analytical solution for an investment problem under uncertainties with shocks abstract we derive the optimal investment decision in a project where both demand and investment cost are stochastic processes eventually subject to shocks we extend the approach used in dixit and pindyck 1994 to deal with two sources of uncertainty and we assume that the underlying processes are jump diffusion processes assuming certain conditions on the parameters we are able to derive a closed expression for the value of the firm finally we present comparative statics for the investment threshold with respect to the relevant parameters

political cycles in oecd economies this paper studies whether the dynamic behaviour of gnp growth unemployment and inflation is systematically affected by the timing of elections and of changes of governments the sample include the last three decades in 18 oecd economies we explicitly test the implication of several models of political cycles both of the opportunistic and of the partisan type also we confront the implication of recent rational models with more traditional approaches our results can be summarized as follows a the political business cycle hypothesis as formulated in nordhaus 1975 on output and unemployment is generally rejected by the data b inflation tends to increase immediately after elections perhaps as a result of pre electoral expansionary monetary and fiscal policies c we find evidence of temporary partisan differences in output and unemployment and of long run partisan differences in the inflation rate as implied by the rational partisan theory by alesina 1987 d we find virtually no evidence of permanent partisan differences in output growth and unemployment

pricing and the news vendor problem a review with extensions in the newsvendor problem a decision maker facing random demand for a perishable product decides how much of it to stock for a single selling period this simple problem with its intuitively appealing solution is a crucial building block of stochastic inventory theory which comprises a vast literature focusing on operational efficiency typically in this literature market parameters such as demand and selling price are exogenous however incorporating these factors into the mode l can provide an excellent vehicle for examining how operational problems interact with marketing issues to influence decision making at the firm level in this paper we examine an extension of the newsvendor problem in which stocking quantity and selling price are set simultaneously we provide a comprehensive review that synthesizes existing results for the single period problem and develop additional results to enrich the existing knowledge base we also review and develop insight into a dynamic inventory extension of this problem and motivate the applicability of such models

which factors influence the expansion of bioenergy an empirical study of the investment behaviours of german farmers the german government is planning to increase the share of renewable energy sources in this context it is important to understand the decision making behaviour of farmers regarding investments in renewable energy systems that generate energy from biomass and farmers reactions to investment support measures to study this behaviour we conduct a survey and confront farmers with a hypothetical opportunity to invest in a biogas plant our findings reveal that farmers have heterogeneous investment thresholds their investment decisions are mainly driven by capital costs and the subjective perception of the risk resulting from the investment other decision parameters like sustainability and non monetary objectives that are also examined in this paper play only minor roles however bounded rationality is an important factor moreover the influence of an investment subsidy was analysed only about half of the amount of the subsidy as expected according to normative forecast models is reflected in an increased willingness to invest furthermore farmers who have previously invested in bioenergy plants show lower investment thresholds and have stronger reactions to the subsidy regarding the expansion of renewable energies these findings are meaningful for policy impact analysis

economies of network urban agglomeration and regional development a theoretical model and empirical evidence zheng x p 2007 economies of network urban agglomeration and regional development a theoretical model and empirical evidence regional studies 41 559 569 concerning urban and regional development it seems that the effect of agglomeration economies has been extensively studied but very little attention has been paid to the contribution from the economies of network this paper attempts to show that regional development is not only brought about by the economies of urban agglomeration but also that it results from the transportation network it presents a theoretical model for analysing the relationship between the economies of network and urban agglomeration and regional development meanwhile it also provides some empirical evidence from the japanese regional economies zheng x p 2007 les economies de reseau l agglomeration urbaine et l amenagement du territoire un modele theorique et des preuves empiriques regional studies 41 559 569 pour ce qui est de l amenagement du territoire i

unemployment and the democratic electoral advantage this article calls into question the conventional wisdom that incumbent parties are rewarded when unemployment is low and punished when it is high using county level data on unemployment and election returns for 175 midterm gubernatorial elections and 4 presidential elections from 1994 to 2010 the analysis finds that unemployment and the democratic vote for president and governor move together other things being equal higher unemployment increases the vote shares of democratic candidates the effect is greatest when republicans are the incumbent party but democrats benefit from unemployment even when they are in control the explanation for these findings is that unemployment is a partisan issue for voters not a valence issue and that the democratic party owns unemployment when unemployment is high or rising democratic candidates can successfully convince voters that they are the party best able to solve the problem

mean variance analysis of sourcing decision under disruption risk this study considers a mean variance mv framework for managing disruption risk in a two echelon supply chain with a risk averse buyer and multiple unreliable suppliers under newsvendor nv setting an mv objective function is designed to maximize the buyer s expected profit while minimizing its variance study of the structural property of the problem proves the existence of a global maxima and a set of efficient portfolios consisting of dominating mean variance pairs we demonstrate the effect of model parameters through comparative statics analysis an algorithm is developed to overcome the computational complexity of the higher dimensional problem numerical studies on model behavior show that the proposed algorithm gives the exact optimal solution while being tractable

