tracking the market dynamic pricing and learning in a changing environment dynamic pricing of commodities without knowing the exact relation between price and demand is a much studied problem most existing studies assume that the parameters describing the market are constant during the selling period this severely reduces their practical applicability since in reality market characteristics may change all the time without the firm always being aware of it in the present paper we study dynamic pricing and learning in a changing market environment we introduce a methodology that enables the price manager to hedge against changes in the market and provide explicit upper bounds on the regret a measure of the performance of the firm s pricing decisions in addition this methodology guides the selection of the optimal way to estimate the market process we provide numerical examples from practically relevant situations to illustrate the methodology

dynamic pricing with real time demand learning in many service industries the firm adjusts the product price dynamically by taking into account the current product inventory and the future demand distribution because the firm can easily monitor the product inventory the success of dynamic pricing relies on an accurate demand forecast in this paper we consider a situation where the firm does not have an accurate demand forecast but can only roughly estimate the customer arrival rate before the sale begins as the sale moves forward the firm uses real time sales data to fine tune this arrival rate estimation we show how the firm can first use this modified arrival rate estimation to forecast the future demand distribution with better precision and then use the new information to dynamically adjust the product price in order to maximize the expected total revenue numerical study shows that this strategy not only is nearly optimal but also is robust when the true customer arrival rate is much different from the original forecast finally we extend the results to four situations commonly encountered in practice unobservable lost customers time dependent arrival rate batch demand and discrete set of allowable prices

ricardian debt taxation equivalence in the kaldor theory of profits and income distribution a well known characteristic of nicholas kaldor s theory of income distribution and of the related cambridge theory of the rate of profits is that any tax imposed on profits is shifted on to wages in analogy but with a reversal of the causation chain with david ricardo s theory of income distribution in which any tax imposed on wages is shifted on to profits the present paper explores the conditions under which the same property holds when government expenditure is financed by a budget deficit and the conclusion is reached that such conditions coincide with those that assure ricardian equivalence between public indebtment and taxation copyright 1989 by oxford university press

a new product growth for model consumer durables this article originally appeared in management science january 1969 volume 15 number 5 pp 215 227 published by the institute of management sciences a growth model for the timing of initial purchase of new products is developed and tested empirically against data for eleven consumer durables the basic assumption of the model is that the timing of a consumer s initial purchase is related to the number of previous buyers a behavioral rationale for the model is offered in terms of innovative and imitative behavior the model yields good predictions of the sales peak and the timing of the peak when applied to historical data a long range forecast is developed for the sales of color television sets

modeling and estimation in changing market environments in many marketing contexts managers and researchers are concerned with modeling the response of performance variables e g sales or market share to one or more decision variables e g advertising or price or other predictor variables modeling efforts in these contexts may consider either the response of an individual entity such as a single consumer or firm or the aggregate response of a collection of entities usually they involve the specification of mathematical models where the unknown parameters are assumed a priori to be constant these unknown parameters are then estimated by fitting the models to available data using some form of regression analysis the rationale for expending effort in this area is the expectation that through activities of this type the decision maker gains understanding of the market process and therefore is able to make better decisions the response of a firm s market performance to decision predictor variables may be moderated by numerous external factors by competitive factors and by the levels of the firm s decision variables for example the sensitivity of sales to price may vary depending on time of year overall economic conditions and or levels of advertising or promotion certain characteristics of marketing research is often concerned with the modeling of market response over time however the nature of the relationships being modeled may change due to shifts in consumer tastes changing marketing strategies competition and other reasons currently used constant parameter models are not capable of adequately reflecting such changing market environments therefore alternate modeling approaches should be considered recent work in statistics and econometrics suggests the appropriateness of variable parameter models for such problems this methodology permits model coefficients to change over time in this paper various potentially useful variable parameter models are discussed reported marketing applications are examined and issues pertaining to the application of this relatively new methodology to marketing problems are investigated professor winer gratefully acknowledges support from the faculty research fund of the graduate school of business columbia university professor wildt was on the faculty of the university of georgia when the paper was written

