improving supply chain performance and managing risk under weather related demand uncertainty we consider a manufacturer retailer supply chain for a seasonal product whose demand is weather sensitive the retailer orders from the manufacturer supplier prior to the selling season and then sells to the market we examine how a manufacturer can structure a weather linked rebate to improve his expected profit the proposed class of rebate contracts offers several advantages over many other contract structures including no required verification of leftover inventory and or markdown amounts and no adverse effect on sales effort by the retailer we provide a thorough analysis of the manufacturer s and retailer s decisions in this context we show that the weather linked rebate can take many different forms and this flexibility allows the supplier to design contracts that are pareto improving and or limit his risk in offering the contract and the retailer s risk in accepting it for weather rebates with certain characteristics the manufacturer can fully hedge his risks of offering a weather rebate by paying a risk premium we show how this can be accomplished we also show that the basic structural results extend to settings in which the two parties would like to limit their risk

longevity risk subjective survival expectations and individual saving behavior abstract we provide evidence of individuals awareness of longevity risk the uncertainty about future survival probabilities based on subjective survival expectations elicited in the survey of health ageing and retirement in europe share and matching data on longevity risk from the human mortality database we find a positive relationship between the forecast dispersion in subjective survival estimates and longevity risk which indicates that individuals are to some extent aware of longevity risk our analysis of savings behavior shows that the dispersion in survival estimates is primarily explained by individuals disagreeing on the survival probability and not by their true awareness of the underlying uncertainty individuals do not save more on average when faced with longevity risk although theory suggests they should

state dependence and heterogeneity in fishing location choice to explore the distinction between state dependence and heterogeneity in repeated decisions this paper combines a mixed logit model with a state dependence parameterization from the marketing literature to study fishing location choices of commercial sea urchin divers in california it examines implications of ignoring either effect and finds in all cases that true state dependence is an important determinant of location choice consequently spatial policies like marine reserves can lead to differences in the short and long run behavioral responses of the fishing fleet under some specifications random preference parameters are statistically significant when state dependence is excluded from the model but when it is included random preference parameters are not significant in other specifications including state dependence only dampens the variability in preference parameters these results highlight the importance of gathering and analyzing diary type data for commercial fisheries as well as for similar choice problems in recreation demand

assortment planning in fashion retailing methodology application and analysis abstract assortment planning is the process conducted by the retailer to determine the number and types of products in a line key questions that arise in this process include choosing the inventory depth and variety breadth and the mix between basic and fashion merchandise of the assortment to maximize expected profits we describe a method for resolving these questions using demand forecasts derived from historical sales patterns we use a nonlinear integer programming model to make the assortment choice efficient heuristics are developed to solve this problem we applied our method at a large catalog retailer specializing in women s apparel we compared our method to the existing rules used by this retailer and found that it could choose the assortment in a manner that reduces markdowns due to excessive inventory and lost margins due to stockouts by enough to increase profits by at least 40 insights are developed to better understand why products are included in an assortment and the implications of this choice on the realized profit we extend our model to include shelf space constraints and the effect of assortment choice on product demand

the value of fast fashion quick response enhanced design and strategic consumer behavior a fast fashion system combines quick response production capabilities with enhanced product design capabilities to both design hot products that capture the latest consumer trends and exploit minimal production lead times to match supply with uncertain demand we develop a model of such a system and compare its performance to three alternative systems quick response only systems enhanced design only systems and traditional systems which lack both enhanced design and quick response capabilities in particular we focus on the impact of each of the four systems on strategic or forward looking consumer purchasing behavior i e the intentional delay in purchasing an item at the full price to obtain it during an end of season clearance we find that enhanced design helps to mitigate strategic behavior by offering consumers a product they value more making them less willing to risk waiting for a clearance sale and possibly experiencing a stockout quick response mitigates strategic behavior through a different mechanism by better matching supply to demand it reduces the chance of a clearance sale most importantly we find that although it is possible for quick response and enhanced design to be either complements or substitutes the complementarity effect tends to dominate hence when both quick response and enhanced design are combined in a fast fashion system the firm typically enjoys a greater incremental increase in profit than the sum of the increases resulting from employing either system in isolation furthermore complementarity is strongest when customers are very strategic we conclude that fast fashion systems can be of significant value particularly when consumers exhibit strategic behavior this paper was accepted by yossi aviv operations management

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

the costs and benefits of foreign borrowing a survey of multi period models this article surveys the literature on multi period models of foreign borrowing to shed light on the issue of how much a country should borrow and under what circumstances there is a role for public intervention it identifies the essential structural elements of multi period models and draws out the ramifications of the alternative specifications adopted it discusses the insights and shortcomings of three classes of models non optimising optimising borrower and jointly optimising borrower and lender

conditions that cause risk pooling to increase inventory abstract we say product a is a partial substitute for product b if a fraction of the customers who prefer b are willing to accept a when b is out of stock when demand is uncertain it is intuitive and true that a larger willing to substitute fraction implies larger expected profits a higher willing to substitute fraction allows one to pool the risk of individual products it may also be intuitive that a larger willing to substitute fraction might result in lower optimal total inventory for the full substitution structure several researchers have shown that for certain distributions such as the exponential this latter intuition is not true we show that this full substitution anomaly can occur with any right skewed demand distribution we assume i i d demand distributions unless we indicate otherwise we also show that the anomaly can occur for a number of realistic situations of partial substitution with commonly used demand distributions such as normal exponential poisson and uniform we also demonstrate the anomaly for more than one period with backlogging lost sales more than two products and with setup costs

the penn balassa samuelson effect through the lens of the dependent economy model abstract the positive correlation between per capita income and cross country price levels is called the penn balassa samuelson effect the most influential explanation of this effect centers around sectoral output productivities as the determinant of the relative price of nontraded goods the interaction between the change in relative prices and the change in per capita income the dynamic pbs effect is less well known this paper extends the turnovsky and sen 1995 model of a small open economy by adding external economies into the production function the model s dynamics accord well with several features of the empirical data on the dynamic pbs effect

