perishable inventory theory a review this paper reviews the relevant literature on the problem of determining suitable ordering policies for both fixed life perishable inventory and inventory subject to continuous exponential decay we consider both deterministic and stochastic demand for single and multiple products both optimal and sub optimal order policies are discussed in addition a brief review of the application of these models to blood bank management is included the review concludes with a discussion of some of the interesting open research questions in the area

human fallibility and economic organization doctrines concerning what is a good way to organize a society have influenced human societies more deeply than any other set of doctrines specifically beliefs that one way of organizing production and exchange is better than others have inspired a number of socioeconomic experiments leading to modern capitalist and socialist societies with far reaching implications yet surprisingly the central doctrines though a source of continuing ideological debate have been the subject of only limited scientific enquiry the major proposition the so called langelerner taylor theorem asserting the equivalence between competitive capitalist economies and decentralized socialist economies which make use of the price system made a point in stressing that the issue of the ownership of the means of production might not be central in the comparison of economic systems the theorem however was based on models both of capitalism and of market socialism in which the most important differences between the two systems were suppressed this paper describes a research program attempting to delineate some of the critical differences among alternative forms of economic organization we contend that central to an understanding of these differences is an understanding of differences in the organization of decision making of who gathers what information how it gets communicated and to whom and how decisions get made both concerning what actions to take and who should fill decision making positions this view should be contrasted with the traditional economic paradigm in which decision making plays no role the manager for instance simply looks up in a book of blueprints what the appropriate technique of production is for the given set of factor prices in the conventional paradigm moreover mistakes are never made either in gathering or transmitting information or in making decisions and indeed there are no costs associated with these activities by contrast the view we take here is that to err is human and that different organizational systems differ not only in what kinds of errors individuals make in them but also in how the systems aggregate errors as a result organizations differ systematically in the kinds of errors they make and thus in their overall economic performance organizations also differ in the costs associated with information collection with information communication and processing and with decision making indeed as we discuss below perfect decision making can be achieved by arranging enough decision makers in an appropriate manner no matter how fallible the decision makers are provided their decisions are not purely random or worse what prevents perfect decision making is the cost we refer to the specification of the structure of information gathering communication and decision making as an organization s architecture the objective of our research program has been to construct stylized models of an economic organization within which the consequences of alternative organizational architectures can be examined using these models not only can we compare the performance of particular organizational forms but we can also ask given a particular set of objectives and circumstances what is the optimal structure within tdiscussants david kreps stanford university paul milgrom yale university

random yield supply chain with a yield dependent secondary market abstract this paper considers a simple supply chain with one supplier and one retailer where the supplier s production is subject to random yield and the retailer faces uncertain demand there exists a secondary market for acquiring or disposing products by the supplier we study both the centralized and decentralized systems in the decentralized system a no risk sharing contract and a risk sharing minimum commitment contract are analyzed the supply chain with the risk sharing contract is further analyzed with a constant secondary market price and a yield dependent secondary market price we present both the supplier s and the retailer s optimal strategies and provide insights for managers when making decisions under random yield risk and demand uncertainty we find that the secondary market generally has a positive impact on supply chain performance and the actual effect of random yield risk on the supply chain performance depends on cost parameters and supply chain contract settings under certain conditions reducing yield randomness may weaken the double marginalization effect and improve the chain performance from the numerical study we also show that there exists an optimal commitment level for the supply chain

optimal pricing and return policies for perishable commodities this paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life a hierarchical model is developed and the results of the single period inventory model are used to examine possible pricing and return policies the paper shows that several such policies currently in effect are suboptimal these include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted the paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination but that the optimal return allowance will be a function of retailer demand therefore such a policy cannot be optimal in a multi retailer environment it is proven however that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi retailer environment this article was originally published in marketing science volume 4 issue 2 pages 166 176 in 1985

operating flexibility global manufacturing and the option value of a multinational network the multinational corporation is a network of activities located in different countries the value of this network derives from the opportunity to benefit from uncertainty through the coordination of subsidiaries which are geographically dispersed we model this coordination as the operating flexibility to shift production between two manufacturing plants located in different countries a stochastic dynamic programming model treats explicitly this flexibility as equivalent to owning an option the value of which is dependent upon the real exchange rate the model is extended to analyze hysteresis effects and within country growth options we show that the management of across border coordination has led to changes in the heuristic rules used for performance evaluation and transfer pricing