international financial crises causes prevention and cures dale jorgenson has bestowed a great honor and no small challenge by inviting me to give this lecture a great honor because of the distinguished list of economists who have preceded me a challenge because of the standard they have set and because there is no greater challenge for any economist than providing a coherent account of significant events to his scientific peers i am sometimes asked by friends about the differences between academic life and life as a public official there are many two stand out first as an academic the gravest sin one can commit is to sign one s name to something one did not write as a public official it is a mark of effectiveness to do so as often as possible second as an academic if a problem is too hard and does not admit of a satisfactory solution there is an obvious response work on a different problem that is not a luxury that one has in government i have been reminded of this often in recent years as we have grappled with financial crises in a number of what had previously been considered emerging markets with unrestrained futures anyone who doubts the social importance of what economists do should consider the debates surrounding these crises hundreds of millions of people who expected rapidly rising standards of living have seen their living standards fall hundreds of thousands if not millions of children have been forced to drop out of school and go to work hundreds of billions of dollars of apparent wealth has been lost the stability of large nations as nations has been called into question and the united states has made its largest nonmilitary foreign policyrelated financial commitments since the marshall plan almost all the issues involved in understanding preventing and mitigating these crises are the stuff of economics courses and research fixed versus flexible exchange rates moral hazard and multiple equilibria speculation and liquidity fiscal and monetary policies regulation and competition what economists think say and do has profound implications for the lives of literally billions of their fellow citizens whether it is discussing the role of derivatives in signaling exchange rate commitments with chinese premier zhu rongji or discussing an nber working paper on inflation targeting with the brazilian central bank governor arminio fraga or discussing alternative approaches to bankruptcy law with indonesia s economic team or optimal debt durations with the mexican authorities i am consistently struck by the impact of the kind of research discussed at the aea meetings the future well being of the world s people in large part will depend on how the ongoing process of global integration works out this is a strong statement but one that is supported by the global economy s post world war i failure and its post world war ii success central to global integration is financial integration the flow of funds and of capital across international borders and as the events of the late 1920 s and early 1930 s remind us central to global disintegration can be international financial breakdowns today i want to reflect on the issue of global financial integration in light of the dramatic and largely unpredicted events of recent years it is perhaps a good time for reflection there has been enough repair that priority can shift from u s department of the treasury 1500 pennsylvania avenue washington dc 20005 this lecture reflects many things i have learned from experiences i have shared with colleagues in the united states government and governments around the world i thank brad delong marty feldstein stephanie flanders ken rogoff andrei shleifer and ted truman for useful comments and suggestions i am especially grateful to nouriel roubini and stephanie flanders for valuable discussions and assistance in the preparation of this lecture the usual disclaimer applies

on the dynamics of profit led and wage led growth this paper examines how variable output and profit share jointly determine investment and saving while the difference between investment and saving drives the changes in output and profit share analysis of the resulting pair of differential equations yields novel implications for the multiplier process in this more general framework a number of separate strands of the keynesian inspired literature can be understood in particular the model incorporates both forced saving and profit squeeze to analyse the stability of the dynamical system and brings out the complex relation between in and out of equilibrium profit led and wage led regimes

money in a theory of banking we introduce money in a model of banking in order to examine how open market operations can affect aggregate bank lending and output we see two important ways changes in money supply affect the banking system first by changing prices and interest rates it affects the wealth of demanders of real liquidity and thus the equilibrium production of liquid assets aggregate output and the health of the banking system second it changes the value of money as a means of payment and thus the attractiveness of moving from deposits to currency the demand for financial liquidity again this impacts the health of the banking system and thus bank lending and aggregate output we use this understanding to see how changes in money supply can create alleviate or be ineffective in banking crises

fundamentals panics and bank distress during the depression we assemble bank level and other data for fed member banks to model determinants of bank failure fundamentals explain bank failure risk well the first two friedman schwartz crises are not associated with positive unexplained residual failure risk or increased importance of bank illiquidity for forecasting failure the third friedman schwartz crisis is more ambiguous but increased residual failure risk is small in the aggregate the final crisis early 1933 saw a large unexplained increase in bank failure risk local contagion and illiquidity may have played a role in pre 1933 bank failures even though those effects were not large in their aggregate impact

dynamic monopoly pricing under a poisson type uncertain demand this article explores dynamic pricing strategies in the presence of uncertainty diffusion dynamics experience curve effects and a poisson type of uncertainty in the demand are incorporated in a model using the framework of a stochastic control problem the results indicate that the movement of the expected price depends on the relative strength of the contingent effects and the effects of the experience if the direction of the former is opposite to the latter and is substantial enough to dominate it the expected price path will show a pattern different from the one predicted by a deterministic model copyright 1992 by university of chicago press