impact of loss aversion on the newsvendor game with product substitution abstract this paper studies a newsvendor game in which two substitutable products are sold by two different retailers newsvendors with loss averse preferences each loss averse retailer facing stochastic customer demand and deterministic substitution rate will make an order quantity decision to maximize his expected utility since product substitution causes two retailers to make decisions in a competitive environment game theory is used to find the retailers optimal order quantities it is shown that under certain conditions there exists a unique nash equilibrium in the newsvendor game under a symmetry assumption each retailer s equilibrium order quantity is decreasing in the loss aversion coefficient and increasing in the substitution rate further if the effect of loss aversion on the order quantity is strong enough to dominate the effect of competition the total inventory level of a decentralized supply chain will be lower than that of a centralized supply chain numerical experiments are conducted to illustrate our results

a dynamic marketing operations interface model of new product updates abstract two critical success factors for nearly any firm are the introduction of new products and the integration of the marketing and operations functions within the business enterprise the series of products being considered are associated with sequential non disruptive innovations in technology but disruptive in fashion the study presents a model that integrates and builds upon the popular dynamic bass model for new product diffusion in marketing and the wagner and whitin dynamic lot sizing model a seminal model in operations management the end result is a model that simultaneously determines the optimal timing for the introduction of new product generations pricing production timing and produced quantities this model is then used to examine the impact of variations in marketing and operations parameters on both optimal profit and optimal product lifecycle length the study finds that larger profit and a faster pace of new product introductions are generally associated with faster diffusion lower price elasticity larger market potential lower new product introduction cost and more costly consumer products

hedging price volatility using fast transport abstract purchasing goods from distant locations introduces a significant lag between when a product is shipped and when it arrives these transit lags are trade barriers for firms facing volatile demand who must place orders before knowing the resolution of demand uncertainty we provide a model in which airplanes bring producers and consumers together in time fast transport allows firms to respond quickly to favorable demand realizations and to limit the risk of unprofitably large quantities during low demand periods the model predicts that the likelihood and extent to which firms employ air shipments is increasing in the volatility of demand they face decreasing in the air premium they must pay and increasing in the contemporaneous realization of demand we confirm all three conjectures using detailed us import data fast transport thus provides firms with a real option to smooth demand volatility on international markets and we provide simple calculations of that option value this enables us to identify how the option value relates to goods characteristics and to changes in air transport premia associated with technological and policy change including the introduction of jet engines and liberalization of trade in air services

an expected profit model for monetizing fishing location choices abstract we develop and analyze the properties of a new type of discrete choice model which jointly estimates the expected value of catch and location choice this model implicitly monetizes location choices and can be used to predict costs and effort redistribution of creating marine protected areas or of implementing other policy changes that either increase travel costs or alter expected revenue we illustrate our approach by considering the closing of the steller sea lion conservation area in the united states bering sea to pollock fishing

multi item quick response system with budget constraint quick response mechanisms based on effective use of up to date demand information help retailers to reduce their inventory management costs we formulate a single period inventory model for multiple products with dependent multivariate normal demand distributions and a given overall procurement budget after placing orders based on an initial demand forecast new market information is gathered and demand forecast is updated using this more accurate second forecast the retailer decides the total stocking level for the selling season the second order is based on an improved demand forecast but it also involves a higher unit supply cost to determine the optimal ordering policy we use a computational procedure that entails solving capacitated multi item newsboy problems embedded within a dynamic programming model various numerical examples illustrate the effects of demand variability and financial constraint on the optimal policy it is found that existence of a budget constraint may lead to an increase in the initial order size it is also observed that as the budget available decreases the products with more predictable demand make up a larger share of the procurement expenditure

product portfolio management with production flexibility in agribusiness the acquisition of production flexibility is a well documented strategy pursued by many firms to counteract certain operational constraints however these flexibilities can increase the complexity of a production system and the difficulties in managing increased complexity may hinder exploiting the full benefit of flexibility in this paper we consider one such flexibility paradox at an agribusiness firm for an annual 800 million production decision the firm produces a number of products hybrid seeds using limited inventories of several raw materials parent seeds and a production process that is subject to random variations to handle the raw material availability constraint and to partially mitigate the supply risk the firm invests in a costly second production in south america that can be used if the yield in the first production in north america is low we solve this joint problem of raw material allocation and sequential production by reformulating it as a tractable simultaneous optimization

production planning in the case of uncertain individual demand extension for an mrp ii concept abstract to gain competitive advantage firms have increased their number of variants in recent years but as a consequence it has become more and more difficult to forecast demand data at the level of individual products over the planning horizon however practical experience shows that forecasts of aggregate demand are quite accurate exact data for individual products can be determined for the current but not for the remaining periods for the remaining periods only upper and lower bounds of the demand data for individual products can be predicted with certainty in many cases this means that production planning should follow a hierarchical planning concept first production planning should be conducted at the aggregate level over the planning horizon to determine simultaneously the resource requirements regular capacity and overtime and the quantities of the product groups in order to satisfy aggregate demand second for the immediate scheduling period the detailed planning level should determine how available production resources have to be allocated to the individual products subject to some constraints imposed by the aggregate plan mrp ii manufacturing resource planning is a production planning system which is based on a hierarchical concept and has been developed for such complex production situations the paper concludes that the mrp ii concept is only partially suited to production planning in the case of uncertain demand a hierarchical model which can be incorporated into the mrp ii concept is therefore proposed for uncertain demand an alternative method for uncertainty reduction is also briefly discussed

would a risk averse newsvendor order less at a higher selling price we model a risk averse newsvendor s decision making behavior with some commonly used classes of utility functions within the expected utility theory eut framework under fairly general conditions of eut we show that a risk averse newsvendor will order less than an arbitrarily small quantity as selling price gets larger if price is higher than a threshold value i e the optimal order quantity decreases as the selling price increases

