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

nonparametric estimation of sample selection models sample selection models provide an important way of accounting for economic decisions that combine discrete and continuous choices and of correcting for nonrandom sampling nonparametric estimators for these models are developed in this paper these can be used for estimating shapes and important economic quantities as in standard nonparametnc regression endogeneity of regressors of interest is allowed for series estimators for these models are developed which are useful for imposing additivity restnctions that arise from selection corrections convergence rates and asymptotic normality results are derived an application to returns to schooling among australian young females is given

employer matching and 401 k saving evidence from the health and retirement study abstract employer matching of employee 401 k contributions is often touted as a powerful incentive to save for retirement and is a key component in pension plan design in the united states using detailed administrative contribution earnings and pension plan data from the health and retirement study this analysis formulates a life cycle consistent econometric specification of 401 k saving and estimates the determinants of saving accounting for non linearities in the household budget set induced by matching the participation estimates indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401 k participation by 5 percentage points the parametric and semi parametric estimates for saving indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401 k saving by 365 in 1991 dollars overall the analysis reveals that the 401 k saving response to matching is quite inelastic and hence matching is a rather poor policy instrument with which to raise retirement saving

optimal control of a dual service rate m m 1 production inventory model we analyse a dual source production inventory model in which the processing times at a primary manufacturing resource and a second contingent resource are exponentially distributed we interpret the contingent source to be a subcontractor although it could also be overtime production we treat the inventory and contingent sourcing policies as decision variables in an analytical study and additionally allow the primary manufacturing capacity to be a decision variable in a subsequent numerical study our goal is to gain insight into the use of subcontracting as a contingent source of goods and whether it can fulfill real world managers expectations for improved performance we prove that a stationary non randomised inventory and subcontracting policy is optimal for our m m 1 dual source model and moreover that a dual base stock policy is optimal we then derive an exact closed form expression for one of the optimal base stocks which to our knowledge is the first closed form solution for a dual source model we use that closed form result to advantage in a numerical study from which we gain insight into how optimal capacity subcontracting and inventory policies are set and how effectively a contingent source can reduce total cost capacity cost and inventory cost we find that i the contingent source can reduce total cost effectively even when contingent sourcing is expensive and ii contingent sourcing reduces capacity cost more effectively than it does inventory cost

consumer demand and the life cycle allocation of household expenditures the purpose of this paper is to estimate the parameters of household preferences that determine the allocation of goods within the period and over the life cycle using micro data in doing so the authors are able to identify important effects of demographics labor market status and other household characteristics on the intertemporal allocation of expenditure they test the validity of the life cycle model using excess sensitivity tests and find that controlling for demographics and labor market status variables can largely explain the excess sensitivity of consumption to anticipated changes in income

an empirical analysis of the daily labor supply of stadium venors this paper analyzes the daily labor supply behavior of food and beverage vendors at a single stadium over an entire baseball season this labor market is attractive for the study of labor supply both because ofvendors unilateraly decide whether to participate on each game date and because canges in product demand conditions across days are large and highly predictable generating exogenous game to game variation in the vendor wage i exploit the observable shift in product demand conditions across games to esumate the labor supply participation elasticity of stadium vendors estimates that recognize that demand conditions and vendor labor supply decisions simultancously determine the venofdor wage always find substantial labor supply elasticities typically in the 55 65 range in contract estimates that ignore the endoreneity of the ties these results highlight the imporatance of using demand shift markets

participating in african monetary unions an alternative evaluation abstract this paper complementary to that of devarajan and de melo deals with the development strategies and performances of 12 franc zone african countries 11 of them gathered in two monetary unions during 1960 1981 beside the actual rate of growth the relative growth performance is considered this performance measured as a residual of a regression on exogenous factors factors independent of economic policy appears to be close to the average performance of other developing countries and better than that of other african countries the results are explained by the direct influence of the foreign exchange regime of the zone and by its impact on economic policy economic policies of individual countries show however some substantial degree of autonomy

