strategic capacity rationing to induce early purchases dynamic pricing offers the potential to increase revenues at the same time it creates an incentive for customers to strategize over the timing of their purchases a firm should ideally account for this behavior when making its pricing and stocking decisions in particular we investigate whether it is optimal for a firm to create rationing risk by deliberately understocking products then the resulting threat of shortages creates an incentive for customers to purchase early at higher prices but when does such a strategy make sense if it is profitable to create shortages what is the optimal amount of rationing risk to create we develop a stylized model to study this problem in our model customers have heterogeneous valuations for the firm s product and face declining prices over two periods customers are assumed to have identical risk preferences and know the price path and fill rate in each period via its capacity choice the firm is able to control the fill rate and hence the rationing risk faced by customers customers behave strategically and weigh the payoff of immediate purchases against the expected payoff of delaying their purchases we analyze the capacity choice that maximizes the firm s profits first we consider a monopoly market and characterize conditions under which rationing is optimal we examine how the optimal amount of rationing is affected by the magnitude of price changes over time and the degree of risk aversion among customers we then analyze an oligopoly version of the model and show that competition reduces the firms ability to profit from rationing indeed there exists a critical number of firms beyond which a rationing equilibrium cannot be supported

competitive coupon targeting with the advent of panel data on household purchase behavior and the development of statistical procedures to utilize this data firms can now target coupons to selected households with considerable accuracy and cost effectiveness in this article we develop an analytical framework to examine the effect of such targeting on firm profits prices and coupon face values we also derive comparative statics on firms optimal mix of offensive and defensive couponing the number of coupons distributed redemption rates face values and incremental sales per redemption among our findings when rival firms can target their coupon promotions at brand switchers the outcome will be a prisoner s dilemma in which the net effect of targeting is simply the cost of distribution plus the discount given to redeemers

optimal dynamic pricing of inventories with stochastic demand over finite horizons in many industries managers face the problem of selling a given stock of items by a deadline we investigate the problem of dynamically pricing such inventories when demand is price sensitive and stochastic and the firm s objective is to maximize expected revenues examples that fit this framework include retailers selling fashion and seasonal goods and the travel and leisure industry which markets space such as seats on airline flights cabins on vacation cruises and rooms in hotels that become worthless if not sold by a specific time we formulate this problem using intensity control and obtain structural monotonicity results for the optimal intensity resp price as a function of the stock level and the length of the horizon for a particular exponential family of demand functions we find the optimal pricing policy in closed form for general demand functions we find an upper bound on the expected revenue based on analyzing the deterministic version of the problem and use this bound to prove that simple fixed price policies are asymptotically optimal as the volume of expected sales tends to infinity finally we extend our results to the case where demand is compound poisson only a finite number of prices is allowed the demand rate is time varying holding costs are incurred and cash flows are discounted the initial stock is a decision variable and reordering overbooking and random cancellations are allowed

optimal dynamic pricing for perishable assets with nonhomogeneous demand we consider a dynamic pricing model for selling a given stock of a perishable product over a finite time horizon customers whose reservation price distribution changes over time arrive according to a nonhomogeneous poisson process we show that at any given time the optimal price decreases with inventory we also identify a sufficient condition under which the optimal price decreases over time for a given inventory level this sufficient condition requires that the willingness of a customer to pay a premium for the product does not increase over time in addition to shedding managerial insight these structural properties enable efficient computation of the optimal policy numerical studies are conducted to show the revenue impact of dynamic price policies price changes are set to compensate for statistical fluctuations of demand and to respond to shifts of the reservation price for the former our examples show that using optimal dynamic optimal policies achieves 2 4 7 3 revenue improvement over the optimal single price policy for the latter the revenue increase can be as high as 100 these results explain why yield management has become so essential to fashion retailing and travel service industries

modeling household behavior in developing countries discussion a large and growing body of literature has examined how agricultural households cope with risk much of the work has focused on which types of households are better able to smooth consumption testing whether households with more resources and greater access to income smoothing institutions such as credit markets or well functioning labor markets exhibit greater consumption smoothing however income shocks may have different effects upon different individuals within households and differences in individual ability to smooth income or consumption may have welfare consequences which go beyond foregone income the development of collective household models challenges the assumption that individuals within households maximize a single utility function the assumption of income pooling has also been rejected in a growing body of empirical research on intrahousehold resource allocation however research on risk pooling within households and differences in individual abilities to smooth consumption is relatively new selected papers are discussed

global educational expansion and socio economic development an assessment of findings from the social sciences summary among development agencies conventional wisdom holds that educational expansion improves economic welfare and health reduces inequalities and encourages democratic political systems we investigate the empirical foundations for these expectations in recent social science research consistent evidence indicates that health and demographic benefits result from educational expansion and suggests that education enhances but does not ensure individuals economic security however the impact of educational expansion on growth remains debated and decades of sociological studies offer evidence that educational expansion does not necessarily narrow social inequalities finally considerable controversy surrounds the implications of educational expansion for democratization reasonable forecasts of the consequences of further educational expansions need to consider the diverse social contexts in which these expansions will occur

