macroprudential regulation versus mopping up after the crash this paper compares ex ante policy measures such as macroprudential restrictions on leverage and ex post policy interventions such as bailouts to respond to systemic risk i e to the danger that an economy may experience nancial feedback loops in which falling asset prices declining net worth and tightening nancial constraints reinforce each other ex post policy measures are better targeted since they are taken only once a crisis has materialized but they aggravate the over investment problem ex ante and introduce a time consistency problem ex ante policy measures are more blunt but they can both mitigate the pecuniary externalities that arise during crises and resolve the time consistency problem in ex post policies we nd that except in limit cases it is optimal to respond to systemic risk by using a mix of both ex ante measures and ex post interventions and characterize the optimal policy mix furthermore limiting bailouts to the revenue accumulated in a bailout fund reduces welfare

inefficient credit booms this paper studies the welfare properties of competitive equilibria in an economy with financial frictions hit by aggregate shocks in particular it shows that competitive financial contracts can result in excessive borrowing ex ante and excessive volatility ex post even though from a first best perspective the equilibrium always displays under borrowing from a second best point of view excessive borrowing can arise the inefficiency is due to the combination of limited commitment in financial contracts and the fact that asset prices are determined in a spot market this generates a pecuniary externality that is not internalized in private contracts the model provides a framework to evaluate preventive policies which can be used during a credit boom to reduce the expected costs of a financial crisis copyright 2008 wiley blackwell

on the structure of lost sales inventory models we provide a new approach to the structural analysis of the standard lost sales inventory system this approach is we think easier to work with than the original one we also derive new bounds on the optimal policy then we show that more variable demand leads to higher cost finally we extend the analysis to several important variations of the basic model

constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks we investigate the welfare properties of the one sector neoclassical growth model with uninsurable idiosyncratic shocks we focus on the notion of constrained efficiency used in the general equilibrium literature our characterization of constrained efficiency uses the first order condition of a constrained planner s problem this condition highlights the margins of relevance for whether capital is too high or too low the factor composition of income of the consumption poor using three calibrations commonly considered in the literature we illustrate that there can be either over or underaccumulation of capital in steady state and that the constrained optimum may or may not be consistent with a nondegenerate long run distribution of wealth for the calibration that roughly matches the income and wealth distribution the constrained inefficiency of the market outcome is rather striking it has much too low a steady state capital stock

integrating replenishment decisions with advance demand information there is a growing consensus that a portfolio of customers with different demand lead times can lead to higher more regular revenues and better capacity utilization customers with positive demand lead times place orders in advance of their needs resulting inadvance demand information this gives rise to the problem of finding effective inventory control policies under advance demand information we show that state dependent s s and base stock policies are optimal for stochastic inventory systems with and without fixed costs the state of the system reflects our knowledge of advance demand information we also determine conditions under which advance demand information has no operational value a numerical study allows us to obtain additional insights and to evaluate strategies to induce advance demand information

a note on integrated single vendor single buyer model with stochastic demand and variable lead time abstract ben daya and hariga 2004 integrated single vendor single buyer model with stochastic demand and variable lead time international journal of production economics 92 75 80 recently proposed the paper about integrated single vendor single buyer model with stochastic demand and variable lead time the lead time is proportional to the lot size produced by the vendor in addition to a fixed delay due to the transportation setup and nonproductive time the end customers accept backorders when the shortage occurs at the buyer side an order to the vendor is placed each time the inventory level reaches the reorder point in this note a modified model is proposed under a different assumption that there are two different reorder points and service levels

relative wealth concerns and financial bubbles we present a rational general equilibrium model that highlights the fact that relative wealth concerns can play a role in explaining financial bubbles we consider a finite horizon overlapping generations model in which agents care only about their consumption though the horizon is finite competition over future investment opportunities makes agents utilities dependent on the wealth of their cohort and induces relative wealth concerns agents herd into risky securities and drive down their expected return even though the bubble is likely to burst and lead to a substantial loss agents relative wealth concerns make them afraid to trade against the crowd