framing the allais paradox as a daily farm decision problem tests and explanations the well known allais paradox is reformulated as a daily farm decision problem only 26 of the farmers exhibit violations of the expected utility hypothesis moreover the tendency for violation decreases with the farm operator s education experience and family size no effects of the farm main crop or its scale were detected finally when taking into account the possibility of choice errors we find that the violation rate is statistically insignificant

would a risk averse newsvendor order less at a higher selling price we model a risk averse newsvendor s decision making behavior with some commonly used classes of utility functions within the expected utility theory eut framework under fairly general conditions of eut we show that a risk averse newsvendor will order less than an arbitrarily small quantity as selling price gets larger if price is higher than a threshold value i e the optimal order quantity decreases as the selling price increases

a price setting newsvendor problem under mean variance criteria the single product single period newsvendor problem with two decision variables namely price and stock quantity is considered the performance measure in addition to the expected revenue includes the variance of the income scaled with a risk parameter we present conditions for the concavity of this risk sensitive performance measure and the uniqueness of the optimal solution for both risk averse and risk seeking cases under the additive demand model and compare the results to others previously published these conditions are introduced in terms of the lost sales rate elasticity furthermore we provide numerical examples that aim to endorse the theoretical results herein explained

the fourfold pattern of risk attitudes in choice and pricing tasks we examine the robustness of the fourfold pattern of risk attitudes under two elicitation procedures we find that individuals are on average risk seeking over low probability gains and high probability losses and risk averse over high probability gains and low probability losses when we elicit prices for the gambles however a choice based elicitation procedure where participants choose between a gamble and its expected value yields individual decisions that are indistinguishable from random choice sensitivity to elicitation procedure holds between and within participants and remains when participants are allowed to review and change decisions the price elicitation procedure is more complex this finding may be further evidence that an increase in cognitive load exacerbates behavioural anomalies

a note on pricing with risk aversion abstract we consider the pricing problem of a risk averse seller facing uncertain demand demand uncertainty stems from buyers valuations being privately observed by imposing very mild restrictions on the distribution of buyers valuations an increasing generalized failure rate distribution and the bernoulli utility function we show that a risk averse seller will unambiguously post a lower price than a risk neutral counterpart

on sales effort and pricing decisions under alternative risk criteria abstract in the literature different risk criteria are proposed for risk averse decision making but it is often unclear which risk criteria should be used and what their differences may be this study investigates this problem when a risk averse make to order firm decides its pricing and sales effort two factors affecting demand we consider alternative risk criteria commonly used in the literature namely expected utility theory eut mean variance mv mean semideviation ms value at risk var conditional value at risk cvar and loss aversion la we find that all of these criteria lead to similar qualitative behaviors regarding how risk loss averse decisions deviate from risk neutral ones a particularly interesting result is that the form of demand randomness i e additive or multiplicative can completely reverse the effect of risk loss aversion in certain cases we also find that the risk aversion models i e eut mv ms var and cvar are essentially equivalent in inducing the same set of optimal solutions under adverse market states however loss aversion is a mild version of risk aversion in that the la model can only lead to a subset of the solutions generated by other models these results may not be valid for other applications such as the newsvendor pricing problem so we can conclude that the relationship between alternative risk criteria is case sensitive and should be evaluated more carefully

observation bias the impact of demand censoring on newsvendor level and adjustment behavior in an experimental newsvendor setting we investigate three phenomena level behavior the decision maker s average ordering tendency adjustment behavior the tendency to adjust period to period order quantities and observation bias the tendency to let the degree of demand feedback influence order quantities we find that in three of four conditions the portion of mismatch cost that results from adjustment behavior exceeds the portion of mismatch cost caused by level behavior observation bias is studied through censored demand feedback a situation that arguably represents most newsvendor settings when demands are uncensored subjects tend to order below the normative quantity when they face high margin and above the normative quantity when they face low margin but in neither case do they order beyond mean demand the pull to center effect censoring in general leads to lower quantities magnifying the below normative level behavior when they face high margin but partially counterbalancing the above normative level behavior when they face low margin violating the pull to center effect in both cases data as supplemental material are available at http dx doi org 10 1287 mnsc 2013 1825 this paper was accepted by christian terwiesch operations management

aspiration level effects an empirical investigation abstract theories of aspiration level effects predict that decisions under uncertainty will depend on whether performance is above or below some target level of performance a sample of 5000 quarterly earnings announcements by publicity held companies listed on the compustat and crsp data bases is examined to test this hypothesis four models from the current accounting literature are used as alternative estimates of the target level of earnings for these firms when earnings are announced the difference between actual and forecast earnings here called a forecast error can be computed the data indicate that the relationship between valuation and forecast error differs conditional on the sign of the forecast error