the econometrics of kinked budget constraints in the last several years a branch of applied econometrics has developed which is devoted to the development of techniques for the estimation of demand and other functions when the budget constraint is piecewise linear or kinky that is when the constraint consists of a number of segments joined together at kink points such constraints most frequently arise from government tax and transfer programs for example the federal income tax imposes a piecewise linear schedule by the use of constant marginal tax rates within brackets a problem analyzed by hausman 1981 the payroll tax in the social security system likewise generates a kinked schedule inasmuch as the marginal tax rate on earnings is zero above a certain earnings maximum federal and state transfer programs for the poor result in piecewise linear constraints because transfer benefits are taxed in the sense of a negative income tax as income rises and because that tax rate falls to zero at the kink point where an individual or family loses eligibility for the benefit altogether many government transfer programs impose additional nonlinearities by altering this tax rate by discrete amounts over the range of positive benefits as well but kinked constraints sometimes arise in nongovernment contexts a well known example being the block pricing schedule commonly set by utilities and volume discounting in general kinked budget constraints create two difficulties that have several interesting facets one difficulty is that changes in tax and transfer schedules can have unexpected effects that can be exactly the opposite in sign to those expected from economic theory examples of this phenomenon are given below the second difficulty that with which this paper is mostly concerned relates to the implications of kinked budget

analytical solutions to a structural signal extraction model lucas 1972 revisited abstract i construct in this article a simple adaptation of lucas 1972 article on the neutrality of money a closed form solution is derived which allows to understand a number of positive and normative properties of the model

new evidence on the output inflation trade off from developing economies the case of the cfa franc zone this aim of this paper is to give a contribution to the debate on whether output inflation trade offs are negatively influenced by the mean of inflation as postulated by new keynesians or by the variability of inflation as postulated by neo classical economists to remove any concerns about the arbitrariness of the choice of the sample the analysis will focus on a group of countries belonging to the same currency union the franc zone the results do not provide conclusive evidence on either theory as it was found that there existed a negative relation between the output inflation trade offs and the mean of inflation on the one hand and the variability of inflation on the other

an s 1 s inventory system with emergency orders in this paper we develop an approximate model of an inventory control system in which there exist two options for resupply with one having a shorter lead time we assume that demand and the fixed ordering costs are small relative to the holding cost so that a one for one ordering policy is appropriate we consider a policy for placing emergency orders that uses information about the age of outstanding orders we derive the steady state behavior of this policy and present some computational results

the optimality of s s policies for a stochastic inventory problem with proportional and lump sum penalty cost in this paper we consider a single product multi period inventory problem for which the penalty cost consists of two parts a lump sum portion which is independent of the size of the shortage and a portion which is linear in the size of the shortage we show that for all nonincreasing demand density functions the expected total cost function is k convex and hence there is an optimal policy for the n period problem that is s s

optimal taxation in the presence of tax evasion expected utility versus prospect theory abstract it is now well known that the predictions of expected utility theory eut applied to tax evasion are quantitatively and qualitatively at variance with the evidence while prospect theory pt makes the correct predictions in this literature the tax rate is exogenous we endogenize the tax rate and require that a successful theory should explain jointly the facts on the tax rate tax gap and the level of government expenditure we find that the data is best described by taxpayers using pt and the government using standard utility theory eut the results are robust to several possible alternative specifications we discuss how our results have a bearing on the debate between liberalism versus paternalism in behavioral economics we also propose an alternative explanation based on the notion of context dependent preferences

technical note on the quasiconcavity of lost sales inventory models with fixed costs we show that under a set of conditions both the maximal profit function and the objective function in several lost sales inventory models with fixed costs are quasiconcave not only is the quasiconcavity property useful computationally it also leads to a sharper characterization of the optimal policies neither the proof of the quasiconcavity property itself nor the proof of the optimal policies by using the property requires the machinery of k concavity or any of its k related extensions and hence they are intuitively appealing

an inventory model with poisson demands and emergency orders abstract in this paper we explicitly consider the opportunity to use an emergency supply mode to hedge against demand uncertainty when replenishing a single item inventory normal orders with a relatively long and constant lead time are controlled by a standard r q policy these orders can only be issued when no other orders are outstanding when a normal order is outstanding emergency orders are controlled by a reorder point r j and an order up to level u j where j is a measure of the time remaining until the normal order is delivered the emergency orders have a short lead time and they may also have different ordering costs compared to normal orders demands not satisfied immediately from inventory are backordered we formulate a long run average cost model that includes ordering costs for the two types of orders backordering costs and holding costs backordering costs are considered both as a unit based cost and as a cost rate a tailor made policy iteration algorithm is designed and utilized to minimize the inventory cost rate with state dependent emergency orders for comparisons an algorithm for finding a best simple emergency order policy is also implemented simulation is used to check the validity of our model numerical results are presented for a set of parameter variations and compared to results without emergency orders as well as to results from an earlier model in the literature our results show that substantial cost savings might be obtained by using emergency orders especially when backordering costs are high however the marginal gains are fairly small if state dependent emergency orders are used instead of a simple emergency order policy