collective moral hazard maturity mismatch and systemic bailouts the paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy when everyone engages in maturity transformation authorities haver little choice but facilitating refinancing in turn refusing to adopt a risky balance sheet lowers the return on equity the key ingredient is that monetary policy is non targeted the ex post benefits from a monetary bailout accrue in proportion to the number amount of leverage while the distortion costs are to a large extent fixed this insight has important consequences first banks choose to correlate their risk exposures second private borrowers may deliberately choose to increase their interest rate sensitivity following bad news about future needs for liquidity third optimal monetary policy is time inconsistent fourth macro prudential supervision is called for we characterize the optimal regulation which takes the form of a minimum liquidity requirement coupled with monitoring of the quality of liquid assets we establish the robustness of our insights when the set of

customer order information leadtimes and inventories we have an inventory to manage the scenario is standard in all respects save one instead of arriving unannounced customers provide advance warning of their demands how should we use this information and what is its effect on system performance the answers turn out to be strikingly simple there are very simple policies which perform effectively in some cases optimally also such demand leadtimes improve performance in precisely the same way that replenishment leadtimes degrade it

designing payments for environmental services in theory and practice an overview of the issues abstract payments for environmental services pes have attracted increasing interest as a mechanism to translate external non market values of the environment into real financial incentives for local actors to provide environmental services es in this introductory paper we set the stage for the rest of this special issue of ecological economics by reviewing the main issues arising in pes design and implementation and discussing these in the light of environmental economics we start with a discussion of pes definition and scope we proceed to review some of the principal dimensions and design characteristics of pes programs and then analyze how pes compares to alternative policy instruments finally we examine in detail two important aspects of pes programs their effectiveness and their distributional implications pes is not a silver bullet that can be used to address any environmental problem but a tool tailored to address a specific set of problems those in which ecosystems are mismanaged because many of their benefits are externalities from the perspective of ecosystem managers pes is based on the beneficiary pays rather than the polluter pays principle and as such is attractive in settings where es providers are poor marginalized landholders or powerful groups of actors an important distinction within pes is between user financed pes in which the buyers are the users of the es and government financed pes in which the buyers are others typically the government acting on behalf of es users in practice pes programs differ in the type and scale of es demand the payment source the type of activity paid for the performance measure used as well as the payment mode and amount the effectiveness and efficiency of pes depends crucially on program design

commodity trade and international risk sharing how much do financial markets matter abstract this paper evaluates the social gains from international risk sharing in some simple general equilibrium models with output uncertainty a simulation model calibrated to selected moments of u s and japanese data estimates the incremental loss from a ban on international portfolio diversification to be on the order of 0 20 percent of output per year even the theoretical gains from asset trade may disappear under alternative sets of assumptions on preferences and technology the paper argues that the small magnitude of potential trade gains may help explain the apparently inconsistent findings of empirical studies on the degree of international capital mobility

pareto optimality and competition there is a general consensus that u s financial markets are very competitive and efficient with prices quickly reflecting the available information there is also a widespread belief that these competitive and efficient markets enable the efficient allocation of scarce capital among alternative investment opportunities this belief is not based on direct observation it is virtually impossible to obtain the data concerning the joint probability distribution of returns to all possible projects which would be required for a direct assessment of the efficiency of the resource allocations to which the market gives rise rather it is based on the well known result that perfectly competitive markets generate pareto efficient resource allocations the object of this paper is to question that conclusion to show that even with apparently competitive and efficient markets resource allocations may not be pareto efficient

inefficient investment waves we show that firms individually optimal liquidity management results in socially inefficient boom and bust patterns financially constrained firms decide on the level of their liquid resources facing cash flow shocks and time varying investment opportunities firms liquidity management decisions generate simultaneous waves in aggregate cash holdings and investment even if technology remains constant these investment waves are not constrained efficient in general because the social and private value of liquidity differs the resulting pecuniary externality affects incentives differentially depending on the state of the economy and often overinvestment occurs during booms and underinvestment occurs during recessions in general policies intended to mitigate underinvestment raise prices during recessions making overinvestment during booms worse however a well designed price support policy will increase welfare in both booms and recessions