shadowy banks and financial contagion during the great depression a retrospective on friedman and schwartz this essay assesses whether network linkages within the banking system amplified the real effects of bank failures during the great contraction in 1929 nearly all interbank deposits held by federal reserve member banks belonged to shadowy nonmember banks which were outside the regulatory reach of federal regulators regional banking panics in the early 1930s drained these interbank deposits from central reserve city banks money center banks in chicago and new york responded to volatile and declining interbank deposits by changing their asset composition they reduced their lending to businesses and individuals and increased their holdings of cash and government bonds

local banking panics of the 1920s identification and determinants abstract using a newly discovered dataset of u s bank suspensions from 1921 to 1929 we discovered that banking panics were more common in the 1920s than had been believed besides identifying panics we investigate their determinants finding that local banking panics were more likely when fundamental economic conditions were generally weak and more likely in overbanked states they were less likely in states with deposit insurance or states where a relatively large share of banks belonged to chain banking organizations

liquidity risk bank networks and the value of joining the federal reserve system reducing systemic liquidity risk related to seasonal swings in loan demand was one reason for the founding of the federal reserve system existing evidence on the post federal reserve increase in the seasonal volatility of aggregate lending and the decrease in seasonal interest rate swings suggests that it succeeded in that mission nevertheless less than 8 percent of state chartered banks joined the federal reserve in its first decade some have speculated that nonmembers could avoid higher costs of the federal reserve s reserve requirements while still obtaining access indirectly to the federal reserve discount window through contacts with federal reserve members we find that individual bank attributes related to the extent of banks ability to mitigate seasonal loan demand variation predict banks decisions to join the federal reserve consistent with the notion that banks could obtain indirect access to the discount window through interbank transfers we find that a bank s position within the interbank network as a user or provider of liquidity predicts the timing of its entry into the federal reserve system and the effect of federal reserve membership on its lending behavior we also find that indirect access to the federal reserve was not as good as direct access federal reserve member banks saw a greater increase in lending than nonmember banks

innovation diffusion uncertainty advertising and pricing policies we develop and analyze a normative and structurally stochastic model of innovation diffusion by depicting the market at an aggregate level model dynamics are defined through the flow pattern of individuals that move from the innovation unaware stage to the innovation aware and ultimately to the adopter stages the stochastic evolution of this stage wise transition unfolds according to tractable stochastic processes and is influenced by such factors as price word of mouth and advertisement efforts in this environment techniques of contingent claims analysis and stochastic control theory are employed to obtain optimal pricing or advertising policies that maximize the value of the innovation to account for their optimal adjustment over time these policies are modeled as positive real valued adapted processes given this setting policy adjustments over time i e advertising or pricing are viewed as a value additive sequence of nested real options we present closed form analytic results regarding the optimal policies simulations provide a numeric insight to the models behavior

learning and pricing with models that do not explicitly incorporate competition in revenue management research and practice demand models are used that describe how demand for a seller s products depends on the decisions such as prices of that seller even in settings where the demand for a seller s products also depends on decisions of other sellers the models often do not explicitly account for such decisions it has been conjectured in the revenue management literature that such monopoly models may incorporate the effects of competition because the parameter estimates of the monopoly models are based on data collected in the presence of competition in this paper we take a closer look at such a setting to investigate the behavior of parameter estimates and decisions if monopoly models are used in the presence of competition we consider repeated pricing games in which two competing sellers use mathematical models to choose the prices of their products over the sequence of games each seller attempts to estimate the values of the parameters of a demand model that expresses demand as a function only of its own price using data comprised only of its own past prices and demand realizations we analyze the behavior of the sellers parameter estimates and prices under various assumptions regarding the sellers knowledge and estimation procedures and we identify situations in which a the sellers prices converge to the nash equilibrium associated with knowledge of the correct demand model b the sellers prices converge to the cooperative solution and c the sellers prices have many potential limit points that are neither the nash equilibrium nor the cooperative solution and that depend on the initial conditions we compare the sellers revenues at potential limit prices with their revenues at the nash equilibrium and the cooperative solution and we show that it is possible for sellers to be better off when using a monopoly model than at the nash equilibrium