impact of cost uncertainty on pricing decisions under risk aversion abstract this paper studies cost uncertainty in services despite the fact that the service sector has become the largest component of gross domestic products in most developed economies cost uncertainty and its impact on pricing decisions have not received much attention in the literature in this paper we first identify the root causes of cost uncertainty in services using the distinctive characteristics of services defined in the literature we show why cost uncertainty which has been widely neglected in the manufacturing dominated literature is pervasive in services next we investigate how cost uncertainty affects a risk averse service provider s pricing decisions in a make to order setting using the expected utility theory framework we show that cost uncertainty increases the optimal price whereas demand uncertainty reduces it as a result of the countervailing impacts the optimal price under risk aversion may be larger or smaller than the optimal risk neutral price next we study the problem of optimizing cost contingency in service contract pricing we show that the optimal cost contingency decreases as the profit of the contract increases even when the utility function exhibits an increasing absolute risk aversion finally we introduce various strategies to mitigate the risk of cost uncertainty observed in practice and propose new research problems

g e moore and j m keynes a missing chapter in the history of the expected utility model in his posthumous essay my early beliefs john maynard keynes outlined his mental history in the dozen years before the war and asserted their importance to his later life yet despite keynes s assertion of the importance of this part of his mental history to who he was and what he did in 1938 the year the essay was written and two years after he published the general theory there is virtually no treatment in the history of economic thought of this period of his life or of its impact on his economic theory the purpose of this essay is to treat an episode of that period of his life which has particular analytical importance and to suggest some ways in which it might contribute to a clearer understanding of his later work in economics the episode in keynes s early life which the essay examines is his role in g e moore s changing opinion about the importance of rules in ethics in his classic principia ethica 1903 moore had originally asserted that obeying certain rules is a necessary part of ethically correct behavior but in his ethics 1912 he makes exactly the opposite argument saying that individuals are always justified in judging a case for themselves and are under no obligation to follow general rules of conduct in the parlance of modern philosophy moore switched from a rule utilitarian argument to an act utilitarian argument the first four sections of the essay detail the role which keynes played in moore s change of heart the final section discusses how the episode affects our understanding of keynes s work in economics

measuring optimal population distribution by agglomeration economies and diseconomies a case study of tokyo this paper presents an empirical study on the optimality of population distribution within the tokyo metropolitan area by taking into account the effects of agglomeration economies and diseconomie

strategic reference point theory how can executives achieve a match between expected external environmental conditions and internal organizational capabilities that facilitates improved performance this paper argues that a firm s choice of reference points can help achieve strategic alignment capable of yielding improved performance and potentially even a sustainable competitive advantage building upon prospect theory and other relevant theoretical perspectives the strategic reference point srp matrix is developed a firm s srp consists of three dimensions internal capability external conditions and time a theory is developed which posits an optimal srp structure and propositions are offered which articulate the expected relationships between the srp strategic choice behavior and firm performance the paper closes with some suggestions for using strategic reference points in both research and practice

some econometric problems in the measurement of utility econometric problems in the measurement of utility are noted and solutions provided when lotteries which are used to elicit risk preferences are chained or linked they compound error terms if a utility index is constructed to estimate the utility function the estimates will be inefficient and possibly biased an econometric model that attaches an additive error term to the response of the decision maker and does not require indexing is shown to be a better alternative the measurement of utility functions in the context of risk and uncertainty is usually performed when testing the expected utility hypothesis lin dean and moore or for prescriptive analysis keeney and raiffa elicitation procedures typically have involved pre

how large is too large implications of the city size literature for population policy and research in the development literature of the late 1960s and 1970s urbanization and urban problems were often taken to be synonymous both the theories and the preliminary empirical studies of the period appeared to connect urbanization directly with unemployment2 and with crowding congestion social stress and pollution the high visibility of such disamenities coupled with their political implications persuaded developing country governments of the necessity to constrain or even reverse urban growth 3 the antiurbanization perspective achieved its high point in the declarations of the 1974 world population plan of action at bucharest since that time it has gradually been supplanted by more balanced assessments of the contribution made by cities to economic growth 4 even so the potential benefits of urban growth have not yet received the emphasis given to the potential costs whether in policy discussions or in much of the literature on third world urbanization 5 this is unfortunate for it can be argued that agglomeration economies those external returns in production that occur when firms cluster together spatially provide an economic

technical note a risk averse newsvendor model under the cvar criterion the classical risk neutral newsvendor problem is to decide the order quantity that maximizes the one period expected profit in this note we consider a risk averse newsvendor with stochastic price dependent demand we adopt conditional value at risk cvar a risk measure commonly used in finance as the decision criterion the aim of our study is to investigate the optimal pricing and ordering decisions in such a setting for both additive and multiplicative demand models we provide sufficient conditions for the uniqueness and existence of the optimal policy comparative statics show the monotonicity properties and other characteristics of the optimal pricing and ordering decisions we also compare our results with those of the newsvendor with a risk neutral attitude and a general utility function

