cores of inventory centralization games abstract consider a set of n stores with single item and single period demands assume an option of centralized ordering and inventory with holding and penalty costs only in this case a cooperative inventory centralization game defines allocations of the cost we examine the conditions under which such an inventory centralization game has a nonempty core we prove the existence of nonempty core for demands with symmetric distributions and the existence of nonempty core for joint multivariate normal demand distribution we establish the equivalency of four different nonempty core conditions for the newsboy problem and demonstrate their efficacy for discrete independent and identically distributed iid demands journal of economic literature classification numbers c44 c62 c71

collaborative replenishment in the presence of intermediaries in complex supply chains downstream buyers would often replenish individually from intermediaries instead of directly dealing with original manufacturers although collaborative replenishment from intermediaries might generate benefits significant cost reductions could be achieved when direct replenishments from manufacturers are considered this paper constructs a general model to study collaborative replenishment in multi product chains with alternative sources of supply i e manufacturers and intermediaries a collaborative organization determines the optimal choices of replenishment sources on behalf of its members to minimize collective costs we introduce a class of cooperative games associated with these situations and give sufficient conditions for their concavity we investigate the choice of allocation rule and its effect on supply chain efficiency when buyers strategically participate in the collaborative organization we prove that the shapley value coordinates the supply chain i e it makes complete participation the best strategy for buyers even under asymmetric information this setting is compared with an alternative structure where buyers can only collaborate in source specific replenishment organizations that purchase all requested products either from intermediaries or manufacturers although there are always participation strategies that result in minimum collective cost it is impossible to find allocation rules for source specific replenishment organizations that always motivate the buyers to choose such strategies

wind insurance and mitigation in the coastal zone this paper presents the only study analyzing the decision to purchase wind coverage for individuals whose standard homeowner s policy excludes wind and one of very few analyses of the decision to undertake wind mitigation measures because these two decisions are closely related a simultaneous mixed process approach is used that allows for correlated disturbances across probit insurance and tobit mitigation equations results indicate a positive correlation between errors of the insurance and mitigation models conditioning on covariates households that hold wind insurance tend to engage in greater levels of wind mitigation

antecedents of early terminations in franchising franchisor versus franchisee cancelations franchisors capitalize on franchisee entrepreneurial capacity to grow however enabling franchisees to develop their ventures may damage system consistency this dilemma makes conflict particularly prevalent in the field of franchising nevertheless prior research has reported an incomplete picture of factors leading to serious disagreement and premature termination in franchise partnerships we address this gap first by adding the entrepreneurial autonomy of franchisees as a relevant but underexplored source of conflict and second by providing a more fine grained analysis of franchisors versus franchisees drivers of termination specifically we focus on the controversial issues of pricing and local advertising policies and analyze how expanding franchisees entrepreneurial autonomy in these decision areas is related to contract terminations depending on who ended the relationship the franchisor or a franchisee the study also highlights less controversial requirements and conditions e g upfront investments franchisor experience that may reduce early terminations our empirical objectives are met by using survey data from a sample of franchisor companies the results show how the performance outcomes of entrepreneurial autonomy differ depending on the decision area in which it is exercised results also throw light on the consequences of various critical franchise policies that may be masked if both types of termination franchisors vs franchisees are considered together

risk preferences around the world we present results from a large scale international survey on risk preferences conducted in 53 countries in all countries we find on average an attitude of risk aversion in gains and of risk seeking in losses the degree of risk aversion shows significant cross country differences moreover risk attitudes in our sample depend not only on economic conditions but also on cultural factors as measured by the hofstede dimensions individualism and uncertainty avoidance the data may also serve as an interesting starting point for further research on cultural differences in behavioral economics data as supplemental material are available at http dx doi org 10 1287 mnsc 2013 1869 this paper was accepted by peter wakker decision analysis

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

gender differences in the allocation of assets in retirement savings plans in 1995 40 percent of working men and 32 percent of working women were covered by a defined contribution dc plan a distinguishing characteristic of these plans is that workers can generally choose how their assets are invested using data from the 1992 and 1995 surveys of consumer finances scf this paper examines whether workers differ systematically by gender in the allocation of assets in dc plans previous researchers have reported that many workers tend to invest their retirement assets too conservatively and in particular that women are less likely than men to invest in risky assets such as stocks in the presence of an equity premium a lower propensity by women to invest in stocks could translate into large differences in the accumulation of financial wealth for retirement we establish that gender differences in investment decisions exist though they are more complicated than previous studies have suggested we show that these differences are not completely explained by differences in individual or household characteristics a few studies have examined gender differences in investment decisions vickie l bajtelsmit and jack l vanderhei 1997 richard p hinz et al 1997 these studies use administrative data and report that women tend to invest their retirement funds in less risky vehicles than men michael haliassos and carol c bertaut 1995 use the 1983 scf to examine why such a large fraction of households do not own any stock they report that gender does not have a significant effect on the probability of owning stock though gender differences are not the focus of their paper what these data sources lack haliassos and bertaut being the exception is a rich set of demographic and other variables on households that theory predicts should affect investment behavior this paper adds to the literature by examining gender differences in investment decisions conditioning on such variables the results highlight the importance of including marital status risk aversion measures and the portfolio of assets held outside dc plans when examining gender differences in investment decisions in these plans