equilibrium unemployment job flows and inflation dynamics this paper develops a general equilibrium model to explain a set of facts regarding job flows unemployment and inflation dynamics it integrates a theory of equilibrium unemployment into a monetary model with nominal price rigidities the labor market displays matching frictions and endogenous job destruction the model can explain the cyclical behavior of unemployment job creation job destruction and the joint fluctuations of the labor input along both the extensive and the intensive margin conditional on a shock to monetary policy allowing for variation of the labor input at the extensive margin leads to a significantly lower elasticity of marginal costs with respect to output this helps to explain the sluggishness of inflation and the persistence of output after a monetary policy shock

inventory cost rate functions with nonlinear shortage costs this article considers five cost rate models for inventory control each summarizing the expected holding and shortage costs per period as a function of the inventory position all models have linear holding costs and shortage cost coefficients of dimension unit period unit and period the latter two coeficients may be the shadow costs of a fill rate and a ready rate service constraint respectively one of the cost rate models is a new suggestion intended to facilitate modeling of periodic review inventory systems if and only if conditions on the demand process are presented for which the cost rate is quasi convex in the inventory position the typical sufficient condition requires that the cumulative demand distribution be logconcave a condition that is met by most demand distributions commonly used in the inventory literature the results simplify optimization and extend the known optimality of s s and nq r policies to cost structures common in applications and to the presence of typical service constraints as a prerequisite for the study a series of new monotonicity results are derived for compound renewal processes

emergency orders in the periodic review inventory system with fixed ordering costs and compound poisson demand abstract emergency orders have shorter lead times but incur extra costs compared to normal orders we present a discrete time markov decision model where normal orders are issued according to a reorder point policy with a fixed order quantity whereas emergency orders are controlled by a state dependent reorder point policy with a target stock level a rapid policy iteration algorithm is used to find and evaluate the policy that minimizes the long run average cost per review period in addition to fixed and variable costs for normal and emergency orders our model includes linear holding and backorder costs the review period is of any given length neither the normal order nor the emergency order lead time are required to be integer multiples of the review period the numerical study shows that the mixed policy found from our markov decision model generally outperforms the best pure replenishment policy using either only normal or only emergency orders our model provides results that are similar to or slightly better than the results obtained with earlier models in the literature moreover because our model accommodates compound poisson demand we are able to demonstrate that considerable cost reductions can then be obtained with the mixed policy when compared to the best pure replenishment policy finally using sensitivity analysis we observe that a result on when a mixed policy is most beneficial which has been found to hold for the simpler model without fixed ordering costs seems to hold also for the more complex model that we investigate

coordinating investment production and subcontracting we value the option of subcontracting to improve financial performance and system coordination by analyzing a competitive stochastic investment game with recourse the manufacturer and subcontractor decide separately on their capacity investment levels then demand uncertainty is resolved and both parties have the option to subcontract when deciding on their production and sales we analyze and present outsourcing conditions for three contract types 1 price only contracts where an ex ante transfer price is set for each unit supplied by the subcontractor 2 incomplete contracts where both parties negotiate over the subcontracting transfer and 3 state dependent price only and incomplete contracts for which we show an equivalence result while subcontracting with these three contract types can coordinate production decisions in the supply system only state dependent contracts can eliminate all decentralization costs and coordinate capacity investment decisions the minimally sufficient price only contract that coordinates our supply chain specifies transfer prices for a small number 6 in our model of contingent scenarios our game theoretic model allows the analysis of the role of transfer prices and of the bargaining power of buyer and supplier we find that sometimes firms may be better off leaving some contract parameters unspecified ex ante and agreeing to negotiate ex post also a price focused strategy for managing subcontractors can backfire because a lower transfer price may decrease the manufacturer s profit finally as with financial options the option value of subcontracting increases as markets are more volatile or more negatively correlated