how would the gas exporting countries forum influence gas trade the cleanest burning fossil fuel today is natural gas while many businesses have gone global it has remained an exception an impending challenge facing the industry however is the evolution of a cartel from the 5 year old gas exporting countries forum how would this new organization influence the trade of gas globally does its existence imply a threat to the development of gas trade the paper reviews this fairly new organization within the context of the above questions it is mainly a comparative study of the body in relation to opec s historical political and economic development subsequently the author proposes probable influence options available to the forum and the impending consequence of such actions on the market the outcome of this study calls for further analysis and research on new issues and questions of interest

the development of a natural gas transportation logistics management system abstract efficient management of the natural gas business chain based on pipeline transmission networks and taking into consideration the interaction among the main players e g shippers suppliers transmission companies and local distribution companies requires the use of decision making support systems these support systems maximise resources and mitigate contingencies due to gas supply shortfalls operational contingencies from scheduled and non scheduled equipment outages and market demand shortfalls this study presents a practical use for technologies such as a thermohydraulic simulation of gas flow through pipelines a monte carlo simulation for compressor station availability studies an economic risk evaluation related to potential revenue losses and contractual penalties and linear programming for the maximisation of income and the minimisation of contractual penalties the proposed system allows the optimum availability level to be defined and maintained by the transporter by installing reserve capacity to mitigate losses related to revenue and contractual penalties it also economically identifies quantifies and justifies the installation of stand by compressor units that can mitigate the transporter s exposure to losses caused by capacity shortfalls as a consequence of scheduled and non scheduled outages

structural change in europe s gas markets three scenarios for the development of the european gas market to 2020 abstract against the background of the european union s gas directive and the emergence of new players and markets in europe s gas sector this paper explores how company actions could shape the future for the gas industry starting with an examination of company strategies this paper develops three scenarios for the future a gradual transformation scenario where a single european gas market develops that is essentially oligopolistic in nature a vertical integration scenario where upstream and downstream gas companies merge to form a vertically integrated gas supplier and a pull the plug scenario where the current market structure decomposes into a competitive market these scenarios are examined in terms of their impact on gas prices demand and the distribution of gas rent along the supply chain the paper highlights the fact that the eu s gas directive is not sufficient for the introduction of competition into europe s gas markets but that company actions will be the key determinant and they may favour alternative market structures

california s dysfunctional electricity market policy lessons on market restructuring abstract the restructured electricity market in california has been behaving oddly and badly since summer of 2000 electricity prices have been exorbitantly high and highly volatile despite the high prices the three investor owned utilities are in dire financial shape because they cannot pass on the high costs of wholesale power to their customers due to a rate freeze many policymakers in the us and elsewhere want to know what went wrong in california trying to avoid a similar fate as they proceed with their own market liberalization plans

dynamic pricing strategies with reference effects we consider the dynamic pricing problem of a monopolist firm in a market with repeated interactions where demand is sensitive to the firm s pricing history consumers have memory and are prone to human decision making biases and cognitive limitations as the firm manipulates prices consumers form a reference price that adjusts as an anchoring standard based on price perceptions purchase decisions are made by assessing prices as discounts or surcharges relative to the reference price in the spirit of prospect theory we prove that optimal pricing policies induce a perception of monotonic prices whereby consumers always perceive a discount respectively surcharge relative to their expectations the effect is that of a skimming or penetration strategy the firm s optimal pricing path is monotonic on the long run but not necessarily at the introductory stage if consumers are loss averse we show that optimal prices converge to a constant steady state price characterized by a simple implicit equation otherwise the optimal policy cycles the range of steady states is wider the more loss averse consumers are steady state prices decrease with the strength of the reference effect and with customers memory all else equal offering lower prices to frequent customers may be suboptimal however if these are less sensitive to price changes than occasional buyers if managers ignore such long term implications of their pricing strategy the model indicates that they will systematically price too low and lose revenue our results hold under very general reference dependent demand models

intrahousehold resource allocation in an uncertain environment the literature on risk management by agricultural households has made important contributions to our understanding of household level economic decisions in developing countries because incomes from particular farming enterprises fluctuate widely depending on weather crop prices and macroeconomic policies households adopt a number of strategies to smooth their consumption one approach is to diversify the sources of income for the household the members of peasant households may engage in farming trading and other business activities and wage labor reardon delgado and matlon when household members are involved in multiple activities and pool their income total household income may be less subject to extreme variation morduch notes mitigating risk through production choices can be costly since typically expected profits must be sacrificed for lower risk p 104 this approach to risk management may be costly for the household over the past three decades economists have used theories of household risk management and consumption smoothing to explain behavior observed in peasant households for example the purchase and sale of assets are frequently used as a means of savings and consumption smoothing when there are limited formal financial institutions marriage decisions may establish kin relationships with people in areas that experience different weather and production shocks rosenzweig and stark although it may seem inefficient for households to farm numerous small plots that are widely scattered this strategy provides some protection against location specific crop failures from bad weather or pests mcclosky walker and ryan the extensive literature on contracting and sharecropping arrangements focuses on the role that these institutions play in minimizing a household s exposure to risk hoff braverman and stiglitz all of these theories assume that households