capital regulation and credit fluctuations we provide a rationale for imposing counter cyclical capital ratios on banks in our simple model bankers cannot pledge the entire future revenues to investors which limits borrowing in good and bad times complete markets do not sufficiently stabilize credit fluctuations as banks allocate too much borrowing capacity to good states and too little to bad states as a consequence bank credit output capital prices or wages are excessively volatile imposing a stricter capital ratio in good states corrects the misallocation of the borrowing capacity increases expected output and can be beneficial to all agents in the economy although in our economy all agents are risk neutral counter cyclical capital ratios are an effective stabilization tool to ensure this effectiveness capital ratios have to be based on ex ante equity capital as classical capital ratios can be bypassed

integrated single vendor single buyer model with stochastic demand and variable lead time abstract in this paper we consider the single vendor single buyer integrated production inventory problem we relax the assumption of deterministic demand and assume that the lead time is varying lineraly with the lot size the lead time is composed of a lot size dependent run time and constant delay times such as moving waiting and setup times a solution procedure is suggested for solving the proposed model and numerical examples are used to illustrate the benefit of integration a sensitivity analysis is also performed to explore the effect of key parameters on lot size reorder point and expected total cost

the international transmission of financial shocks the case of japan one of the more dramatic financial events of the late 1980s and early 1990s was the surge in japanese stock prices that was immediately followed by a very sharp decline of more than 50 percent while the unprecedented fluctuations in japanese stock prices were domestic financial shocks the unique institutional characteristics of the japanese economy produce a framework that is particularly suited to the transmission of such shocks to other countries through the behavior of the japanese banking system the large size of japanese bank lending operations in the united states enables us to use u s banking data to investigate the extent to which this domestic japanese financial shock was transmitted to the united states as well as to identify a supply shock to u s bank lending that is independent of u s loan demand we find that binding risk based capital requirements associated with the decline in the japanese stock market resulted in a decline in commercial lending by japanese banks in the united states that was both economically and statistically significant this finding has added importance given the severe real estate loan problems currently faced by japanese banks how japanese bank regulators decide to resolve these problems will have significant implications for credit availability in the united states as well as in other countries with a significant japanese bank presence

collateral loan quality and bank risk abstract most commercial loans are made on a secured basis yet little is known about the relationship between collateral and credit risk several theoretical studies find that when borrowers have private information about risk the lowest risk borrowers tend to pledge collateral in contrast conventional wisdom holds that when risk is observable the highest risk borrowers tend to pledge collateral an additional issue is whether secured loans as opposed to secured borrowers tend to be safer or riskier than unsecured loans empirical evidence presented here strongly suggests that collateral is most often associated with riskier borrowers riskier loans and riskier banks

optimal bank regulation and fiscal capacity financial regulation is synchronized across countries despite the fact that countries vary widely in their ability to bail out their banking sector in the event of a nancial crisis this paper addresses the question of whether countries with dierent scal capacity should optimally have dierent ex ante minimum bank capital requirements in an environment with endogenously in complete markets and overinvestment because of moral hazard and pecuniary externalities i show that countries with larger scal capacity should have lower ex ante minimum bank capital require ments this result is the opposite of what one may expect given that countries with larger scal capacity often have stronger moral hazard i also show that in addition to a minimum bank capital requirement regulators in countries with strong moral hazard which are countries with a concen trated nancial sector and large scal capacity should impose a limit on the amount of liquidity pledged by nancial institutions in a crisis state this would entail restricting the amount of put options cds contracts sold by nancial institutions among other measures

a macroeconomic model with a financial sector this paper studies a macroeconomic model in which financial experts borrow from less productive agents we pursue four sets of results i the economy is prone to instability and occasionally enters volatile episodes as volatility spikes agents precautionary motive increases depressing prices even further log linear approximations fail to capture these non linear effects that can cause economies to be significantly depressed for long periods of time ii endogenous risk during volatile episodes increases asset price correlations iii financial experts impose a negative externality on each other and on the labor sector by not maintaining adequate capital cushion and funding structure iv while risk sharing within the financial sector through securitization and derivatives contracts reduces many inefficiencies it can also amlify systemic risks

