for the united states using state dependent local projections and historical us data we find that government spending multipliers are considerably larger in periods of private debt overhang in particular while multipliers are below or close to one in low private debt states we find significant crowding in of private spending in periods of debt overhang resulting in multipliers that are much larger than one in high private debt episodes more government purchases even reduce the ratio of government debt to gross domestic product these results are robust for the type of shocks and when we control for the business cycle financial crises deleveraging episodes government debt overhang and the zero lower bound

statistical learning of service dependent demand in a multiperiod newsvendor setting we study an inventory system wherein a customer may leave the seller s market after experiencing an inventory stockout traditionally researchers and practitioners assume a single penalty cost to model this customer behavior of stockout aversion recently a stream of researchers explicitly model this customer behavior and support the traditional penalty cost approach we enrich this literature by studying the statistical learning of service dependent demand we build and solve four models a baseline model where the seller can observe the demand distribution a second model where the seller cannot observe the demand distribution but statistically learns the demand distribution a third model where the seller can learn or pay to obtain the exact information of the demand distribution and a fourth model where demand in excess of available inventory is lost and unobserved interestingly we find that all four models support the traditional penalty cost approach this result confirms the use of a state independent stockout penalty cost in the presence of demand learning more strikingly the first three models imply the same stockout penalty cost which is larger than the stockout penalty cost implied by the last model

capacity switching options under rivalry and uncertainty abstract deregulated infrastructure industries exhibit stiff competition for market share firms may be able to limit the effects of competition by launching new projects in stages using a two stage real options model we explore the value of such flexibility we first demonstrate that the value of investing in a sequential manner for a monopolist is positive but decreases with uncertainty next we find that a typical duopoly firm s value relative to a monopolist s decreases with uncertainty as long as the loss in market share is high intriguingly this result is reversed for a low loss in market share we finally show that this loss in value is reduced if a firm invests in a sequential manner and specify the conditions under which sequential capacity expansion is more valuable for a duopolist firm than for a monopolist

bayes solution to dynamic inventory models under unknown demand distribution this paper considers the periodic review inventory problem for which one or more parameters of the demand distribution are unknown with a known prior distribution chosen from the natural conjugate

strategic real options under asymmetric information abstract this paper studies the effect of private information on the capital allocation decisions of firms who operate under imperfect competition i analyze two interactive firms one with private information and the other without who must decide when to undertake an irreversible and uncertain investment decision traditional non strategic models of irreversible investment under uncertainty involve a single decision maker and result in an optimal period of delay before the investment is undertaken in a strategic setting firms must balance their desire to delay against competitive advantages from early investment i find that an equilibrium may not exist within the standard continuous framework when the private information is over revenues moreover when an equilibrium does exist the competitive pressures from the uninformed firm are weak this is in contrast to existing models with asymmetric information over costs where an equilibrium always exists and the competitive pressures remain strong hsu and lambrecht 2007 this work shows that the investment timing decision and thus the value of the private information is highly sensitive to the nature of incomplete information

optimal investment under operational flexibility risk aversion and uncertainty traditional real options analysis addresses the problem of investment under uncertainty assuming a risk neutral decision maker and complete markets in reality however decision makers are often risk averse and markets are incomplete we confirm that risk aversion lowers the probability of investment and demonstrate how this effect can be mitigated by incorporating operational flexibility in the form of embedded suspension and resumption options although such options facilitate investment we find that the likelihood of investing is still lower compared to the risk neutral case risk aversion also increases the likelihood that the project will be abandoned although this effect is less pronounced finally we illustrate the impact of risk aversion on the optimal suspension and resumption thresholds and the interaction among risk aversion volatility and optimal decision thresholds under complete operational flexibility

duopolistic competition under risk aversion and uncertainty a monopolist typically defers entry into an industry as both price uncertainty and the level of risk aversion increase by contrast the presence of a rival typically hastens entry under risk neutrality here we examine these two opposing effects in a duopoly setting we demonstrate that the value of a firm and its entry decision behave differently with risk aversion and uncertainty depending on the type of competition interestingly if the leader s role is defined endogenously then higher uncertainty makes her relatively better off whereas with the roles exogenously defined the impact of uncertainty is ambiguous