reform of the electricity supply industry in britain an assessment of the development of public policy abstract several countries have been trying gradually to increase competition in electricity supply but britain has just taken a radical step with this aim a vertically integrated administered structure has been replaced by one that is more market based in particular electricity generation and transmission have been separated policy proceeded in four steps the commitment to privatise structural reform establishment of the regulatory framework and decisions on contractual arrangements this paper discusses difficulties that arose as policy developed and argues that the complexities of market failure problems in electricity supply were underestimated initially some lessons for policymakers elsewhere are suggested

thermopower generation investment in brazil economic conditions abstract one of the main questions in electricity market deregulation is the aptitude of private capital for investments in power generation this is especially important in brazil whose load has a strong growth trend 6 per year thermopower is an attractive alternative for expanding generation as it is complementary in many aspects to hydropower which supplies most brazil s power at a very low price most of the time but makes the system vulnerable to seasonal water variations this paper studies the competitiveness of thermopower generation in brazil under current regulations assesses under the real options theory approach the conditions for investments in thermopower generation and finally presents and discusses a hydropower generation schedule model

haddad lawrence john hoddinott and harold alderman eds intrahousehold resource allocation in developing countries models methods and policy baltimore md johns hopkins university press 1997 384 pp 55 00 in this volume economists demographers sociologists and anthropologists collaborate in the study of how resources are allocated within households in developing countries and why it matters from a policy perspective surveying a broad range of theory and evidence the contributors examine the many social and cultural factors that influence decisions about the family and household level about the allocation of time income assets and other resources ths contributors show that a more complete understanding of intrahousehold behaviour can increase the likelihood that policies will reach the people they are intended to affect

density social networks and job search methods theory and application to egypt we first develop a theoretical model in which individuals are embedded within a network of social relationships we show that conditional on being employed the probability to find a job through social networks relative to other search methods increases and is concave with the size of the network the effects are stronger for the uneducated there is however a critical size of the network above which this probability decreases we then test empirically these theoretical findings for egypt using the 1998 labor market survey the empirical evidence supports the predictions of our theoretical model

research note consumer addressability and customized pricing the increasing availability of customer information is giving many firms the ability to reach and customize price and other marketing efforts to the tastes of the individual consumer this ability is labeled as consumer addressability consumer addressability through sophisticated databases is particularly important for direct marketing firms catalog retailers such as l l bean and land s end credit card issuing banks and firms in the long distance telephone market we examine the strategic implications of consumer addressability on competition between database direct marketing firms we address questions such as in a competitive environment how should firms invest in addressability will future improvements in the degree of addressability increase or mitigate the intensity of competition between the firms will greater addressability always be beneficial for firms we model competition between two firms in a market where consumers differ on a horizontal attribute of product differentiation the market comprises consumers located on a linear attribute space and firms located at the ends of the line we represent the degree of addressability or the reach of a firm s database as the proportion of consumers at each point in the market who are in the firm s database consequently the firm can offer these consumers customized prices consumer addressability creates two effects that govern the competition between firms a surplus extraction effect because a firm might address a consumer who is not reached by its competitor and a competitive effect that is created by the set of consumers who can be addressed by both firms the key results of the paper pertain to when the addressability decision is endogenous when the extent of market differentiation or consumer heterogeneity in preferences for a product brand attribute as well as the incremental cost of addressability are sufficiently large firms make symmetric investments in equilibrium given high costs firms choose sufficiently low levels of addressability low addressability and high levels of market differentiation both help reduce price competition which facilitates symmetric choice of addressability by the firms in equilibrium however when market differentiation and the cost of incremental addressability become small firms face the prospect of destructive competition as a result they strategically differentiate in their choice of addressability to mitigate this competition interestingly even in the extreme case when incremental addressability is costless not every firm chooses full addressability in equilibrium this has useful implications for direct marketing given that the advances in information technology should improve the ability of firms to address their consumers it might indeed not be desirable for all direct marketing firms to indefinitely pursue greater addressability as costs of doing so decline the analysis also shows an interesting effect of market differentiation in addressable markets equilibrium profits can decrease with an increase in market differentiation when the marginal cost of addressability is sufficiently high finally we discuss the competitive outcome that would result when firms compete with addressable as well as uniform posted prices

a price discrimination theory of coupons the objective of this paper is to analyze the consumer s decision in electing to use cents off coupons distributed by manufacturers of consumer products arguing that the decision to use coupons is based on the tradeoff between costs of using coupons and the savings obtained it is shown that coupons can serve as a price discrimination device to provide a lower price to a particular segment of consumers based on a price theoretic model it is shown that the users of coupons are more price elastic than nonusers of coupons and that the opportunity cost of time and other household resource variables are determinant factors in consumers decisions implications derived from the model are tested using diary panel data