endogenous competence and a limit to the condorcet jury theorem the seminal contribution known as the condorcet jury theorem observes that under a specific set of conditions an increase in the size of a group tasked with making a binary decision guilty or innocent say leads to an improvement in the group s ability to make the correct choice an assumption that is not properly appreciated in the relevant literature is that the competency of the group members is assumed to be exogenous in numerous applications members of the group make investments to improve the accuracy of their decision making e g pre meeting efforts we consider the collective action problem that arises we show that if individual competence is endogenous then increases in the group size encourages free riding this trades off with the value of information aggregation thus the value of the larger group size is muted extensions illustrate that if committee members are allowed to exit not participate the equilibrium committee size is reduced additionally supermajority voting rules encourage investments and consequently individual competence

on the integration of production and financial hedging decisions in global markets we study the integrated operational and financial hedging decisions faced by a global firm who sells to both home and foreign markets production occurs either at a single facility located in one of the markets or at two facilities one in each market the company has to invest in capacity before the selling season starts when the demand in both markets and the currency exchange rate are uncertain the currency exchange rate risk can be hedged by delaying allocation of the capacity to specific markets until both the currency and demand uncertainties are resolved and or by buying financial option contracts on the currency exchange rate when capacity commitment is made a mean variance utility function is used to model the firm s risk aversion in decision making we derive the joint optimal capacity and financial option decision and analyze the impact of the delayed allocation option and the financial options on capacity commitment and the firm s performance we show that the firm s financial hedging strategy ties closely to and can have both quantitative and qualitative impact on the firm s operational strategy the use or lack of use of financial hedges can go beyond affecting the magnitude of capacity levels by altering global supply chain structural choices such as the desired location and number of production facilities to be employed to meet global demand

information processing and jury decisionmaking abstract we develop a model to explore the information processing function that jury deliberation and its analogues perform the central question we ask is how much better could a jury possibly perform if it optimally used the collective information available to it than if it decides cases by a simple majority vote before any deliberation or information sharing occurs it is shown how the answer depends on a number of considerations including the correlation among jurors observations the jurors assessments of the relative importance of type i and type ii errors compared with society s assessment of those errors and differences in jurors abilities

modeling the experimentally organized economy complex dynamics in an empirical micro macro model of endogenous economic growth abstract the swedish micro to macro model moses is used to show how complex economic behavior emerges from interacting boundedly rational agents the simulation model has been calibrated using business firm data non linearities arise in its specification of technology the distribution of firm characteristics and in the rules that govern entry and exit the model economy is characterized by a restless competitive growth process that is normally robust but that now and then generates phases of local disorderly behavior including for some parameter settings the collapse of entire sectors the model explains why government agents have difficulty predicting the reactions of the economy to policies suggesting that government treads cautiously in order not to do more harm than good

the competitive newsboy we consider a competitive version of the classical newsboy problem in which a firm must choose an inventory or production level for a perishable good with random demand and the optimal solution is a fractile of the demand distribution and investigate the impact of competition upon industry inventory a splitting rule specifies how initial industry demand is allocated among competing firms and how any excess demand is allocated among firms with remaining inventory we examine the relation between equilibrium inventory levels and the splitting rule and provide conditions under which there is a unique equilibrium our most general result is that if all excess demand is reallocated i e there is perfect substitutability then competition never leads to a decrease in industry inventory

efficient resource allocation via efficiency bootstraps an application to r d project budgeting resource allocation decisions are crucial for the success of an organization this paper proposes an integrated approach to resource allocation problems in which decision makers have one observation of the multiple input output criteria of candidates we offer important improvements over existing approaches based on the widely used data envelopment analysis dea which has two major limitations in its application to resource allocation first traditional dea models compute efficiency scores by optimizing firm specific shadow prices of inputs and outputs this could be problematic because in practice stakeholders would usually require unanimously agreed upon trade offs among evaluation criteria second previous allocation approaches based on dea do not allow for controlling the risk exposure of allocation portfolios to tackle these problems we propose an efficiency measure based on equilibrium shadow prices of different criteria and we use the bootstrap efficiency distributions to gather information regarding efficiency variations and correlations through our methodology decision makers can obtain the risk minimizing allocation portfolio we illustrate the proposed approach through an empirical r d project budgeting problem in which we allocate funding according to the projects efficiency distributions

joint pricing and procurement of fashion products in the existence of clearance markets abstract this paper focuses on the joint pricing and procurement of fashion products in the existence of clearance markets it is assumed that the expected regular season demand is a linear decreasing function of the price and the end of period excess inventory is sold at a known discounted price in a clearance market where the demand is a random variable that follows a general distribution it is shown that the expected profit function is unimodal and the optimal procurement quantity and price can be found from the first order conditions existence of a clearance market increases the profit price and the procurement quantity in order to prove this the optimal procurement and pricing policy of a price setting retailer who does not have a clearance market is provided as opposed to the literature it is shown that the expected profit function of this problem is unimodal as well a numerical study demonstrating the magnitude of the increase in profit procurement quantity and price is reported