are women really more risk averse than men a re analysis of the literature using expanded methods while a substantial literature in economics and finance has concluded that women are more risk averse than men this conclusion merits investigation after briefly clarifying the difference between making generalizations about groups on the one hand and making valid inferences from samples on the other this essay suggests improvements to how economists communicate our research results supplementing findings of statistical significance with quantitative measures of both substantive difference cohen s d a measure in common use in non economics literatures and of substantive overlap the index of similarity newly proposed here adds important nuance to the discussion of sex differences these measures are computed from the data on men women and risk used in 35 scholarly works from economics finance and decision science the results are considerably more mixed and overlapping than would commonly be inferred from the broad claims made in the literature with standardized differences in means mostly amounting to considerably less than one standard deviation and the degree of overlap between male and female distributions generally exceeding 80 in addition studies that look at contextual influences suggest that these contribute importantly to observations of differences both between and within the sexes

economic experiments hypothetical surveys and market data studies of insurance demand against low probability high impact risks a systematic review of designs theoretical insights and determinants of demand this paper provides a systematic review of the literature on 80 experimental hypothetical survey and market data studies of insurance demand against low probability high impact risks the objective of the review is to extract lessons from these studies and to outline an agenda for future research we contrast the results of experimental and survey studies to findings from market data we focus on experimental design methods insurance characteristics as well as results about theories heuristics behavioural biases and explanatory variables lessons for policymakers are drawn which can facilitate disaster preparedness

make and buy balancing bargaining power abstract we analyze the optimal procurement of labor which can be supplied either internally based on wage negotiations or acquired at terms negotiated with an external subcontractor the novel feature of our model is that the subcontractor s bargaining power is a function of the proportion of output outsourced we demonstrate analytically how multiple sourcing emerges as an organizational mechanism to balance cost advantages associated with outsourcing against a subcontractor s increased bargaining power we find that the optimal proportion of outsourcing is lower with sequential negotiations than with simultaneous negotiations if the supplier to first negotiate can foreclose subsequent negotiations

consistency of risk preference measures an artefactual field experiment from rural china a variety of measures have been developed to elicit individual risk preferences how these measures perform in the field in particular in developing countries with non student subjects is still a

investments to create bargaining power the case of franchising hybrid organizational forms such as franchise systems join two or more independent parties under a contract the ability of each party to achieve its goals depend upon the relative bargaining power in the relationship established by the contract using transaction cost economics and porter s 1980 characterization of sources of bargaining power this paper argues that the franchisor can make investments in activities such as tapered integration and buyer selection to increase its bargaining power and decrease conflict and litigation in a franchise system specifically tapered integration owning some units while franchising others selecting inexperienced franchisees and employing a long training program are predicted to increase the franchisor s bargaining power and the franchisee s compliance with franchisor standards an empirical analysis of litigation in restaurant franchise systems supports the theoretical hypotheses copyright 2000 john wiley sons ltd

are women more risk averse we find that single women exhibit relatively more risk aversion in financial decision making than single men using u s sample data we examine household holdings of risky assets to determine whether there are gender differences in financial risk taking as wealth increases the proportion of wealth held as risky assets is estimated to increase by a smaller amount for single women than for single men gender differences in financial risk taking are also influenced by age race and number of children greater financial risk aversion may provide an explanation for women s lower levels of wealth compared with men s jel j16 d81 g11

surveying the economics of plural modes of organization why do firms concomitantly rely on more than one organizational arrangement to procure distribute a given input product in this paper we systematically review and discuss the extensive path undergone by the literature exploring this issue the so called plural forms we address two main questions how to explain the coexistence and often the prevalence of plural forms in many types of businesses are plural forms stable or a transitory phenomenon we describe the most prominent motivations identified in the economics and management literature that drive firms to adopt plural forms and show that their vast majority are related to the mitigation of various types of agency transaction costs we also demonstrate that most of the available pieces of empirical evidence suggest the stability of plural forms over time we conclude by demonstrating the path that has been trailed by the most recent developments