devaluation fiscal deficits and the real exchange rate this article examines the use of fiscal policies to sustain the effects of a nominal devaluation on the real exchange rate it is shown that the magnitude of the change in the real exchange rate depends not only on the size of the devaluation and the degree of fiscal adjustment but also on the means by which the fiscal deficit is reduced the change in the nominal exchange rate necessary to maintain the depreciation of the real exchange rate will depend on whether the fiscal deficit is eliminated by increasing taxes or by reducing government expenditures on traded and nontraded goods the required depreciation of the domestic currency will be larger if the fiscal deficit is reduced by increasing taxes than it will be if the deficit is cut by lowering government expenditures further the depreciation would be smaller if the cuts in expenditure fell on traded rather than nontraded goods this result implies that the authorities must ensure consistency between exchange rate action and policies to reduce fiscal imbalances in order to achieve a desired level of the real exchange rate necessary to attain balance of payments equilibrium the real exchange rate represents a key relative price in the economy and policies to change it are often the centerpiece of adjustment programs designed to improve international competitiveness and shift resources toward the production of tradable goods consequently it is critical for policymakers to have some idea of the magnitude and time path of the likely response of the real exchange rate to nominal exchange rate action it is a well accepted proposition however that a nominal devaluation will only have a transitory effect on the real exchange rate in the long run domestic wages and prices will rise by the full amount of the devaluation and the real exchange rate will return to its original level to alter the real exchange rate on a permanent basis therefore devaluation has to be supplemented by policies that restrain the increase in domestic factor costs that results from a devaluation generally speaking the effects of a devaluation on the real exchange rate can

reducing the cost of demand uncertainty through accurate response to early sales traditionally fashion products have incurred high losses due to stockouts and inventory obsolence because long lead times coupled with a concentrated selling season force all or at least most production to be committed before demand information is available under a quick response system lead times are shortened sufficiently to allow a greater portion of production to be scheduled in response to initial demand we model and analyze the decisions required under quick response and give a method for estimating the demand probability distributions needed in our model we applied these procedures with a major fashion skiwear firm and found that cost relative to the current informal response system was reduced by enough to increase profits by 60 relative to the cost that would have been incurred if no response were used optimized response reduces cost by enough to roughly quadruple profits

forecasting and inventory management of short life cycle products in this paper we provide an integrated framework for forecasting and inventory management of short life cycle products the literature on forecasting and inventory management does not adequately address issues relating to short life cycle products we first propose a growth model that can be used to obtain accurate monthly forecasts for the entire life cycle of the product the model avoids limiting data requirements of traditional methods instead it extracts relevant information from past product histories and utilizes the information on total life cycle sales and the peak sales timing using disguised demand data from a personal computer pc manufacturer we validate the model next we model the inventory management problem for the short life cycle environment the uncertainty in demand is modeled through the uncertainty in the realized values of the parameters of the forecasting model the high cost of terminal inventory shortages and rapidly changing procurement costs are all included in the model extensions to the basic model are also developed using optimal control theory we derive a solution that provides valuable information on procurement cutoff time and terminal service levels a detailed example explains the characteristics of the policy and its relevance in decision making many of the issues covered in the models were brought to our attention while implementing a forecasting model at a pc manufacturer the benchmark monthly forecasts and the associated inventory levels provide information that can be very helpful in planning and controlling marketing sales and production

demand uncertainty and sales a study of fashion and markdown pricing the theory of clearance sales is expanded and applied to explain why markups markdowns and the frequency of sales of merchandise sold by department stores have increased dramatically in recent years and why they differ across merchandise groups tha major theme of the paper is that the growing role of fashion and product variety is an important reason for these increases and for the differences between merchandise groups the growing importance of fashion is illustrated by documenting the declining use of whites and the increasing use of colors and prints estimates of the effects of imports and technological and demographic changes on markups and markdowns are presented copyright 1988 by american economic association

capacitated multi item inventory systems with random and seasonally fluctuating demands implications for postponement strategies we address multi item inventory systems with random and seasonally fluctuating and possibly correlated demands the items are produced in two stages each with its own lead time in the first stage a common intermediate product is manufactured the production volumes in the first stage are bounded by given capacity limits we develop an accurate lower bound and close to optimal heuristic strategies of simple structure the gap between them evaluated in an extensive numerical study is on average only 0 45 we use the model to investigate the benefits of various delayed product differentiation postponement strategies as well as other strategic questions including i the benefits of flexible versus dedicated production facilities ii the trade off between capacity and inventory investments and iii the trade off between capacity investments and service levels

sectorial wages and the real exchange rate abstract this paper considers a multi sector economy subject to exogenous demand shocks that alter the equilibrium structure of relative prices and relative wages contracts set nominal wages in advance of the realization of stochastic shocks formulae for optimal sectorial wages indexation rules are provided these optimal rules alter the absolute and the relative structure of sectorial nominal wages the rules depend on the heterogeneity of the skill distribution the effects of shocks on the real exchange rate and on real wages are determined and the limited role of second best nominal exchange rate policy is analyzed

location choice in new england trawl fisheries old habits die hard in his seminal work on common property resources h scott gordon proposed that in a fishery with multiple grounds effort would be distributed such that profit rates would be equal among them gordon s model relies on implicit assumptions that are inaccurate and lead to false conclusions in many cases in this paper we present an empirically estimated model of fishery and location choice for large trawlers in new england using a random utility framework with a nested logit model specification we use the model to test the validity of a behavioral model developed from ethnographic interviews with skippers

a decision support framework for exploring supply chain tradeoffs abstract producers of retail products continually need to determine how much of a particular product to produce the difficulty of judging correctly is compounded when the product has a short production sales interval and is made primarily for sale during the big winter shopping season e g around christmas holiday in an effort to minimize production and distribution costs decision makers would like to produce as early as possible but doing so would increase the risk of producing the wrong quantity good forecasting mitigates this problem and the use of agile supply chains allows the firm to produce later in the production sales interval both however add to the cost of production if the external environment is volatile then there would be increased uncertainty as to a desirable course of action this paper presents a simulation based decision support framework for exploring the tradeoffs in producing different quantities under a variety of supply chain configurations and alternate forecasting options given uncertain demand environments we provide an illustrative example to highlight these tradeoffs