politics and unemployment in industrialized democracies this paper provides an empirical appraisal of the influence ofpolitics on the evolution of unemployment rates in 13industrialized democracies 12 european union countries andthe u s from 1960 to 1999 we conduct new tests ofopportunistic and partisan business cycle models using richerdata and more general specifications than previous studies incontrast to most previous studies we pay particular attentionto the importance of labor market structure in conditioningthe influence of politics on unemployment we also investigatethe relationship between political stability and economicstability

rational partisan theory empirical evidence for the united states this paper presents two tests of the rational partisan theory rpt of business cycles first i develop and test an rpt model in which wage contracts are staggered and overlapping bureau of labor statistics bls data on the density and duration of wage contracts and estimates of the incumbent party s election win probability are employed to calibrate partisan intervention variables entered in output growth regressions next i perform a more flexible test of the rpt by comparing partisan output growth differences after elections in which the outcome was relatively surprising with partisan output growth differences after elections in which the outcome was widely anticipated the two approaches produce the same conclusion the rpt is not supported by the data

productivity and city size a critique of the evidence a critique of two leading articles in the productivity and city size literature results in revised estimates of the productivity advantages of large cities in particular extant estimates of the elasticity of productivity with city size are revised downward by over 100 percent for the manufacturing sector and about 25 percent for the entire urban economy after revision productivity advantages of larger cities are found to be much larger for the nonmanufacturing sector than for the manufacturing sector hence revitalization policies for large cities should be focused on nonmanufacturing sectors

wasteful commuting a resolution a debate over the empirical underpinnings of urban economic models is emerging under the unlikely rubric of wasteful commuting hamilton 1982 shows that a commonly used monocentric model in which employment and population densities decline exponentially from a center greatly underpredicts actual commuting distances in typical u s and japanese metropolitan areas he concludes that the monocentric model is fundamentally flawed this conclusion is challenged by white 1988b who examines the cost minimizing assignment of households to residential locations taking density patterns as they are and measuring cost by travel time white finds that for a sample of u s metropolitan areas only 11 percent of actual commuting cost is in excess of the cost minimizing amount rather than the 87 percent found by hamilton hamilton 1989 and cropper and gordon 1991 using variations of white s technique obtain results intermediate between these extremes this abstract was borrowed from another version of this item

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

newsvendor problem with clearance pricing abstract the newsvendor nv problem assumes that the salvage clearance price at which the leftover inventory is disposed of is a given parameter of the problem in this paper we relax this assumption and consider the nv problem with the salvage clearance price as a decision variable we have drawn from the literatures on the nv problem and clearance markdown dynamic pricing to develop three stochastic models in this paper in the first model we assume that while the seasonal demand is exogenous and stochastic the end of season demand is endogenous and deterministic the second model extends the first model by assuming that the end of season demand is endogenous and stochastic finally the third model considers that both the seasonal and end of season demands are endogenous and stochastic we have provided solution procedures for solving the stochastic optimization problems we have also performed sensitivity analyses to assess the sensitivity of the optimal expected profit and order quantity to different problem parameters specifically we have found that the optimal expected profit is most sensitive to the variable cost per unit mean seasonal demand and market potential of end of season demand our models will be useful for retailers of products with a short selling season and a short end of season period for clearance sale of leftover inventory such that there is a single replenishment opportunity at the beginning of the season and a single opportunity for setting the salvage price for clearance sale based on the leftover inventory and end of season demand pattern the paper is concluded with possible directions for future research

political parties and the business cycle in the united states 1948 1984 this paper tests the existence and the extent of a politically induced business cycle in the u s in the post world war ii period the cycle described in this paper is different from the traditional political business cycle of nordhaus it is based on a systematic difference between the monetary policies of the two parties in a model with labor contracts from an explicit optimization problem we derive a system of equations for output and money growth then we successfully test the non linear restriction imposed by the theory on the parameters of the system of equations we cannot reject the hypothesis that money growth has been systematically different under the two types of administration and that this difference contributes to explain output fluctuations

political cycles and cyclical policies we test how government revenue and expenditure depend on ideology elections and economic activity we show how fiscal forecasts can be used to identify the determinants of government revenue and expenditure the approach is illustrated using a unique unpublished swedish data set of fiscal forecasts and forecasts of economic activity we find partisan effects but no election effects revenue and expenditure but also the fiscal surplus are lower with right wing governments fiscal policy has been countercyclical revenue varies positively with nominal earnings expenditure varies negatively with real gdp

combined pricing and inventory control under uncertainty this paper addresses the simultaneous determination of pricing and inventory replenishment strategies in the face of demand uncertainty more specifically we analyze the following single item periodic review model demands in consecutive periods are independent but their distributions depend on the item s price in accordance with general stochastic demand functions the price charged in any given period can be specified dynamically as a function of the state of the system a replenishment order may be placed at the beginning of some or all of the periods stockouts are fully backlogged we address both finite and infinite horizon models with the objective of maximizing total expected discounted profit or its time average value assuming that prices can either be adjusted arbitrarily upward or downward or that they can only be decreased we characterize the structure of an optimal combined pricing and inventory strategy for all of the above types of models we also develop an efficient value iteration method to compute these optimal strategies finally we report on an extensive numerical study that characterizes various qualitative properties of the optimal strategies and corresponding optimal profit values

