balancing terrorism and natural disasters defensive strategy with endogenous attacker effort in this paper we apply game theory to identify equilibrium strategies for both attacker and defender in a fully endogenous model of resource allocation for countering terrorism and natural disasters the key features of our model include balancing protection from terrorism and natural disasters and describing the attacker choice by a continuous level of effort rather than a discrete choice i e attack or not interestingly in a sequential game increased defensive investment can lead an attacker to either increase his level of effort to help compensate for the reduced probability of damage from an attack or decrease his level of effort because attacking has become less profitable this can either reduce or increase the effectiveness of investments in protection from intentional attack and can therefore affect the relative desirability of investing in protection from natural disasters

securing the containerized supply chain analysis of government incentives for private investment to mitigate the threat that terrorists smuggle weapons of mass destruction into the united states through maritime containers the u s bureau of customs and border protection cbp inspects containers upon entry to domestic ports inspection driven congestion is costly and cbp provides incentives to firms to improve security upstream in the supply chain thereby reducing the inspection burden at u s ports we perform an economic analysis of this incentive program called customs trade partnership against terrorism c tpat modeling in a game theoretic framework the strategic interaction between cbp trading firms and terrorists our equilibrium results highlight the possibility that a properly run program can efficiently shift some of cbp s security burden to private industry these results also suggest that cbp may have the opportunity to use strategic delay as an incentive for firms to join analysis of comparative statics shows that with increasing capacity membership in c tpat systematically declines

metaheuristics with local search techniques for retail shelf space optimization efficient shelf space allocation can provide retailers with a competitive edge while there has been little study on this subject there is great interest in improving product allocation in the retail industry this paper examines a practicable linear allocation model for optimizing shelf space allocation it extends the model to address other requirements such as product groupings and nonlinear profit functions besides providing a network flow solution we put forward a strategy that combines a strong local search with a metaheuristic approach to space allocation this strategy is flexible and efficient as it can address both linear and nonlinear problems of realistic size while achieving near optimal solutions through easily implemented algorithms in reasonable timescales it offers retailers opportunities for more efficient and profitable shelf management as well as higher quality planograms

to bargain or not to bargain that is the question we use economic analysis in a simple game theory framework to ascertain under what circumstances a government would want to precommit itself to a no negotiation strategy from the government viewpoint we examine both the choice of deterrence expenditure i e expense meant to reduce terrorist logistical success during incidents and whether to negotiate or not this abstract was borrowed from another version of this item

optimal dynamic pricing for deteriorating items with reference price effects when inventories stimulate demand abstract in this paper we incorporate reference price effects into a deteriorating inventory problem when the demand rate depends on displayed stock level and selling price simultaneously reference price effects are formed empirically by customers to adjust current price perception on the basis of past purchases the market demand is assumed to be responsive to the difference between the current selling price and the reference price which is perceived as a loss or a gain we consider three scenarios of market demand loss neutrality loss aversion and loss seeking an optimal dynamic pricing model is established to determine a pricing strategy maximizing the discounted total profit over an infinite time horizon theoretical results are derived to demonstrate the existence of the optimal solutions and to explore the relationships between optimal pricing decisions and an initial reference price based on mild assumptions numerical example and sensitivity analysis are presented to illustrate the theoretical results and managerial insights finally concluding remarks are offered

investment risks in power generation a comparison of fossil fuel and renewable energy dominated markets abstract due to their high capital intensity weather dependent renewable energies res such as solar and wind face considerable investment risks in power markets in addition their uncertain production volumes also affect the investment risks of other plant types through the impact on power prices and residual demand increasing res shares thus potentially increase overall investment risks in power markets which many analysts consider to be a potential problem against this background this paper compares investment risks of different technologies in markets with increasing shares of variable res it further analyses how generation mixes are affected by these investment risks if the risks are evaluated on a stand alone basis or in a plant portfolio context of a private firm for this purpose a stylized investment and dispatch model is used to conduct monte carlo simulations from which risk measures are derived the results show that capital intensive res face the highest stand alone risks since their profits are most affected by the power price risk however the results further indicate that the stand alone risks of variable res decrease with their share in the market because of a negative correlation of output and price risk in addition res have a risk benefit in firm plant portfolios in terms of constituting a hedge against losses of fossil fuel plants this positive portfolio effect however rapidly decreases and becomes negative with increasing res shares in the market

the impact of disaster on the strategic interaction between company and government a company allocates a resource between safety effort and production the government earns taxes on production the disaster probability is modeled as a contest between the disaster magnitude and the two players safety efforts the model illustrates that safety efforts are strategic substitutes and inverse u shaped in the disaster magnitude the company s safety effort increases and the government s safety effort decreases in taxation taxation can ameliorate companies free riding on governments safety efforts with sufficiently large production the government prefers and the company does not prefer raising taxation above 0 for the government an upper limit usually exists above which taxation cannot be profitably increased the model shows how both or no players exert safety efforts when the disaster magnitude is small and large respectively and how they free ride on each other s safety efforts when the disaster magnitude is intermediate the company free rides when the unit production cost is low so that the large profits outweigh the negative impact of the disaster with endogenized taxation determined by the government the tax rate decreases in the disaster magnitude the unit production cost the government s unit cost of safety effort and how the company is negatively affected by the disaster the tax rate increases in the company s resource and how the government is negatively affected by the disaster the tax rate is weakly u shaped in the company s unit safety effort the model is illustrated with numerical examples and with the oil spill disasters by bp in 2010 and by exxon valdez in 1989

