installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

the impact of terms of trade and real exchange rate volatility on investment and growth in sub saharan africa abstract specialization in primary product exports reduces growth but why adverse trends in and the high variance of primary product prices are possible explanations the impact on investment and growth of the level and volatility of the terms of trade and the real effective exchange rate is estimated for a panel of 14 sub saharan african countries over 1980 1995 growth is negatively affected by terms of trade instability and investment by real exchange rate instability both growth and investment increase when the terms of trade improve and real exchange rate overvaluation is eliminated

electricity consumption employment and real income in australia evidence from multivariate granger causality tests this paper examines the relationship between electricity consumption employment and real income in australia within a cointegration and causality framework we find that electricity consumption employment and real income are cointegrated and that in the long run employment and real income granger cause electricity consumption while in the short run there is weak unidirectional granger causality running from income to electricity consumption and from income to employment

foreign direct investment exchange rate variability and demand uncertainty variable real exchange rates influence the location of production facilities chosen by a multinational with risk averse investors and fixed productive factors parent companies should not be indifferent to production location even with identical expected costs of production across countries if a nonnegative correlation exists between export demand and exchange rate shocks the multinational optimally locates some productive capacity abroad the capacity share abroad increases as exchange rate volatility rises and becomes more correlated with export demand shocks these results are confirmed using quarterly u s bilateral foreign direct investment flows with canada japan and the united kingdom copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a make to stock system with multiple customer classes and batch ordering this paper examines the impact of customer order sizes on a make to stock system with multiple demand classes we first characterize the manufacturer s optimal production and rationing policies when the demand is nonunitary and lost if unsatisfied we also investigate the optimal policies of a backorder system with two demand classes and fixed order sizes through a numerical study we show the effects of batch orders on the manufacturer s inventory cost as well as on the benefit of optimal stock rationing it is shown that batch ordering may reduce the manufacturer s overall cost if carefully introduced in a first come first served fcfs system with the same effective demand rates the customers order sizes also have a strong impact on the benefit of optimal stock rationing

the mirage of fixed exchange rates this paper discusses the profound difficulties of maintaining fixed exchange rates in a world of expanding global capital markets contrary to popular wisdom industrialized country monetary authorities easily have the resources to defend exchange parities against virtually any private speculative attack but if their commitment to use those resources lacks credibility with markets the costs to the broader economy of defending an exchange rate peg can be very high the dynamic interplay between credibility and commitment is illustrated by the 1992 swedish and british crises and the 1994 95 mexican collapse we also discuss the small number of successful fixers

modelling the impact of central bank intervention on exchange rate volatility under inflation targeting this article empirically investigates the effect of central bank s foreign exchange interventions on the level and volatility of the uganda shilling us dollar exchange rate ugx usd under an infla

exchange rate regime durability and performance in developing versus advanced economies abstract drawing on new data and advances in exchange rate regimes classification we find that countries appear to benefit by having increasingly flexible exchange rate systems as they become richer and more financially developed for developing countries with little exposure to international capital markets pegs are notable for their durability and relatively low inflation in contrast for advanced economies floats are distinctly more durable and also appear to be associated with higher growth for emerging markets our results parallel the baxter and stockman classic exchange regime neutrality result though pegs are the least durable and expose countries to higher risk of crisis

reduce shortage with self reservation policy for a manufacturer paying both fixed and variable stockout expenditure this study considers a single item make to stock system with continuous time production and inventory controls to meet bulk demand with an exponential inter arrival time a key issue in this system is the non convex shortage cost consisting of fixed and variable expenditures when the demand is not fully satisfied we propose a self reservation policy by building a markov decision process to minimize the overall cost we find that the optimal production control is still a base stock policy but the structure of the optimal self reservation policy is very complicated however if the effective outstanding variable shortage cost is sufficiently large the optimal self reservation policy has an easy form of reserve all or nothing our numerical examples indicate the optimal policy may reduce the total average cost by 47 on average

information distortion in a supply chain the bullwhip effect this article originally appeared in management science april 1997 volume 43 number 4 pp 546 558 published by the institute of management sciences consider a series of companies in a supply chain each of whom orders from its immediate upstream member in this setting inbound orders from a downstream member serve as a valuable informational input to upstream production and inventory decisions this paper claims that the information transferred in the form of orders tends to be distorted and can misguide upstream members in their inventory and production decisions in particular the variance of orders may be larger than that of sales and distortion tends to increase as one moves upstream a phenomenon termed bullwhip effect this paper analyzes four sources of the bullwhip effect demand signal processing rationing game order batching and price variations actions that can be taken to mitigate the detrimental impact of this distortion are also discussed