global production planning under exchange rate uncertainty motivated by an aggregate production planning problem in an actual global manufacturing network we examine the impact of exchange rate uncertainty on the choice of optimal production policies when the allocation decision can be deferred until the realization of exchange rates this leads to the formulation of the problem as a two stage recourse program whose optimal policy structure features two forms of flexibility denoted as operational hedging 1 production hedging where the firm deliberately produces less than the total demand and 2 allocation hedging where due to unfavorable exchange rates some markets are not served despite having unused production our characterization of the optimal policy structure leads to an economic valuation of production and allocation hedging we show that the prevalence of production hedging is moderated by the degree of correlation between exchange rates a comprehensive examination under the following four generalized settings provides the depth scope and relevancy that our proposed operational hedges play to facilitate aggregate planning 1 multiple periods 2 demand uncertainty 3 price setting or monopolistic pricing and 4 price setting under demand uncertainty we show that production and allocation hedging are robust for these generalizations and should be integrated into the overall aggregate planning strategy of a global manufacturing firm

the optimal decision rule for fixed size committees in dichotomous choice situations the general result this paper presents a general pairwise choice framework and derives the optimal decision rule for fixed size committees the main result generalizes a number of earlier results in the subject copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

sequential aggregation of verifiable information we introduce the notion of verifiable information into a model of sequential debate among experts who are motivated by career concerns we show that self censorship may hamper the eciency of information agg regation as experts withhold evidence contradicting the conventional wisdom in this case silence is telling and undermines the prevailing view over time if this view is incorrect as a result withholding arguments about the correct state of the world is only a temporary phenomenon and the probability of the correct state of the world being revealed always converges to one as the group of experts becomes large for small groups a simple mechanism the principal can use to improve decisionmaking is to appoint a devil s advocate

an approach for developing an optimal discount pricing policy this paper addresses the problem of why and how a seller should develop a discount pricing structure even if such a pricing structure does not alter ultimate demand the situation modeled is most appropriate where the seller s product does not represent a major component of the buyer s final product where the demand for the product is derived or where the price is only one of many factors considered in making a purchase decision a model of buyer reaction to any given pricing scheme is developed to show that there exists a unified pricing policy which motivates the buyer to increase its ordering quantity per order thereby reducing the joint buyer and seller ordering and holding costs as a result the seller is able to reduce its costs while leaving the buyer no worse off and often better off the model is extended to handle variable ordering and shipping costs and situations where the seller faces numerous groups of buyers each having different ordering policies finally a case study is presented explicitly showing how the proposed pricing policy can be applied to the situation of a large seller selling to a number of different buyer groups

centralization versus decentralization as a risk return trade off abstract this paper characterizes the choice between centralization and decentralization as a risk return trade off and examines it in a model that integrates ideas from committee decision making and portfolio theories centralization by pooling expertise rarely yields erroneous decisions however when it fails the consequences are global in contrast in a decentralized system erroneous decisions are more frequent but their consequences are locally confined we assess the relative desirability of de centralization in various scenarios with independent versus interdependent risks we further discuss the robustness of the model and the relevance of our results for policymaking

micro heterogeneity of firms and the stability of industrial growth abstract in the micro macro m m model moses real swedish firms make independent decisions in markets schumpeterian innovative activities and wicksellian capital market disequilibria generate a growth cycle production and investment decisions in firms are dynamically coordinated by markets for products labor and capital under different market regimes as to speed intensity of competitive processes and of innovative activity by varying market regime ceteris par leux long term growth rates of the economy can be generated at cliffe as much as between the industrial countries during the last 50 years high speed market processes increase output growth for long periods but make the model economy sensitive to disturbances that eventually generate a severe depression simulation results suggest the importance for stable macroeconomic growth of a steady input of innovative technical change through new investment new entry and exit to preserve micro diversity of structures

disequilibrium economic dynamics a post schumpeterian contribution abstract adaptive economizing in a decentralized economy with alternative technologies and scarce resources leads to various kinds of locally unstable behavior economic disequilibrium is the rule in such a world and requires the presence of market mechanisms that make possible continued viability if in addition to local instability economies are also globally unstable as considerable evidence suggests then the discovery and application of new structure is essential a complete dynamic theory of economic change must therefore be based not only on conventional rationality and routinely adapting behavior but on a superior faculty which may perhaps best be called creative intelligence