the censored newsvendor and the optimal acquisition of information this paper investigates the effect of demand censoring on the optimal policy in newsvendor inventory models with general parametric demand distributions and unknown parameter values we show that the newsvendor problem withobservable lost sales reduces to a sequence of single period problems while the newsvendor problem withunobservable lost sales requires a dynamic analysis using a bayesian markov decision process approach we show that the optimalin ventory level in the presence of censored demand ishigher than would be determined using a bayesian myopic policy we explore the economic rationality for this observation and illustrate it with numerical examples

on the censored newsvendor and the optimal acquisition of information we have read ding et al 2002 referred to hereafter as dpb with great interest dpb con ains two main results theorem a claims that the myopic inventory level is a lower bound on the optimal inventory level and theo rem b attempts to quantify the marginal expected value of information however there are mistakes in the proof of theorem a the result itself is correct a proof is given in lu et al 2004 furthermore one of the erroneous expressions in dpb s proof leads to an error in the marginal expected value of information in theorem b we now provide more details the equation numbers unless specified otherwise refer to the appendix of dpb available at the operations research home page http or pubs informs org the main error in the proof of theorem a is the follow ing if a x and b x are two functions of the variable jc then the derivative of a x b x with respect to x is d r x m da x db x a x b x b x a x dpb s mistake in essence is to omit the second term more specifically a key step in proving theorem a is inequality 35

debt and the response to household income shocks validation and application of linked financial account data the increasing availability of data derived from linked consumer financial accounts has the potential to dramatically expand the potential for research examining the most comprehensive existing se

electricity retail contracting under risk aversion abstract risk has always been a dominant part of financial decision making in any industry recently models tools and computational techniques have been developed so that we can effectively incorporate risk in optimal decision policies the focus of this paper is on electricity markets where much of the inherent risk falls on the retail sector we introduce a three stage model of an electricity market where firms can choose to enter the retail market then enter into retail contracts and finally purchase electricity in a wholesale market to satisfy their contracts we explicitly assume that firms are risk averse in this model we demonstrate how the behaviour of firms change with risk aversion and use the example of an asset swap policy over a transmission network to demonstrate the importance of modeling risk aversion in determining policy outcomes

local government spending multipliers and financial distress evidence from japanese prefectures we estimate local government spending multipliers using annual data for 47 japanese prefectures during the 1990s our main findings are as follows the average local government spending multiplier is positive and significantly different from zero but not larger than one there are large and significant differences in the output effects of different types of government expenditures transfers to firms have the highest multiplier significantly larger than one while transfers to households have the lowest multiplier significantly below zero firms financial distress has a significant negative effect on the local government spending multiplier in contrast to economic slack that has a significant positive effect

estimating demand by using sales information inaccuracies encountered abstract demand data is integral to a company s overall information requirement this is particularly true for manufacturers and retailers with regard to capacity production and inventory planning notwithstanding the implicit inaccuracies encountered companies are predisposed to employ sales data as a primary source of information for estimating future demand in this paper by adopting a two product setting we measure inventory cost inaccuracies that arise from using sales data in estimating demand by analyzing these costs we also explore the conditions under which the resulting inaccuracies are either lessened or become acute in this context the determining rule of an induced substitution structure between the two products during stockout occasions is explicitly analyzed we use a newsboy framework in a two product environment wherein one product may be taken as a direct substitute for the other we provide necessary and sufficient optimality conditions and an extensive computational study to illustrate and support our findings and to provide additional insights on the conditions characterizing optimal stocking policies

the role of inventory in delivery time competition the paper operationalizes the notion of shortage cost by considering the behavior of customers and competing firms and examines the role of inventory in response time competition we start with a single firm production control model in which customers are characterized by their preferences of price quality and delivery time the optimal production inventory policy and the optimal choice between make to order and make to stock operations are determined in simple newsboy like formulas the basic model is then extended to an n firm market game in which firms compete for orders from the aspect of early delivery one could think of this setting as an oligopoly racing market the analysis shows that competition can breed a demand for produce to stock just as other economic phenomena such as economies of scale uncertainty or seasonality can induce make to stock and that delivery time competition increases the buyer s welfare while decreasing the producer s welfare