deterrence by market sharing a strategic incentive for licensing the potential of an incumbent firm to retain its dominant position in a market is a focal point of the modem theory of industrial organization a recent literature examines this issue for markets in which challengers threaten an incumbent s position by engaging in research for a new technology richard gilbert and david newbery 1982 show that an incumbent firm with a firstmover advantage will preempt potential entrants by inventing a new technology slightly earlier than would its rivals in a stochastic r d therefore its introduction does not alter the decision to research when the pre innovation market is characterized by an incumbent and potential entrants stephen salant 1984 shows that licensing ex post to innovation can alter the research decision as anticipation of the returns from future licensing encourages research by the entrant as a counterpoint to the salant result i find that licensing ex ante to research may discourage further research by the entrant indeed this strategic incentive for licensing may be so strong as to persuade the incumbent as well as the entrant to terminate research activity to isolate this incentive for licensing from the one discussed by salant a simple model is constructed in which licensing of future technologies is not desirable anecdotal evidence suggests that the strategic incentive does lead innovators in some markets to license their technologies examples of this information sharing are prevalent in markets where technological change is rapid in the 1940 s standard oil of new jersey discovered a process for synthetic rubber it traded patent rights on this process for a synthetic oil production process discovered by farben a german rubber company in both the synthetic oil and synthetic rubber markets rival companies were department of economics scarsborough college university of toronto toronto ontario canada m5s lal i thank jon cohen and ron saunders for discussions that inspired this paper i am also grateful to yehuda kotowitz andy mclennan jennifer reinganum ralph winter myma wooders two anonymous referees and seminar participants at the university of toronto for helpful comments on earlier drafts

prioritizing regular demand while reserving capacity for emergency demand abstract this research is motivated by the capacity allocation problem at a major provider of customized products to the oil and gas drilling industry we formulate a finite horizon discrete time dynamic programming model in which a firm decides how to reserve capacity for emergency demand and how to prioritize two classes of regular demand while regular demand can be backlogged emergency demand will be lost if not fulfilled within the period of its arrival since backlogging cost accumulates over time we find it optimal for the firm to adopt a dynamic prioritization policy that evaluates the priorities of different classes of regular demand every period the optimal prioritization involves metrics that measure backlogging losses from various perspectives we fully characterize the firm s optimal prioritization and reservation policy those characterizations shed light on managerial insights

the real exchange rate and macroeconomic performance in sub saharan africa abstract pooled time series and cross section data for 33 countries in sub saharan africa ssa confirm the negative relationship between the real exchange rate rer misalignment and economic performance economic growth imports exports saving and investment macroeconomic instability also slows growth and other indicators of performance higher levels of misalignment are accompanied by higher levels of macroeconomic instability both lower levels of rer misalignment and instability lead to better economic performance the edwards model of rer determination performs well for the region black market premia tend to show a greater degree of misalignment in rer than alternative measures

interactions between electricity generation sources and economic activity in two nord pool systems evidence from estonia and sweden abstractthe interactions between electricity sources and industrial production in estonia and sweden are analysed based on monthly data the availability of data defines the time spans from january 2010 to september 2015 for sweden and from april 2010 to december 2014 for estonia these countries are particularly interesting to study because of their dissimilar generation mix estonia s generation mix is based on oil shale while sweden s is based on nuclear plants and hydroelectricity in short both countries energy mixes are based on endogenous natural resources the ardl model was applied allowing the long run and short run effects to be captured the results prove that economic growth is sustained by natural endogenous resources estonia should continue to improve the usage of renewable energies using fossil sources in support in order to reduce emissions and to meet international environmental commitments sweden should promote the efficient usage of various renewable sources

optimal policies for inventory systems with priority demand classes we consider a periodic review inventory system with two priority demand classes one deterministic and the other stochastic the deterministic demand must be met immediately in each period however the units of stochastic demand that are not satisfied during the period when demand occurs are treated as lost sales at each decision epoch one has to decide not only whether an order should be placed and how much to order but also how much demand to fill from the stochastic source the firm has the option to ration inventory to the stochastic source i e not satisfy all customer demand even though there is inventory in the system we first characterize the structure of the optimal policy we show that in general the optimal order quantity and rationing policy are state dependent and do not have a simple structure we then propose a simple policy called s k s policy wheres ands ordering policy determine when and how much to order whilek rationing policy specifies how much of the stochastic demand to satisfy we report the results of a numerical study which shows that this simple policy works extremely well and is very easy to compute