a reconsideration of minsky s financial instability hypothesis the worst and longest depressions have tended to occur after periods of prolonged and reasonably stable prosperity this results in part from agents rationally updating their expectations during good times and hence becoming more optimistic about future economic prospects investors then increase their leverage and shift their portfolios towards projects that would previously have been considered too risky so when a downturn does eventually occur the financial crisis and the extent of default become more severe whereas a general appreciation of this syndrome dates back to minsky 1992 jerome levy economics institute wp 74 and even beyond to irving fisher 1933 econometrica 1 337 357 we model it formally in addition endogenous default introduces a pecuniary externality since investors do not factor in the impact of their decision to take risk and default on the borrowing cost we explore the relative advantages of alternative regulations in reducing financial fragility and suggest a novel criterion for improvement of aggregate welfare

is the international convergence of capital adequacy regulation desirable the merit of international convergence of bank capital requirements in the presence of divergent closure policies of diierent central banks is examined the lack of a complementary variation between minimum bank capital requirements and regulatory forbearance leads to a spillover from more forbearing to less forbearing economies and reduces the competitive advantage of banks in less forbearing economies linking the central bank s forbearance to its alignment with domestic bank owners it is shown that in equilibrium a regression toward the worst closure policy may result the central banks of initially less forbearing economies also adopt greater forbearance i analyze the joint design of two bank regulatory mechanisms minimum capital requirements which are an ex ante mechanism to prevent bank failures and closure policy which is an ex post mechanism to manage the cost of bank failures at the heart of the paper is a simple but fundamental point ex post policies affect ex ante incentives and hence the design of an ex ante mechanism must take into account any feedback from the ex post policies the optimal design of capital requirements is thus tied to the extent of forbearance exercised by the central bank s closure policy this warrants a closer scrutiny of the merits of creating a level playing eld in capital requirements across countries as proposed and

managing credit booms and busts a pigouvian taxation approach we study a dynamic model in which the interaction between debt ac cumulation and asset prices magni es credit booms and busts we nd that borrowers do not internalize these feedback eects and therefore suf fer from excessively large booms and busts in both credit ows and asset prices we show that a pigouvian tax on borrowing may induce borrowers to internalize these externalities and increase welfare we calibrate the model by reference to i the us small and medium sized enterprise sector and ii the household sector and nd the optimal tax to be countercycli cal in both cases dropping to zero in busts and rising to approximately half a percentage point of the amount of debt outstanding during booms

inventory control in a fluctuating demand environment we present an inventory model where the demand rate varies with an underlying state of the world variable this variable can represent economic fluctuations or stages in the product life cycle for example we derive some basic characteristics of optimal policies and develop algorithms for computing them in addition we show that certain monotonicity patterns in the problem data are reflected in the optimal policies

shifting foundations of agricultural policy analysis welfare economics when risk markets are incomplete the neat alignment of resources output and prices specified by the perfect competition model is far from duplicated in free markets and the equally neat alignment assumed under the constraints of a program is not experienced when programs are in effect in particular areas under empirically determined supply curves are unlikely to represent opportunity costs the basic theory is invaluable in providing a conceptual orientation for the analysis of programs but the assumptions implicit in the literal use of simple forms of it for policy conclusions are breathtakingly heroic

a model of financial market liquidity based on intermediary capital we present a model ofnancial market liquidity provided bynanciallyconstrained inter mediaries we show that market liquidity increases with the level of intermediary capital we also characterize conditions under which intermediaries play a stabilizing or destabi lizing role in markets finally we sketch a number of areas including welfare and public policy on which the model can shed light jel g01 g11 g12 g15 g18

optimal time consistent macroprudential policy collateral constraints widely used in models of financial crises feature a pecuniary externality agents do not internalize how borrowing decisions made in good times affect collateral prices during a crisis we show that under commitment the optimal financial regulator s plans are time inconsistent and study time consistent policy quantitatively this policy reduces sharply the frequency and magnitude of crises removes fat tails from the distribution of asset returns and increases social welfare in contrast constant debt taxes are ineffective and can be welfare reducing while an optimized macroprudential taylor rule is effective but less so than the optimal time consistent policy