a bayesian approach to determine the value of information in the newsboy problem abstract the potential benefits of demand forecasting in a newsboy problem are to decrease the risk of overstocking or shortage but forecasting is usually not free in this paper a model to help the decision maker in a newsboy problem to assess the value of information is presented first two cases on available demand information are considered to develop an upper bound of the cost that the decision maker would spend on forecasting then a bayesian approach to forecasting is proposed and evai the expected value of additional information is computed to help the decision maker in deciding whether to use the extra information finally the relationship between the evai and model parameters is discussed

enriching demand forecasts with managerial information to improve inventory replenishment decisions exploiting judgment and fostering learning this paper is concerned with analyzing and modelling the effects of judgmental adjustments to replenishment order quantities judgmentally adjusting replenishment quantities suggested by specialized statistical software packages is the norm in industry yet to date no studies have attempted to either analytically model this situation or practically characterize its implications in terms of learning we consider a newsvendor setting where information available to managers is reflected in the form of a signal that may or may not be correct and which may or may not be trusted we show the analytical equivalence of adjusting an order quantity and deriving an entirely new one in light of a necessary update of the estimated demand distribution further we assess the system s behavior through a simulation experiment on theoretically generated data and we study how to foster learning to efficiently utilize managerial information judgmental adjustments are found to be beneficial even when the probability of a correct signal is not known more generally some interesting insights emerge into the practice of judgmentally adjusting order quantities

managing stochastic inventory systems with free shipping option abstract in many industries customers are offered free shipping whenever an order placed exceeds a minimum quantity specified by suppliers this allows the suppliers to achieve economies of scale in terms of production and distribution by encouraging customers to place large orders in this paper we consider the optimal policy of a retailer who operates a single product inventory system under periodic review the ordering cost of the retailer is a linear function of the ordering quantity and the shipping cost is a fixed constant k whenever the order size is less than a given quantity the free shipping quantity fsq and it is zero whenever the order size is at least as much as the fsq demands in different time periods are i i d random variables we provide the optimal inventory control policy and characterize its structural properties for the single period model for multi period inventory systems we propose and analyze a heuristic policy that has a simple structure the s t s policy optimal parameters of the proposed heuristic policy are then computed through an extensive numerical study we demonstrate that the heuristic policy is sufficiently accurate and close to optimal

efficient supply contracts for fashion goods with forecast updating and two production modes we examine the problem of developing supply contracts that encourage proper coordination of forecast information and production decisions between a manufacturer and distributor of high fashion seasonal products operating in a two mode production environment the first production mode is relatively cheap but requires a long lead time while the second is expensive but offers quick turnaround we focus on contracts of the form w1 w2 b wherewi is the wholesale price offered for production modei andb is a return price offered for items left over at the end of the season we find that such a contract can coordinate the manufacturer and distributor to act in the best interest of the channel the pricing conditions needed to ensure an efficient solution vary depending on the degree of demand forecast improvement between periods and the manufacturer s access to forecast information we also examine whether these conditions ensure a pareto optimal solution with respect to two traditional production settings

optimal harvesting of stochastic spatial resources abstract we characterize the optimal harvest of a renewable resource in a generalized stochastic spatially explicit model despite the complexity of the model we are able to obtain sharp analytical results we find that the optimal harvest rule in general depends upon dispersal patterns of the resource across space and only in special circumstances do we find a modified golden rule of growth that is independent of dispersal patterns we also find that the optimal harvest rule may include closure of some areas to harvest either on a temporary or permanent basis biological reserves reserves alone cannot correct open access but may under sufficient spatial heterogeneity and connectivity increase profits if appropriate harvest controls are in place outside of reserves

government spending and the real exchange rate i study the effect of government spending on the real exchange rate in an open economy version of the sidrauski model with a time varying rate of time preference that introduces complementarity between consumption at different points in time i show that a balanced budget fiscal expansion causes a real depreciation and a current account surplus if the expansion falls on traded goods if the increase falls instead on nontraded goods both the stylized results of a real appreciation and a current account deficit and the perverse result of an appreciation and a surplus can occur

intertemporal optimizing models of trade and current account balance a survey abstract this study surveys the intertemporal optimizing models of trade and current account balance that were developed calibrated and empirically tested since they came into vogue in the 1980s the implications of these models often differ from those of static and dynamic conventional non optimizing models the literature on optimizing models has not only grown reasonably fast but has also witnessed significant advances in methodology and these models have culminated into a distinct strand of new open economy macroeconomics the studies conducted until the late 1980s have used deterministic perfect foresight models while several studies conducted since the 1990s relax the perfect foresight and certainty equivalence assumptions and develop stochastic dynamic general equilibrium models to account for uncertainty confronting the optimizing agents the future research needs to explore the possibility of tracing any preferred specification of household preferences model the effect of time varying discount factor on household utility function and intertemporal budget constraint examine the role of costs in international trade place a parallel emphasis on the empirical verifications of theoretical propositions examine the relative performance of optimizing vis a vis non optimizing models and rationalize the extreme propositions of perfect and imperfect capital mobility in the wake of moderately open capital accounts

scarf s state reduction method flexibility and a dependent demand inventory model we consider a finite horizon inventory model with linear holding shortage and ordering costs the demand random variables are dependent and average demand is described by an exponential smoothing formula this model can be formulated as a two state variable inventory level weighted past demands dynamic program using a procedure first developed by scarf for a bayesian inventory model we are able to reformulate the model as a one state variable dynamic program resulting in a considerable computational saving over the two state variable formulation we also show that this dependent demand model orders less than or equal the amount ordered by a comparable independent demand model we establish this result under the assumption that demand represents failures that are repaired by the beginning of the next period