european natural gas market forces will bring about competition in any case the purpose is to analyze the emergent commercial forces that promote increasing competition in the european natural gas market the paper begins by describing the traditional market organization along with its monopolistic elements and inflexibilities it goes on to illuminate the destabilizing frustration among producers with fast growing supply potential caused by the limited growth in demand under prevailing market arrangements two emergent commercial forces promoting competition are then dealt with the first is the increasingly widespread effort by large consumers to procure gas on improved terms by circumventing the national transmission companies the important role played by wingas in this respect is reviewed in detail the second is the impending impact of the interconnector a gas pipe between the uk and the continent which becomes operational during 1998 the paper argues that these commercial developments are undermining existing monopolies and will bring about increasing competition even if the formal regulatory regime stays intact

caste discrimination in the indian urban labour market abstract this the pioneering quantitative analysis of caste in the indian urban labour market examines the age old problem of caste in the light of discrimination theory and government policy using a survey of workers in delhi the gross wage difference between scheduled untouchable and non scheduled caste is decomposed into its explained and discrimination components and from a model of occupation choice into wage and job discrimination discrimination is found to exist and to operate at least in part through the traditional mechanism viz assignment to jobs with the scheduled castes entering poorly paid dead end jobs it is assisted by methods of recruitment based on contacts prevalent in the manual occupation which also cause past discrimination to carry over to the present its practice serves the economic interests of those who exercise a taste for discrimination

perishable asset revenue management with markovian time dependent demand intensities many industries face the problem of selling a fixed stock of items over a finite horizon these industries include airlines selling seats before planes depart hotels renting rooms before midnight theaters selling seats before curtain time and retailers selling seasonal items with long procurement lead times given a sunk investment in seats rooms or winter coats the objective for these industries is to maximize revenues in excess of salvage value when demand is price sensitive and stochastic pricing is an effective tool to maximize expected revenues in this paper we address the problem of deciding the optimal timing of price changes within a given menu of allowable possibly time dependent price paths each of which is associated with a general poisson process with markovian time dependent predictable intensities we show that a set of variational inequalities characterize the value functions and the optimal possibly random time changes in addition we develop an efficient algorithm to compute the optimal value functions and the optimal pricing policy

the marriage earnings premium as a distributed fixed effect wage equations using cross sectional data typically find an earnings premium in excess of 10 percent for married men one leading hypothesis for the premium is that marriage facilitates specialization that enables married men to become more productive than single men another is that the premium is attributable to an unobserved fixed effect married men possessing qualities that are valued in the labor market as well as the marriage market this paper suggests that the premium is attributable to an unobserved timedistributed fixed effect that emerges and grows with the approach of marriage and continues to grow for some years after marriage a similar distributed fixed effect is found in the case of women but it is smaller and declines after a few years of marriage the results appear to cast doubt on the specialization hypothesis

clearance pricing and inventory policies for retail chains clearance pricing and end of season inventory management are challenging and important problems in retailing sales rates depend upon price seasonal effects and the remaining assortment of items available to customers there is little time to react to observed sales and pricing errors result in either loss of potential revenue or excess inventory to be liquidated this paper develops optimal clearance prices and inventory management policies that take into account the impact of reduced assortment and seasonal changes on sales rates versions of these policies have been tested and implemented at three major retail chains and these applications are summarized and discussed

lessons learned from brazilian natural gas industry reform over the past decades many countries have reformed their infrastructure industries although these reforms have been broadly similar for the most part aiming at introducing competition in potentially competitive segments the contexts in which they have been carried out differ this is due to the past regulatory experience in each country the maturity of the industry and or the number of agents when the reform process started the brazilian natural gas reform stands out due to the country s singular conditions the development of the natural gas industry in brazil was grounded on stepping up supplies through integration with neighboring nations particularly bolivia and establishing a competitive environment by lowering the barriers hampering the arrival of new investors however natural gas is located at the crossroads of two main energy chains oil and hydroelectricity this article analyzes the brazilian natural gas reform and extracts lessons from this process the low capillarity of transportation and distribution systems continues to be the main bottleneck of the country s natural gas industry the challenges of the new legal framework are to encourage investments in networks and guarantee supply to allow the industry to consolidate and mature against a backdrop of rapid changes in the world market

a continuous time yield management model with multiple prices and reversible price changes this article studies a continuous time yield management model in which reversible price changes are allowed we assume that perishable assets are offered at a set of discrete price levels demand at each level is a poisson process to maximize the expected revenue management controls the price dynamically as sales evolve we show that a subset of these prices that form a concave envelope is potentially optimal we formulate the problem into an intensity control model and derive the optimal solution in closed form properties of the optimal solution and their policy implementations are discussed numerical examples are provided

job recruitment networks and migration to cities in india abstract economists have focused on job search and supply side explanations for network effects in labour transactions this paper develops and tests an alternative explanation for the high prevalence of network based labour market entry in developing countries in our theoretical framework employers use employee networks as screening and incentive mechanisms to improve the quality of recruitment our framework suggests a negative relationship between network use and the skill intensity of jobs a positive association between economic activity and network use and a negative relationship between network use and pro labour legislation furthermore social identity effects are expected to intensify when compared to information sharing and other network mechanisms using data from an all india employment survey we implement a novel empirical strategy to test these relationships and find support for our demand side explanation