information is important to condorcet jurors group decision making is very significant in a broad variety of settings this paper deals with committees that make binary decisions and addresses the question of whether informative decisions can be assumed within this framework we show that when using the optimal decision rule informative decision making is a nash equilibrium thus we justify the assumption of informative decision making and provide support for the relevance of assumptions such as independent decision making when using the optimal decision rule

irregular growth cycles this paper uses the familiar neoclassical theory of capital accumulation to show how complex behavior can emerge from quite simple economic structures indeed when sufficient nonlinearities and a production lag are present the interaction alone of the propensity to save and the productivity of capital can lead to growth cycles that exhibit a wandering sawtooth pattern not unlike those observed in reality these fluctuations need not converge to a cycle of any regular periodicity so they are not quasi periodic because such chaotic trajectories are unstable errors of estimation in parameters or initial conditions however tiny will accumulate rapidly into substantial errors of forecast moreover periods of erratic cycling can be interspersed with periods of more or less stable growth evidently the future behavior of a model solution cannot be anticipated from its patterns in the past a situation that seems to mimic experience apparent structural change and unpredictability is explained in the present theory by a deterministic single equation model random shocks play no role so the reader can visualize just what it is we are are talking about a noteworthy simulation is presented in figure 1 for gnp in a growth model that is described below in section iii a period of relatively rapid growth is followed by a period of cycles then remarkably for a considerable time about twenty periods apparently steady state growth occurs wandering cycles however emerge another brief period close to the steady state appears again toward the end of the series i establish conditions of savings and productivity that lead to results of this kind this analysis makes use of the mathematical theory of chaos which in the form exploited here originated in the work of edward lorenz a formal definition of chaos and sufficient conditions for chaotic trajectories were provided in a seminal paper by t y li and james yorke a survey of these related contributions is found in yorke and evelyn yorke this theory was introduced into economics by jess benhabib and myself 1981 where we showed that sequences of rational choices can be erratic when preferences depend on experience in a certain way by michael stutzer who provides a detailed analysis of trygve haavelmo s growth model by benhabib and myself 1980 in an application of the overlapping generations model and in my forthcoming study of the classical growth model

the newsvendor problem in a global market optimal centralized and decentralized control policies for a two market stochastic inventory system the global markets of today offer to the style goods producer more selling opportunities and pose new challenges in production planning and coordination from a production management standpoint the opportunity to exploit the difference in timing of the selling season of geographically dispersed markets for style goods is important for improving the firm s profitability in this paper we examine the above issue with an insightful model of a producer of style goods selling the goods to two markets a primary and a secondary market with nonoverlapping selling seasons we refer to this problem as the global newsvendor problem for the above two market stochastic inventory systems we first develop optimal centralized control policies then we demonstrate the suboptimality of decentralized production control policies with the production centers at each market treated as independent profit centers and a constant transfer price being used to coordinate their production we propose as an effective alternative a decentralized production control structure with a nonlinear pricing scheme for production coordination among centers administered through an intermediate organizational unit in our modeling we explicitly consider the effects of exchange rate uncertainty on the production planning decisions

the effect of large order quantities on expected profit in the single period model abstract the classical assumption in the single period model is that excess inventory is discounted and sold at the end of the period however the effects of large order quantities which may result in excess inventory remaining until the discount stage on the following period s demand is not considered for many products such as ski equipment and clothing customers buying large quantities of these products at the discount stage may reduce their demand for the same type of product in the next period thus having large amount of inventory to discount at the end of the period may lead to a reduction in next period s demand and therefore may reduce profit this paper investigates the effect of large order quantities on expected profit in the single period model the paper also provides an algorithm for identifying the new optimal order quantity for the problem under explicit consideration of the spell over effect of over estimating demand

lower bounds for multi echelon stochastic inventory systems we establish lower bounds on the minimum cost of managing certain production distribution networks with setup costs at all stages and stochastic demands these networks include serial assembly and one warehouse multi retailer systems we obtain the bounds through novel cost allocation schemes we evaluate the bounds performance for one warehouse multi retailer systems by comparing them with simple heuristic policies the bounds are quite tight for systems with a small number of retailers we also present simplified proof of known optimality results for serial and assembly systems

