an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

valuing catastrophe derivatives under limited diversification a stochastic dominance approach abstract we present a new approach to the pricing of catastrophe event cat derivatives that does not assume a fully diversifiable event risk instead we assume that the event occurrence and intensity affect the return of the market portfolio of an agent that trades in the event derivatives based on this approach we derive values for a cat option and a reinsurance contract on an insurer s assets using recent results from the option pricing literature we show that the assumption of unsystematic event risk seriously underprices the cat option last we present numerical results for our derivatives using real data from hurricane landings in florida

option bounds with finite revision opportunities this article generalizes the single period linear programming bounds on option prices by allowing for a finite number of revision opportunities it is shown that in an incomplete market the bounds on option prices can be derived using a modified binomial option pricing model tighter bounds are developed under more restrictive assumptions on probabilities and risk aversion for this case the upper bounds are shown to coincide with the upper bounds derived by perrakis while the lower bounds are shown to be tighter in 1984 perrakis and ryan 6 derived upper and lower bounds on european option prices in discrete time and under modest assumptions on preferences and

quote inefficiency in options markets in an arbitrage free economy with non zero bid ask spreads the existence of payoffs whose price is lower than the price of a dominated payoff cannot be discarded in general however when the former price corresponds to trivial portfolios which involve buying or selling one unit of the basis assets its presence although not an arbitrage is a severe market anomaly which we refer to as an inefficient quote in an empirical study we report evidence that indicates that in options markets both the frequency and the magnitude of these anomalies are substantial and we document puzzling patterns in their behavior

over my dead body bargaining and the price of dignity concerns of pride dignity and the desire to keep hope about future options often lead individuals and groups to walk away from rea sonable offers try to shift blame for failure onto others or take refuge in political utopias costly impasses and conflicts result such as trials divorces strikes the scapegoating of minorities for economic hardships and wars a key and puzzling aspect of these processes is the role played by wishful rationalizations and delusions as attested by field observers e g truman f bewley 1999 in the context of labor relations kevin woods james lacey and williamson murray 2006 in that of war as well as controlled experiments leigh thompson and george loewenstein 1992 and linda c babcock et al 1995 thus demonstrate how subjects in bargaining situations with common knowledge spontaneously generate through self serving processing and recall of the same evidence divergent beliefs about the fairness of their cause and wishful predictions of outcomes and how these are associated to costly delays and disagreements

upper and lower bounds of put and call option value stochastic dominance approach applying stochastic dominance rules with borrowing and lending at the risk free interest rate we derive upper and lower values for an option price for all unconstrained utility functions and alternatively for concave utility functions the derivation of these bounds is quite general and fits any kind of stock price distribution as long as it is characterized by a nonnegative beta transaction costs and taxes can be easily incorporated in the model presented here since investors are not required to revise their portfolios continuously the price that is paid for this generalization is that a range of values rather than a unique value is obtained in the last decade there has been an increasing interest in the options market by both academicians and practitioners the most well known valuation models are the black scholes 4 model the jump stochastic process model see cox and ross 6 the binomial model see cox ross and rubinstein 7 rendleman and bartler 19 and sharpe 22 and rubinstein s discrete model 21 recently perrakis and ryan 18 using rubinstein s approach have derived upper and lower bounds for option prices the relative pricing theory of contingent claims differs in the continuous time and discrete time models in a continuous time framework the instantaneous expected rate of return of the option and that of the underlying stock must follow a certain market equilibrium condition in this case the equilibrium condition is easily determined by a continuous hedging strategy in the discrete time case there is no hedging strategy to provide a simple relationship between the option and the stock price however for a given value distribution of the stock the value distribution of the option is uniquely determined by the option exercise price and this suggests some possible relationships between the stock and option values

news a decision oriented model for new product analysis and forecasting modeling efforts in the area of new product introductions have had a significant impact on marketing planning and strategy one result of these efforts bbdo s new product early warning system news has been used since the late 1960s to provide marketing managers with forecasts and diagnostic information regarding their new product strategies this article presents the specification of the news model its parameter estimation methods and its validation a brief case history is also included which illustrates how the model is applied in a typical new product situation news is designed to use a variety of readily obtainable input data to generate forecasts of consumer awareness trial repeat purchase usage sales and market share for a new brand these outputs combined with diagnostics from the model can then be incorporated into the marketing plan in a way that will improve the new entry s chances of success in the marketplace the model can be used to project early test market data news market