optimal myopic policy for a stochastic inventory problem with fixed and proportional backorder costs in this paper we consider a single product periodic review stochastic demand inventory problem where backorders are allowed and penalized via fixed and proportional backorder costs simultaneously fixed backorder cost associates a one shot penalty with stockout situations whereas proportional backorder cost corresponds to a penalty for each demanded but yet waiting to be satisfied item we discuss the optimality of a myopic base stock policy for the infinite horizon case critical number of the infinite horizon myopic policy i e the base stock level is denoted by s if the initial inventory is below s then the optimal policy is myopic in general i e regardless of the values of model parameters and demand density otherwise the sufficient condition for a myopic optimum requires some restrictions on demand density or parameter values however this sufficient condition is not very restrictive in the sense that it holds immediately for erlang demand density family we also show that the value of s can be computed easily for the case of erlang demand this special case is important since most real life demand densities with coefficient of variation not exceeding unity can well be represented by an erlang density thus the myopic policy may be considered as an approximate solution if the exact policy is intractable finally we comment on a generalization of this study for the case of phase type demands and identify some related research problems which utilize the results presented here

joint inventory and markdown management for perishable goods with strategic consumer behavior in this paper we formulate and analyze a novel model on a firm s dynamic inventory and markdown decisions for perishable goods we consider a dynamic stochastic setting where every period consists of two phases clearance phase and regular sales phase in the clearance phase the firm decides how much to order for regular sales as well as whether to markdown some or all of the leftover inventory from the previous period that will be disposed otherwise since strategic consumers may buy the product during clearance sales for future consumption markdown may cannibalize future sales at regular price hence the firm needs to make a trade off between product spoilage and intertemporal demand substitution we show that the firm should either put all of the leftover inventory on discount or dispose all of it and the choice depends on the amount of leftover inventory from the previous period in particular the firm should introduce markdown when the amount of leftover inventory is higher than a certain th

analysis of a forecasting production inventory system with stationary demand we consider a production stage that produces a single item in a make to stock manner demand for finished goods is stationary in each time period an updated vector of demand forecasts over the forecast horizon becomes available for use in production decisions we model the sequence of forecast update vectors using the martingale model of forecast evolution developed by graves et al 1986 1998 and heath and jackson 1994 the production stage is modeled as a single server discrete time continuous state queue we focus on a modified base stock policy incorporating forecast information and use an approximate analysis rooted in heavy traffic theory and random walk theory to obtain a closed form expression for the forecast corrected base stock level that minimizes the expected steady state inventory holding and backorder costs this expression which is shown to be accurate under certain conditions in a simulation study sheds some light on the interrelationships among safety stock stochastic correlated demand inaccurate forecasts and random and capacitated production in forecasting production inventory systems

inflation stabilization and welfare the case of a distorted steady state this paper considers the appropriate stabilization objectives for monetary policy in a microfounded model with staggered price setting rotemberg and woodford 1997 and woodford 2002 have shown that under certain conditions a local approximation to the expected utility of the representative household in a model of this kind is related inversely to the expected discounted value of a conventional quadratic loss function in which each period s loss is a weighted average of squared deviations of inflation and an output gap measure from their optimal values zero however those derivations rely on an assumption of the existence of an output or employment subsidy that offsets the distortion due to the market power of monopolistically competitive price setters so that the steady state under a zero inflation policy involves an efficient level of output here we show how to dispense with this unappealing assumption so that a valid linear quadratic approximation to the optimal policy problem is possible even when the steady state is distorted to an arbitrary extent allowing for tax distortions as well as market power and when as a consequence it is necessary to take account of the effects of stabilization policy on the average level of output we again obtain a welfare theoretic loss function that involves both inflation and an appropriately defined output gap though the degree of distortion of the steady state affects both the weights on the two stabilization objectives and the definition of the welfare relevant output gap in the light of these results we reconsider the conditions under which complete price stability is optimal and find that they are more restrictive in the case of a distorted steady state we also consider the conditions under which pure randomization of monetary policy can be welfare improving and find that this is possible in the case of a sufficiently distorted steady state though the parameter values required are probably not empirically realistic

optimal inventory policy with two suppliers we analyze a periodic review inventory model where the decision maker can buy from either of two suppliers with the first supplier the buyer incurs a high variable cost but negligible fixed cost with the second supplier the buyer incurs a lower variable cost but a substantial fixed cost consequently ordering costs are piecewise linear and concave we show that a reduced form of generalized s s policy is optimal for both finite and discounted infinite horizon problems provided that the demand density is log concave this condition on the distribution is much less restrictive than in previous models in particular it applies to the normal truncated normal gamma and beta distributions which were previously excluded we concentrate on the situation in which sales are lost but explain how the policy cost assumptions and proofs can be altered for the case where excess demand is backordered in the lost sales case the optimal policy will have one of three possible forms a base stock policy for purchasing exclusively at the high variable cost hvc supplier an slvc slvc policy for buying exclusively from the low variable cost lvc supplier or a hybrid s shvc slvc policy for buying from both suppliers