vertical integration and corporate strategy proposing a new look at vertical integration and the dimensions that comprise it this study develops a framework for predicting when firms use make or buy decisions the strategic business units sbus studied made fewer products and services in house and firms were engaged in fewer stages of processing when demand was highly uncertain than they did when demand was more certain internal transfers from upstream or to downstream business units were more numerous when synergies with adjacent sbus were substantial than when they were not some competitive imitation of vertical integration strategies occurred and firms with high market shares sought higher ownership stakes in stages of processing adjacent to those markets vertical integration involves a variety of decisions concerning whether corporations through their business units should provide certain goods or services in house or purchase them from outsiders instead corporations considering vertical integration one of the first diversification strategies firms consider as they progress from being single business companies must make decisions regarding the autonomy of these business units most research concerning vertical integration has assumed that savings in the costs of transactions that integration accomplishes supersede autonomy needs of strategic business units sbus according to such an assumption integrated firms will transfer all of their relevant goods and services to adjacent in house business units however this paper argues for a dynamic concept of vertical integration in which the key to effective management is understanding when corporate needs for intrafirm cooperation might take precedence over the concerns of autonomous business units and when the opposite might be true the theory developed in this study incorporates the forces of competitive settings and corporate as well as business level strategy needs in a suggested framework for appropriate use of vertical integration developing this strategy framework introduces several new dimensions that characterize all vertical integration strategies my intent is to bridge the gap between economic treatments of vertical integration and activities observed in the histories of several industries the next section briefly sketches the dimensions of this gap

the cost allocation problem for the first order interaction joint replenishment model we consider an infinite horizon deterministic joint replenishment problem with first order interaction under this model the setup transportation reorder cost associated with a group of retailers placing an order at the same time equals some group independent major setup cost plus retailer dependent minor setup costs in addition each retailer is associated with a retailer dependent holding cost rate the structure of optimal replenishment policies is not known thus research has focused on optimal power of two pot policies following this convention we consider the cost allocation problem of an optimal pot policy among the various retailers for this sake we define a characteristic function that assigns to any subset of retailers the average time total cost of an optimal pot policy for replenishing the retailers in the subset under the assumption that these are the only existing retailers we show that the resulting transferable utility cooperative game with this characteristic function is concave in particular it is a totally balanced game namely this game and any of its subgames have nonempty core sets finally we give an example for a core allocation and prove that there are infinitely many core allocations

agency theory and franchising some empirical results this article provides an empirical assessment of various agency theoretic explanations for franchising including risk sharing one sided moral hazard and two sided moral hazard the empirical models use proxies for factors such as risk moral hazard and franchisors need for capital to explain both franchisors decisions about the terms of their contracts royalty rates and up front franchise fees and the extent to which they use franchising in this article i exploit several new sources of data on franchising to construct a cross section of 548 franchisors involved in various business activities in the united states in 1986 the data are most consistent with a model based on two sided moral hazard the empirical models are also more successful at explaining the extent to which franchisors choose to franchise stores than at explaining the terms of franchise contracts finally contrary to the predictions of several theoretical models i find that royalty rates and franchise fees are not negatively related

a three stage model for a decentralized distribution system of retailers we present and study a three stage model of a decentralized distribution system consisting ofn retailers each of whom faces a stochastic demand for an identical product in the first stage before the demand is realized each retailer independently orders her initial inventory in the second stage after the demand is realized each retailer decides how much of her residual supply demand she wants to share with the other retailers in the third stage residual inventories are transshipped to meet residual demands and an additional profit is allocated our model is an extension of the two stage model of anupindi et al abz 2001 which implicitly assumes that all residuals enter the transshipment stage we show however that allocation rules in the third stage based on dual solutions which were used in the abz model may induce the retailers to hold back some of their residual supply demand in general we study the effect of implementing various allocations rules in the third stage on the values of the residual supply demand the retailers are willing to share with others in the second stage and the trade off involved in achieving an optimal solution for the corresponding centralized system

pooling of spare parts between multiple users how to share the benefits companies that maintain capital goods e g airplanes or power plants often face high costs both for holding spare parts and due to downtime of their technical systems these costs can be reduced by pooling common spare parts between multiple companies in the same region but managers may be unsure about how to share the resulting costs or benefits in a fair way that avoids free riders to tackle this problem we study several players each facing a poisson demand process for an expensive low usage item they share a stock point that is controlled by a continuous review base stock policy with full backordering under an optimal base stock level costs consist of penalty costs for backorders and holding costs for on hand stock we propose to allocate the total costs proportional to players demand rates our key result is that this cost allocation rule satisfies many appealing properties it makes all separate participants and subgroups of participants better off it stimulates growth of the pool it can be easily implemented in practice and it induces players to reveal their private information truthfully to obtain these game theoretical results we exploit novel structural properties of the cost function in our s 1 s inventory model