single item inventory control under periodic review and a minimum order quantity in this paper we study a periodic review single item single stage inventory system with stochastic demand in each time period the system must order none or at least as much as a minimum order quantity qmin since the optimal structure of an ordering policy with a minimum order quantity is complicated we propose an easy to use policy which we call r s qmin policy assuming linear holding and backorder costs we determine the optimal numerical value of the level s using a markov chain approach in addition we derive simple news vendor type inequalities for near optimal policy parameters which can easily be implemented within spreadsheet applications in a numerical study we compare our policy with others and test the performance of the approximation for three different demand distributions poisson negative binomial and a discretized version of the gamma distribution given the simplicity of the policy and its cost performance as well as the excellent performance of the approximation we advocate the application of the r s qmin policy in practice

the capital inflows problem revisited a stylized model of southern cone disinflation in the late 1970s countries in latin america s southern cone initiated attempts to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange rate devaluation the stabilization programs gave rise to massive capital inflows real exchange rate appreciation and current account deficits this paper develops a stylized intertemporal framework in which the effects of a credible preannounced disinflation scheme can be studied it is shown that even when agents have perfect foresight and markets clear continuously the capital inflows phenomenon and the associated real appreciation may result while unanticipated permanent inflation changes are neutral in the paper anticipated inflation is neutral only in exceptional circumstances a preannounced disinflation operates by altering the path of an expenditure based real domestic interest rate that depends on expected changes in the prices of liquidity services and nontradable consumption goods

traded and non traded goods an empirical test with nigerian data abstract an income expenditure model is used to describe the relationship between the balance of payments and price inflation of non traded goods real and monetary approaches to the balance of payments suggest different relationships among these variables and compatible elements of the monetary approach are incorporated into the income expenditure model the model is then tested with nigerian data for the period 1960 1979 the pattern of economic growth and conduct of monetary policy make the nigerian economy a convenient test of the empirical significance of these macroeconomic relationships

the domestic demand compensated effects of changes in the exchange rate foreign prices tariffs and foreign demand macroeconomic models for open economies are often quite similar in terms of the supply side of the economy but specification of the demand side varies substantially in this paper aggregate domestic demand is assumed to be exogenous the choice of how to specify what determines aggregate domestic demand is thus avoided the simple treatment of the demand side of the economy makes it possible to render other parts of the model more general than usual in particular our model has several goods which may be divided into tradeables with exogenous prices tradeables with endogenous prices and nontradeables with endogenous prices intermediate inputs of imported and domestically produced goods are allowed for changes in exogenous variables such as the exchange rate tariff rates foreign prices government consumption and foreign demand are analyzed

design for postponement a comprehensive characterization of its benefits under unknown demand distributions recent papers have developed analytical models to explain and quantify the benefits of delayed differentiation and quick response programs these models assume that while demands in each period are random they are independent across time and their distribution is perfectly known i e sales forecasts do not need to be updated as time progresses in this paper we characterize these benefits in more general settings where parameters of the demand distributions fail to be known with accuracy or where consecutive demands are correlated here it is necessary to revise estimates of the parameters of the demand distributions on the basis of observed demand data we analyze these systems in a bayesian framework assuming that our initial information about the parameters of the demand distributions is characterized via prior distributions we also characterize the structure of close to optimal ordering rules in these systems for a variety of types of order cost functions

a general equilibrium analysis of foreign exchange shortages in a developing economy an acute shortage of foreign exchange has been a recurring problem for many developing economies this paper reexamines the foreign exchange gap issue and the debate between structuralists and neoclassicists by providing a quantitative assessment of the role of different assumptions about the values of key trade elasticities it also seeks to complement the existing descriptive analysis of the consequences of alternative adjustment mechanisms with a quantitative analysis that indicates the relative importance of different behavioural assumptions and policy regimes the empirical analysis is based on a computable general equilibrium model which is walrasian in spirit and captures price mechanisms market interactions and structural interdependence in a non linear multisector framework the analysis lends support to the structuralist view that it is not sufficient to look at problems of adjustment only at the macroeconomic level

productivity shocks non traded goods and optimal capital accumulation this paper considers the interaction of saving and investment in determining the current account for a small open economy subjected to productivity shocks by emphasizing the distinction between traded and non traded goods the analysis highlights the crucial role of the real exchange rate in macroeconomic adjustment our results demonstrate the importance of intertemporal substitution for determining the response of investment to anticipated productivity disturbances we also show how the correlation of movements in saving and investment following an anticipated disturbance depends critically on relative sectoral factor intensities

doing the right thing or doing the thing right allocating resources between marketing research and manufacturing matching production with sales potential is essential for survival in volatile markets manufacturing and marketing managers compete for staff space cash and other assets as they struggle both to determine what and how many products ought to be produced and to actually produce them we develop an analytical framework to answer one simple question how much marketing research should a firm do when it takes resources away from manufacturing the goods that generate revenue to understand the costs and benefits of marketing research we account for the lost opportunities to produce these goods some analytical findings are striking firms without initial knowledge of their potential customers should allocate one third of the firm s resources to marketing research the model suggests a host of issues to be more deeply studied by management scientists

selling to the newsvendor with a forecast update analysis of a dual purchase contract we consider a supply chain in which a manufacturer sells to a procure to stock retailer facing a newsvendor problem with a forecast update under a wholesale price contract the retailer waits as long as she can and optimally places her order after observing the forecast update we show that the retailer s wait and decide strategy induced by the wholesale price contract hinders the manufacturer s ability to 1 set the wholesale price and maximize his profit 2 hedge against excess inventory risk and 3 reduce his profit uncertainty to mitigate the adverse effect of wholesale price contract we propose the dual purchase contract through which the manufacturer provides a discount for orders placed before the forecast update we characterize how and when a dual purchase contract creates strict pareto improvement over a wholesale price contract to do so we establish the retailer s optimal ordering policy and the manufacturer s optimal pricing and production policies we show how the dual purchase contract reduces profit variability and how it can be used as a risk hedging tool for a risk averse manufacturer through a numerical study we provide additional managerial insights and show for example that market uncertainty is a key factor that defines when the dual purchase contract provides strict pareto improvement over the wholesale price contract