monetary integration in africa a deliberately european perspective abstract several initiatives for monetary integration in africa at the subregional level have recently emerged in terms of orthodox theory the preconditions are not satisfied and the sequencing of these initiatives appears at fault utilizing modern theories the paper examines the case for monetary integration which depends on the prospects for improved macro stability and surveys possible strategies by comparison with europe african countries seeking monetary integration have the advantage that they can peg to an appropriate external anchor external support for such a link perhaps from the european community would be an efficient and cost effective means of promoting such initiatives

the elasticity of intertemporal substitution new evidence from 401 k participation abstract using health and retirement study data and a structural econometric model we exploit variation in employer matching rates in 401 k plans to generate new estimates of the eis 0 74 in our richest specification with a 95 confidence interval of 0 37 1 21

a periodic review inventory system with emergency replenishments this paper proposes and analyzes a periodic review inventory system with two replenishment modes regular orders are placed periodically following a base stock policy on inventory position and arrive at the stocking location after a deterministic lead time the location also has the option of placing emergency orders characterized by a shorter lead time but higher acquisition cost in case of imminent stockouts thus at some appropriate time in the replenishment cycle the necessity and size of an emergency order is determined according to a base stock policy on net stock the timing of the emergency order is such that this order arrives and can be used to satisfy the demand in the time period just before the arrival of a regular order when the likelihood of a stockout is highest an approximate cost model is developed which can easily be optimized with respect to the order up to parameters this model is used as the basis for a heuristic algorithm which leads to solutions that are very close to the exact optimal solutions determined through simulation it is shown that the proposed system offers substantial cost savings relative to a system without the emergency replenishment option

the advantage of tying one s hands ems discipline and central bank credibility abstract it is often argued that the ems is an effective disciplinary device for inflation prone countries in europe since it forces the respective policy makers to pursue more restrictive monetary policies than they would otherwise it is not clear however why these countries should submit themselves to such discipline this paper argues that to answer this question appropriately one must consider that ems membership brings potentially large credibility gains policy makers in inflation prone countries the reason is that not only it attaches an extra penalty to inflation in terms of real appreciation but makes the public aware that the policy maker is faced with such penalty and thus helps to overcome the inefficiency stemming from the public s mistrust of the authorities

the econometrics of nonlinear budget sets traditional empirical analysis of consumer demand has usually made the assumption of linear budget sets that is the consumer is assumed to purchase any desired quantity at a constant price subject to a budget constraint the major exception to this framework is the analysis of demand when some goods are rationed 2 in the rationed case the price is constant up to a quantity limit in contrast to the rationed case here i consider the situation where the price varies with the amount of the good purchased empirical situations with nonconstant prices come readily to mind and of course they have received much recent attention from theorists since mirrlees 44 paper on optimal nonlinear taxation the following examples are meant to give a partial listing of cases when nonlinear budget sets occur i electricity prices many electric utilities engage in declining block pricing that is the marginal price of successive kwh s of electricity decrease at a given number of points determined by total demand thus the budget set is piecewise linear houthakker 36 was the first to propose an approach to this problem taylor 51 analyzes the problem at length and hausman kinnucin and mcfadden 31 use an instrumental variables estimator to provide consistent estimates of the demand function

the benefits and costs of monetary union in southern africa a critical survey of the literature with the 14 members of the southern african development community sadc having set the objective of adopting a common currency for the year 2018 an expanding empirical literature has emerged evaluating the benefits and costs of a common currency area in southern africa this paper reviews that literature focusing on two categories of studies 1 those that assume that a country s characteristics are invariant to the adoption of a common currency and 2 those that assume that a monetary union alters an economy s structure resulting in trade creation and credibility gains the literature reviewed suggests that a relatively small group of countries typically including south africa satisfies the criteria necessary for monetary unification the literature also suggests that in a monetary union comprising all sadc countries and a regional central bank that sets monetary policy to reflect the average economic conditions e g fiscal balances in the region the potential losses i e higher inflation from giving up an existing credible national central bank a relevant consideration for south africa could outweigh any potential benefits of trade creation resulting from a common currency