competitive and cooperative inventory policies in a two stage supply chain we investigate a two stage serial supply chain with stationary stochastic demand and fixed transportation times inventory holding costs are charged at each stage and each stage may incur a consumer backorder penalty cost e g the upper stage the supplier may dislike backorders at the lower stage the retailer we consider two games in both the stages independently choose base stock policies to minimize their costs the games differ in how the firms track their inventory levels in one the firms are committed to tracking echelon inventory in the other they track local inventory we compare the policies chosen under this competitive regime to those selected to minimize total supply chain costs i e the optimal solution we show that the games nearly always have a unique nash equilibrium and it differs from the optimal solution hence competition reduces efficiency furthermore the two games equilibria are different so the tracking method influences strategic behavior we show that the system optimal solution can be achieved as a nash equilibrium using simple linear transfer payments the value of cooperation is context specific in some settings competition increases total cost by only a fraction of a percent whereas in other settings the cost increase is enormous we also discuss stackelberg equilibria

strategic investments trading and pricing under forecast updating this paper considers two independent firms that invest in resources such as capacity or inventory based on imperfect market forecasts as time progresses and new information becomes available the firms update their forecasts and have the option to trade their resources the trade contract is determined as the bargaining equilibrium or alternatively as the price equilibrium assuming a fairly general form of the profit functions we characterize the nash equilibrium investment levels which are first best under the price equilibrium trade contract but not under the bargaining equilibrium trade contract to gain additional insights we then focus on firms that face stochastic demand functions with constant price elasticity and have contingent pricing power assuming a general forecast evolution process we characterize the impact of the option to trade and the firms cooperation on equilibrium investments expected prices profits and consumer surplus finally to study the main driving forces of trading we employ a well established and empirically tested forecast updating model in which the forecast evolution process follows a two dimensional geometric brownian motion under this model we prove that the equilibrium investments expected prices profits and consumer surplus are nondecreasing in the quality and timing of forecast revisions in market variability and in foreign exchange volatility but are nonincreasing in market correlation

formation of a strategic manufacturing and distribution network with transfer prices abstract we propose a profit maximization model for the decision support system of a firm that wishes to establish or rationalize a multinational manufacturing and distribution network to produce and deliver finished goods from sources to consumers the model simultaneously evaluates all traditional location factors in a manufacturing and distribution network design problem and sets intra firm transfer prices that take account of tax and exchange rate differentials between countries utilizing the generalized benders decomposition approach we exploit the partition between the product flow and the cash allocation i e the pricing and revenue assignment decisions in the supply chain to find near optimal model solutions our proposed profit maximizing strategic planning model produces intuitive results we offer computational experiments to illustrate the potential valuable guidance the model can provide to a firm s supply chain design strategic planning process

the consequences of endogenizing information for the performance of a sequential decision procedure we analyse the implications of endogenizing information collection and reputational concerns for the performance of a sequential decision structure in this model two agents decide in a sequence whether to implement a public project the cost of gathering information is private we derive two results first endogenizing information replaces the herding problem with a free rider problem second endogenizing information aggravates the distortionary effect of reputational concerns

schumpeterian dynamics some methodological notes abstract the main purpose of this paper is to define schumpeterian dynamics and to indicate how it can serve as a basis and starting point for studies in development economics irrespective of how schumpeter used his general approach and what kind of hypotheses he launched schumpeterian dynamics is characterized by its focus on economic transformation this implies that the main interest is in causal chains outside the scope of macroeconomic growth analyses namely in disequilibria and chain effects created inter alia by entrepreneurial activities market processes and competition as a dynamic force the micro underpinnings of such analyses therefore differ from those of growth models which deal with aggregates such as investments and saving productivity income distribution wage shares in value added and capital output ratios seen through schumpeterian glasses the micro units have no well defined generalizable propensities and they are not fully informed calculators reacting in a mechanical way to prices that they cannot influence instead firms continuously seek new information and often search for projects which if carried out exert transformation pressure on the markets consumers can also actively influence firms and markets and do not only passively react to supply prices transformation analyses should not replace macroeconomic growth models but a change of roles is called for such analyses have too long and too often been regarded as empirical complements to growth analyses and therefore as belonging mainly to the domain of economic historians the stress on complement instead of alternative implies that some sort of a synthesis should be sought in theoretical as well as in empirical research

decentralizing cross functional decisions coordination through internal markets a firm faces many problems that are inherently cross functional to solve them successfully requires the coordinated actions of many functional representatives acting in a decentralized setting functional managers however respond to their own individual incentives and may consequently fail to maximize the overall profits of the firm we examine this issue in a setting in which the output of early actions limits the range of later actions and we propose an incentive scheme that allows the system to be successfully decentralized our mechanism is based on linear transfer prices for the intermediate output that are implemented through an internal market a market maker buys the output from one function and sells it to another she is not obliged to sell at the same price at which she bought and may set prices solely to provide incentives we illustrate the flexibility of the scheme by applying it to several models in the operations management literature