control modes in international service operations the propensity to franchise what determines a service firm s organizational choice between equity based control and franchising this question which has elicited some theoretical answers and a few empirical tests in a domestic setting has never been addressed in an international context before this study explains the mode of control chosen in terms of a theoretical framework which borrows from agency theory and transaction cost analysis the propensity to franchise internationally was found to be directly related to i monitoring costs associated with geographical and cultural distance between the principal franchisor and its foreign agents franchisees ii the principal s international experience and iii the degree of host countries contextual uncertainty but inversely related to the service firm level of brand name asset specificity

making new franchise systems work this paper argues that new franchise systems are more likely to survive if they are structured to economize on agency costs after controlling for industry effects and firm age and size this paper shows empirical support for six of nine hypotheses about the linkage between mechanisms for economizing on agency costs and the survival of new franchise systems 1998 by john wiley sons ltd

exchange economies and loss exposure experiments exchange economies were created in which individuals faced losses if people are risk seeking in the losses as predicted by prospect theory then due to the nonconvexity the competitive equilibria are all on the boundaries of the edgeworth box the experimental results are that risk seeking behavior is observed in many people and appears in markets as predicted in addition market behavior is consistent with answers to hypothetical questionnaires contrary to prospect theory risk seeking seems to diminish with experience preferences in the market setting are not labile and risk seeking preferences are not simply a result of framing effects copyright 1997 by american economic association

population monotonic allocation schemes for cooperative games with transferable utility abstract an allocation scheme for a cooperative game specifies how to allocate the worth of every coalition it is population monotonic if each player s payoff increases as the coalition to which he belongs grows larger we show that essentially a game has a population monotonic allocation scheme pmas if and only if it is a positive linear combination of monotonic simple games with veto control a dual characterization is also provided sufficient conditions for the existence of a pmas include convexity and increasing average marginal contributions if the game is convex its extended shapley value is a pmas classification number 026

non cooperative strategies for production and shipment lot sizing in one vendor multi buyer system abstract this paper considers a decentralized dynamic production distribution control a discrete deterministic model in which a vendor produces a product and supplies it to the buyer is considered several papers on vendor buyer integrated production inventory management assume that policies are set by a central decision maker to optimize total system performance although vendor and buyer may agree to minimize the total cost at least one of them has a private incentive to deviate from the agreement in the competitive situation the objective is to determine schedules which minimize the individual average total cost of production shipment and stockholding we assume that the division of shipment costs is centrally coordinated or negotiated initially it leads to a class of non cooperative constrained games indexed by two parameters connected with partitions of shipment costs non cooperative strategies are considered as feasible strategies in a restricted non cooperative game some properties of equilibrium strategies are investigated as acceptable equilibrium strategies of subgames in the game

multi unit franchising growth and management issues abstract entrepreneurs in a number of retailing sectors have eschewed the creation of company owned chains and have embraced franchising as a preferred method for growing their businesses there have been two leading reasons proposed for this preference first that franchisees provide the financial capital necessary for expansion and second that franchisees manage the outlets better than company employees would if the unit were company owned interestingly although many entrepreneur franchisors confirm the relevance of the capital acquisition argument in their decision making theoretical analysis has discounted its importance instead researchers have focused on the incentives of employee store managers to misrepresent their ability and their effort as the dominant impetus behind franchising misrepresentation by employees as to ability and effort imposes costs and inefficiencies on the entrepreneur s chain arguing that franchising solves these problems by having the stores managed by persons with claims to the profits these researchers have by and large rejected the capital acquisition argument for franchising in favor of this incentive based rationale within this view multi unit franchising presents a curious anomaly multi unit franchising either through the incremental expansion by the franchisee one unit at a time or through the rights to open multiple units contained in an area development agreement creates a collection of mini chains within the franchise system these mini chains are operated by employee store managers of course they are employees of the franchisee but they are employees nonetheless and as franchise researchers have traditionally argued regarding the entrepreneur s employees they will have incentives to misrepresent their ability and effort moreover multi unit franchising is ubiquitous if multi unit franchising is at odds with the incentive rationale for franchising and it has a positive association with the growth of franchise systems it must be providing the entrepreneur with some other benefit in this study we argue that the benefit it provides is access to capital through a study of fast food franchise systems we demonstrate that the more a chain engages in multi unit franchising i e the greater the proportion of multi unit franchisees it has the faster it grows even faster than franchise systems generally moreover we show that the level of commitment franchisors feel toward continuing to franchise is negatively related to the average number of units per franchisee and negatively related to their ability to obtain financial capital elsewhere in other words although multi unit franchising helps an entrepreneur grow his or her business by providing increased access to capital store level incentive problems get increasingly troublesome as franchisees get more and more units it would appear therefore that capital acquisition is a relevant reason for engaging in franchising after all