loss averse newsvendor model with two ordering opportunities and market information updating abstract a fashion supply chain characterized by a long lead time and a short selling season is considered in this paper facing demand uncertainty the risk averse retailer has two opportunities to make order decisions before the demand is realized the risk aversion is modelled as a penalty to the decision maker the retailer if a target profit is not attained we derive the retailer s optimal ordering decisions and analyze the monotonicity behaviours of the critical market signal the optimal first stage order quantity and the optimal expected payoff with respect to the penalty coefficient we also examine the impact of demand forecast quality on the retailer s decisions and extend the study to the case where order cancellation is allowed

the effects of an undisclosed regular price and a positive leadtime in a presale mechanism abstract a presale program is popular with manufacturers who wish to reduce the risk posed by uncertain demands we introduce a new price mechanism in which the manufacturer during the presale period does not disclose the exact regular price in the sale period although it is guaranteed to customers to be higher than the presale price as positive leadtime is much overlooked in presale models we analyze the rationality of including one the numerical results in this paper show that both the specific price mechanism and the positive leadtime have significant effects on the manufacturer s policy production quantity presale price regular price the expected profit and customer behaviors the optimal discount rate should be greater than 50 percent this conclusion is consistent with existing results of surveys on saturation points the manufacturer can take advantage of the latest information on demand gathered in the presale period to update their policy and increase their expected profit

inventory decisions for emergency supplies based on hurricane count predictions abstract this paper addresses a stochastic inventory control problem for manufacturing and retail firms who face challenging procurement and production decisions associated with hurricane seasons specifically the paper presents a control policy in which stocking decisions are based on a hurricane forecast model that predicts the number of landfall hurricanes for an ensuing hurricane season the multi period inventory control problem is formulated as a stochastic programming model with recourse where demand during each pre hurricane season period is represented as a convolution of the current period s demand and an updated estimate of demand for the ensuing hurricane season due to the computational challenges associated with solving stochastic programming problems recent scenario reduction techniques are discussed and illustrated through an example problem the proposed model specifies cost minimizing inventory strategies for simultaneously meeting stochastic demands that occur prior to the hurricane season while proactively preparing for potential demand surge during the season

managing product variety with advance selling and capacity restrictions abstract in this research we analyze the impact of advance selling with price discount on a firms ability to maximize the expected profit the production environment of the firm is characterized by short selling cycle multiple products demand variability and capacity restrictions the advance orders are randomly distributed with the parameters dependent on the discount levels under advance selling the advance orders are used to update the demand forecast of selling season and are delivered at the start of the selling season the problem is modeled as a three stage stochastic non linear programming problem we derive the concavity of the problem under customers willingness to buy in advance our solution methodology comprises the variance reduction technique of antithetic variates that gives credible value of price discount levels for different sets of demand values we also provide sensitivity analysis of the problem parameters to derive insights into the behavior of the expected profit and the benefits due to advance selling under capacity restrictions

hierarchical model for production planning in the case of uncertain demand the paper deals with hierarchical production planning for a multiperiod model consisting of an aggregate planning level and a detailed planning level in the case of uncertain demand at the beginning the detailed demand for the actual planning period is known whereas for future planning periods only upper and lower bounds of detailed demand are known on the other hand the aggregate demand on the product group level is supposed to be deterministic at each planning period over the whole planning horizon for the aggregate planning level robust production plans i e aggregate production plans which can be disaggregated to a feasible detailed plan for every possible detailed demand are proposed and a consistent disaggregation is executed for the detailed planning level two sets static and dynamic of sufficient conditions for robustness of the aggregate plan as well as dynamic disaggregation conditions are derived these sufficient conditions are a generalization of the results of lasserre and merce the performance of the sufficient conditions are demonstrated by a computational study which shows the potential advantage of the approach

wage flexibility and openness this paper analyzes the degree of short run real wage flexibility in a two sector economy under floating rates this is done by deriving optimal wage indexation in a contracting framework we find that the more closed the economy the lower the degree of wage indexation as a result output will fluctuate less around its desired level in a more closed economy these findings further imply that a given unexpected monetary shock will cause as maller output shock in a more open economy whereas a given real shock will induce a smaller output shock in a more closed economy this abstract was borrowed from another version of this item

on the risk based aggregate planning for seasonal products in this paper a model is developed to analyze the effect of risk incurring at companies producing highly seasonal products according to observations the closer to the season we are the better our knowledge on demand distribution this fact is reflected by a learning effect in demand distribution applied in the model where the aim is to minimize the risk connected costs originating from the unpredictable behavior of demand the paper confirms that unpredictability is only one of the decisive factors in sequencing products and other elements play an important role too the paper presents forward and backward procedures for determining the production quantities and sequencing of the products in an aggregate planning horizon

determining the production order of two seasonal products under capacity constraint abstract in this paper the production sequence of two seasonal products is analyzed when the parameters of demand forecasts are not certainly known in advance the accuracy of these forecasts improves as the season is approached however the expected demand remains a probability variable when production decisions are made on the production order and volume of the products at the beginning of the planning horizon the novel side of the approach applied in this paper is a capacity constraint inserted into the analyses in which the production volume depends on a probability variable namely on the expected demand

traded goods competitiveness and aggregate fluctuations in the united kingdom this paper presents an investigation of the relations between wage adjustment competitiveness and aggregate fluctuations in the united kingdom it uses a real business cycle model based on the distinction between internationally traded and nontraded goods the traded goods sector is assumed a price taker and the focus is on the supply side the model can account quite well for fluctuations in competitiveness output wages and the terms of trade the results suggest output flexibility and wage price rigidity a combination that produces interesting patterns of macroeconomic adjustment which parallel the predictions of more traditional keynesian models copyright 1990 by royal economic society