modeling the labor market as an evolving institution model artemis abstract a stylized french labor market is modeled as an endogenously evolving institution boundedly rational firms and individuals strive to decrease costs or increase utility the labor market is coordinated by a search process and decentralized setting of hiring standards but intermediaries can speed up matching the model reproduces the dynamics of the gross flows and the spectacular changes in mobility patterns of some demographic groups when the oil crisis in the 1970s occurred notably the sudden decline of the integration in good jobs the internal labor markets ilm of large firms are shown to increase unemployment if the secondary temporary or bad jobs do not exist

the role of inventory in delivery time competition the paper operationalizes the notion of shortage cost by considering the behavior of customers and competing firms and examines the role of inventory in response time competition we start with a single firm production control model in which customers are characterized by their preferences of price quality and delivery time the optimal production inventory policy and the optimal choice between make to order and make to stock operations are determined in simple newsboy like formulas the basic model is then extended to an n firm market game in which firms compete for orders from the aspect of early delivery one could think of this setting as an oligopoly racing market the analysis shows that competition can breed a demand for produce to stock just as other economic phenomena such as economies of scale uncertainty or seasonality can induce make to stock and that delivery time competition increases the buyer s welfare while decreasing the producer s welfare

learning through short run macroeconomic forecasts in a micro to macro model abstract firms in the swedish micro to macro model moses learn about their environment through internal adaptive expectations and through short run external forecasts produced by statistical bureaus the statistical bureaus apply different macroeconomic models that they estimate on data generated by moses firms are learning about their degree of trust in the forecasts of statistical bureaus using bayesian rules in our experiments with learning through external forecasts firms are either forced to use only one source of macroeconomic information or allowed to choose between them with these experiments we can simulate a more or less centrally controlled economy experiments demonstrate that the more of variety of sources of information allowed the better macroeconomic performance

william j baumol an entrepreneurial economist on the economics of entrepreneurship william j baumol is the 2003 winner of the international award for entrepreneurship and small business research throughout his career baumol has urged the profession to pay attention to the instrumental role of entrepreneurship in economic renewal and growth at the same time he has insisted that economists continue to use their usual tool box when the purview of analysis is extended to entrepreneurship hence baumol can be characterized as a revolutionary from within in this article we present and discuss baumol s research contribution in the areas of entrepreneurship and small business economics notably from a growth perspective in addition to placing his work in these areas into the wider context of his full contribution we emphasize baumol s findings that growth cannot be explained by the accumulation of various factors of production per se human creativity and productive entrepreneurship are needed to combine the inputs in profitable ways as a result an institutional environment that encourages productive entrepreneurship and human experimentation becomes the ultimate determinant of economic growth

the evolving economy abstract a general theory of economic change development and policy is presented based on bounded rationality adaptive economizing in disequilibrium and creative intelligence the latter perturbs the economic system as in the schumpeterian theory but is here regarded as a fundamental faculty that both underlies the exercise of rationality and makes possible the imitation of new behavior that is at the basis of socio economic transformation moreover it generates the institutional innovations that insure continued viability in a globally unstable world

implications of breach remedy and renegotiation design for innovation and capacity amanufacturer writes supply contracts with n buyers then the buyers invest in innovation and the manufacturer builds capacity finally demand is realized and the firms renegotiate the supply contracts to achieve an efficient allocation of capacity among the buyers the court remedy for breach of contract specific performance versus expectation damages affects how the firms share the gain from renegotiation and hence how the firms make investments ex ante the firms may also engage in renegotiation design inserting simple clauses into the supply contract to shape the outcome of renegotiation for example when a buyer grants a financial hostage to the manufacturer or is charged a per diem penalty for delay in bargaining the manufacturer captures the gain from renegotiation tradable options which grant buyers the right to trade capacity without intervention from the manufacturer return the gain from renegotiation to the buyers this paper proves that under surprisingly general conditions the firms can coordinate their investments with the simplest of supply contracts fixed quantity contracts this may require renegotiation design and certainly requires that the firms understand the breach remedy and set their contract parameters accordingly