cooperation between multiple news vendors with transshipments we study a situation with n retailers each of them facing a news vendor problem i e selling to customers over a finite period of time product with a short life cycle such as fashion groups of retailers might improve their expected joint profit by coordinating their orders followed by transshipments after demand realization is known we analyze these situations by defining a cooperative game called a general news vendor game for such a situation with n retailers we concentrate on whether it makes sense to cooperate by studying properties of general news vendor games our main result states that general news vendor games have non empty cores

an empirical look at franchising as an organizational form franchise contracts are identified as a hybrid form of economic organization motives for the dominance of franchise arrangements are identified by examining the theoretical literature on franchising and related literatures on the theory of the firm firm growth managerial and employee selection a nd brand name capital empirical tests are performed on the incidence of franchise contracts across states for three industries in which f ranchising is prominent and data are readily available the results s uggest that both principal agent incentives and informational incenti ves favor the use of franchise arrangements copyright 1988 by the university of chicago

the law and economics of franchise tying contracts this paper analyzes from an economic perspective current antitrust law with regard to franchising requirements contracts where a franchisee must purchase an input from the franchisor or from a particular supplier designated by the franchisor the law takes an extremely hostile view toward such tie in contracts at least on the surface by stating that tying is a per se offense the court has said that such contractual arrangements generally serve hardly any purpose beyond the suppression of competition 2 and has held it not necessary to demonstrate anticompetitive effect before declaring them illegal the per se standard under which tying arrangements are analyzed is unusual because of the essential role of economic analysis to prove the existence of a per se illegal tying arrangement one must demonstrate economically that three conditions are met first that two separate products exist second that there is sufficient market power in the tying good and third that a not insubstantial amount of commerce in the tied good market is affected 3 in addition the per se standard permits affirmative defenses such as the use of tying for quality control and these also often entail sophisticated economic analysis as justice o connor correctly

being in someone else s shoes the role of gender in nascent entrepreneurship several studies have shown the existence of significant differences in the rate of new business creation between men and women specifically it has been shown that women are much less likely to be involved in entrepreneurship than men worldwide it is not yet understood however if such differences are the result of personal characteristics of the individual and of her economic environment or are instead the result of universal and perhaps evolutionary phenomena our empirical analysis is conducted using representative samples of population for 37 countries and a special form of bootstrapping that allows us to equalize individuals conditions and as a result analyze the choices of men and women put in identical economic environments and socio economic circumstances

time consistent shapley value allocation of pollution cost reduction we study the problem of allocation over time of total cost incurred by countries in a cooperative game of pollution reduction we compute the characteristic function for all possible coalitions and apply the shapley value to determine a fair distribution of the total cooperative cost among players we design a mechanism for allocation over time of total individual cost so that the initial agreement remains valid for the whole duration of the game

production inventory games a new class of totally balanced combinatorial optimization games in this paper we introduce a new class of cooperative games that arise from production inventory problems several agents have to cover their demand over a finite time horizon and shortages are allowed each agent has its own unit production inventory holding and backlogging cost cooperation among agents is given by sharing production processes and warehouse facilities agents in a coalition produce with the cheapest production cost and store with the cheapest inventory cost we prove that the resulting cooperative game is totally balanced and the owen set reduces to a singleton the owen point based on this type of allocation we find a population monotonic allocation scheme for this class of games finally we point out the relationship of the owen point with other well known allocation rules such as the nucleolus and the shapley value

shipment consolidation who pays for it and how much this paper examines the subject of cost allocation in a multiple product inventory system allowing for consolidation of shipments if we order multiple items using an economic order quantity eoq policy and consolidate shipments part of the ordering cost is shared and part is specific to each item we want to find the consolidation choice with optimal total cost and divide the cost fairly among the individual items such a fair division is central to a costing system in which no group of items subsidizes the others there are no free riders we use a cooperative inventory game to determine when this can be done this game is usually not concave so we want to know what consolidation combinations determine when this cost can be fairly divided using the core of the game we prove that consolidation of all the items is cheaper exactly if there are fair cost allocations core of the game is not empty which happens when the portion of the ordering cost common to all items is not too small we further show how sensitive the nonempty core result is to adjustments in the cost parameters and show how to determine a threshold value for the shared ordering cost which assures the existence of a fair cost allocation