can government purchases stimulate the economy this essay briefly reviews the state of knowledge about the government spending multiplier drawing on theoretical work aggregate empirical estimates from the united states as well as cross locality estimates i assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate a temporary deficit financed increase in government purchases i conclude that the multiplier for this type of spending is probably between 0 8 and 1 5 jel e23 e62 h50

optimal inventory decisions in a multiperiod newsvendor problem with partially observed markovian supply capacities abstract this paper considers a multi period news vendor problem with partially observed supply capacity information which evolves as a markovian process the supply capacity is fully observed by the buyer when the capacity is smaller than the buyer s ordering quantity otherwise the buyer knows that the current period supply capacity is greater than its ordering quantity based on these two observations the buyer updates the future supply capacity forecasting accordingly with a dynamic programming formulation we prove the existence of an optimal ordering policy we also prove that the optimal order quantity is greater than the myopic order quantity

asymmetric consumer learning and inventory competition we develop a model of consumer learning and choice behavior in response to uncertain service in the marketplace learning could be asymmetric that is consumers may associate different weights with positive and negative experiences under this consumer model we characterize the steady state distribution of demand for retailers given that each retailer holds a constant in stock service level we then consider a noncooperative game in steady state between two retailers competing on the basis of their service levels the demand distributions of retailers in this game are modeled using a multiplicative aggregate market share model in which the mean demands are obtained from the steady state results for individual purchases but the model is simplified in other respects for tractability our model yields a unique pure strategy nash equilibrium we show that asymmetry in consumer learning has a significant impact on the optimal service levels market shares and profits of the retailers when retailers have different costs it also determines the extent of competitive advantage enjoyed by the lower cost retailer

a general equilibrium model for industries with price and service competition this paper develops a stochastic general equilibrium inventory model for an oligopoly in which all inventory constraint parameters are endogenously determined we propose several systems of demand processes whose distributions are functions of all retailers prices and all retailers service levels we proceed with the investigation of the equilibrium behavior of infinite horizon models for industries facing this type of generalized competition under demand uncertainty we systematically consider the following three competition scenarios 1 price competition only here we assume that the firms service levels are exogenously chosen but characterize how the price and inventory strategy equilibrium vary with the chosen service levels 2 simultaneous price and service level competition here each of the firms simultaneously chooses a service level and a combined price and inventory strategy 3 two stage competition the firms make their competitive choices sequentially in a first stage all firms simultaneously choose a service level in a second stage the firms simultaneously choose a combined pricing and inventory strategy with full knowledge of the service levels selected by all competitors we show that in all of the above settings a nash equilibrium of infinite horizon stationary strategies exists and that it is of a simple structure provided a nash equilibrium exists in a so called reduced game we pay particular attention to the question of whether a firm can choose its service level on the basis of its own input characteristics i e its cost parameters and demand function only we also investigate under which of the demand models a firm under simultaneous competition responds to a change in the exogenously specified characteristics of the various competitors by either i adjusting its service level and price in the same direction thereby compensating for price increases decreases by offering improved inferior service or ii adjusting them in opposite directions thereby simultaneously offering better or worse prices and service

dynamic capital structure choice and investment timing abstract the paper considers the problem of an investor that has the option to acquire a firm initially this firm is run as to maximize shareholder value where the shareholders are risk averse to do so it has to decide each time on investment and dividend levels the firm s capital stock can be financed by equity and debt where less solvable firms pay a higher interest rate on debt revenue is stochastic we find that the firm is run such that capital stock and dividends develop in a fixed proportion to the equity in particular it turns out that more dividends are paid if the economic environment is more uncertain we also derive that the relationship between the levels of risk aversion of the current shareholders and the potential investor is a significant determinant in establishing whether the firm is a profitable takeover target for the investor