the content of productivity growth in swedish manufacturing abstract it is hardly surprising that the slowdown in economic growth throughout the industrial world in the last decade has attracteda lot of attention by economists the decline in productivity growth has been a special object of study however the causes of this decline still largely remain a mystery in the present paper it is suggested that a more micro based approach to the problem than the conventional macro oriented growth accounting method yields additional insights a methodology is outlined which can at least complement the conventional approach and which is specially designed to open the way for micro analysis of productivity change without losing sight of the macro side this is done by first breaking down total factor productivity growth through disaggregation to lower and lower levels of observation in order to separate out structural from purely technical changes then framework is presented for analyzing how productivity changes at the micro level can be aggregated to the macro level the results emphasize the importance of economies of scale and resource allocation

on manufacturing marketing incentives stereotypically marketing is mainly concerned about satisfying customers and manufacturing is mainly interested in factory efficiency using the principal agent agency paradigm which assumes that the marketing and manufacturing managers of the firm will act in their self interest we seek incentive plans that will induce those managers to act so that the owner of the firm can attain as much as possible of the residual returns one optimal incentive plan can be interpreted as follows the owner subcontracts to pay the manufacturing manager a fixed rate for all capacity he delivers each marketing manager receives all of the returns from his product in turn all managers pay a fixed fee to the owner under this plan the marketing managers will often complain about the stock level decisions even though these levels are announced in advance under a revised plan the owner can eliminate such complaints by delegating the stocking decisions to the respective marketing managers without any loss this plan is interpreted as requiring the owner to make a futures market for manufacturing capacity paying the manufacturing manager the expected marginal value for each unit of capacity delivered receiving the realized marginal value from the marketing managers and losing money on average in the process

an optimal production inventory model for deteriorating items with multiple market demand the global markets of today offer more selling opportunities to the deteriorating items manufacturers but also pose new challenges in production and inventory planning from a production management standpoint opportunities to exploit the difference in the timing of the selling season between geographically dispersed markets for deteriorating items are important to improving a firm s profitability in this paper we examined the above issue with an insightful production inventory model of a deteriorating items manufacturer selling goods to multiple markets with different selling seasons we also provided a solution procedure to find the optimal replenishment schedule for raw materials and the optimal production plan for finished products a numerical example was then used to illustrate the model and the solution procedure finally sensitivity analysis of the optimal solution with respect to major parameters was carried out

organizational decision making quality and the severity of the free riding problem abstract this letter proposes to view organizational decision making as a pure public good the problem of voluntary participation in the provision of the public good the quality of the organization s decisions is analyzed using a stylized game of participation we are chiefly concerned with the clarification of the relationship between the severity of the free riding problem and the quality of the decisional resources available to the organization

comment managing channel profits comment in a recent paper in this journal jeuland and shugan jeuland a s shugan 1983 managing channel profits marketing sci 2 summer 239 272 proposed a quantity discount schedule as a way of coordinating a channel as they put it on p 253 of their paper a quantity discount schedule which would fix the retailer s and hence the manufacturer s profits to some fixed linear function of total channel profits would lead the channel to maximize profits the purpose of this note is to show that a quantity discount schedule is not necessary for channel coordination

ordering and pricing decisions in a two echelon supply chain with asymmetric demand information abstract this article examines coordinated decisions in a decentralized supply chain that consists of one supplier and one retailer and faces random demand of a single product with a short life cycle we consider a setting where the retailer has accurate demand information while the supplier does not such a problem with asymmetric demand information can be viewed as an extension of the newsboy problem in which both the supplier and the retailer possess the same demand information combining the mechanism of sharing demand information and that of quantity discount and return policy enables us to develop three coordinated models in contrast with the basic and uncoordinated model we are able to show the ordinal relationship among the retailer s optimal order quantities in these four models under a general form of random demand and compare the supply chain profits and conduct sensitivity analysis analytically in four models under uniform random demand we also provide numerical results under normal random demand that bear a resemblance to those under uniform random demand

coordinated decisions for substitutable products in a common retailer supply chain abstract this paper studies coordination mechanisms in a supply chain which consists of two suppliers with capacity uncertainties selling differential yet substitutable products through a common retailer who faces price sensitive random demand of these two products we develop in a noncompetitive setting three coordination models revenue sharing return policy and combination of revenue sharing and return policy and contrast them with a basic and uncoordinated model we are able to establish the ordinal relationship among the retailer s ordering and pricing decisions and analytically compare the performances between certain models when two suppliers are identical we find that the retailer s ordering and pricing decisions in the model with return policy in the case of identical suppliers are independent of demand or supply uncertainty our numerical results reveal that the performances of coordination models in the case of nonidentical suppliers resemble those in the case of identical suppliers we find that the retailer will place a larger order quantity in models where her average cost per unit sold is smaller we also find that product substitutability and uncertainties have different effects on chain performances