crossing mother entrepreneur franchisees attempts to reduce franchisor influence abstract contractual terms guide many entrepreneur franchisees actions with the franchisor however it is impossible for franchisors to completely specify all future actions they compensate by continually attempting to influence franchisees using what franchisees perceive as suasion in their ongoing interactions we develop a theoretical framework for understanding the informal interaction dynamics between franchisors and franchisees most franchise arrangements include the payment of royalties based on sales this encourages a growth oriented strategy usually appropriate for the franchisees during the initial stages of their operations whereas a franchising strategy can reduce entreprenerial risk for franchisees it does not eliminate it thus as sales of the franchisees increase profit oriented strategies will be favored because they represent the payoffs that accrue to continuing entrepreneurial effort and risk taking these strategies may be in opposition to franchisors sales orientation when market conditions do not allow continual growth without margin penalties a research model is developed depicting the relationship between franchisees strategies and performance and the moderating effect that contractual goals and franchisees perception of franchisors attempts at suasion have on this relationship a set of research hypotheses was then empirically tested using a large sample of franchisees from the commercial truck retailing industry the results indicate that sales growth and profit growth goals are not always congruent balancing the goals of the franchisor and franchisee did not appear to be a popular option either one or the other was emphasized more importantly the results indicate that when franchisees perceive attempts by franchisors to use suasion lower levels of profits result but there is no corresponding increase in the level of sales in the long term franchisors are likely to determine that current contractual arrangements are not protecting their longer term interests thus they will be expected to attempt to modify franchise contracts in ways that force franchisees to implement sales gain strategies this will require that entrepreneur franchisees anticipate future events more carefully at the time they are examining the original franchise contract because most entrepreneurs are concerned with immediate survival at the start up stage this makes examination of the contract less likely to happen the franchise option is attractive because it reduces such risks we recommend that entrepreneurs write ex ante contingent claims contracts that ensure a gradual reduction of franchisor influence although this would assume a power or knowledge balance that favors the franchisees which is unlikely during the start up phase it will change over time as franchisees gain a better understanding of the local competitive dynamics thus it may well serve the franchisees to take a defensive posture or push a royalty arrangement that decreases the emphasis on sales over time this is most likely to be effective where the entrepreneur is considering several competing franchises at the time of the signing of the contract finally we recommend that entrepreneur franchisees should not assume that the expert advice offered by their franchisor is always in their best interests although technical advice is more likely to be unbiased and should be fully exploited as this is what makes the franchise valuable strategic advice or that which relates to goal setting may well be colored by the financial interests of the franchisor franchisors are unlikely to consider the possibility that franchisees would be better served by formulating their own strategies nor are they likely to consider that the franchise network would be better off in the longer term by the collective impact associated with numerous franchisees independently formulating their own strategies in short although we do not suggest that franchisees should always assume that crossing mother is the best response to all perceived franchisor suasion efforts they should carefully examine all strategic advice

the choice of organizational form the case of franchising abstract we examine companies that franchise some units and centrally operate own others the agency problems confronting these two organizational forms are analyzed testable hypotheses are developed the empirical results support the notion that owning versus franchising reflects a trade off among agency related problems the cost of monitoring store managers appears to be especially important in the own franchise decision the level of repeat business and initial investment requirements per unit also appear to be important

tempus fugit time pressure in risky decisions we study the effects of time pressure on risky decisions for pure gain prospects pure loss prospects and mixed prospects involving both gains and losses in two experiments we find that time pressure has no effect on risk attitudes for gains but increases risk aversion for losses for mixed prospects subjects become simultaneously more loss averse and more gain seeking under time pressure depending on the framing of the prospects the results suggest the importance of aspiration levels and thus the overall probability to break even under time pressure we discuss the implications of our findings for decision making situations that involve time pressure