optimal regime switching under risk aversion and uncertainty abstract technology adoption is key for corporate strategy often determining the success or failure of a company as a whole however risk aversion often raises the reluctance to make a timely technology switch particularly when this entails the abandonment of an existing market regime and entry in a new one consequently which strategy is most suitable and the optimal timing of regime switch depends not only on market factors such as the definition of the market regimes as well as economic and technological uncertainty but also on attitudes towards risk therefore we develop a utility based regime switching framework for evaluating different technology adoption strategies under price and technological uncertainty we assume that a decisionmaker may invest in each technology that becomes available compulsive or delay investment until a new technology arrives and then invest in either the older laggard or the newer technology leapfrog our results indicate that if market regimes are asymmetric then greater risk aversion and price uncertainty in a new regime may accelerate regime switching in addition the feasibility of a laggard strategy decreases increases as price uncertainty in an existing new regime increases finally although risk aversion typically favours a compulsive and a laggard strategy a leapfrog strategy may be feasible under risk aversion provided that the output price and the rate of innovation are sufficiently high

adaptive data driven inventory control with censored demand based on kaplan meier estimator using the well known product limit form of the kaplan meier estimator from statistics we propose a new class of nonparametric adaptive data driven policies for stochastic inventory control problems we focus on the distribution free newsvendor model with censored demands the assumption is that the demand distribution is not known and there are only sales data available we study the theoretical performance of the new policies and show that for discrete demand distributions they converge almost surely to the set of optimal solutions computational experiments suggest that the new policies converge for general demand distributions not necessarily discrete and demonstrate that they are significantly more robust than previously known policies as a by product of the theoretical analysis we obtain new results on the asymptotic consistency of the kaplan meier estimator for discrete random variables that extend existing work in statistics to the best of our knowledge this is the first application of the kaplan meier estimator within an adaptive optimization algorithm in particular the first application to stochastic inventory control models we believe that this work will lead to additional applications in other domains

optimal inventory policies under service sensitive demand the service level provided by a retailer influences demand and sales in several ways in the short run sales can fall short of demand when customers experience stockouts and choose not to backorder in the long run demand itself may decline as customers who experience excessive stockouts shift permanently to more reliable sources the traditional approach to determining inventory policies assumes a fixed stockout cost attributable to each stockout occasion in practice stockout costs are difficult to determine at least in part because they reflect the long term loss of demand due to inadequate service in this paper we model the response of long run demand to the service level of the retailer and determine optimal order up to inventory policies in the presence of service sensitive demand we show under what conditions inventory policy is sensitive to both the mean and the variance of long run demand

a note on the theory of the firm under multiple uncertainties abstract we develop a dynamic continuous time theory of the competitive firm under multiple correlated uncertainties output price uncertainty and output uncertainty as an example in doing so we completely generalize and extend the previous one period comparative statics results the marginal impact of each parameter on optimal output particularly we relax the assumption of the statistical independence between the risks and the restrictions on the coefficient of absolute relative risk aversion furthermore we generally show the impact of one risk on the aversion to another moreover we show the role of the factor of correlation between risks on the decisions of the firm

learning consumer tastes through dynamic assortments how should a firm modify its product assortment over time when learning about consumer tastes in this paper we study dynamic assortment decisions in a horizontally differentiated product category for which consumers diverse tastes can be represented as locations on a hotelling line we presume that the firm knows all possible consumer locations comprising a finite set but does not know their probability distribution we model this problem as a discrete time dynamic program each period the firm chooses an assortment and sets prices to maximize the total expected profit over a finite horizon given its subjective beliefs over consumer tastes the consumers then choose a product from the assortment that maximizes their own utility the firm observes sales which provide censored information on consumer tastes and it updates beliefs in a bayesian fashion there is a recurring trade off between the immediate profits from sales in the current period exploitation and the informational gains to be exploited in all future periods exploration we show that one can partially order assortments based on their information content and that in any given period the optimal assortment cannot be less informative than the myopically optimal assortment this result is akin to the well known stock more result in censored newsvendor problems with the newsvendor learning about demand through sales when lost sales are not observable we demonstrate that it can be optimal for the firm to alternate between exploration and exploitation and even offer assortments that lead to losses in the current period in order to gain information on consumer tastes we also develop a bayesian conjugate model that reduces the state space of the dynamic program and study value of learning using this conjugate model