on the value of exposure and secrecy of defense system first mover advantage vs robustness abstract it is commonly accepted in the literature that when facing with a strategic terrorist the government can be better off by manipulating the terrorist s target selection with exposing her defense levels and thus moving first however the impact of terrorist s private information may significantly affect such government s first mover advantage which has not been extensively studied in the literature to explore the impact of asymmetry in terrorist s attributes between government and terrorist on defense equilibrium we propose a model in which the government chooses between disclosure sequential game and secrecy simultaneous game of her defense system our analysis shows that the government s first mover advantage in a sequential game is considerable only when both government and terrorist share relatively similar valuation of targets in contrast we interestingly find that the government no longer benefits from the first mover advantage by exposing her defense levels when the degree of divergence between government and terrorist valuation of targets is high this is due to the robustness of defense system under secrecy in the sense that all targets should be defended in equilibrium irrespective of how the terrorist valuation of targets is different to government we identify two phenomena that lead to this result first when the terrorist holds a significantly higher valuation of targets than the government s belief the government may waste her budget in a sequential game by over investing on the high valued targets second when the terrorist holds a significantly lower valuation of targets the government may incur a higher expected damage in a sequential game because of not defending the low valued targets finally we believe that this paper provides some novel insights to homeland security resource allocation problems

the investment problem in terrorism evidence from early terrorist groups reveals a structural equivalence between extortion and terrorism this allows us to draw conclusions from the theory of extortion that can be applied to a theory of terrorism concerning the role of repeated play in the viability of extortion it also enables us to analyse the role of commitment in destroying the extortionary organization

conciliation counterterrorism and patterns of terrorist violence what causes the increase in terrorism that reportedly often follows gov ernment concessions given this pattern why do governments ever conciliate terror ists i propose a model in which terrorist organizations become more militant following concessions because only moderate terrorists accept them leaving extremists in con trol governments nonetheless are willing to make concessions because their coun terterror capabilities improve because of the collusion of former terrorists former terrorists undertake this collusion to insure the credibility of government promises the model also yields hypotheses regarding the level of government investment in counterterror when moderates accept concessions the terms of negotiated settle ments the duration of terrorist conflicts incentives for moderate terrorists to radical ize their followers and incentives for governments to encourage extremist challenges to moderate terrorist leaders the model is illustrated with an application to the israeli0 palestinian conflict

valuing fuel diversification in power generation capacity planning abstract deterministic capacity planning problems in electricity systems can be solved by comparing technology specific long term and short term marginal costs in an uncertain market environment mean variance portfolio mvp theory provides a consistent framework to balance risk and return in power generation portfolios focusing on fuel price risks mvp theory can be adopted to determine the welfare efficient system generation technology mix existing literature on mvp applications in electricity generation markets uses predominantly numerical methods to characterize portfolio risks in contrast this article presents a novel analytical approach combining conceptual elements of classical capacity planning models and mvp theory to derive the efficient portfolio structure consisting of an arbitrary number of plant technologies given uncertain fuel prices for this purpose we provide a static optimization model which allows to fully capture fuel price risks in a mean variance portfolio framework the analytically derived optimality conditions contribute to a better understanding of the optimal investment policy and its risk characteristics compared to existing numerical methods furthermore we demonstrate an application of the proposed framework and provide results for the german electricity market which has been hardly treated in mvp literature on electricity markets this article provides easily interpretable analytical optimality conditions for efficient generation portfolios from a societal point of view and therewith contributes to a better understanding of mvp in electricity applications

sh a r p shelf allocation for retailers profit shelf space is the retailer s scarcest resource space management tools are thus badly needed for that purpose commercial computer packages and optimal allocation models have been developed building on the work of corstjens and doyle we elaborate a general theoretical shelf space allocation model which focuses on the demand interdependencies prevailing across and within product groups rules of thumb are compared to the derived optimal allocation the sh a r p model is introduced as a simplified yet realistic variant and validated against data collected in a dutch supermarket chain subsequently the feasibility of its implementation has been experimented in various belgian chains case studies demonstrate the profit potential of sh a r p

cooperative game analysis of retail space exchange problems abstract we analyze retail space exchange problems where two or more retailers exchange their excess retail spaces to improve the utilization of their space resource we first investigate the two retailer space exchange problem in order to entice both retailers with different bargaining powers to exchange their spaces we use the generalized nash bargaining scheme to allocate the total profit surplus between the two retailers next we consider the space exchange problem involving three or more retailers and construct a cooperative game in characteristic function form we show that the game is essential and superadditive and also prove that the core is non empty moreover in order to find a unique allocation scheme that ensures the stability of the grand coalition we propose a new approach to compute a weighted shapley value that satisfies the core conditions and also reflects retailers bargaining powers our analysis indicates that the space exchange by more retailers can result in a higher system wide profit surplus and thus a higher allocation to each retailer under a fair scheme