stock rationing in an m ek 1 make to stock queue this paper considers the stock rationing problem of a single item make to stock production system with several demand classes and lost sales when demand is poisson and processing time has an erlang distribution we show that a single state variable called work storage level can be employed to completely capture the information regarding inventory level and the status of current production the optimal rationing policy can be characterized by a sequence of monotone critical work storage levels for each demand class there exists a work storage level at or below which it is optimal to start rejecting the demand of this class in anticipation of future arrival of higher priority demands the optimal production policy can also be characterized by a critical work storage level our numerical examples indicate that a critical stock level policy which ignores information on the status of current production performs very well

a threshold inventory rationing policy for service differentiated demand classes motivated by a study of the logistics systems used to manage consumable service parts for the u s military we consider a static threshold based rationing policy that is useful when pooling inventory across two demand classes characterized by different arrival rates and shortage stockout and delay costs the scheme operates as a q r policy with the following feature demands from both classes are filled on a first come first serve basis as long as on hand inventory lies above a threshold levelk once on hand inventory falls below this level low priority i e low shortage cost demand is backordered while high priority demand continues to be filled we analyze this static policy first under the assumption that backorders are filled according to a special threshold clearing mechanism structural results for the key performance measures are established to enable an efficient solution algorithm for computing stock control and rationing parameters i e q r andk numerical results confirm that the solution under this special threshold clearing mechanism closely approximates that of the priority clearing policy we next highlight conditions where our policy offers significant savings over traditional round up and separate stock policies encountered in the military and elsewhere finally we develop a lower bound on the cost of the optimal rationing policy numerical results show that the performance gap between our static threshold policy and the optimal policy is small in environments typical of the military and high technology industries

optimal production and rationing policy of two stage tandem production system abstract the rationing literature has been so far oblivious to the fact that sellable items may not only be finished products but also intermediate products to manufacture subsequent sellable products we address this gap by considering an inventory rationing problem in a two product tandem make to stock production inventory system bulk demand arrives to a partial batch production system with exponentially distributed production time for each batch the management has to decide whether to run or stop production and whether the various classes of demand for both products intermediate product ip and finished product or end product ep have to be satisfied from available inventory or not in which case demand is lost in order to maximize the firm s expected profit we present the corresponding dynamic programming formulation and characterize the optimal policy the resulting policy depends on dynamic switching curves which define a thresholds to continue or discontinue production and b thresholds to satisfy or turn down incoming orders we identify the key value drivers and compare various heuristic policies through extensive numerical analyses

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

causality between economic growth and immigration an ardl bounds testing approach abstract this paper aims to investigate the causal relationship between immigration and per capita economic growth using the ardl approach to cointegration we find evidence of long run causality from per capita economic growth to immigration but not vice versa

obtaining strategic advantage from being imitated when can encouraging clones pay an important business strategy research theme concerns finding ways to minimize competition faced by the firm this paper however focuses on a different set of situations the model developed suggests that an innovator s best strategy may be to encourage clones of its product when a network externality is present key factors to consider in assessing whether encouraging cloning is the innovator s best strategy are 1 the benefit to be derived in terms of added user base contributed by the clone sales traded off against 2 the unit sales that will be lost to the clones these factors in turn depend upon the strength of the network effect and the degree to which the innovator s product quality is perceived by consumers to be superior to the clone s the model further suggests that both the innovator and clone earn their highest payoffs when the clone takes the lead in price setting i e when the clone establishes its own price by considering for each price it might set how the innovator will react to that price and the innovator as price follower responds to the price the clone chooses the paper demonstrates that the clone leader innovator follower situation represents the unique nash equilibrium in price setting strategies a central implication is that when operating in a network externality environment instead of a problem to be avoided clones may be valuable assets to an innovating firm building up the user base for the innovator s technology by bringing lower valuing consumers into the market which in turn makes the innovator s product more attractive to high and medium valuing purchasers thus when the above described conditions hold being cloned can be more profitable for an innovating firm than dominating the market alone