an elasticity approach to the newsvendor with price sensitive demand we introduce a measure of elasticity of stochastic demand called the elasticity of the lost sales rate which offers a unifying perspective on the well known newsvendor with pricing problem this new concept provides a framework to characterize structural results for coordinated and uncoordinated pricing and inventory strategies concavity and submodularity of the profit function as well as sensitivity properties of the optimal inventory and price policies are characterized by monotonicity conditions or bounds on the elasticity of the lost sales rate these elasticity conditions are satisfied by most relevant demand models in the marketing and operations literature our results unify and complement previous work on price setting newsvendor models and provide a new tool for researchers modeling stochastic price sensitive demand in other contexts

the unemployment rate consequences of partisan monetary policies economists and political scientists have identified several ways in which political motivations and institutional arrangements can affect macroeconomic policymaking one way is described by the political business cycle model 42 37 in which vote seeking politicians manipulate the path of the economy to secure unsustainably favorable conditions at election times variants of this model have been widely tested with limited success a second channel for political impacts comes through partisan policy changes brought about by electoral turnover the pathbreaking work in this literature includes the contributions of hibbs 30 31 32 33 and beck 11 these works have focused on the empirical issue of how unemployment rates vary under democratic and republican presidents in the u s and have found strong support for the proposition that unemployment rates decline under democratic administrations a third phenomenon has been studied primarily by economists and concerns the credibility problem faced by a central bank selecting money growth rates models of the credibility problem 8 21 describe a setting in which the central bank and the public interact by respectively choosing actual and expected money growth rates in a variant of the prisoners dilemma this interaction can result in excessive inflation

strength of preference and risky choice this paper provides conditions under which a utility function under risk can be legitimately interpreted to measure strength of preference between consequences these conditions require that if a decision maker regards the preference difference between acts a and b to be the same as the preference difference between acts a and b for every state of the world then the preference difference between a and b should be regarded as equivalent to the preference difference between a and b a key assumption is that a decision maker s preference differences between acts given one state of the world should be independent of common consequences given other states of the world usefulness of this result is discussed

household portfolio diversification a case for rank dependent preferences the proliferation of novel preference theories in financial economics is hampered by a lack of non experimental evidence and by the theories additional complexity which has not been shown to be critical in applications in this article i present arguments in support of preferences with rank dependency using the survey of consumer finances data i document two widespread patterns inconsistent with expected utility i many households simultaneously invest in well deversified funds and in poorly diversified portfolios of stocks and ii some households with substantial savings do not invest anything in equities i show that portfolio choice models with rank dependent preferences plausibly parameterized and under fully rational assumptions are quantitatively consistent with the observed diversification these results call for further efforts to integrate the models of rank dependent preferences in portfolio theory and asset pricing the decision theoretic literature has long acknowledged the shortcomings of the expected utility theory of von neumann and morgenstern 1944 several generalizations of the theory are inspired by the experimental evidence and aimed at improving its descriptive accuracy however there are few applications of new models of preferences in finance and expected utility continues to dominate the field 1 two principal hurdles slow the proliferation of novel preferences in financial economics first the lack of empirical non experimental or field data confirming that the behavior motivating non expected utilities is widespread outside the laboratory settings second the additional and often significant complexity of the alternative preferences which has not been shown to be critical in applications where the models based on expected utility fall short of reasonable predictions this article presents empirical and theoretical this paper was previously circulated under the title household portfolio diversification the paper has benefited from the comments of shlomo benartzi luca benzoni markus brunnermeier john dickhaut maria perozek raj singh hersh shefrin and workshop participants at minnesota finance bag lunch 2003 wharton conference household financial decision making and portfolio choice and 2003 summer meetings of econometric society i would like to thank cam harvey the editor and an anonymous referee for many helpful comments and suggestions a special thanks to jack kareken for comments and editorial help on an earlier draft i am grateful to donna zerwitz for editorial assistance the views expressed herein are those of the author and not necessarily of the federal reserve bank of minneapolis or the federal reserve system all errors and omissions are the sole responsibility of the author address correspondence to valery polkovnichenko finance 3 122 csom 319 19 th