a periodic review model with serially correlated inventory level dependent demand abstract it has been established that the demand rates of many consumer products are serially correlated and are dependent on the amount of inventory displayed to the customer a periodic review model is developed that considers both of these effects an adaptive base stock policy based on the critical fractile is presented and a solution methodology is developed the effect of this demand pattern on the safety stock requirement is investigated

balancing congestion and security in the presence of strategic applicants with private information concerns on security and congestion appear in security screening which is used to identify and deter potential threats e g attackers terrorists smugglers spies among normal applicants wishing to enter an organization location or facility generally in depth screening reduces the risk of being attacked but creates delays that may deter normal applicants and thus decrease the welfare of the approver authority manager screener in this paper we develop a model to determine the optimal screening policy to maximize the reward from admitting normal applicants net of the penalty from admitting bad applicants we use an m m 1 queueing system to capture the impact of security screening policies on system congestion and use game theory to model strategic behavior in which potential applicants with private information can decide whether to apply based on the observed approver s screening policy and the submission behavior of other potential applicants we provide analytical solutions for the optimal non discriminatory screening policy and numerical illustrations for both the discriminatory and non discriminatory policies in addition we discuss more complex scenarios including imperfect screening abandonment behavior of normal applicants and non zero waiting costs of attackers

a continuous model for multistore competitive location this paper presents a simple model to determine the location strategies of two retail firms planning to open a number of stores in a geographical market firms try to maximize their profit under a leader follower type competition in which the number of stores is made endogenous by the introduction of fixed costs a novel methodology is developed in which firms strategies are defined in terms of their location densities this methodology leads to a model that is solvable analytically and to several results on competitive location strategies first it is shown that if the follower decides to enter a market he enters at least as strongly as the leader second the leader can effectively deter entry even if she is severely cost disadvantaged however in some cases the leader is better off by allowing the follower to enter the market third the leader may also let the follower enter the market in some situations where she has a cost advantage it is also shown that in situations where both firms enter the market their location strategies are quite insensitive to model parameters

an integrated assortment and shelf space optimization model with demand substitution and space elasticity effects abstract retailers must define their assortments and assign shelf space to the items included in these assortments these two planning problems are mutually dependent if space is scarce we formulate a model that maximizes a retailer s profit by selecting the optimal assortment and assigning limited shelf space to items this model is the first decision model to integrate assortment and shelf space planning by considering stochastic and space elastic demand out of assortment and out of stock substitution effects to solve the model we develop a specialized heuristic that efficiently yields near optimal results even for large scale problems we show that our approach outperforms alternative approaches e g a sequential planning approach that first picks assortments and then assigns shelf space by up to 18 and a greedy algorithm by up to 16 in terms of profit we test our model on two real data sets for perishable and non perishable items and show how it can support retailers in increasing their profits by up to 25 we then use the model to generalize these results and find that space elasticity and substitution effects have a significant impact on profits assortment size as well as facing decisions and that both effects reinforce each other using our model we finally derive rules of thumb for planners in practice

modeling secrecy and deception in a multiple period attacker defender signaling game abstract in this paper we apply game theory to model strategies of secrecy and deception in a multiple period attacker defender resource allocation and signaling game with incomplete information at each period we allow one of the three possible types of defender signals truthful disclosure secrecy and deception we also allow two types of information updating the attacker updates his knowledge about the defender type after observing the defender s signals and also after observing the result of a contest if one occurs in any given time period our multiple period model provides insights into the balance between capital and expense for defensive investments and the effects of defender private information such as defense effectiveness target valuations and costs and also shows that defenders can achieve more cost effective security through secrecy and deception possibly lasting more than one period in a multiple period game this paper helps to fill a significant gap in the literature in particular to our knowledge no past work has studied defender secrecy and deception in a multiple period game moreover we believe that the solution approach developed and applied in this paper would prove useful in other types of multiple period games

multi objective stackelberg game model for water supply networks against interdictions with incomplete information abstract water supply networks are infrastructures pivotal to economic development and living standards of which the increasing complexity and interdependencies have brought challenges for the protection and enhancement of water supplies we address the problem on how to defend water supply networks with hydraulic characteristics against an interdictor by building a multi objective stackelberg game model with incomplete information in this model the defender and the interdictor both considered as rational players choose a subset of network components to defend or interdict based on their payoffs the defender with incomplete information on the interdictor s efforts initiates to trade off the two objectives of maximizing the expected network satisfaction rate and of minimizing defense efforts whereas the interdictor with no information on network operational capacity follows to trade off the objectives of minimizing the expected network efficiency and of minimizing interdiction efforts the algorithm of determining the final optimal defense strategies is presented which consists of three steps 1 develop the strategy sets by the assessments of network vulnerability and resilience 2 analyze the equilibrium through a nested heuristic genetic algorithm and 3 determine the final optimal defense strategy based on the minimax regret approach a case study of d town water supply network demonstrates the practical significance of the proposed approach furthermore the impacts of the incomplete information are analyzed to provide suggestions on the defense strategy making