austerity and private debt this study provides empirical evidence that the costs of austerity crucially depend on the level of private indebtedness in particular fiscal consolidations lead to severe contractions when implemented in high private debt states contrary fiscal consolidations have no significant effect on economic activity when private debt is low these results are robust to alternative definitions of private debt overhang the composition of fiscal consolidations and controlling for the state of the business cycle and government debt overhang i show that deterioration in household balance sheets is important to understand private debt dependent effects of austerity

stalking information bayesian inventory management with unobserved lost sales retailers are frequently uncertain about the underlying demand distribution of a new product when taking the empirical bayesian approach of scarf 1959 they simultaneously stock the product over time and learn about the distribution assuming that unmet demand is lost and unobserved this learning must be based on observing sales rather than demand which differs from sales in the event of a stockout using the framework and results of braden and freimer 1991 the cumulative learning about the underlying demand distribution is captured by two parameters a scale parameter that reflects the predicted size of the underlying market and a shape parameter that indicates both the size of the market and the precision with which the underlying distribution is known an important simplification result of scarf 1960 and azoury 1985 which allows the scale parameter to be removed from the optimization is shown to extend to this setting we present examples that reveal two interesting phenomena 1 a retailer may hope that compared to stocking out realized demand will be strictly less than the stock level even though stocking out would signal a stochastically larger demand distribution and 2 it can be optimal to drop a product after a period of successful sales we also present specific conditions under which the following results hold 1 investment in excess stocks to enhance learning will occur in every dynamic problem and 2 a product is never dropped after a period of poor sales the model is extended to multiple independent markets whose distributions depend proportionately on a single unknown parameter we argue that smaller markets should be given better service as an effective means of acquiring information

investment in oligopoly under uncertainty the accordion effect this paper studies investments in new markets where more than two anticipated identical competitors are present in case of three firms an accordion effect is detected an exogenous demand shock results in a change of the wedge between investment thresholds of the first and second investor that is qualitatively different from the change of the wedge between the second and third investment threshold furthermore it turns out that in the three firm case the investment timing of the first investor lies in between the one and the two firm case these results are numerically extended to the n firm case

fiscal policy in good times and bad in the 1980s several countries with large government debt or deficit implemented substantial and in some cases drastic deficit cuts contrary to widespread expectations in many cases private consumption boomed rather than contracted this paper shows that in times of fiscal stress shocks to government revenues and especially expenditure have very different effects on private consumption than in normal times

analysis of an inventory system under backorder correlated deterministic demand and geometric supply process abstract in this article we propose a single item periodic review model that investigates the effects of changes in the demand process that occur after stockout realizations we investigate a system where the demands in successive periods are deterministic but affected by the backorder realizations in order to capture the effects of changes in the demand process we use a geometric type supply availability we analytically derive the necessary components for obtaining profit related performance measures and provide computational analysis

backorder penalty cost coefficient b what could it be abstract the classical economic order quantity eoq model with planned penalized backorders pb relies on postulating a value for the backorder penalty cost coefficient b which is supposed to reflect the intangible adverse effect of the future loss of customer goodwill following a stockout recognizing that the effect of the future loss of customer goodwill should be not a direct penalty cost but a change in future demand schwartz 1966 a new approach to stockout penalties management science 12 12 b538 b544 modified the classical eoq pb model by eliminating the backorder penalty cost term from the objective function and assuming that the long run demand rate is a decreasing strictly convex function of the customer s disappointment factor defined as the complement of the demand fill rate following a stockout which in turn is an increasing strictly convex function of the demand fill rate he called the new model a perturbed demand pd model schwartz provided convincing justification for his pd model and presented several variations of it in a follow up paper but he did not solve any of these models in this paper we solve schwartz s original pd model and its variations and we discuss the implications of their solutions thus filling a gap in the literature left by schwartz moreover having been convinced that schwartz s approach is more valid than the classical approach for representing the effect of the loss of customer goodwill following a stockout but also recognizing that the classical approach is far more popular than the pd approach because of its simplicity and because of tradition we use the solution of the pd model to infer the value of b in the classical model thus providing one possible answer to the question what could b be a noteworthy implication of the solution of schwartz s original pd model is that the optimal fill rate is always 0 or 1 rendering the inferred value of b in the classical model 0 or respectively suspecting that the property of the pd function which is most likely responsible for producing this bang bang type of result is strict convexity we show that for the case where the pd function is proportional to an integer power say n of the fill rate the optimal fill rate is always 0 or 1 if and only if n 1 in which case the pd function is strictly convex in the fill rate