scaling up pro environmental agricultural practice using agglomeration payments proof of concept from an agent based model rates of adoption of pro environmental practices in agriculture in many parts of the world are low in some cases this is attributable to the private costs borne by farmers to adopt these practices often well in advance of any benefits public or private that they may bring monetary incentives such as through payments for ecosystem services pes programs may be of assistance and in this study we examine the potential for a recent innovation the agglomeration payment to improve adoption of pro environmental practice in a rural agricultural context agglomeration payments include bonus payments for adoption by neighboring farms which may help to encourage both compliance with the program they promote as well as the overall diffusion of the program across rural contexts we develop an abstract agent based model abm of an agglomeration payment program to encourage adoption of the pro environment practice of conservation agriculture ca we find that agglomeration payments have the potential to improve levels of adoption of pro environmental practice per program dollar and may help to reduce required spending on project monitoring and enforcement

monetary policy as financial stability regulation this paper develops a model that speaks to the goals and methods of financialstability policies there are three main points first from a normative perspective the model defines the fundamental market failure to be addressed namely that unregulated private money creation can lead to an externality in which intermediaries issue too much short term debt and leave the system excessively vulnerable to costly financial crises second it shows how in a simple economy where commercial banks are the only lenders conventional monetary policy tools such as open market operations can be used to regulate this externality while in more advanced economies it may be helpful to supplement monetary policy with other measures third from a positive perspective the model provides an account of how monetary policy can influence bank lending and real activity even in a world where prices adjust frictionlessly and there are other transactions media besides bank created money that are outside the control of the central bank

the history of ecosystem services in economic theory and practice from early notions to markets and payment schemes article i nfo this paper reviews the historic development of the conceptualization of ecosystem services and examines critical landmarks in economic theory and practice with regard to the incorporation of ecosystem services into markets and payment schemes the review presented here suggests that the trend towards monetization and commodification of ecosystem services is partly the result of a slow move from the original economic conception of nature s benefits as use values in classical economics to their conceptualization in terms of exchange values in neoclassical economics the theory and practice of current ecosystem services science are examined inthelight ofthis historicaldevelopment from thisreview we conclude thatthefocus onmonetary valuation and payment schemes has contributed to attract political support for conservation but also to commodify a growing number of ecosystem services and to reproduce the neoclassical economics paradigm and the market logic to tackle environmental problems

inventory control in a lost sales setting with information about supply lead times abstract supply chain collaboration using advancements in information technology is on the rise and this includes sharing of information between suppliers and buyers in this paper we study the value of information about the development of supply lead times from a buyer s perspective we consider a periodically reviewed single item inventory system in a lost sales setting where at most one order can be outstanding at a time we compare the performance of an inventory model assuming informed lead times to a model assuming uninformed independent and identically distributed lead times we employ the dynamic programming approach to find the best state dependent ordering policy to minimize the expected average total cost per time unit our numerical results show that acquiring information about the development of supply lead times is of value in general the best policy suggested by the model assuming informed lead times causes lower average cost than the model assuming uninformed lead times

financial markets and the political structure of the enterprise abstract this paper argues that competitive financial markets disfavor democratic enterprises even assuming such enterprises suffer no allocational deficiencies this conclusion follows from five assertions a the democratic enterprise requires access to credit markets b access to credit presupposes access to equity markets c the democratic firm s optimal risk level is lower than that desired by stockholders d the risk level assumed by the firm is costly to observe subject to inaccurate measurement and contractually unenforceable and e the incentives required to induce stockholder favorable risk behavior are more costly for democratic firms than for firms with stockholder accountable management

the taxation of trades in assets when the asset market is incomplete there typically exist taxes on trades in assets that are pareto improving this fiscal policy is anonymous it is fully and correctly anticipated by traders and it results in ex post pareto optimal allocations as such it improves over previously proposed constrained interventions