inventory rationing in a make to stock production system with several demand classes and lost sales this paper considers the stock rationing problem of a single item make to stock production system with several demand classes and lost sales for the case of poisson demands and exponential production times we show that the optimal policy can be characterized by a sequence of monotone stock rationing levels for each demand class there exists a stock rationing level at or below which it is optimal to start rejecting the demand of this class in anticipation of future arrival of higher priority demands a simple queueing model is analyzed to compute the operating cost of a rationing policy in a numerical study we compare the optimal rationing policy with a first come first served policy to investigate the benefit of stock rationing under different operating conditions of the system

managing supply chain demand variability with scheduled ordering policies this paper studies supply chain demand variability in a model with one supplier and n retailers that face stochastic demand retailers implement scheduled ordering policies orders occur at fixed intervals and are equal to some multiple of a fixed batch size a method is presented that exactly evaluates costs previous research demonstrates that the supplier s demand variance declines as the retailers order intervals are balanced i e the same number of retailers order each period this research shows that the supplier s demand variance will generally decline as the retailers order interval is lengthened or as their batch size is increased lower supplier demand variance can certainly lead to lower inventory at the supplier this paper finds that reducing supplier demand variance with scheduled ordering policies can also lower total supply chain costs

exchange rate volatility economic growth nexus in uganda abstractthe global financial crisis has disrupted trade and capital flows in most developing economies resulting in an increased volatility of exchange rates we develop an autoregressive distributed lag model to investigate the effect of exchange rate volatility on economic growth in uganda using data spanning the period 1960 2011 we find that exchange rate volatility positively affects economic growth in uganda in both the short run and the long run however in the short run political instability negatively moderates the exchange rate volatility economic growth nexus these results are robust to alternative specifications of the economic growth model

r d rivalry with licensing or imitation the authors study the rivalry between two firms to develop an innovation in a dynamic setting that allows for post development dissemination of the innovation such as licensing or imitation this dissemination may cause the noninnovating firm to benefit from the discovery when this occurs conventional results in the economics of r d no longer need apply they find that industry leaders will tend to develop minor innovations but will develop major innovations only if imitation is difficult copyright 1987 by american economic association

the impact of exchange rate volatility on international trade flows despite the best efforts of economists a basic paradox as to the impact of exchange rate volatility on trade flows remains unresolved at both the theoretical and empirical level this paper surveys the vast literature in the area in an attempt to identify major issues which have contributed to the development of the debate and examine whether any general direction for consensus may be found

incorporating daily market uncertainty data into a conventional short run dynamic model the case of the black market exchange rate in iran the effect of market uncertainty on a country s currency while widely recognized is either omitted from mainstream models or addressed using low frequency series which are typically subject to a

licensing to enhance demand for new technologies this article presents a model in which licensing competitors expands demand for a new proprietary product and therefore may be a profit maximizing strategy for the licensor even when licensing increases industry cost in the model buyers care about price and quality sellers can contract on price but not on quality and a single supplier has monopoly power licensing induces quality competition and allows the supplying firms to make a quality commitment that would not be credible for a single firm as a result licensing increases industry demand and may generate an increase in industry revenue sufficient to offset any increase in industry cost some of the characteristics of the model are informed by observations in the semiconductor industry

foreign counterfeiting of status goods we study the positive and normative effects of counterfeiting i e trademark infringement in markets where consumers are not deceived by forgeries consumers are willing to pay more for counterfeits than for generic merchandise of similar quality because they value the prestige associated with brand name trademarks counterfeiters of status goods impose a negative externality on consumers of genuine items as fakes degrade the status associated with a given label but counterfeits allow consumers to unbundle the status and quality attributes of the brand name products and alter the competition among oligopolistic trademark owners we analyze two policies designed to combat counterfeiting enforcement policy which increases the likelihood of confiscation of illegal items and the imposition of a tariff on low quality imports

the saving and investment nexus for china evidence from cointegration tests the saving and investment nexus as postulated by feldstein and horioka fh 1980 is revisited the saving investment correlation for china is estimated over the periods 1952 1998 and 1952 1994 the latter culminating in a period of fixed exchange rate regime amongst the key results it is found that saving and investment are correlated for china for both the period of the fixed exchange rate and the entire sample period with high saving investment correlation the results suggest that the chinese economy is in conformity with the fh hypothesis this is a valid outcome for in china capital mobility was fairly restricted over the 1952 1994 period as indicated by the relatively low foreign direct investment

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