the economic effects of franchise termination laws we would like to thank blake rhodes and pam schommer for excellent research assistance participants in workshops at arizona state university university of california berkeley the university of chicago dartmouth college iowa state university the justice department the university of rochester and the university of utah as well as jeff coles arnold cowan jim dana franklin m fisher stuart gilson ben hermalin cliff holderness gregg jarrell alan krueger wayne mikkelson walter oi jim poterba ajai singh cliff smith kathy spier david weisbach jamie zender jerry zimmerman and especially kevin j murphy and an anonymous referee for comments on an earlier draft brickley and weisbach thank the managerial economics research center of the university of rochester and the john m olin foundation and dark thanks the college of business at iowa state university for financial support brickley also thanks the garn institute of finance at the university of utah for financial assistance 1 see mark robichaut franchise rules are back off drawing board wall st j july 6 1990 at bl note that in this article we focus on laws that apply to business format franchises for an analysis of state laws in automobile franchising see richard l smith ii franchise regulation an economic analysis of state restrictions on automobile distribution 25 j law econ 125 1982 richard a epstein unconscionability a critical appraisal 18 j law econ 293 314 15 1975 and paul h rubin the theory of the firm and the structure of the franchise contract 21 j law econ 223 1978 other work on the economics of franchising includes james a brickley frederick h dark the choice of organizational form the case of franchising 18 j fin econ 401 1987 james a brickley frederick h dark michael s weisbach an agency perspective on franchising 20 fin mgmt 1991 in

cooperation and game theoretic cost allocation in stochastic inventory models with continuous review we study cooperation strategies for companies that continuously review their inventories and face poisson demand our main goal is to analyze stable cost allocations of the joint costs these are such that any group of companies has lower costs than the individual companies if such allocations exist they provide an incentive for the companies to cooperate we consider two natural cooperation strategies i the companies jointly place an order for replenishment if their joint inventory position reaches a certain reorder level and ii the companies reorder as soon as one of them reaches its reorder level numerical experiments for two companies show that the second strategy has the lowest joint costs under this strategy the game theoretical shapley value and the distribution rule a cost allocation in which the companies share the procurement cost and each pays its own holding cost are shown to be stable cost allocations these results also hold for situations with three companies

financial decision making are women really more risk averse 40 males 33 females gain gambling gain domain loss gambling loss domain a contextual frames b abstract gambling frames studies the application of experimental methods provided stronger control of the economic environment in which decisions were made we elicited data which call into question the prevalence of stereotypic risk attitudes in financial decision making first we find that the comparative risk propensity of male and female subjects is strongly dependent on the financial decision setting second and more important we observe no gender differences in risk propensity when subjects face contextual decisions since in practice financial decisions are always contextual our results suggest that the above gender stereotype may not reflect true male and female attitudes toward financial risks i gender specific risk behavior an experimental design our experiment was designed to examine gender specific risk propensity in decisions relevant for investors and managers table 1 gives an overview of the experimental design in the main treatment we implemented risky choices in the form of investment and insurance decisions choice behavior in this treatment henceforth called the context treatment directly measures the risk behavior of male and female subjects in contextual financial decisions we also ran a control treatment in which the same risky choices were presented as abstract gambling decisions this control treatment henceforth called the abstract treatment allows us to validate the risk behavior induced by our experimental procedure in the light of the above mentioned gambling evidence in the context treatment subjects were confronted with risky choices in two different decision contexts subjects first had to complete a series of investment decisions they were then presented with a series of identical choices this time however framed as insur1 wealth effects from income differences outside the laboratory may still affect risk behavior in our experiment they are controlled for in our model 2 experimental instructions are available in german from the authors or in english from our web page www wif ethz ch publikationen htm ance decisions each investment and insurance decision incorporated a choice between a risky lottery and a certain payoff with the series of choices implemented in the two frames we elicited our subjects certainty equivalents for the same four risky lotteries l1 l2 l3 l4 in both contexts we implemented two frames in the context treatment in order to measure the risk propensity of subjects toward both perceived gains and perceived losses in both frames all possible payoffs for each decision were positive in the investment frame these payoffs were also presented as gains while in the insurance frame the same payoffs were presented as losses relative to an initial endowment therefore elicited certainty equivalents in the investment frame measure subjects risk propensities in the gain domain while certainty equivalents in the insurance frame measure risk propensity in the loss domain if in contextual financial decisions female subjects are generally more risk averse than men our results should display ceteris paribus lower female certainty equivalents in both the investment and insurance frames 3 the four lotteries l1 l2 l3 and l4 each had two possible outcomes payoffs in swiss francs 1 sfr a 0 60 and their probabilities were 30 sfr 6 10 sfr 6 30 sfr 2 10 sfr 2 30 sfr 6 10 sfr 6 and 50 sfr 2 20 sfr 2 respectively 4 experimental evidence suggests that individual risk propensity will vary systematically between the gain and loss domain daniel kahneman and amos tversky 1979 383 vol 89 no 2 gender and economic transactions 3y16 my68 mp 383 friday dec 10 08 20 am lp aer my68 figure 1 differences in mean certainty equivalents ce between male and female subjects by frame note certainty equivalents and male female differences are measured in swiss francs in the abstract treatment we confronted a different group of subjects with exactly the same risky decisions as those in the main treatment however as mentioned before all choices in this control treatment were framed as abstract gambling decisions again two frames were implemented in the gaingambling and loss gambling frames we measured the risk attitudes of subjects toward gambles in the gain and loss domain respectively subjects in both treatments were told in advance that one of their choices would determine their experimental earnings further all subjects completed a post experimental questionnaire which yielded information on each subject s disposable income this information is necessary to exclude wealth effects due to income differences outside the laboratory as an explanation of gender specific choice behavior