party differences in macroeconomic policies and outcomes although the nature of the differences between parties in democratic electoral politics is an enduring question in political science surprisingly little is understood about the subject but substantial progress has been made in recent years most notably in understanding party differences in macroeconomic policies and outcomes the first breakthrough was douglas hibbs s 1977 analysis of party related differences in the unemployment rate in his time series analysis for the united states hibbs modeled the path of unemployment as an autoregressive moving average process subject to a dummy variable intervention term indicating party of the president his analysis indicated that democratic administrations were associated with lower unemployment than republicans by 2 36 points after eight years in office and even larger differences in long run equilibrium a subsequent article by nathaniel beck 1982 addressed the same issue and found the party differences less sharp when administration specific policy differences are considered the techniques employed by hibbs and beck focus directly on an outcome unemployment rather than on the policy instruments that are presumably responsible for altering outcomes this approach can be misleading when there are long lags between implementation of policies and ultimate effects or when shocks occasionally intrude upon the regular connections between instruments and outcomes macroeconomic theories can provide information about constraints linking macroeconomic variables but hibbs and beck fail to incorporate theoretical constraints such constraints could help determine what kinds of outcomes are feasible and sustainable and to what extent outcomes are induced by policies as opposed to shocks our purpose here is to consider how one might go about estimating party differences in a framework that takes advantage of some insights offered by macroeconomic theories and to report some preliminary results a more complete description of the analysis is provided in our working paper available upon request

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

on the unimodality of the price setting newsvendor problem with additive demand under risk considerations abstract we present a mean variance analysis of the single product single period price setting newsvendor problem with additive price dependent demand the main goal of this paper is to use a mean variance framework to solve any risk sensitive instance and find conditions under which the unimodality of the problem is guaranteed we introduce such conditions via the lost sales rate elasticity the elasticity of the optimal price and the elasticity of the expected safety stock surplus to provide managerial insight in terms of the newsvendor s level of service we also simplify the optimization problem in case that those conditions do not hold the main contribution of this paper is that by evaluating the unimodality of the problem for any possible risk attitude it extends previously published results found for the concavity of the solution in risk neutral and moderately risk sensitive cases

auctions experiments and contingent valuation laboratory experiments are a welcome development that promise to make a significant contribution to the study of economic behavior heiner 1985 plott 1982 smith 1982 1985 while relatively new to economics controlled laboratory studies of human behavior have long constituted the core of experimental psychology where there is a wealth of methodological experience from which experimental economists might profitably draw in particular current attempts to apply laboratory auction methods to valuing nonmarket environmental goods would be improved by more rigorous experimental design and data analysis procedures

an equilibrium model of the supply chain network under multi attribute behaviors analysis abstract this paper studies a supply chain network scn equilibrium model considering decision makers multi attribute behaviors from the perspective of behavioral finance in this paper an equilibrium model of an uncertain snc is constructed in which retailers choose their decisions according to their risk averse behavior loss averse behavior and regret averse behavior by using different weights to represent retailers attitudes to these three behaviors the retailers multi attribute utility functions are developed the equilibrium conditions of the manufacturers the retailers together with the network are established by the finite dimensional variational inequality formulation three numerical examples are solved in the first numerical example we illustrate the effect of each of these three behaviors on the equilibrium decisions the profits and the utilities of the decision makers in the other two numerical examples we explore the effects of changes in attitudes to these three behaviors on the equilibrium decisions profits and utilities of the decision makers the numerical results show that the equilibrium decisions are affected by each of these three behaviors very much moreover they are sensitive to the changes in attitudes to these behaviors

attractive compounds of unattractive investments and gambles a compound of many independent replicas of an investment or gamble may be attractive to some risk averters who do not accept the individual investment or gamble this can happen if there is a chance that the compound leads to a wealth level where the degree of risk aversion is lower than at the initial wealth level it can also happen if the investor has some sort of limited liability the von neumann morgenstern utility functions with the property that sufficiently long sequences of repetitions of any fair gamble are preferred to all finite wealth levels are characterized in this paper

the data driven newsvendor with censored demand observations motivated by data from a large european retail chain we tackle the newsvendor problem with censored demand observations by a distribution free approach based on a data driven approach for this purpose we extend the model introduced in chap 3 to improve the forecast accuracy we simultaneously estimate unobservable lost sales determine the coefficients of the exogenous variables which drive demand and calculate the optimal order quantity since demand exceeding supply cannot be recorded we use the timing of hourly sales occurrences to establish daily sales patterns these sales patterns allow conclusions on the amount of unsatisfied demand and thus the true customer demand to determine the coefficients of the inventory function we formulate a linear programming model that balances inventory holding and penalty costs based on the censored demand observations in a numerical study with data generated from the normal and the negative binomial distribution we compare our model with other parametric and non parametric estimation approaches we evaluate the performance in terms of inventory and service level for non price dependent demands and different censoring levels we find that the data driven newsvendor model copes especially well with highly censored data and price dependent demand in most settings with price dependent demand it achieves similar or higher service levels by holding lower inventories than other benchmark approaches from the literature finally we show that the non parametric approaches are better than the parametric ones based on real data with several exogenous variables where the true demand distribution is unknown