liquidity efficiency and bank bailouts governments can efficiently provide liquidity as when the banking system is bailed out we study a model in which not all assets can be used to purchase all other assets at every date agents sometimes want to sell projects the market price of the projects sold depends on the supply of liquidity which is determined in general equilibrium while private liquidity provision is socially beneficial since it allows valuable reallocations it is also socially costly since liquidity suppliers could have made more efficient investments ex ante there is a role for the government to supply liquidity by issuing government securities

dynamic pricing with a prior on market response we study a problem of dynamic pricing faced by a vendor with limited inventory uncertain about demand and aiming to maximize expected discounted revenue over an infinite time horizon the vendor learns from purchase data so his strategy must take into account the impact of price on both revenue and future observations we focus on a model in which customers arrive according to a poisson process of uncertain rate each with an independent identically distributed reservation price upon arrival a customer purchases a unit of inventory if and only if his reservation price equals or exceeds the vendor s prevailing price we propose a simple heuristic approach to pricing in this context which we refer to as decay balancing computational results demonstrate that decay balancing offers significant revenue gains over recently studied certainty equivalent and greedy heuristics we also establish that changes in inventory and uncertainty in the arrival rate bear appropriate directional impacts on decay balancing prices in contrast to these alternatives and we derive worst case bounds on performance loss we extend the three aforementioned heuristics to address a model involving multiple customer segments and stores and provide experimental results demonstrating similar relative merits in this context

bayesian dynamic pricing policies learning and earning under a binary prior distribution motivated by applications in financial services we consider a seller who offers prices sequentially to a stream of potential customers observing either success or failure in each sales attempt the parameters of the underlying demand model are initially unknown so each price decision involves a trade off between learning and earning attention is restricted to the simplest kind of model uncertainty where one of two demand models is known to apply and we focus initially on performance of the myopic bayesian policy mbp variants of which are commonly used in practice because learning is passive under the mbp that is learning only takes place as a by product of actions that have a different purpose it can lead to incomplete learning and poor profit performance however under one additional assumption a constrained variant of the myopic policy is shown to have the following strong theoretical virtue the expected performance gap relative to a clairvoyant who knows the underlying demand model is bounded by a constant as the number of sales attempts becomes large this paper was accepted by gerard p cachon stochastic models and simulation

monetary intervention mitigated banking panics during the great depression quasi experimental evidence from a federal reserve district border 1929 1933 the federal reserve act divided mississippi between the 6th atlanta and 8th st louis districts during the great depression these districts policies differed atlanta championed monetary activism and the extension of aid to ailing banks st louis eschewed expansionary initiatives during a banking crisis in 1930 atlanta expedited lending to banks in need st louis did not outcomes differed across districts in atlanta banks survived at higher rates lending continued at higher levels commerce contracted less and recovery began earlier these patterns indicate that central bank intervention influenced bank health credit availability and business activity

the benefits of commitment to a currency peg aggregate lessons from the regional effects of the 1896 u s presidential election we develop a method to use the one time cross sectional impact of a cleanly identified shock to identify its aggregate impact through the use of a factor model we apply this methodology to evaluat

adaptive data driven inventory control with censored demand based on kaplan meier estimator using the well known product limit form of the kaplan meier estimator from statistics we propose a new class of nonparametric adaptive data driven policies for stochastic inventory control problems we focus on the distribution free newsvendor model with censored demands the assumption is that the demand distribution is not known and there are only sales data available we study the theoretical performance of the new policies and show that for discrete demand distributions they converge almost surely to the set of optimal solutions computational experiments suggest that the new policies converge for general demand distributions not necessarily discrete and demonstrate that they are significantly more robust than previously known policies as a by product of the theoretical analysis we obtain new results on the asymptotic consistency of the kaplan meier estimator for discrete random variables that extend existing work in statistics to the best of our knowledge this is the first application of the kaplan meier estimator within an adaptive optimization algorithm in particular the first application to stochastic inventory control models we believe that this work will lead to additional applications in other domains

growth distribution stability and government budget surplus the extended cambridge equation revisited in the late 80 s pasinetti showed that the essential feature of the cambridge equation is preserved in his model of growth and income distribution with balanced or unbalanced budget he did not work out both the share of incomes and the conditions of stability and was not formally concerned with a permanent budget surplus the present paper deals with the case of a closed economy in which besides direct taxation indirect taxation on government s own expenditures is explicitly considered and the government saves permanently at a given rate the extended cambridge equation and the share of profits are obtained it is also shown that the stability result requires additional assumptions boundary conditions are introduced and the long run local stability result is attained thus corroborating the generality and robustness of pasinetti s original insight