pensions and household wealth accumulation abstract economists have long suggested that higher private pension benefits crowd out other sources of household wealth accumulation we exploit detailed information on pensions and lifetime earnings for older workers in the 1992 wave of the health and retirement study and employ an instrumental variable iv identification strategy to estimate crowd out the iv estimates suggest statistically significant crowd out each dollar of pension wealth is associated with a 53 67 cent decline in nonpension wealth with less precision we use an instrumental variable quantile regression estimator and find that most of the effect is concentrated in the upper quantiles of the wealth distribution

estimating life cycle labor supply tax effects we present an econometrically tractable life cycle labor supply model for panel data including intertemporally progressive taxes on uncertai wage and nonwge incomes our two stage fixedeffects generalized method of moments approach first extimates intretemporal and then intertemporal preferences specification testing domonstrates the value of incorporating joint progressive taxation of labor and nonlabor incomes results for prime age men emphasize the roles played by hourly wage endogeneity worker specific effects the measure of the rate of pay and intemporal budget constaint nonseparability simulations indicate that recent tax reform while not self financing stimulated made labor supplied by about 3 percent and reduced deadweight loss about 16 percent

newsvendor with multiple options of expediting we consider a manufacturer facing single period inventory planning problem with uncertain demand and multiple options of expediting the demand comes at a certain time in the future the manufacturer may order the product in advance with a relatively low cost she can order additional amount by expediting after the demand is realized there are a number of expediting options each of which corresponds to a certain delivery lead time and a unit procurement price the unit procurement price is decreasing over delivery lead time the selling price is also decreasing over time in this paper we assume that the manufacturer must deliver all products to the customer in a single shipment the problem can be formulated as a profit maximization problem we develop structural properties and show how the optimal solution can be identified efficiently in addition we compare our model with the classical newsvendor model and obtain a number of managerial insights

rational expectations and loss aversion potential output and welfare implications abstract we add some elements of prospect theory to an analytically tractable version of lucas s islands model and show that the inclusion of reference dependence declining sensitivity and loss aversion into the agents utility function leads to four main results first the presence of behavioral elements negatively affects the natural level of output second loss aversion reduces output variance third the expected utility of a representative agent is generally lower than that obtained when loss aversion is absent fourth the presence of loss aversion eliminates the paradoxical increase in expected utility that may be generated in the standard model by an increase in monetary policy uncertainty

evaluating participation in african monetary unions a statistical analysis of the cfa zones abstract thirteen african nations are engaged in two monetary unions with france often referred to as the cfa zone despite the acknowledged benefits of zone membership a convertible currency pooled resources and greater monetary and fiscal discipline several observers have questioned whether particular aspects of the zone such as the lack of autonomy of the two central banks and the surrender of the exchange rate as a policy instrument have impeded its members growth this paper addresses that question by testing whether cfa zone countries had different gnp growth rates from selected comparator countries during 1960 1982 results show that cfa countries grew significantly faster than comparator sub saharan african countries but usually slower and often significantly so than the whole sample of developing countries when the comparison is made by subperiod before and after 1973 cfa countries performance vis a vis that of their comparators improved during the 1973 1982 period casting further doubt on the claim that the monetary union is not functioning adequately

a brownian approximation of a production inventory system with a manufacturer that subcontracts this paper considers a production inventory problem where a manufacturer fulfills stochastic stationary demand for a single product from a finished goods inventory the inventory can be replenished by two production resources in house production and a subcontractor which both have finite capacity we construct a brownian approximation of the optimal control problem assuming that the manufacturer uses a dual base stock policy to control replenishment from the two sources and that her objective is to minimize average cost a closed form expression is obtained for one optimal base stock policy and an analytical expression is derived from which the other optimal base stock can be computed numerically we show conditions under which the objective is convex in capacity and the unique globally optimal capacity can be computed numerically we thus provide a tractable approximation to the two source problem which is generally intractable we demonstrate the accuracy of this approximation for an m m 1 model we also draw managerial insight from the brownian optimal base stock results into how the optimal base stock policies control the inventory distribution and under what conditions the contingent source is used to build inventory or to resolve backorders

economic targets and loss aversion in international environmental cooperation in the standard emission problem each countryi s ruling party decides on an optimal level of emissions by analyzing the cost and benefit to the country however such policy decisions are often influenced by political partiesi incentives to be elected voters tend to give higher priority to economic issues than they do to environmental ones as a result political parties have additional incentives to reach a critical economic benefit level at a cost of higher emission level in order to satisfy votersi expectations in economic issues therefore this study explores the implications of political parties being averse to insufficient economic performance relative to a critical economic target level on sustaining an international environmental agreement on emission levels in doing so we allow countries to have asymmetric concerns about economic targets as well as asymmetric technology levels we find that stronger concerns about economic targets deter the most cooperative emission levels countries could jointly sustain furthermore technological asymmetry could either deepen or offset this impact these results suggest that efforts on achieving substantial international environmental agreements should be supported at the citizen level to eliminate the adverse effects