a game theoretic model for resource allocation among countermeasures with multiple attributes abstract we study a strategic two player sequential game between an attacker and defender the defender must allocate resources amongst possible countermeasures and across possible targets the attacker then chooses a type of threat and a target to attack this paper proposes a model for determining optimal resource allocation by combining game theory with a simple multi attribute utility model given a set of possible attributes representing goals or preferences we allow each player to choose a weight for each attribute where the subset of attributes with nonzero weights represents that player s preferences every countermeasure is given a score for its effectiveness at both mitigating the effects of an attack in terms of each attribute and reducing the probability of the success of an attack furthermore the consequences of each possible attack are scored in terms of each attribute the multi attribute utility aspect of this model uses these scores along with the players weights to form the basis of the utility or disutility for each player we find that i the zero sum game where the attacker s and defender s weights are identical results in the worst losses for the defender ii in general cases the defender s equilibrium strategy has the result of making the attacker indifferent between multiple attacks and iii the use of target independent countermeasures i e countermeasures which operate at national levels as opposed to operating at differing levels for each target can increase the cost effectiveness of countermeasures

two moment decision models and expected utility maximization two moment decision models are consistent with expected utility maximization only if the choice set or the agent s preferences are restricted this paper identifies a restriction which is sufficient to ensure this consistency and confirms that it holds in many economic models the implications for economic analysis are then derived two different approaches to representing an agent s preferences over strategies yielding random payoffs are in wide use under the mean standard deviation ms approach the agent is assumed to rank the alternatives according to the value of some function defined over the first two moments of the random payoff while the expected utility eu criterion assumes that the expected value of some utility function defined over payoffs is used instead the fact that there are these two competing approaches has generated a considerable literature some authors are concerned with the advantages and disadvantages of each while others deal with conditions under which the potentially different approaches would yield the same results or at least approximately so space does not

shelf space allocation of national and private brands we propose a game theoretic model in which one national brand manufacturer acting as a leader maximizes her own profit and one retailer selling the national brand and her private label and acting as a follower maximizes her category profit we characterize the resulting stackelberg equilibrium in terms of the amount of shelf space allocated to these brands as well as their prices the results suggest that the allocation of the shelf space depends on the quality of the private label in our framework quality is measured by the baseline sales or brand equity the degree of brand substitution and the price positioning

cvar constrained planning of renewable generation with consideration of system inertial response reserve services and demand participation abstract integration of renewable generation can lead to both diversification of energy sources which can improve the overall economic performance of the power sector and cost increase due to the need for further resources to provide flexibility and thus secure operation from unpredictable variable and asynchronous generation in this context we propose a cost risk model that can properly plan generation and determine efficient technology portfolios through balancing the benefits of energy source diversification and cost of security of supply through the provision of various generation frequency control and demand side services including preservation of system inertia levels we do so through a scenario based cost minimization framework where the conditional value at risk cvar associated with costs under extreme scenarios of fossil fuel prices combined with hydrological inflows is constrained the model can tackle problems with large data sets e g 8760 hours and 1000 scenarios since we use linear programming and propose a benders based method adapted to deal with cvar constraints in the master problem through several analyses including the chilean main electricity system we demonstrate the effects of renewables on hedging both fossil fuel and hydrological risks effects of security of supply on costs risks and renewable investment and the importance of demand side services in limiting risk exposure of generation portfolios through encouraging risk mitigating renewable generation investment

investments and cleaner energy production a portfolio analysis in the italian electricity market abstract the recent climate change global warming environmental disasters and the economic crisis are only the first signs of the failure of an economic system that for too long shows an uncontrolled utilization of the planet wealth the italian electricity market which is strongly dependent on hydrocarbons only in recent years has seen a first attempt to change towards renewable resources for electricity production aimed at self consumption and for feeding into the grid this paper presents an economic analysis whose purpose is to evaluate the profitability of investments in renewable technologies for the production of electricity each renewable source has its own profitability dependent on a number of factors and subject to market fluctuations cost and frequent changes in the incentive policies applying portfolio theory is possible to select the right mix of renewable energy sources and simulate its evolution moreover the presented analysis can be useful for energy planners to select future green scenarios finalized to the reduction of emissions and energy imports through the increasing use of renewable energy

retailer shelf space management with trade allowance a stackelberg game between retailer and manufacturers abstract motivated by the significant influence of trade allowance on store operation and the efficiency of shelf space allocation this article develops a model for optimizing category level shelf space management a category shelf space allocation framework with trade allowance is presented and a multi player retailer stackelberg game is introduced to model the interaction between retailer and manufacturers with this framework a retailer maximizes profit by taking the manufacturers trade allowance response into account which provides a realistic approach of simultaneously determining the shelf space and trade promotion decisions under the consideration of interactions among products a piecewise linearization method is employed to reformulate the mixed integer nonlinear programming minlp problem into a linear mip problem for optimal solutions numerical examples demonstrate significant advantage of the proposed framework and quantitative analysis leads to a variety of managerial insights

the interplay between preemptive and defensive counterterrorism measures a two stage game a two stage game depiction of counterterrorism is presented emphasizing the interaction between preemptive and defensive measures taken by two commonly targeted countries the preemptor is apt to be the high cost defender with the greater foreign interests a prime target country may also assume the preemptor role the analysis identifies key factors cost comparisons foreign interests targeting risks and domestic terrorism losses that determine counterterrorism allocations market failures associated with preemptive and defensive measures may be jointly ameliorated by a disadvantaged defender nevertheless the subgame perfect equilibrium will still be suboptimal since externalities are not fully internalized