revenue management through dynamic cross selling in e commerce retailing we consider the problem of dynamically cross selling products e g books or services e g travel reservations in the e commerce setting in particular we look at a company that faces a stream of stochastic customer arrivals and may offer each customer a choice between the requested product and a package containing the requested product as well as another product what we call a packaging complement given consumer preferences and product inventories we analyze two issues 1 how to select packaging complements and 2 how to price product packages to maximize profits we formulate the cross selling problem as a stochastic dynamic program blended with combinatorial optimization we demonstrate the state dependent and dynamic nature of the optimal package selection problem and derive the structural properties of the dynamic pricing problem in particular we focus on two practical business settings with the emergency replenishment model and without the lost sales model the possibility of inventory replenishment in the case of a product stockout for the emergency replenishment model we establish that the problem is separable in the initial inventory of all products and hence the dimensionality of the dynamic program can be significantly reduced for both models we suggest several packaging pricing heuristics and test their effectiveness numerically

literacy sharing assortative mating or what labour market advantages and proximate illiteracy revisited abstract this paper explores the relationship between household literacy and the labour market outcomes of illiterate household members which basu narayan and ravallion 2002 report using household income and expenditure data from bangladesh bnr attribute a considerable wage premium for proximate illiterate women in off farm employment to labour productivity gains from intra household literacy sharing this wage premium also suggests that women may be more efficient recipients of literacy externalities than men we propose that any such relationship might not be due to higher labour productivity but may have other explanations such as systematically different and unobserved attributes of illiterate females married into literate households we also pay attention to the negative selection of illiterate females into non farm wage employment which contrary to received wisdom suggests that household literacy may not be unambiguously progressive for females we propose that the widely reported finding that

removing the government from european gas abstract governments have been heavily involved in the development of the european natural gas industry since the discovery of the dutch supergiant groningen field in 1959 their involvement reflected the prevailing intervntionist approach to economic management as well as concerns over security of supply after 1980 they rightly withdrew from active intervention in the oil market however their continued presence at an operational level is now an obstacle to the successful development of the natural gas industries in a number of key markets the british experience over the past ten years has shown that privatisation and the determined introduction of competition leads to greater flexibility of efficiency in energy supply as well as significantly lower prices it has also produced for the first time outside north america a genuine gas price index the recent european uniondirectives on gas and electricity have given a gentle shove to the competitive process on the continent governments even those in two minds about competition should stand aside and the let the market do its work

testing among models of intrahousehold resource allocation households are the locus for much economic decision making households function as producers investors in human and physical capital managers of risk and as consumers many resources are allocated within households and the effects of many policies depend on the dynamics of household decision making for example household decisions about allocating food among individual household members may determine who benefits from programs to improve health nutrition or welfare in many microeconomic studies the household is treated as an individual for analytical purposes in other words it is assumed that a household acts as a single entity with a single set of preferences recently however a number of economists have recognized that households are sites of conflict as well as cooperation and have begun to use new classes of models to explain how resources are allocated among household members this literature has especially improved our understanding of households in which income is not completely pooled in such a setting standard household models may offer misleading conclusions about the effects of policies on individual household members i this paper goes beyond recent surveys of intrahousehold issue by explicitly examining the assumptions predictions and empirical implications of different intrahousehold models in particular it analyzes empirical tests that distinguish among competing models by clarifying the similarities and differences among alternative models this paper also clarifies what has actually been demonstrated and what has not been demonstrated by previous empirical studies in so doing the paper points to specific topics in need of further research this paper is organized as follows section 2 analyzes the assumptions and predictions of each of the five main classes of intrahousehold resource allocation models section 3 describes empirical tests of these assumptions along with an analysis of empirical work that has been generated sections 4 and 5 discuss the questions that remain unanswered and directions for future research

health nutrition and economic development the relationship between health and economic development is explored focusing on nutrition based health indicators the spotlight is placed on the inter related feedbacks between the influence of health on productivity on one hand and the influence of income on health status on the other disentangling causality in these relationships has preoccupied much of the literature we evaluate different empirical strategies that have been adopted and assess the results there is now a body of evidence based on careful empirical studies that demonstrates a causal relationship between health and labor productivity there is also evidence that at least among the very poor additional income is spent on improved nutrition there are two issues that have received little attention although we argue they are likely to be very important first measurement of health is discussed in detail evidence is presented on how taking into account differences in the extent of measurement error is critical for interpreting the impact of health on wages the same theme emerges in studies of the effect of income on health specifically calorie intake the key role of non linearities in these relationships is highlighted and we demonstrate that a good deal of the variation in estimates of income elasticities of demand for calories can be ascribed to the role of measurement and functional form authors

the relevance of standard estimates of rates of return to schooling for education policy a critical assessment abstract this paper examines the accuracy and usefulness of estimated rates of return to schooling based on the standard human capital model of becker and mincer regarding accuracy it investigates whether failure to account for differences in ability and school quality lead to significant biases estimates using ghanaian data confirm this possibility even when accurate estimated rates of return to additional years of schooling may have limited policy implications more useful for governments are rates of return to investments in school quality the paper uses data on cognitive skills to estimate rates of return to three types of school quality improvements