diversification as a public good community effects in portfolio choice within a rational general equilibrium model in which agents care only about personal consumption we consider a setting in which due to borrowing constraints individuals endowed with local resources underparticipate in financial markets as a result investors compete for local resources through their portfolio choices even with complete financial markets and no aggregate risk agents may herd into risky portfolios this yields a pareto dominated outcome as agents introduce community risk unrelated to fundamentals moreover if some agents are behaviorally biased or cannot completely diversify their holdings rational agents may choose more extreme portfolios and amplify the effect

lead time reduction strategies in a single vendor single buyer integrated inventory model with lot size dependent lead times and stochastic demand this paper studies alternative methods for reducing lead time and their impact on the safety stock and the expected total costs of a q s continuous review inventory control system we focus on a single vendor single buyer integrated inventory model with stochastic demand and variable lot size dependent lead time and assume that lead time consists of production and setup and transportation time as a consequence lead time may be reduced by crashing setup and transportation time by increasing the production rate or by reducing the lot size we illustrate the benefits of reducing lead time in numerical examples and show that lead time reduction is especially beneficial in case of high demand uncertainty further our studies indicate that a mixture of setup time and production time reduction is appropriate to lower expected total costs

relative preferences for soil conservation incentives among smallholder farmers evidence from malawi this paper uses framed choice experiments to examine the preferences of smallholder farmers in malawi regarding alternative policy based incentives to adopt conservation practices that reduce soil erosion and increase yields the policy incentives offered in the choice experiments included an ideal index based crop insurance contract an index insurance contract with basis risk cash payments and fertilizer subsidies prior to implementing the choice experiments the farmers participated in a workshop utilizing small group based dynamic learning games that demonstrated how index based crop insurance contracts function the choice experiment results indicate that most farmers preferred cash payments to index insurance contracts even when the insurance contracts offered substantially higher expected returns further more risk averse farmers were more likely to prefer cash payments than less risk averse and risk loving farmers

the inefficiency of the stock market equilibrium this paper establishes that when there is not a complete set of markets but more than one commodity the stock market equilibrium will not in general be a constrained pareto optimum the economy will lack both the property of exchange and production efficiency necessary conditions which must be satisfied if the economy is to be a constrained pareto optimum for all technologies are derived if all individuals have identical homothetic indifference maps then either there must be unitary price elasticities so there is no effective risk or all individuals must have the same degree of risk aversion so there is no trade on the stock market

inventory control with information about supply conditions this paper presents an inventory control model which includes a markovian model of the supply system as that system evolves over time so do the replenishment leadtimes the optimal policy has the same structure as in standard models but its parameters change dynamically to reflect current supply conditions in this setting contrary to conventional wisdom a longer leadtime does not necessarily imply more inventory the leadtime is important but so is a concept we call order coverage

efficiency and equilibrium when preferences are time inconsistent abstract we consider an exchange economy with time inconsistent consumers whose preferences are additively separable if consumers have identical discount factors then allocations that are pareto efficient at the initial date are also renegotiation proof in an economy with a sequence of markets competitive equilibria are pareto efficient in this sense and for generic endowments only if preferences are locally homothetic

uncertainty as commitment time inconsistency of no bailout policies can create incentives for banks to take excessive risks and generate endogenous crises when the government cannot commit however at the outbreak of nancial problems usually the government is uncertain about their nature and hence it may delay intervention to learn more about them we show that intervention delay leads to strategic restraint banks endogenously restrict the riskiness of their portfolio relative to their peers in order to avoid being the worst performers and bearing the cost of such delay these novel forces help to avoid endogenous crises even when the government cannot commit we analyze the eect of government policies from the perspective of this new result

what lies beneath the euro s effect on financial integration currency risk legal harmonization or trade abstract although recent research shows that the euro has spurred cross border financial integration the exact mechanisms remain unknown we investigate the underlying channels of the euro s effect on financial integration using data on bilateral banking linkages among twenty industrial countries in the past thirty years we also construct a dataset that records the timing of legislative regulatory harmonization policies in financial services across the european union we find that the euro s impact on financial integration is primarily driven by eliminating the currency risk legislative regulatory convergence has also contributed to the spur of cross border financial transactions trade in goods while highly correlated with bilateral financial activities does not play a key role in explaining the euro s positive effect on financial integration