the newsvendor problem review and directions for future research in this paper we review the contributions to date for analyzing the newsvendor problem our focus is on examining the specific extensions for analyzing this problem in the context of modeling customer demand supplier costs and the buyer risk profile more specifically we analyze the impact of market price marketing effort and stocking quantity on customer demand how supplier prices can serve as a coordination mechanism in a supply chain setting integrating alternative supplier pricing policies within the newsvendor framework and how the buyer s risk profile moderates the newsvendor order quantity decision for each of these areas we summarize the current literature and develop extensions finally we also propose directions for future research

investment criteria in single and multi member economic organizations this paper compares the determination of investment criteriain single and multi member organizations individualdecisional skills are assumed to be endogenous variables thatdepend on the investment criteria our main result specifiesthe condition that determines the relationship between theinvestment criteria in single and multi member organizations given the size of the multi member organization the decisionrule it applies and the function relating the individual sdecisional skills to the investment criterion theimplications of our main result are developed for specialorganizations such as hierarchies and polyarchies ouranalysis implies that the criteria in a multi memberorganization may be stricter than the criteria set in asingle member organization even though in the former case theorganization may worsen the average decision making ability ofits members the analysis can be applied not only in singleand multi member decision making settings but also in somecontexts of centralized and decentralized decisions this isillustrated in the case of decisions by editors ofprofessional journals regarding the acceptance or rejection ofsubmitted papers

skill value and remuneration in committees abstract relatively modest difference in individual decisional skills may warrant substantial inequality in personal remunerations this implies that the return on investment in decisional skills may be very high these claims are illustrated applying the uncertain dichotomous choice setting while clarifying the complex relationship between the individual skills the individual optimal decisional weights and the skill dependent values i e the individual probabilities to be pivotal

optimal ordering decisions with uncertain cost and demand forecast updating we determine the optimal ordering policy for a retailer who has two instants to order a seasonal product from a manufacturer prior to a single selling season while the demand is uncertain the retailer can improve the forecast by utilizing the market signals observed between the first and second instants however because of the nature of the manufacturing environment the unit cost at the second instant is uncertain and could be higher or lower than the unit cost at the first instant to determine the profit maximizing ordering strategies at both instants the retailer has to evaluate the trade off between a more accurate forecast and a potentially higher unit cost at the second instant we present a nested newsvendor model for determining the optimal order quantity at each instant and characterize the conditions under which it is optimal for the retailer to delay its order until the second instant

setting the right incentives for global planning and operations we study incentive issues seen in a firm performing global planning and manufacturing and local demand management the stochastic demands in local markets are best observed by the regional business units and the firm relies on the business units forecasts for planning of global manufacturing operations we propose a class of performance evaluation schemes that induce the business units to reveal their private demand information truthfully by turning the business units demand revelation game into a potential game with truth telling being a potential maximizer an appealing refinement of nash equilibrium moreover these cooperative performance evaluation schemes satisfy several essential fairness notions after analyzing the characteristics of several performance evaluation schemes in this class we extend our analysis to include the impact of effort on demand

the quantity flexibility contract and supplier customer incentives consider a supply chain consisting of two independent agents a supplier e g a manufacturer and its customer e g a retailer the latter in turn serving an uncertain market demand to reconcile manufacturing procurement time lags with a need for timely response to the market such supply chains often must commit resources to production quantities based on forecasted rather than realized demand the customer typically provides a planning forecast of its intended purchase which does not entail commitment benefiting from overproduction while not bearing the immediate costs the customer has incentive to initially overforecast before eventually purchasing a lesser quantity the supplier must in turn anticipate such behavior in its production quantity decision this individually rational behavior results in an inefficient supply chain this paper models the incentives of the two parties identifying causes of inefficiency and suggesting remedies particular attention is given to the quantity flexibility qf contract which couples the customer s commitment to purchase no less than a certain percentage below the forecast with the supplier s guarantee to deliver up to a certain percentage above under certain conditions this method can allocate the costs of market demand uncertainty so as to lead the individually motivated supplier and customer to the systemwide optimal outcome we characterize the implications of qf contracts for the behavior and performance of both parties and the supply chain as a whole

government loan guarantees and the credit decision making structure governments can alleviate the problem of banks denying credit to high risk borrowers and excluding weaker sectors from borrowing by introducing state guaranteed loan programs the main contribution of this paper is the elucidation of the importance of the bank s credit decision making structure in ensuring overall effectiveness of loan guarantees in particular the government can use the guarantee as an instrument for credit inducement and for affecting the bank s decision making system i e its degree of centralization bias towards approval of loans and reliance on objective loan specific information