optimal control policy for stochastic inventory systems with markovian discount opportunities in this paper we study a single item continuous review inventory system with poisson demand in addition to the standard cost structure of a fixed setup cost and a quasiconvex expected inventory holding and shortage cost special opportunities for placing orders at a discounted setup cost occur according to a poisson process that is independent of the demand process this model has been studied as a subproblem of multi item location inventory systems where there are economies of scale in joint replenishment for the single item model the literature proposes the s c s policy under which an order is placed to increase the inventory position to s either when the inventory position drops to s or when the inventory position is at or below c and a discount opportunity occurs we prove that the s c s policy is optimal for the model develop an efficient algorithm for computing optimal control parameters s c s and carry out a parametric analysis showing the effects of changes in problem paramete

the effect of income taxation on consumption and labor supply we estimate the incentive effects of income taxation in a life cycle model of consumption and labor supply without intratemporal strong separability we find that consumption and hours worked are direct complements in utility both increase with a compensated increase in the net wage the compensated net wage elasticity is about 0 3 nearly double estimates for u s men from a linear labor supply specification estimated intertemporal elasticities indicate significant intertemporal smoothing of utility the estimated marginal welfare cost of government revenue is 6 20 which is about half the estimated welfare cost when additivity between consumption and leisure is incorrectly imposed

economic targets and loss aversion in international environmental cooperation economic targets in environmental coopeartion in the standard emission problem each country s ruling party decides on an optimal level of emissions by analyzing the cost and benefit to the country however such policy decisions are often influenced by political parties incentives to be elected voters tend to give higher priority to economic issues than they do to environmental ones as a result political parties have additional incentives to reach a critical economic benefit level at a cost of higher emission level in order to satisfy voters expectations in economic issues therefore this study explores the implications of political parties being averse to insufficient economic performance relative to a critical economic target level on sustaining an international environmental agreement on emission levels in doing so we allow countries to have asymmetric concerns about economic targets as well as asymmetric technology levels we find that stronger concerns about economic targets deter the most cooperative emission levels countries could jointly sustain furthermore technological asymmetry could either deepen or offset this impact these results suggest that efforts on achieving substantial international environmental agreements should be supported at the citizen level to eliminate the adverse effects

continuous review s s policies with lost sales a method is developed to calculate an s s policy that minimizes the average stationary cost in an inventory system with constant lead time fixed order cost linear holding cost per unit time linear penalty cost per unit short discrete compound poisson demand and lost sales it is assumed that at most one order is outstanding or equivalently that s s s the procedure is compared to several easier to compute approximate solutions including one that assumes backordering examples are given that reveal that although the backorder solution is different than the lost sales one the cost penalty of using it in the lost sales situation is small

an index of loss aversion to a considerable extent risk aversion as it is commonly observed is caused by loss aversion several indexes of loss aversion have been proposed in the literature the one proposed in this paper leads to a clear decomposition of risk attitude into three distinct components basic utility probability weighting and loss aversion the index is independent of the unit of payment the main theorem shows how the indexes of different decision makers can be compared through observed choices

on the adequacy of monetary arrangements in sub saharan africa we examine the economic rationale for monetary union s in sub saharan africa through the use of cluster analysis on a sample of 17 countries the variables used stem from the theory of optimum currency areas and from the fear of floating literature it is found that the existing cfa franc zone cannot be viewed as an optimum currency area cemac and uemoa countries do not belong to the same clusters and a core of the uemoa can be defined on economic grounds the results support the inclusion of the gambia ghana and sierra leone in an extended uemoa arrangement or the creation of a separate monetary union with the core of the uemoa and the gambia rather than the creation of a monetary union around nigeria finally the creation of the west african monetary zone wamz around nigeria is not supported by the data

how prudent are consumers using data from the consumer expenditure survey this paper presents a simple test that provides an explicit estimate of the parameter in the utility function that reflects the strength of the precautionary saving motive the coefficient of relative prudence the test yields a fairly precise estimate of a small precautionary motive in fact the estimate is too small to be consistent with widely accepted beliefs about risk aversion the presence of liquidity constrained households does not appear to explain this finding and there is some evidence that self selection of households into risky environments also cannot explain the results