strategic commitment versus postponement in a two tier supply chain abstract in this paper the trade off between strategic commitment and operational flexibility is examined as it arises in a supply chain when a supplier offers competing buyers opportunities to make early purchase commitments for a product with a short life cycle traditionally the use of incentives for early purchase commitments for short life cycle products has been justified on the basis of a supplier s production lead times or capacity constraints an alternative explanation has been proposed by offering early purchasing opportunities a supplier can influence the form of competition in the downstream market using a single period model it has been shown that below a threshold level of demand uncertainty the supplier can benefit from providing adequate pricing incentives to entice downstream buyers to commit to purchase quantities before demand information is revealed moreover such early purchasing opportunities can benefit the supplier as well as the buyers even in the absence of production lead times or capacity constraints

optimal ordering and pricing in a quick response system quick response systems enable retailers to estimate customer demand more accurately and improve stocking decisions for perishable products with uncertain demand retailers place separate orders for a product at two different times before the selling season following the initial order additional market information is obtained and the second order amount is decided based on an improved demand forecast in some cases purchase cost associated with the second order is uncertain and demand for the product during the season depends on the selling price we present a solution procedure for finding the optimal order quantity and selling price in this setting we also study the case where any desired portion of the initial order can be cancelled after updating the demand forecast in the numerical study the optimal price is observed to be relatively insensitive to changes in demand variability

production planning of style goods with high setup costs and forecast revisions in this paper we study a problem common to a wide variety of manufacturing companies of determining the production schedule of style goods such as clothing and consumer durables under capacity constraints demand for items is stochastic and occurs in the last season of the planning horizon demand estimates are revised in each period we exploit the problem s two level hierarchical structure which is characterized by families and items production changeover costs from one family to another are high compared to other costs however changeover costs between items in the same family are negligible we first formulate this problem as a difficult to solve stochastic mixed integer programming problem then exploiting the problem s hierarchical structure we formulate a deterministic mixed integer programming problem and solve it by means of an algorithm that provides an approximate solution a lower bound is obtained by applying generalized linear programming to the approximate problem we illustrate the procedure using the disguised data of a consumer electronics company the computational results demonstrate the effectiveness of the proposed approach in a practical setting

the distribution free newsboy problem with resalable returns we study the case of a catalogue internet mail order retailer selling style goods and receiving large numbers of commercial returns returned products arriving before the end of the selling season can be resold if there is sufficient demand a single order is placed before the season starts excess inventory at the end of the season is salvaged and all demands not met directly are lost since little historical information is available it is impossible to determine the shape of the distribution of demand therefore we analyze the distribution free newsboy problem with returns in which only the mean and variance of demand are assumed to be known we derive a simple closed form expression for the distribution free order quantity which we compare to the optimal order quantities when gross demand is assumed to be normal lognormal or uniform we find that the distribution free order rule performs well when the coefficient of variation cv is at most 0 5 but is far from optimal when the cv is large

real interest rates home goods and optimal external borrowing the paper investigates the optimal time path of consumption and external borrowing in the dependent economy model the small country faces given world prices and a given world real interest rate the presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home goods the paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption and the trade balance in particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in the world interest rate

a simulation framework for forecasting uncertain lumpy demand abstract managing uncertainty when the demand is irregular and sporadic i e lumpy is a complex issue as well as an unexplored one this study analyses the behaviour of forecasting techniques when dealing with lumpy demand at the master production scheduling level in particular three forecasting techniques exponentially weighted moving average early sales and order overplanning are considered it is argued that demand lumpiness is a multidimensional phenomenon generated by different market characteristics namely numerousness of customers heterogeneity of customers frequency of order placing variety of each customer s request and correlation between customers behaviour hence the performances of the three forecasting methods are compared through simulation experiments with different values of the sources of lumpiness a framework is then proposed that indicates the domain of applicability of each forecasting technique according to the prevailing source of lumpiness in the market

economic and conservation implications of a variable effort penalty system in effort controlled fisheries bycatch of threatened endangered or protected species by commercial fishers is a universal problem technical solutions are often applied that may impose inefficiencies across the fleet even in periods or areas when the risk of bycatch is low these may include gear specifically designed to avoid the bycatch which may also reduce the targeted catch or designation of marine protected areas that exclude fishing from whole areas in this article we examine the effectiveness of a variable penalty system that can provide incentives for fishers to redirect their effort away from problem areas the system is examined using a case study of fishery which is currently subjected to gear and closure controls to limit bycatch of turtles and seabirds an alternative incentive based management policy using a series of differential hook penalties has been proposed as a flexible tool to discourage vessels operating in certain areas the effects of various hook penalties and closures in key areas on fishing effort in those areas and elsewhere as well as vessel economic performance are assessed using a location choice model the results suggest that incentive based approaches may result in lower costs to industry than closures provided some level of residual bycatch is acceptable

a stochastic sequencing problem for style goods with forecast revisions and hierarchical structure this paper addresses the problem of simultaneously determining a production sequence and production volumes of style goods style goods have one selling season per year during the rest of the year manufacturers of style goods build up the inventory while continuously reestimating the demand in the final selling season in this problem products have a two stage hierarchy items and families the production of a family is assumed to be nonpreemptive exploiting the hierarchical structure we formulate the problem as a two stage stochastic sequencing problem the stochastic aggregate sequencing problem and the stochastic disaggregation problem to solve the stochastic aggregate sequencing problem a simple heuristic solution procedure is developed that accounts for the forecast revisions and provides a lower bound on the optimal value the heuristic is tested using the disguised data obtained from a consumer electronics company the computational results demonstrate the applicability of the proposed procedure

international competitiveness the demand for exports and real effective exchange rates in developing countries abstract most measures of the real effective exchange rate reer do not capture the complex ways in which the structure and direction of trade adapt to changes in exchange rates conventional measures of the reer are based on the stringent assumptions that cross price elasticities with respect to exports of third party competitors are all zero and with respect to trading partners they are all equal this paper develops an alternative index of competitiveness that captures the effects of a whole set of bilateral price changes by estimating an import demand system a reer for the philippines is computed and compared to a conventional reer