portfolio applications in electricity markets review private investor and manager perspective trends abstract the private sector plays a major role in the expansion and operation of power systems in most countries especially those running liberalized electricity markets policymakers have the task of inducing private agents through their regulatory designs to make decisions that point toward social welfare maximization conversely it is a task of private agents to protect themselves against the risks of the sector including regulatory risks international fuel price uncertainty climate change policies natural resource availability electricity demand uncertainty co2 clearance prices etc instead of hiding all of these risks within the total project costs and losing competitiveness private agents can use diversification as a strategy to deal with them this paper presents a review of the main applications voids and challenges of portfolio optimization for two key agents of the private sector investors and managers the problem of the investor is to design a technology portfolio to invest in that maximizes its expected returns and limits risks while the manager has to design a portfolio of financial physical instruments long term contracts futures etc to sell buy electricity and hedge against price risks we have found two fundamental issues in the literature the first and most important is excessive confidence in historical data and statistical analysis for predicting future price behavior for a changing future in detriment of more structural analysis structural analysis can include particularities of modern power systems such as future transmission changes congestion operational constraints ramps new entrants new technologies and new demand grow patterns that cannot be taken into account by simply analyzing price historical values the second is the omission of renewable complementarities which is a proven characteristic of dispersed renewable plants that may have important risk mitigation effects although it has largely been ignored in portfolio analysis due to insufficient data modeling limitations and computational complexity

an approximate solution to rent seeking contests with private information abstract we propose an approximate solution to rent seeking contests in which participants have heterogeneous and private valuations the procedure only requires common knowledge about the mean of the distribution of valuations we obtain a closed form expression for an agent s level of investment and subject it to comparative statics analysis we then assess the performance of the model and find that the proposed solution provides a remarkably effective approximation of the optimal solution for a wide range of parameter specifications

critical infrastructure protection using secrecy a discrete simultaneous game abstract in this research critical infrastructure protection against intentional attacks is modeled as a discrete simultaneous game between the protector and the attacker to model the situation that both players keep the information of their resource allocation secret we prove that keeping the information regarding protection strategies secret can obtain a better effect of critical infrastructure protection than truthfully disclosing it solving a game theoretic problem even in the case of two players has been known to be intractable to deal with this complexity after proving that pure strategy nash equilibrium solutions do not exist for the proposed simultaneous game a new approach is proposed to identify its mixed strategy nash equilibrium solution

accounting profits versus marketing profits a relevant metric for category management retailers have long recognized that some categories are more important than others in consumers store choice decisions the overall profitability of a store requires careful category level merchandising decisions to draw the most desirable consumers into the store however the traditional accounting measure of category profits offers imperfect help making these decisions since it does not take into account the effect of merchandising one category on the profits of other categories in the store a profit measure which takes into account these important cross effects is the most relevant performance metric for category management we call this new construct marketing profits as it focuses on consumers and their store choice behavior and is particularly pertinent to the calculus of marketing decision making despite its practical importance the total impact of merchandising a specific product category on a store s profitability is difficult to measure and in practice managers can only rely on intuitive calibration of marketing profits in making many retailing decisions the difficulty arises from the fact that to directly observe the marketing profits of a category one has to know how consumer store shopping behavior would change and hence what a store s profit would be if the category were to disappear from the consumers store choice decision furthermore it is difficult to devise a demand structure that is rich enough to capture bundled purchases on the part of consumers in a reasonable manner but is simple enough to allow estimation on the basis of commonly observed variables these two technical difficulties explain the conspicuous lack of research that systematically examines how to quantify what we call marketing profits this paper builds a formal model of marketing profits we start by formalizing shopper types and then establish the implied relationship between accounting profits and marketing profits by examining shelf space allocations by a retailer on the consumer side we assume that some consumers pay attention to the assortments offered by different retailers when making their store choice decisions this assumption allows us to establish the demand side linkage between accounting profits and marketing profits consumer store choice decisions put pressure on the retailer to carry wide assortments in categories which are particularly critical to the store choice decisions of the most desirable consumers thus the allocation of shelf space gives rise to the supplyside linkage between accounting profits and marketing profits by examining the outcome of the supermarket s shelf space decision we can merge these two linkages and determine the exact relationship between the accounting and marketing profits central to our theoretical structure is our assumption on retailers shelf space allocation decisions because of the well documented pressure that retailers face in making shelf space allocation decisions we assume that they are acting in a reasonably close to optimal fashion by using either an automated planogram or simply by trial and error optimization requires that returns on shelf space allocated to any category in the store must be identical on the margin and equate to the shadow price of shelf space it is this outcome of shelf space allocation that allows us to uncover the implied relationship between accounting and marketing profits this theoretical structure allows us to construct a measure of marketing profits which can be estimated with data commonly available to retailers we demonstrate this measurement technique by using publicly available data provided by marsh supermarkets and show how marketing profits can improve merchandising decisions in our particular application we find many categories where the marketing profits of a category are very different from the traditional accounting profits further we nd that using this new marketing profits metric to make category level feature advertising space decisions significantly improves the profitability of the retailer the paper concludes by discussing how our measure of marketing profits might be improved by additional research particularly if the researcher has data across many stores