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

inventory control with generalized expediting we consider a single item periodic review inventory control problem in which discrete stochastic demand must be satisfied when shortages occur the unmet demand must be filled by some form of expediting we allow a very general form for the cost structure of expediting we explicitly consider the case where expedited production is allowed to produce up to a positive inventory level we also consider the case where expedited production beyond the deficit is not permitted an alternate application for this model is an inventory system with general lost sales costs for the infinite horizon discounted problem we characterize the structure of the optimal stationary expediting policy and show that an s s policy is optimal for regular production for the special cases where the expediting cost function is concave or consists of a fixed and linear per unit cost we show that the optimal stationary expediting policy is generalized s s or order up to respectively a numerical study allows us to gain insight into when expediting above and beyond the deficit is cost effective

labor supply of new york city cabdrivers one day at a time life cycle models of labor supply predict a positive relationship between hours supplied and transitory changes in wages because such changes have virtually no effect on life cycle wealth previous attempts to test this hypothesis empirically with time series data have not been supportive estimated elasticities are typically negative or nonsignificant such analyses however are vulnerable to measurement error and other estimation problems we use data on daily observations of wages and hours for new york city cab drivers to estimate the supply response to transitory fluctuations in wages cab drivers decide daily how many hours to supply and face wages that are positively correlated within days but largely uncorrelated between days using these data our central finding is that wage elasticities are persistently negative from 5 to 1 in three different samples even after correcting for measurement error using instrumental variables these negative wage elasticities challenge the notion that cab drivers trade off labor and leisure at different points in time and question the empirical adequacy of life cycle formulations of labor supply

the effect of exchange rate variability on trade the case of the west african monetary union s imports abstract the west african monetary union during the period of this study 1976 1982 comprised six countries benin burkina faso co te d ivoire niger senegal and togo since their common currency the cfa franc has been pegged to the french franc at an unchanged rate since 1948 the entire nominal exchange rate variability that traders in the region face is due to movements in the french franc with respect to other currencies in the face of exchange rate risk that is not always coverable trade should be adversely affected using three measures of variability in the nominal effective exchange rate index this paper finds that exchange rate variability has not affected the union s real imports or the diversification of trade away from the franc zone

the institutional approach to monetary union in europe the proposal to move towards economic and monetary union emu in the european communities by centralising monetary authority in a european system of central banks escb and possibly by formulating binding guidelines for national budgetary policies has met with strong criticism from many academic economists and from the uk authorities we leave aside in the present article any discussion of the case for supplementing the discipline exercised on national budgetary policies by the need to maintain fixed exchange rates and by financial markets on large issuers of national government debt in order to focus on monetary union the major institutional reform of setting up an escb is seen by critics as unnecessary for obtaining the benefits of monetary integration as excessively centralist and as more risky in terms of the average inflationary performance of the participants than the present ems this article discusses these objections by arguing in the three following sections that i the aim of emu is to move to a single currency which would confer substantial additional benefits to participants beyond those inherent in a system of stable exchange rates 2 the outline of the mandate and the structure of the escb given in the delors report offers a high degree of assurance that the joint monetary policy would be non inflationary and 3 the single currency and the next stages towards it require centralisation of monetary authority

capacitated inventory problems with fixed order costs some optimal policy structure abstract almost 40 years ago h scarf the optimality of s s policies in dynamic inventory problems in k arrow s karlin p suppes eds mathematical models in the social sciences stanford university press stanford 1960 established the optimal s s policy structure for the periodic review inventory problem with fixed ordering costs and no capacity constraint since then the capacitated problem has resisted characterization in the present paper we partially bridge this gap using a generalization of scarf s k convexity we show that the optimal capacitated policy has an s s like structure to do so we divide the parameter space into four regions in two of these regions the optimal policy is completely specified while in the other two it is partially specified we complement these findings with a computational study this study suggests that a still simpler optimal policy structure exists

first order risk aversion and the equity premium puzzle abstract this paper integrates yaari s dual theory of choice under uncertainty into a multiperiod context and examines its implications for the equity premium puzzle an important property of these preferences is that of first order risk aversion which implies in our model that the risk premium for a small gamble is proportional to the standard deviation rather than the variance since the standard deviation of the growth rate in aggregate consumption is considerably larger than its variance the model can generate both a small risk free rate and a moderate equity premium