managing inventory with multiple products lags in delivery resource constraints and lost sales a mathematical programming approach this paper develops an order up tos inventory model that is designed to handle multiple items resource constraints lags in delivery and lost sales without sacrificing computational simplicity mild conditions are shown to ensure that the expected average holding cost and the expected average shortage cost are separable convex functions of the order up to levels we develop nonparametric estimates of these costs and use them in conjunction with linear programming to produce what is termed the lp policy the lp policy has two major advantages over traditional methods first it can be computed in complex environments such as the one described above and second it does not require an explicit functional form of demand something that is difficult to specify accurately in practice in two numerical experiments designed so that optimal policies could be computed the lp policy fared well differing from the optimal profit by an average of 2 20 and 1 84 respectively these results compare quite favorably with the errors incurred in traditional methods when a correctly specified distribution uses estimated parameters our findings support the effectiveness of this mathematical programming technique for approximating complex real world inventory control problems

optimal policies for inventory systems with finite capacity and partially observed markov modulated demand and supply processes we analyze a single item periodic review inventory system with random yield and finite capacity operating in a random environment the primary objective is to extend the model of gallego and hu 2004 to the more general case when the environment is only partially observable although our analysis is specific to inventory systems it can also be applied to production systems by replacing the fixed capacity supplier with a fixed capacity producer using sufficient statistics we consider single period multiple period and infinite period problems to show that a state dependent modified inflated base stock policy is optimal moreover we show that the multiple period cost converges to the infinite period cost as the length of the planning horizon increases

bailouts and financial fragility how does the belief that policymakers will bail out investors in the event of a crisis affect the allocation of resources and the stability of the financial system i study this question in a model of financial intermediation with limited commitment when a crisis occurs the efficient policy response is to use public resources to augment the private consumption of those investors facing losses the anticipation of such a bailout distorts ex ante incentives leading intermediaries to choose arrangements with excessive illiquidity and thereby increasing financial fragility prohibiting bailouts is not necessarily desirable however it induces intermediaries to become too liquid from a social point of view and may in addition leave the economy more susceptible to a crisis a policy of taxing short term liabilities in contrast can correct the incentive problem while improving financial stability

symposium on organizations and economics m t r ost production in modern economies occurs within organizations and this production is regulated only to a limited extent by prices the size of some of the largest organizations like general motors or ibm or att if managers didn t they would be replaced and firms that didn t maximize value wouldn t survive accordingly what went on inside the black box was mere detail the behavior of the firm could be described completely without knowledge of those details

stationary equilibria with incomplete markets and overlapping generations recent work on general equilibrium models with incomplete financial markets has demonstrated that when assets pay off in units of account equilibrium prices and allocations are indeterminate the equilibria in such models are also generically constrained suboptimal a central planner can typically reallocate assets in such a way as to pareto dominate the competitive equilibrium in this paper the authors consider an overlapping generations model with incomplete markets in which one asset is fiat money they show that when outside money has value in equilibrium the stationary equilibrium prices and allocations are both locally isolated and constrained optimal copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the r q control of a periodic review inventory system with continuous demand and lost sales abstract in this paper we consider a periodic review inventory model with lost sales during a stockout and with the constraint that at most one replenishment order may be outstanding at any time demands in successive review periods are independent identically distributed variables from a continuous distribution the fixed lead time is an integral number of review periods we explore control policies of the r q type that is a replenishment order of size q is placed when the inventory position stock in hand plus stock on order falls to or below the re order level r we use asymptotic renewal theory results to estimate the undershoot of the re order level r and also to estimate the cycle stockholding cost which turns out to take a relatively simple form based on these approximations we set out a policy improvement solution methodology and illustrate this with some numerical examples for which demand is normally distributed these numerical examples suggest that a relatively simple approach based on the economic order quantity can provide results which are very close to optimal