the american political economy macroeconomics and electoral politics here is the most comprehensive and authoritative work to date on relationships between the economy and politics in the years from eisenhower through reagan extending and deepening his earlier work which had major impact in both political science and economics hibbs traces the patterns in and sources of postwar growth unemployment and inflation he identifies which groups win and lose from inflations and recessions he also shows how voters perceptions and reactions to economic events affect the electoral fortunes of political parties and presidents hibbs s analyses demonstrate that political officials in a democratic society ignore the economic interests and demands of their constituents at their peril because episodes of prosperity and austerity frequently have critical influence on voters behavior at the polls the consequences of eisenhower s last recession of ford s unwillingness to stimulate the economy of carter s stalled recovery were electorally fatal whereas johnson s nixon s and reagan s successes in presiding over rising employment and real incomes helped win elections the book develops a major theory of macroeconomic policy action that explains why priority is given to growth unemployment inflation and income distribution shifts with changes in partisan control of the white house the analysis shows how such policy priorities conform to the underlying economic interests and preferences of the governing party s core political supporters throughout the study hibbs is careful to take account of domestic institutional arrangements and international economic events that constrain domestic policy effectiveness and influence domestic economic outcomes hibbs s interdisciplinary approach yields more rigorous and more persuasive characterizations of the american political economy than either purely economic apolitical analyses or purely partisan politicized accounts his book provides a useful benchmark for the advocacy of new policies for the 1990s a handy volume for politicians and their staffs as well as for students and teachers of politics and economics

note further tests of aspiration level effects in risky choice behavior this note extends the work reported in payne laughhunn and crum payne j w d j laughhunn r crum 1980 translation of gambles and aspiration level effects in risky choice behavior management sci 26 1039 1060 on the need to incorporate a target return reference point or aspiration level concept in the analysis of risky choice behavior two experiments are reported the first experiment provides a more complete test of the model of reference point effects developed by payne laughhunn and crum a translation of outcomes procedure which adds a constant to all outcomes was used to vary the relationship of pairs of gambles to an assumed target or reference point the results fully support the model the second experiment provides evidence of the conceptual validity of the model by using explicit instructions to vary the target levels of managers while holding gamble values constant

a risk tolerance analysis for a joint price differentiation and inventory decisions problem with demand leakage effect abstract price differentiation is a commonly used practice in revenue management rm to improve a firm s profitability however most studies in the literature have considered a risk neutral firm to demonstrate the benefits of price differentiation the main contribution of this paper is in considering several important objectives while determining the optimal product prices and order production quantities for a risk adjusted firm with demand leakage effects in the presence of a price dependent stochastic demand the objectives considered include the maximization of a firm s expected profit and maximizing the probability of exceeding the risk adjusted expected revenue closed form expressions for optimal product prices and production quantities are derived for several of these objectives a numerical study is also presented to calibrate the impact of a firm s risk tolerance and other factors such as demand leakage market demand variability on the firm s profitability and its optimal decision

the normative economics of health care finance and provision whereas in many countries the crisis in medical care has been seen in terms of excess spending on health services in the uk it has been seen at least by most of those who manage and work in the nhs as a crisis of underfunding this has come about as the result of the government s successful attempts to restrain the rate of growth of real spending on the nhs which in turn reflects the government s belief that its principal effective weapon against what it perceives to be inefficiency in the nhs is to challenge management itself reformed and to some extent liberated by systematic financial squeezes the same concern has given rise to a host of proposals for reform of the nhs most of which involve a much greater role for private insurance private finance of other kinds such as out of pocket payments and private provision of health care itself

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

the marginal utility of income does not increase borrowing lending and friedman savage gambles there has been a great deal of discussion about whether the marginal utility of income rises with income most notably milton friedman and leonard j savage argued in their classic paper that the willingness to gamble implies that the marginal utility of income is rising over a range the discussions of rising marginal utility and of friedman savage gambles have proceeded independently of the literature on time preference although the issues are in fact related logically drawing on this logical relationship we shall show 1 that at least when intertemporal utility is separable the stable levels of consumption that are usually observed imply that the marginal utility of income decreases as income rises 2 even if the marginal utility of income does increase friedman savage gambles normally will not maximize utility saving and dissaving can attain the levels of consumption which generate the most utility per dollar of income at a lower cost than gambles unless imperfections in the capital market are severe 3 even when the utility function is not temporally separable repeated gambling cannot be a rational way of dealing with a rising marginal utility of income we therefore conclude that observed gambling is seldom if ever explained by the logic set out in friedman and savage s seminal paper in view particularly of the stability of consumption levels and the lack of friedmansavage gambles we conclude that marginal utility of income does not rise with income i a conceptual framework

a risk return model with risk and return measured as deviations from a target return two attribute risk and return models are very popular in the economics and finance literature for analyzing decisions under uncertainty their popularity stems primarily from the intuitive appeal of the dichotomy into risk and return and from the ease with which the concepts can be diagrammed in two dimensions the most commonly used risk return model is the mean variance model in which risk is measured as the variance and return by the mean of the probability distribution over outcomes the mean variance model has a number of shortcomings which are widely known but of particular concern here are the facts that 1 mean variance dominance is neither necessary nor sufficient for second degree stochastic dominance 2 unless the form of the probability distribution is restricted mean variance is consistent with von neumann morgenstern utility theory only if the utility function is quadratic and 3 as peter fishburn has noted