individual marketing with imperfect targetability our research investigates the competitive ramifications of individual marketing and information management in today s information intensive marketing environments the specific managerial issues we address are as follows first what kinds of incentive environments do competing firms face when they can only target individual customers imperfectly second does the improvement in an industry s targetability intensify price competition in the industry such that all competing firms become worse off third should a firm share its customer knowledge so as to improve its rival s targetability fourth how should an information vendor sell its information that can improve a firm s targetability finally do competing firms have the same incentives to invest in their own targetability to answer those questions we develop a simple model a la narasimhan 1988 in which each of the two competing firms have their own loyal customers and compete for common switchers we assume that each firm can classify its own loyal customers and switchers correctly only with a less than perfect probability this means that each firm s perceived customer segmentation differs from the actual customer segmentation based on their perceived reality these two competing firms engage in price competition as an extension we also allow the competing firms to make their investment decisions to acquire targetability we show that when individual marketing is feasible but imperfect improvements in targetability by either or both competing firms can lead to win win competition for both even if both players behave noncooperatively and the market does not expand win win competition results from the fact that as a firm becomes better at distinguishing its price insensitive loyal customers from the switchers it is motivated to charge a higher price to the former however due to imperfect targetability each firm mistakenly perceives some price sensitive switchers as price insensitive loyal customers and charges them all a higher price these misperceptions thus allow its competitors to acquire those mistargeted customers without lowering their prices and hence reduce the rival firm s incentive to cut prices this effect softens price competition in the market and qualitatively changes the incentive environment for competing firms engaged in individual marketing a prisoner s dilemma occurs only when targetability in a market reaches a sufficiently high level this win win perspective on individual marketing has many managerial implications first we show that superior knowledge of individual customers can be a competitive advantage however this does not mean that a firm should always protect its customer information from its competitors to the contrary we find that competing firms can all benefit from exchanging individual customer information with each other at the nascent stage of individual marketing when firms targetability is low indeed under certain circumstances a firm may even find it profitable to give away this information unilaterally however as individual marketing matures as firms targetability becomes sufficiently high further improvements in targetability will intensify price competition and lead to prisoner s dilemma therefore it is not only prudent politics but also a business imperative for an industry to seize the initiative on the issue of protecting customer privacy so as to ensure win win competition in the industry second we show that the firm with a larger number of loyal customers tends to invest more in targetability when the cost of acquiring targetability is high however the firm with a smaller loyal base can through information investment acquire a higher level of targetability than the firm with a larger loyal base as long as the cost of acquiring targetability is not too high as the cost further decreases competing firms will all have more incentives to increase their investments in targetability until they achieve the highest feasible level third an information vendor should make its information available nonexclusively exclusively when its information is associated with a low high level of targetability when the vendor does sell its information exclusively it should target a firm with a small loyal following if it can impart a high level of targetability to that firm finally our analysis shows that an information intensive environment does not doom small firms in fact individual marketing may provide a good opportunity for a small firm to leapfrog a large firm the key to leapfrogging is a high level of targetability or customer knowledge

periodic pricing of seasonal products in retailing this paper studies intertemporal pricing policies when selling seasonal products in retail stores we first present a continuous time model where a seller faces a stochastic arrival of customers with different valuations of the product for this model we characterize the optimal pricing policies as functions of time and inventory we use this model as a benchmark against which we compare more realistic models that consider periodic pricing reviews we show that the structure of the optimal pricing policies in this case is consistent with the procedures observed in practice retail stores successively discount the product during the season and promote a liquidation sale at the end of the planning horizon we also show that the loss experienced when implementing periodic pricing reviews instead of continuous policies is small when the appropriate number of reviews is chosen several interesting economic insights emerge from our analysis for example uncertainty in the demand for new products leads to higher prices larger discounts and more unsold inventory finally we study the effect of announced discount policies on prices and profits we show that stores that have adopted this type of strategy usually set prices such that with high probability the merchandise is sold during the first periods and the largest discounts rarely take place

does the labour market explain lower female schooling in india labour market discrimination against women and parental discrimination against daughters are two of the most commonly cited explanations of the gender gap in education in developing countries this study empirically tests the labour market explanation for india using recent household survey data the results reveal substantial omitted family background bias in the estimates of rates of return to education the findings suggest that as well as overall labour market discrimination girls face poorer economic incentives to invest in schooling than boys because they reap lower labour market returns to education than boys

international market integration for natural gas a cointegration analysis of prices in europe north america and japan this paper investigates the degree of integration of natural gas markets in europe north america and japan in the time period between the early 1990s and 2004 the relationship between international gas market prices and their relation to the oil price are explored through principal components analysis and johansen likelihood based cointegration procedure both of them show a high level of natural gas market integration within europe between the european and japanese markets as well as within the north american market at the same time the obtained results suggest that the european respectively japanese and the north american markets were not integrated