heterogeneous government spending multipliers in the era surrounding the great recession abstract we use novel quarterly data of u s states to examine the dynamics of relative spending multipliers in the decade surrounding the great recession while multipliers were around 1 in expans

entry into the electricity market uncertainty competition and mothballing options the present paper analyzes the entry strategies into the electricity market of two firms that have power plants under price uncertainty and competition we consider the symmetric and asymmetric two firms which have either a thermal power plant or a nuclear power plant the differences between the thermal power plant and the nuclear power plant such as the cost structure and operational flexibility are modeled the threshold values of market entry are calculated for each firm with either the thermal power plant or the nuclear power plant as the leader or the follower we show the dependence of cost structures on entry thresholds of the leader and the follower into the electricity market for various market and cost conditions the diagrams of the leader are also shown

local and aggregate fiscal policy multipliers abstract using a newly constructed panel of state level defense contracts this paper studies the effect of defense spending on the u s macroeconomy summing observations across states we estimate aggregate income and employment multipliers comparing these to local multipliers estimated with the panel provides evidence that local multiplier estimates may be reliable indicators of fiscal policy s aggregate effects furthermore evidence of small positive spillovers is found across several specifications we estimate income and employment multipliers between zero and 0 5 this result is reconciled with the greater than one multipliers found in nakamura and steinsson 2014 by analyzing the korean war years impact on the estimation

fiscal multipliers in recessions standard business cycle models have difficulties generating large state dependent fiscal multipliers employing a model of costly financial intermediation based on curdia woodford we show that fiscal multipliers can be strongly state dependent fiscal expansions during recessions may lead to multiplier values exceeding two while similar expansions during economic booms would produce values falling short of unity this pattern obtains if the spread the financial friction is more sensitive to fiscal policy during recessions than during expansions a feature that is present in the data our results are consistent with recent empirical work documenting the state contingency of multipliers

preemption and rent equalization in the adoption of new technology we study the adoption of a new technology to illustrate the effects of preemption in games of timing we show that the threat of preemption equalizes rents in a duopoly but that this result does not extend to the general oligopoly game if the gain to preemption is sufficiently small then the optimal symmetric outcome which involves late adoption is an equilibrium this contrasts with reinganum s result that in precommitment equilibria there must be diffusion we develop a new and richer formalism for modeling games of timing which permits a continuoustime representation of the limit of discrete time mixed strategy equilibria

output spillovers from fiscal policy in this paper we estimate the cross country spillover effects of government purchases on output for a large number of oecd countries following the methodology in auerbach and gorodnichenko 2012a b we allow these multipliers to vary smoothly according to the state of the economy and use real time forecast data to purge policy innovations of their predictable components we also consider the responses of other key macroeconomic variables our findings suggest that cross country spillovers have an important impact and also confirm those of our earlier papers that fiscal shocks have a larger impact when the affected country is in recession