insurance self protection and the economics of terrorism abstract this paper investigates the rationale for public intervention in the terrorism insurance market it argues that government subsidies for terror insurance have the effect of discouraging self protection and limiting the negative externalities associated with self protection cautious self protective behavior by a target can hurt public goods like national prestige if it is seen as giving in to the terrorists and may increase the loss probabilities faced by others by encouraging terrorists to substitute toward more vulnerable targets we argue that these externalities in protection are essential for normative analysis of government intervention in insurance markets and may also explain why availability problems in this market have engendered much stronger government responses than similar problems in other catastrophe insurance markets

a model for optimizing retail space allocations the allocation of scarce shelf space among competing products is a central problem in retailing space allocation affects store profitability through both the demand function where both main and cross space elasticities have to be considered and through the cost function procurement carrying and out of stock costs a model is developed which uniquely incorporates both effects a case study is used to estimate the parameters and the problem is solved within a geometrical programming framework an extensive comparison with alternative procedures suggests this general model leads to significantly different allocation rules and superior profit performance

security screening queues with impatient applicants a new model with a case study abstract security screening policies are critical in military contexts airports ports and visa issuance processes in order to minimize risks from terrorists smugglers fugitives and others however such screening procedures also increase congestion and inconvenience for normal applicants which may create a trade off for the authorities balancing between risk and congestion in this paper we develop a game theoretical model to investigate optimal screening policies that acknowledges the trade offs between risk congestion and abandonment behavior of the applicants to calculate the average waiting time in the screening queue with heterogeneous impatient applicants we use a two dimensional markov chain model as a case study we tackle the security screening process of us visa applications by conducting an online survey collected data shows some key aspects of applicant preferences such as abandonment behavior we conduct sensitivity analysis for our model we show that if the authorities take the abandonment behavior of the applicants into account beforehand they may achieve higher utility depending on the characteristics of applicants

inventory decisions for substitutable products with stock dependent demand abstract we study a retailer s inventory policy for two products the products are substitutable and have inventory dependent demand so a higher inventory level of a product increases its sales we model the joint effect of demand stimulation and product substitution on inventory decisions by considering a single period stochastic demand setting we provide the first order optimality conditions for the profit maximizing order quantities and interpret them using marginal analysis we also consider two heuristic solutions that separately account for either demand stimulation or product substitution our numerical analysis reveals that the optimal policy by appropriately using sales information that quantifies substitution and demand stimulation can produce significantly higher profits the profit benefits are lessened under certain circumstances such as when the two products have similar critical fractile values suggesting that in such instances the heuristics may be used effectively

fuel mix diversification incentives in liberalized electricity markets a mean variance portfolio theory approach monte carlo simulations of gas coal and nuclear plant investment returns are used as inputs of a mean variance portfolio optimization to identify optimal base load generation portfolios for large electricity generators in liberalized electricity markets we study the impact of fuel electricity and co2 price risks and their degree of correlation on optimal plant portfolios high degrees of correlation between gas and electricity prices as observed in most european markets reduce gas plant risks and make portfolios dominated by gas plant more attractive long term power purchase contracts and or a lower cost of capital can rebalance optimal portfolios towards more diversified portfolios with larger shares of nuclear and coal plants

revenge or continued attack and defense in defender attacker conflicts abstract existing literature has demonstrated that exacting revenge can have a self deterrence effect and a value of revenge effect the former means that each player will decrease effort when competing for a resource because of fear of a rival s revenge while the latter implies that each player will increase effort in the revenge period moreover the self deterrence effect could outweigh the value of revenge effect implying that revenge could be helpful in stabilizing conflicts a phenomenon known as the paradox of revenge we re examine the two effects and the paradox of revenge in defender attacker conflicts considering a scenario in which a defender and only the defender who was attacked in the first period takes revenge on the attacker in the subsequent period we demonstrate that whether or not these results hold depends on how much the defender values revenge and the difference between the two players efficiencies of effort more interestingly we show that a sufficiently large revenge value for the defender can deter an attack from the attacker in the first place

conflict and rent seeking success functions ratio vs difference models of relative success the rent seeking competitions studied by economists fall within a much broader category of conflict interactions that also includes military combats election campaigns industrial disputes lawsuits and sibling rivalries in the rent seeking literature each party s success pi which can be interpreted either as the probability of victory or as the proportion of the prize won has usually been taken to be a function of the ratio of the respective resource commitments alternatively however pi may instead be a function of the difference between the parties commitments to the contest the contest success function csf for the difference from is a logistic curve in which as is consistent with military experience increasing returns apply up to an inflection point at equal resource commitments a crucial flaw of the traditional ratio model is that neither onesided submission nor two sided peace between the parties can ever occur as a cournot equilibrium in contrast both of these outcomes are entirely consistent with a model in which success is a function of the difference between the parties resource commitments

dynamic games with hidden actions and hidden states abstract we consider a class of dynamic games in which each player s actions are unobservable to the other players and each player s actions can influence a state variable that is unobservable to the other players we develop an algorithm that solves for the subset of sequential equilibria in which equilibrium strategies depend on private information only through the privately observed state journal of economic literature classification numbers c63 c73