what has luck got to do with it a regional analysis of poverty and agricultural growth in rural india this article explores the role of agro ecological factors associated with agricultural growth and poverty outcomes in india using a new operationalisation of agro ecological factors and incorporating within state variations in poverty and other variables we show that agricultural growth and poverty reduction appear to depend on underlying agro ecological conditions which are favourable to the spread of irrigation and hence agricultural development which in turn in associated with poverty reduction promotion of agriculture in less favoured areas in unlikely to have similar effects on agriculture in less favoured areas is unlikely to have similar effects on agricultural growth even if the effects of agricultural growth on poverty remain similar unless conditions for irrigation are favourable or rainfall is sufficiently abundant and reliable this suggests that considerable caution may be needed in drawing policy conclusions from empirical analysis by state alone and without regard to their underlying f

research note using basket composition data for intelligent supermarket pricing how can supermarkets use the vast data they have to design strategies to compete for large basket shoppers potentially their most profitable customers we say analyze the data to glean basket composition of heterogeneous consumers of theoretical and practical interest is the question will our suggestion improve supermarket profits and if so by what pricing strategies by answering this we can also answer the question do results of extant research on single product marketing that using such information intensifies competition and lowers profits generalize to multiproduct marketing by supermarkets that carry several products and whose patrons purchase multiple items we derive equilibrium data based intelligent pricing strategies that also produce increased supermarket profits what is more interesting is our result that data analysis is profitable whether or not a competitor undertakes data analysis if not too costly implementing data analysis is a dominant strategy moreover with comprehensive data analysis connecting basket information and household data stores can increase profits further by targeting rewards at individual households thereby segmenting the market more completely in contrast to past research findings we show that for supermarkets even under competition use of information on past purchases enables intelligent pricing better segmentation and higher profits

why governments should invest more to educate girls abstract women and men often receive the same percentage increase in their wage rates with advances in schooling because these returns decline with more schooling the marginal returns for women will tend to exceed those for men especially in countries where women are much less educated the health and schooling of children are more closely related to their mother s education than father s more educated women work more hours in the market labor force broadening the tax base and thereby potentially reducing tax distortions these three conditions it is argued justify the disproportionate allocation of public expenditures toward women s education

measuring literacy some extensions of the basu foster framework abstract this note builds further on the ideas of basu and foster 1998 and is concerned to advance the measurement of literacy taking due note of its positive external effects in a simple economical and interpretation friendly fashion

an investigation of the labor market earnings of panamanian males evaluating sources of inequality this paper presents empirical evidence on the determinants of labor market earnings and inequality for males in panama using newly available microdata we estimate earnings equations based on the measurement framework of mincer 1974 and compare them with those for other countries at various stages of economic development we present evidence on two aspects of inequality in less developed economies labor market segmentation and social stratification we present tests of the segmentation hypothesis including several of the dual labor market hypotheses and discuss their inherent ambiguity we also present evidence on the importance of family background for earnings determination and educational attainment

concentration in the european electricity industry the internal market as solution abstract this article offers an analysis of the present competitive and regulatory framework of the european electricity sector and the results achieved with the liberalisation process considering the reactions of incumbents to the liberalisation the focus in this work is mainly on the problem of market concentration in the sector the new trends toward the creation of national champions as well as recent mergers between gas suppliers and electricity producers raise serious concerns about abuses of market power and risk of future collusion in particular the strategic linkage of existing markets and the expansion into new ones are analyzed in the light of the multimarket contact theory considering investment in interconnection among member states the internal market issue is investigated as a solution to the risks coming from liberalisation

sinning in the basement what are the rules the ten commandments of applied econometrics unpleasant realities of real world data force applied econometricians to violate the prescriptions of econometric theory as taught by our textbooks leamer 1978 vividly describes this behavior as wanton sinning in the basement with sinners metamorphizing into high priests as they ascend to the third floor to teach econometric theory but this sinning is not completely wanton applied econometricians do or should follow some unwritten rules of behavior in effect bounding the sinning and promoting a brand of honor among sinners this paper exposits these rules and culls from them an unauthorized list of the ten commandments of applied econometrics

pricing and manufacturing decisions when demand is a function of prices in multiple periods in most deterministic manufacturing decision models demand is either known or induced by pricing decisions in the period that the demand is experienced however in more realistic market scenarios consumers make purchase decisions with respect to price not only in the current period but also in past and future periods we model a joint manufacturing pricing decision problem accounting for that portion of demand realized in each period that is induced by the interaction of pricing decisions in the current period and in previous periods we formulate a mathematical programming model and develop solution techniques we identify structural properties of our models and develop closed form solutions and effective heuristics for various special cases of our models finally we conduct extensive computational experiments to quantify the effectiveness of our heuristics and to develop managerial insights

shared literacy and employment in the nonfarm sector this article empirically examines the external effect of family literacy on the earnings of illiterate workers considering recent findings that rural nonfarm sectors in developing countries are becoming more important in determining the welfare of households this article tests two hypotheses 1 an illiterate person living with literate members i e a proximate illiterate person is more likely to find a job in the nonfarm sector than is an illiterate person living with no literate person i e an isolated illiterate person and 2 wage income of a proximate illiterate worker is higher than that of an isolated illiterate worker the empirical results suggest that proximate illiterate persons earn higher wages than isolated illiterate persons because they are more likely to be employed in the nonfarm sector