myopic policies for some inventory models with uncertain demand distributions the majority of papers on stochastic inventory theory make the assumption that the distribution of consumer demand in each time period is known with certainty while this assumption is unsupported in many applied contexts it is conventionally held that more realistic models are more difficult to solve and will not yield simple operational policies this paper shows that a simple inventory policy based upon a critical fractile can be optimal or near optimal in some inventory models with parameter adaptive demand processes in these some parameter of the demand distribution is not known with certainty and estimates of the parameter are updated in a statistical fashion as demand is observed through time examples include exponentially smoothed forecasts and bayesian updating of parameter estimates bounds on the value loss relative to optimal cost when using the critical fractile policy can be calculated directly from the problem data some numerical examples illustrate the technique

estimating fiscal multipliers news from a non linear world we estimate non linear vars to assess to what extent fiscal spending multipliers are countercyclical in the us we deal with the issue of non fundamentalness due to fiscal foresight by appealing to sums of revisions of expectations of fiscal expenditures this measure of anticipated fiscal shocks is shown to carry valuable information about future dynamics of public spending results based on generalised impulse responses suggest that fiscal spending multipliers in recessions are greater than one but not statistically larger than those in expansions however non linearities arise when focusing on extreme events that is deep recessions versus strong expansionary periods

a partially observed markov decision process for dynamic pricing in this paper we develop a stylized partially observed markov decision process pomdp framework to study a dynamic pricing problem faced by sellers of fashion like goods we consider a retailer that plans to sell a given stock of items during a finite sales season the objective of the retailer is to dynamically price the product in a way that maximizes expected revenues our model brings together various types of uncertainties about the demand some of which are resolvable through sales observations we develop a rigorous upper bound for the seller s optimal dynamic decision problem and use it to propose an active learning heuristic pricing policy we conduct a numerical study to test the performance of four different heuristic dynamic pricing policies in order to gain insight into several important managerial questions that arise in the context of revenue management

manufacturer incentives to improve retail service levels in this paper we provide a solution to the problem of how a manufacturer can provide an incentive to a separately owned retailer to raise its service level above the level it would choose on its own we analyze the effects the manufacturer s incentive has on the individual profits of the retailer and manufacturer as well as their joint profits our work is an application of game theory in which we tackle the problem posed by separate ownership of the two firms and the resulting conflict over the gains from cooperation we utilize a plausible model of service sensitive demand one which is relatively free of ad hoc assumptions our approach has the strength that it proposes a credible solution to the problem of manufacturer retailer cooperation when profits are sensitive to retail service levels our results indicate that the optimal level of incentive for the manufacturer and the resulting shares of the manufacturer and retailer in increased profits are particularly sensitive to the underlying variability of demand and to the relative variability of additional demand induced by higher service levels

adaptive inventory control for nonstationary demand and partial information this paper examines several different policies for an inventory control problem in which the demand process is nonstationary and partially observed the probability distribution for the demand in each period is determined by the state of a markov chain the core process however the state of this core process is not directly observed only the actual demand is observed by the decision maker given this demand process the inventory control problem is a composite state partially observed markov decision process pomdp which is an appropriate model for a number of dynamic demand problems in practice managers often use certainty equivalent control cec policies to solve such a problem however this paper presents results that demonstrate that there are other practical control policies that almost always provide much better solutions for this problem than the cec policies commonly used in practice the computational results also indicate how specific problem characteristics influence the performance of each of the alternative policies

strategic technology switching under risk aversion and uncertainty abstract firms devising green investment strategies within a deregulated environment must take into account not only economic and technological uncertainty but also strategic interactions due to competition also further complicating green investment decisions is the fact that firms are likely to exhibit risk aversion since alternative energy technologies entail risk that cannot be diversified therefore we develop a utility based real options framework for pre emptive and non pre emptive competition in order to analyse how economic and technological uncertainty interact with risk aversion to impact the adoption of an existing technology in the light of uncertainty over the arrival of an improved version we confirm that greater risk aversion delays investment and show that technological uncertainty accelerates the follower s entry delays the entry of the pre emptive leader and intriguingly does not affect the non pre emptive leader s investment decision also we show how the relative loss in the leader s value due to the follower s entry is affected by economic and technological uncertainty as well as risk aversion and how the risk of pre emption under increasing economic uncertainty raises the value of direct investment in the new technology relative to stepwise investment