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

risk aversion and co2 regulatory uncertainty in power generation investment policy and modeling implications abstract we consider a simulation of risk averse producers when making investment decisions in a competitive energy market who face uncertainty about future regulation of carbon dioxide emissions investments are made under regulatory uncertainty then the regulatory state is revealed and producers realize returns we consider anticipated taxes grandfathered permits and auctioned permits and show that some anticipated policies increase investment in the relatively dirty technology beliefs about the policy instrument that will be used to price carbon may be as important as certainty that carbon will be priced more generally a failure to consider risk aversion may bias policy analysis for the power sector

the relevance of private information in mechanism design abstract recent results in mechanism design show that as long as agents have correlated private information and are sufficiently risk neutral it is possible to design mechanisms that leave agents with arbitrarily small information rents we show that these full rent extraction results hinge on the implicit assumption that the agents beliefs uniquely determine their preferences we present an example of the voluntary provision of a public good in which this assumption is relaxed and consequently even in highly correlated environments if agents beliefs do not uniquely determine their preferences then the extraction of the agents entire information rents is impossible

an eoq model with state dependent demand rate we present an eoq type model in which the demand rate is a function of the inventory level the demand functions and holding cost functions considered are quite general in particular we focus on two types of demand rate functions a piecewise constant function and a family of exponential functions the paper includes analysis of the problem optimization and sensitivity analysis we also extend the model by adding randomness to the order sizes

optimal allocation of resources in airport security profiling vs screening this model examines the role of intelligence gathering and screening in providing airport security we analyze this problem using a game between the government and a terrorist by investing in intelligence gathering the government can improve the precision of its information in contrast screening can be used to search a passenger and thereby deter terrorist attacks we determine the optimal allocation of resources between these two strategies wherein we model the role of intelligence using the concept of supermodular precision one striking result is that under certain circumstances an increase in the investment in intelligence can induce a more devious terrorist to attack with a higher probability we also find that when there is a cost reducing innovation in the screening technology then the optimal investment in intelligence gathering can go either way however such an innovation unambiguously improves social welfare another interesting implication is that a developed economy would value intelligence inputs more than a developing economy we also examine the efficacy of a program such as precheck that allows some select passengers expedited screening in exchange for voluntarily revealing information about themselves our analysis shows that such a program can be used to cushion the adverse effect of budgetary shortages finally we also examine the role of enhanced punishment on the optimal level of intelligence we find that the result can go both ways if the initial level of punishment is high then any further enhancement reduces the optimal level of intelligence gathering however this result is reversed if the initial level of punishment is low

hiding in plain sight using signals to detect terrorists this paper studies the interaction between a governmental security agency as the transportation security agency or the immigration and naturalization service and a terrorist organization like al qaeda the governmental agency wants to stop the terrorists but first must infer whether a visa applicant or an airline passenger is a terrorist on the basis of some observable signal the terrorist organization s objective is to get past security to commit murder and mayhem we derive the equilibrium strategy for this signaling model and evaluate specific anti terrorist policies as the creation of the new homeland security agency and increased airport security screening

stack them high let em fly lot sizing policies when inventories stimulate demand in some retail contexts stocking large quantities of inventory may not only improve service levels but can also stimulate demand for products having demand rates that increase with inventory levels we analyze the effect of stocking decisions on firm profitability to develop managerial insights regarding the structure of the optimal inventory policy and to understand how this policy differs from traditional approaches when inventories stimulate demand iteratively applying the standard economic order quantity eoq model by setting the demand rate parameter equal to the observed average demand rate in prior cycles yields an equilibrium order quantity that is robust to demand parameter misestimation but is suboptimal the profit maximizing policy orders larger quantities and can replenish inventory even before on hand stock fully depletes using an extension of a standard inventory dependent demand model from the literature we first provide a convenient characterization of products that require early replenishment we demonstrate that the optimal cycle time is largely governed by the conventional trade off between ordering and holding costs whereas the reorder point relates to a promotions oriented cost benefit perspective we show that the optimal policy yields significantly higher profits than cost based inventory policies underscoring the importance of profit driven inventory management

optimal shelf space stocking policy using stochastic dominance under supply driven demand uncertainty abstract in this paper we develop an optimal shelf space stocking policy when demand in addition to the exogenous uncertainty is influenced by the amount of inventory displayed supply on the shelves our model exploits stochastic dominance condition and we assume that the distribution of realized demand with higher stocking level stochastically dominates the distribution of realized demand with lower stocking level we show that the critical fractile with endogenous demand may not exceed the critical fractile of the classical newsvendor model our computational results validate the optimality of amount of units stocked on the retail shelves