dynamic pricing under a general parametric choice model we consider a stylized dynamic pricing model in which a monopolist prices a product to a sequence of t customers who independently make purchasing decisions based on the price offered according to a general parametric choice model the parameters of the model are unknown to the seller whose objective is to determine a pricing policy that minimizes the regret which is the expected difference between the seller s revenue and the revenue of a clairvoyant seller who knows the values of the parameters in advance and always offers the revenue maximizing price we show that the regret of the optimal pricing policy in this model is theta sqrt t by establishing an omega sqrt t lower bound on the worst case regret under an arbitrary policy and presenting a pricing policy based on maximum likelihood estimation whose regret is cal o sqrt t across all problem instances furthermore we show that when the demand curves satisfy a well separated condition the t period regret of the optimal policy is log t numerical experiments show that our policies perform well

arresting banking panics federal reserve liquidity provision and the forgotten panic of 1929 scholars differ on whether central bank intervention mitigates banking panics in april 1929 a fruit fly infestation in florida forced the u s government to quarantine fruit shipments from the state and destroy infested groves in july depositors panicked in tampa and surrounding cities the federal reserve bank of atlanta rushed currency to member banks beset by runs we show that this intervention arrested the panic and estimate that bank failures would have been twice as high without the federal reserve s intervention our results suggest that similar interventions may have reduced bank failures during the great depression

liquidity shortages and banking crises we show in this article that bank failures can be contagious unlike earlier work where contagion stems from depositor panics or contractual links between banks we argue that bank failures can shrink the common pool of liquidity creating or exacerbating aggregate liquidity shortages this could lead to a contagion of failures and a total meltdown of the system given the costs of a meltdown there is a possible role for government intervention unfortunately liquidity and solvency problems interact and can cause each other making it hard to determine the cause of a crisis we propose a robust sequence of intervention banks are often found at the center of systemic financial crises the causes of these crises have long been debated do they stem from depositor panics or do they arise because bank balance sheets are exposed to common factors if it is the latter then is there any sense in which bank failures can be contagious can anything be done to prevent these crises or stop them from propagating once they begin our purpose in this paper is to reexamine whether bank failures can start and propagate systemic crises even if we assume that depositors do not panic that is even if depositors actions are coordinated and they do not run simply because they fear others will run our focus is not because we think that panics are empirically unimportant the jury is still out on that instead we show that contagion can stem from an underlying real general equilibrium problem rather than just from lack of coordination among depositors from a policy perspective attempts to reassure investors through confidence building measures will not work if panic and lack of coordination are not the reasons for a crisis we begin in this paper with a model of a bank that we developed in diamond and rajan 2001 assets in this model are illiquid they cannot be borrowed against or sold for the full value of resources they will generate in their best use because the human capital necessary to generate that full value cannot

contagion and bank failures during the great depression the june 1932 chicago banking panic the authors examine the social costs of asymmetric information induced bank panics in an environment without government deposit insurance their case study is the chicago bank panic of june 1932 the authors compare the ex ante characteristics of panic failures and panic survivors despite temporary confusion about bank asset quality on the part of depositors during the panic which was associated with widespread depositor runs and bank stock price declines the panic did not produce significant social costs in terms of failures among solvent banks copyright 1997 by american economic association

alternatives for distressed banks during the great depression using data on individual banks during the great depression i find that institutions that failed during periods in which failures were especially numerous such as the banking panics appear to have been at least as financially sound as banks that were able to pursue alternative resolution strategies such as merging with another institution or suspending and recapitalizing during less extreme periods this result suggests that problems associated with having numerous banks in distress simultaneously during the depression may have exacerbated the number of banks closed and the economic downturn

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

monopolist pricing with dynamic demand and production cost this paper deals with pricing of a new product over time by a monopolist who maximizes the discounted profit stream the interdependency of cost and demand on cumulative production makes the problem inherently dynamic cost is assumed to be declining with cumulative production learning curve effect while demand is a function of price and cumulative sales representing word of mouth and saturation effects the paper addresses this problem in a general framework that includes several previous results as special cases and provides new insights in other situations while the learning curve and word of mouth effect cause prices to be lower than the price that maximizes immediate revenues the saturation factor has the opposite effect the price path over time is affected by these factors and the interest rate we characterize the price path under several different situations and interpret the results for policy guidelines