a multi product risk averse newsvendor with exponential utility function abstract we consider a multi product newsvendor using an exponential utility function we first establish a few basic properties for the newsvendor regarding the convexity of the model and monotonicity of the impact of risk aversion on the solution when the product demands are independent and the ratio of the degree of risk aversion to the number of products is sufficiently small we obtain closed form approximations of the optimal order quantities the approximations are as easy to compute as the risk neutral solution we prove that when this ratio approaches zero the risk averse solution converges to the corresponding risk neutral solution when the product demands are positively negatively correlated we show that risk aversion leads to lower higher optimal order quantities than the solution with independent demands using a numerical study we examine convergence rates of the approximations and thoroughly study the interplay of demand correlation and risk aversion the numerical study confirms our analytical results and further shows that an increased risk aversion does not always lead to lower order quantities when demands are strongly negatively correlated

estimating time preferences from convex budgets experimentally elicited discount rates are frequently higher than what seems reasonable for economic decision making such high rates are often attributed to present biased discounting a well known bias of standard measurements is the assumption of linear consumption utility attempting to correct this bias using measures of risk aversion to identify concavity researchers find reasonable discounting but at the cost of exceptionally high utility function curvature we present a new methodology for identifying time preferences both discounting and curvature from simple allocation decisions we find reasonable levels of both discounting and curvature and surprisingly dynamically consistent time preferences jel c91 d12 d81 understanding and estimating time preferences is obviously of great importance to economists marketers and policy makers consumers decide how much to invest in savings education real estate and life insurance how much to diet exercise and smoke whether to marry when to have children and what to leave in their wills while there has been substantial research estimating time preferences using aggregate consumption data 1 the bulk of the effort has occurred in laboratory environments 2 among the many laboratory techniques employed recent studies have favored multiple price lists mpl with monetary payments 3 with mpls individuals are asked multiple times to choose between smaller payment amounts closer to the present and larger amounts further into the future the interest rate increases monotonically in a price list such that the point where an individual switches from preferring sooner payments to later payments carries interval

partisan differences in swedish macroeconomic policy the purpose of this paper is to trace partisan differencesamong swedish governments during the period 1958 2000 according tothe partisan theory of macroeconomic policy left wing governmentsare relatively more concerned with the performance of the realside of the economy real output and unemployment as compared toright wing governments that place a higher weight on the nominalvariables inflation left wing governments would therefore pursue moreexpansionary aggregate demand policy and thereby be willingto risk a higher inflation in order to improve real economicperformance in this paper we apply the model developed in hibbs 1994 onswedish data our empirical results support the partisan theory showing that ceteris paribus aggregate demand policy under left winggovernments is relatively more expansionary than under right wing governments even if the expansionary policysometimes leads to higher inflation

thinking economically about climate change abstract uncertainty over both the regional impacts and timing of climatic changes the way they tend to magnify the likelihood of so called natural disasters and their irreversibility require careful analysis of policy options from an economic standpoint the best approach is to apply cost benefit thinking the essential trade off is between doing nothing now and investing in either important preventive or adaptive measures the choices involve analysis of incurring costs now against the benefits of reducing vulnerability and future damage costs for any given level of warming the aim is to minimize the sum of policy costs and costs of adaptation by individuals any resulting policy decision will have to address issues of international cooperation and compensation these considerations may in turn influence the resulting policy choices between carbon taxes marketable permits and regulatory restrictions

multi product newsvendor problem with value at risk considerations abstract we consider the single period stochastic inventory newsvendor problem with downside risk constraints the aim in the classical newsvendor problem is maximizing the expected profit this formulation does not take into account the risk of earning less than a desired target profit or losing more than an acceptable level due to the randomness of demand we utilize value at risk var as the risk measure in a newsvendor framework and investigate the multi product newsvendor problem under a var constraint to this end we first derive the exact distribution function for the two product newsvendor problem and develop an approximation method for the profit distribution of the n product case n 2 a mathematical programming approach is used to determine the solution of the newsvendor problem with a var constraint this approach allows us to handle a wide range of cases including the correlated demand case that yields new results and insights the accuracy of the approximation method and the effects of the system parameters on the solution are investigated numerically

commodity choice behavior with pigeons as subjects starting from an initial baseline budget line income compensated price changes always resulted in substitution effects consistent with the slutsky hicks theory this behavior cannot be explained by a simple random behavior model similar changes in relative prices that did not originate from the initial baseline budget line resulted in undersubstitution effects the composition of consumption changed in the expected direction but the magnitude of change was not large enough to be consistent with the initial commodity bundle chosen these undersubstitution effects are not explainable by shifting preference patterns or anchoring effects found in inconsistent choice sequences with human subjects