to franchise or not to franchise an analysis of decision rights and organizational form shares abstract for innovators and entrepreneurs in service businesses franchising is frequently suggested as a way to succeed and grow academic research has provided little guidance for potential franchisors however this article provides a model to guide that choice of organizational form using results from agency theory analytically franchising is a way to allocate decisions within the franchise system between the franchisor and the franchisee in order to promote efficiency and provide incentives franchisees make decisions regarding local operations such as hours prices and locations because they have the knowledge about local trading conditions franchisors make decisions regarding the product its production and associated marketing efforts that together create the standardization that the trademark signals the revenue of franchise systems is divided to provide incentives to each party to support the allocation of decisions franchisors receive a percentage of gross sales typically 5 to compensate them for use of the trademark and associated services franchisees keep the unit s profits after paying royalties these profits motivate the franchisee to make the good decisions that operate the unit efficiently but franchising has limitations as well first by making franchisees invest in a unit in a specific geographic area the franchise system exposes the franchisees to business risk it consists of local economic conditions beyond franchisees control that could reduce or eliminate their capital that risk could be eliminated by owning a geographically diversified portfolio of shares of units in different places but then incentives are weakened second the requirements of standardization under the common trademark constrain franchisees from the full use of their human capital including their knowledge of local conditions some adaptations to the local market are prohibited by the requirement of standardization so high levels of either business risk or human capital in an industry make franchising a less desirable choice of organizational form these ideas are tested with interindustry data using an econometric discrete choice model on the share of sales through franchise systems termed organizational form share the methodology is identical to market share models used in economics and marketing business risk as measured by percent of units that have failed in the industry in the last 3 years and human capital required in the industry as measured by average wages paid both negatively influence the share of sales through franchise systems the model can be applied by entrepreneurs considering franchising especially in industries not traditionally associated with franchising using public data sources identified in the study a prospective franchisor can research the industry to determine if industry conditions support franchising as the optimal choice of organizational form the empirical texts also suggest a second managerially relevant conclusion the decision of should we franchise can be and should be separated from the decision of how do we implement franchising factors previously shown to influence the implementation of franchising the degree of ownership of units within the system do not influence organizational form share thus suggesting that the strategic decision of whether to franchise is distinct from the operating decision of how to implement franchising

valuing low probability risk survey and experimental evidence abstract this study uses a survey question and an economics experiment to elicit the value of a risk mitigation investment for 93 subjects 48 males and 45 females the responses to hypothetical questions are compared with a risk mitigation decision that has a salient outcome we find no gender differentiated responses to either the maximum accepted price in the economics experiment or hypothetical willingness to pay questions from the survey in our design the two procedures generate aggregate measures that were in close agreement however individual decisions were seldom consistent

unfair allocation of gains under the equal price allocation method in purchasing groups certain purchasing groups do not flourish a supposed reason for this is a creeping dissatisfaction among various members of a group with the allocation of the cooperative gains in this paper we analyze unfairness resulting from using the commonly used equal price ep method for allocating gains under the assumption of continuous quantity discounts we demonstrate that this unfairness is caused by neglecting a particular component of the added value of individual group members next we develop two fairness ratios and tie these to fairness properties from cooperative game theory the ratios show among other things that being too big a player in a purchasing group can lead to decreasing gains they can be used to assess if ep is an unfair method in specific situations finally we discuss measures a purchasing group could consider in order to attenuate perceived unfairness thereby the group may improve its stability and prosperity

the economics of franchise contracts as an organizational arrangement the franchise contract lies between anonymous price mediated exchange and centralized intrafirm employment in contrast to conventional market exchange franchise contracts typically impose on franchisees retail quality standards common hours of business price controls and nonlinear payment schedules for example fixed initial royalty fees plus a percentage of gross retail revenues while franchisors typically provide national advertising and training programs monitor and inspect the franchisees performance with varying intensity across industries and hold the residual power to terminate the franchise agreement observations of actual terminations indicate that franchisors sometimes exclude this power franchisors sometimes face persistent queues of potential franchisees in contrast to simple employment contracts franchise agreements provide for sharing of profits through royalties on revenue or output and considerable freedom for independent decisions by local franchisees 1 why do these franchise contracts exist