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

location choice of commercial fishermen with heterogeneous risk preferences location choice of commercial fishermen with heterogeneous risk preferences author s johan a mistiaen and ivar e strand reviewed work s source american journal of agricultural economics vol 82 no 5 proceedings issue dec 2000 pp 1184 1190 published by oxford university press on behalf of the agricultural applied economics association stable url http www jstor org stable 1244248 accessed 25 01 2012 20 19

accounting for spatial heterogeneity and autocorrelation in spatial discrete choice models implications for behavioral predictions the random utility model rum is commonly used in the land use and fishery economics literature this research investigates the affect that spatial heterogeneity and spatial autocorrelation have within the rum framework using alternative specifications of the multinomial logit multinomial probit and spatial multinomial probit models using data on the spatial decisions of fishermen the results illustrate that ignoring spatial heterogeneity in the unobservable portion of the rum dramatically affects model performance and welfare estimates furthermore accounting for spatial autocorrelation in addition to spatial heterogeneity increases the performance of the rum

a note on price discount based on early order commitment in a single manufacturer multiple retailer supply chain abstract early order commitment eoc is a strategy for supply chain coordination wherein the retailer commits to purchasing from a manufacturer a fixed order quantity a few periods in advance of the regular delivery lead time in this paper we formulate and analyze the eoc strategy for a decentralized two level supply chain consisting of a single manufacturer and multiple retailers who face external demands that follow an autocorrelated ar 1 process over time we characterize the special structure of the optimal solutions for the retailers eoc periods to minimize the total supply chain cost and discuss the impact of demand parameters and cost parameters we then develop and compare three solution approaches to solving the optimal solution using this optimal cost as the benchmark we investigate the effectiveness of using the wholesale price discount scheme for the manufacturer to coordinate this decentralized system we give numerical examples to show the benefits of eoc to the whole supply chain examine the efficiency of the discount scheme in general situation and provide the special conditions when the full coordination is achieved

a pragmatic approach to the design of bullwhip controllers it is well known that forecasting mechanisms can greatly increase bullwhip demand variance amplification of orders as processed by both human and algorithmic decision makers this paper is concerned with the application of the well established apiobpcs decision support system a variant of the order up to rule in such circumstances it has two feedback controls based on the inventory and the orders in pipeline respectively with gains set equal according to the deziel eilon rule there is one feed forward control based on exponential forecasting although this is not a restriction on the application of this system we consider the pragmatic role of apiobpcs in the situation where the echelon decision maker may be handling a wide range of sku s in a non altruistic environment where upmarket information may either be withheld or simply unavailable under such circumstances it has been established via site based studies that the decision makers output the orders reflect a wide range of strategies or maybe ignorance three strategies may be regarded as appropriate i e pass orders along demand smoothing and level scheduling depending on context apiobpcs can be adapted to each of these modus operandi in the first case with the added capability of smoothing the sharp edges with a modicum of inventory variation and in the last case with the advantage of built in trend detection players in non altruistic supply chains must be able to cope with added uncertainties due to lead time variations we show that apiobpcs may be well matched to such situations and is hence copable as well as capable the paper includes recommended parameter settings according to desired decision making policies

multi level approaches to demand management in complex environments an analytical model abstract recent studies have shown that as demand becomes irregular and complex i e lumpy a possible approach for managing such uncertainty is to collect information directly from customers this implies that the sales units have to move closer to customers analyse their likely requirements and collect quantitative and structured data as well as qualitative and subjective insights however as integration with individual customers increases and data collection capabilities improve the organisational configuration of most companies becomes ever more complex and the aggregation of forecasts more difficult this paper discusses two approaches to managing demand uncertainty in complex environments in the first termed decentralised order overplanning sales units are responsible for forecasting the demand of each customer and defining requirements in the second termed centralised order overplanning forecasts provided by sales units are aggregated and further elaborated by manufacturing to define item requirements by means of an analytical model which describes the forecasting and planning process as a bayesian markovian process we show that the centralised method out performs the decentralised approach by virtue of the ability to exploit the additional information provided by commonalities between customers requests however this advantage has to be balanced against organisational costs since the centralised method splits responsibilities for forecasting and slack control between sales and manufacturing units major conflicts are likely to arise the focus and commitment on forecasting accuracy may be compromised and information may be lost when individual forecasts are sent to the manufacturing unit

purchasing pricing and quick response in the presence of strategic consumers we consider a retailer that sells a product with uncertain demand over a finite selling season the retailer sets an initial stocking quantity and at some predetermined point in the season optimally marks down remaining inventory we modify this classic setting by introducing three types of consumers myopic consumers who always purchase at the initial full price bargain hunting consumers who purchase only if the discounted price is sufficiently low and strategic consumers who strategically choose when to make their purchase a strategic consumer chooses between a purchase at the initial full price and a later purchase at an uncertain markdown price in equilibrium strategic consumers and the retailer make optimal decisions given their rational expectations regarding future prices availability of inventory and the behavior of other consumers we find that the retailer stocks less takes smaller price discounts and earns lower profit if strategic consumers are present than if there are no strategic consumers we find that a retailer should generally avoid committing to a price path over the season assuming such commitment is feasible committing to a markdown price or to not mark down at all is often too costly inventory may remain unsold even in the presence of strategic consumers the better approach is to be cautious with the initial quantity and then mark down optimally furthermore we discuss the value of quick response the ability to procure additional inventory after obtaining updated demand information albeit at a higher unit cost than the initial order we find that the value of quick response to a retailer is generally much greater in the presence of strategic consumers than without them on average 67 more valuable and as much as 558 more valuable in our sample in other words although it is well established in the literature that quick response provides value by allowing better matching of supply with demand it provides more value often substantially more value by allowing a retailer to control the negative consequences of strategic consumer behavior