global terrorism deterrence versus pre emption this paper analyses two anti terrorism policies when a targeted nation s people and property are in jeopardy at home and abroad a country s deterrence decision involves both external benefits and costs as the terrorist threat is deflected while its preemption decision typically gives external benefits when the threat is reduced for all potential targets with damages limited to home interests a country will overdeter while for globalized terror a country will underdeter pre emption is usually undersupplied leader follower behaviour is apt to lessen inefficiency for deterrence but worsen inefficiency for pre emption compared with simultaneous choice equilibrium allocations targeted nations can never achieve the proper counterterrorism policy through leadership ce memoire analyse deux politiques anti terrorisme quand la population et la propriete des nations visees sont en danger tant au pays qu a l etranger la decision de dissuasion d un pays entraine des avantages et des couts externes a proportion que la menace terroriste est evitee alors que la decision de preemption produit typiquement des avantages externes quand la menace est reduite pour toutes les cibles potentielles dans le cas de dommages limites aux cibles dans le pays un pays va etre portea sur dissuader alors que dans le cas de terreur globalisee un pays va etre portea sous dissuader la preemption est generalement sous offerte le comportement leader suiveur est susceptible de reduire l inefficacite de la dissuasion mais d empirer l inefficacite de la preemption par rapport a ce qui se passe quand les choix sont simultanes les nations visees ne peuvent jamais en arriver a la politique d anti terrorisme appropriee par la voie du leadership

swords or plowshares a theory of the security of claims to property this paper develops a general equilibrium model of the allocation of resources among appropriative and productive activities the model emphasizes the distinction between offensive weapons which are the instruments of predation and fortifications which provide defense against predation the analysis of this model shows how the equilibrium security of claims to property is determined the analysis focuses on the possibility of a nonaggressive equilibrium in which no resources are allocated to offensive weapons and claims to property are fully secure we also analyze the complex relation between economic welfare and the security of claims to property we find for example that a relatively poor agent could be better off in an equilibrium with less secure claims to property

the wrong kind of transparency in a model of career concerns for experts when is a principal hurt from observing more information about her agent this paper introduces a distinction between information on the consequence of the agent s action and information directly on the agent s action when the latter kind of information is available the agent faces an incentive to disregard useful private signals and act according to how an able agent is expected to act a priori this conformist behavior hurts the principal in two ways the decision made by the agent is less likely to be the right one discipline and ex post it is more difficult to evaluate the agent s ability sorting the paper identifies a necessary and sufficient condition on the agent signal structure under which the principal bene ts from committing not to observe the agent s action the paper also shows the existence of strategic complementarities between information on action and information on consequence the results on the distinction between action and consequence are then used to interpret existing disclosure policies in delegated portfolio management in particular they are consistent with hitherto puzzling evidence that mutual funds systematically overperform pension funds

allocation of cost savings in a three level supply chain with demand information sharing a cooperative game approach we analyze the problem of allocating cost savings from sharing demand information in a three level supply chain with a manufacturer a distributor and a retailer to find a unique allocation scheme we use concepts from cooperative game theory first we analytically compute the expected cost incurred by the manufacturer and then use simulation to obtain expected costs for the distributor and the retailer we construct a three person cooperative game in characteristic function form and derive necessary conditions for the stability of each of five possible coalitions to divide the cost savings between two members or among three supply chain members we use various allocation schemes we present numerical analyses to investigate the impacts of the demand autocorrelation coefficient and the unit holding and shortage costs on the allocation scheme

retail replenishment models with display space elastic demand we study a single store multi product inventory problem in which product sales are a composite function of shelf space since sales tend to deplete the amount of product on display the effective shelf space assigned to the product diminishes with time unless replenishment occurs we consider the problem of optimal replenishment times under these conditions we assume a linear dependence of sales rate to effective shelf space in all our analysis we present exact and approximate solutions for the single product and multi product cases for the single product case we study the effect of space elasticity cross elasticity and empty space elasticity on the optimal replenishment period for the multi product case we present a computationally attractive method using matrix exponentials and develop error bounds for this method

lying for strategic advantage rational and boundedly rational misrepresentation of intentions starting from hendricks and mcafee s 2000 example of the allies decision to feint at calais and attack at normandy on d day this paper models misrepresentation of intentions to competitors or enemies allowing for the possibility of bounded strategic rationality and rational players responses to it yields a sensible account of lying via costless noiseless messages in many cases the model has generically unique pure strategy sequential equilibria in which rational players exploit boundedly rational players but are not themselves fooled in others the model has generically essentially unique mixed strategy sequential equilibria in which rational players strategies protect all players from exploitation

manufacturer s revenue sharing contract and retail competition this paper investigates a revenue sharing contract for coordinating a supply chain comprising one manufacturer and two competing retailers the manufacturer as a stackelberg leader offers a revenue sharing contract to two competing retailers who face stochastic demand before the selling season under the offered contract terms the competing retailers are to determine the quantities to be ordered from the manufacturer prior to the season and the retail price at which to sell the items during the season the process of pricing and ordering is expected to result in an equilibrium as in the bayesian nash game on the basis of anticipated responses and actions of the retailers the manufacturer designs the revenue sharing contract adopting the classic newsvendor problem model framework and using numerical methods the study finds that the provision of revenue sharing in the contract can obtain better performance than a price only contract however the benefits earned under the revenue sharing contract by different supply chain partners differ because of the impact of demand variability and price sensitivity factors the paper also analyses the impact of demand variability on decisions about optimal retail price order quantity and profit sharing between the manufacturer and the retailers lastly it investigates how the competition between retailers factor influences the decision making of supply chain members in response to uncertain demand and profit variability