a multiproduct dynamic pricing problem and its applications to network yield management a firm has inventories of a set of components that are used to produce a set of products there is a finite horizon over which the firm can sell its products demand for each product is a stochastic point process with an intensity that is a function of the vector of prices for the products and the time at which these prices are offered the problem is to price the finished products so as to maximize total expected revenue over the finite sales horizon an upper bound on the optimal expected revenue is established by analyzing a deterministic version of the problem the solution to the deterministic problem suggests two heuristics for the stochastic problem that are shown to be asymptotically optimal as the expected sales volume tends to infinity several applications of the model to network yield management are given numerical examples illustrate both the range of problems that can be modeled under this framework and the effectiveness of the proposed heuristics the results provide several fundamental insights into the performance of yield management systems

literacy and intrahousehold externalities abstract the size of the intrahousehold externality created when a literate household member provides literacy services to illiterate members is estimated in this paper using a model of children s height for age in papua new guinea this externality appears to be large these results support the use of a new measure of literacy developed by basu and foster 1998 to take account of the gains when illiterates live in households where at least one person is literate regional rankings change when the new measure of literacy is used suggesting that policies guided by the usual measure of adult literacy may overlook an important pathway for human development

market opportunities genetic endowments and intrafamily resource distribution child survival in rural india the authors examine how intrafamily resource allocations respond to changes in economic conditions and to genetic differences in children by estimating the determinants of variations in the sex specific survival differentials of rural indian children based on standard census and household survey data they explore in particular the hypothesis that such differences are related to the relative returns to survival with households selectively allocating resources to children in response to variation in sex differences in their expected earnings opportunities as adults data are from the 1961 census and a 1971 household survey excerpt

work intensity gender and sustainable development abstract is labour intensive employment compatible with social justice and environmental sustainability this paper examines the question of how far small scale intermediate technology based on energy intensive human work which is central to prescriptions for poverty alleviation and sustainable development is compatible with development objectives emphasizing gender equity work intensity is a neglected characteristic of labour but significant in the determination of human well being and in the intra household distribution of welfare the intensification of energy expenditure does not affect men and women in a uniform way and needs to be gender disaggregated in order to reveal potential trade offs between development strategies based on labour intensive growth and the well being of men and women the paper draws upon the experience with treadle pumps for irrigation in bangladesh as an illustration of such potential trade offs and argues for more rigorous analyses of gender divisions of labour which include work intensity in combination with time allocation

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

technical note personalized dynamic pricing of limited inventories prior work has investigated time and inventory level dependent pricing of limited inventories with finite selling horizons we consider a third dimension in addition to time and inventory level that the firms can use in setting their prices the information that the firm has at the individual customer level an arriving customer provides a signal to the firm which is an imperfect indicator of the customer s willingness to pay and the firm makes a personalized price offer depending on the signal inventory level and time we consider two different models full personalization and partial personalization in the full personalization model the firm charges any price it wishes given the customer signal while in the partial personalization model the firm can charge one of two prices we find that a mere correlation between the signals and customers willingness to pay is not sufficient to ensure intuitive relationships between the signal and the optimal prices we determine a stronger condition which leads to several structural properties including the monotonicity of the optimal price with respect to the signal in the full personalization model for the partial personalization model we show that the optimal pricing policy is of threshold type and that the threshold is monotonic in the inventory level and time

returns to investment in education a global update the author updates compilations of rate of return estimates to investment in education published since 1985 and discusses methodological issues surrounding those estimates some key patterns among the three main levels of education primary education continues to exhibit the highest social profitability in all world regions private returns are considerably higher than social returns because of the public subsidization of education the degree of public subsidy increases with the level of education which is regressive social and private returns at all levels generally decline by the level of a country s per capita income overall the returns to female education are higher than those to male education but at individual levels of education the pattern is more mixed the returns to the academic secondary school track are higher than the vocational track since unit cost of vocational education is much higher and the returns for those who work in the private competitive sector of the economy are higher than in the public noncompetitive sector and the returns in the self employment unregulated sector of the economy are higher than in the dependent employment sector controversies in the literature are discussed in the light of the new evidence the undisputable and universal positive correlation between education and earnings can be interpreted in many ways the causation issue on whether education really affects earnings can be answered only with experimental data generated by randomly exposing different people to various amounts of education given the fact that moral and pragmatic considerations prevent the generation of such pure data researchers have to make do with indirect inferences or natural experiments some have been attempted the author looks at the research on overeducation or surplus schooling the conclusions reinforce earlier patterns they confirm that primary education continues to be the number one investment priority in developing countries they also show that educating females is marginally more profitable than educating males that the academic secondary school curriculum is a better investment than the technical vocational tract and that the returns to education obey the same rules as investment in conventional capital that is they decline as investment is expanded