a dynamic explanation of the willingness to pay and willingness to accept disparity a fundamental tenet in neoclassical theory is the basic independence assumption an individual s preferences are assumed to be measured over levels not changes although most theoretical and applied economic models invoke this assumption a wealth of data from laboratory experiments refutes this premise as systemic empirical disparities have been observed between willingness to pay wtp and willingness to accept wta for the same good e g kahneman knetsch and thaler 1990 with wta often observed to be many times larger than wta in an influential line of work hanemann 1991 argues that the large wta wtp disparities that have been observed in the literature can be reconciled with static neoclassical theory via income and substitution effects i but the empirical evidence to date has not conformed well to hanemann s 1991 or any other neoclassical based model 2 if the observed value disparity is inconsistent with neoclassical explanations and is found to be a fundamental component of individual s preferences as per reference dependent theory kahneman and tversky 1979 tversky and kahneman 1991 then a reevaluation of a good deal of economic analysis is necessary in this article we provide a different explanation for the wta wtp disparity a dynamic theory based on the presence of commitment costs and possibly asymmetric beliefs about market opportunities when the value of a good is uncertain wtp and wta will logically reflect compensation for the possibility of learning that the good has a different value than believed at the time of purchase or sale and the cost associated with reversing the purchase or sale decision in its simplest form our model predicts that with objective symmetric beliefs about market opportunities and with perfect substitutability and no income effects there should be no value disparity intuitively the objective cost of delaying the purchase or alternatively reversing the purchase for prospective buyers is isomorphic to the objective cost of reversing or delaying the sale for prospective sellers this symmetry necessarily leads to wta wtp consistent with the neoclassical paradigm importantly however it is an agent s perception of the delay and reversal costs that motivates behavior if agents behave in a manner consistent with the developing literature on cognitive dissonance and or limited memory it is quite plausible for individuals to display an asymmetric perception of the relative costs of selling later depending upon whether they are placed in the role of a buyer or seller 3 this type of asymmetry alone can yield the systematic value divergences observed in the literature indeed we show that even with only slight asymmetries in beliefs of perceived costs our theory can generate considerable value divergences because the actual divergence will depend upon the interaction of this asymmetry with the degree of value uncertainty time preference and lost value of consumption we explore the predictive power of our theory by examining wta and wtp statements of value from consumers in a competitive marketplace the sportscard market although we do not consider the sportscard marketplace particularly worthy of study in its own right it is useful for our purposes for several reasons first it is a natural setting for an examination of preference structures because it provides a rich pool of subjects making decisions in a familiar environment with uncertainty and future learning about the values of traded goods second we can identify factors that arise endogenously such as market experience and impose the remaining controls necessary to implement a clean experiment to explore whether such factors attenuate the value disparity through the channels predicted by our theory our data are striking in that agents display an asymmetric perception of the relative costs of selling later depending upon whether they are placed in the role of a buyer or seller

status seeking income taxation and efficiency abstract it is well known that status seeking produces distortions in consumption competition to achieve status leads to over consumption of those goods which confer status it has been found that taxing such goods may even lead to pareto improvements in this paper we extend a model of status which relies on a signalling equilibrium approach to include the individual labour supply decision and an income tax we show that a pareto improving income tax can exist even with the simplest tax benefit scheme a number of results follow the model is extended to a two period analysis to accommodate the reputation building element of status achievement without altering the conclusions

on option pricing bounds the purpose of this article is to compare the perrakis and ryan bounds of option prices in a single period model with option bounds derived using linear programming it is shown that the upper bounds are identical but that the lower bounds are different a comparison of these bounds together with merton s bounds and the black scholes prices in a lognormal securities market is presented the black scholes 1 option pricing model is preference free its simplicity derives from the continuous trading assumption which enables a portfolio of stock and bonds to be constructed so as to replicate the payouts of the option in an incomplete market with only finite opportunities to revise portfolios no preference free option price can be constructed 3 6 for this case preferencedependent prices can be established rather than place restrictive assumptions on preferences perrakis and ryan pr 5 have recently derived upper and lower bounds for a single and multiple period call option price the development of these bounds is based on the single price law and arbitrage arguments and requires modest assumptions on preferences the bounds exist as equilibrium values given a consensus on stock price distributions in this article we shall develop bounds for option prices based on primitive prices in incomplete markets and compare these bounds to the single period bounds derived by perrakis and ryan towards this goal we first review the pricing approach for primitive securities and proceed to re express the pr bounds as derived from their arbitrage portfolios then using linear programming bounds on option prices are derived linear programming approaches for obtaining relationships among option prices have been investigated garman 2 for example established an algebra for evaluating hedge portfolios using this algebra a one period linear program can be established that provides a way to search for arbitrage opportunities over an infinite number of portfolio strategies one of the features of the algebra is that only one linear program need be solved to determine if riskless arbitrage strategies can be established by investigating the dual of the linear program garman obtained necessary and sufficient conditions for rational option pricing in a one period setting these bounds were shown to be consistent with the bounds determined by merton 4 unlike garman s approach the linear programming approach presented here places constraints on time preferences risk aversion and state probabilities under specific sets of assumptions linear programs are formulated where the objective function to be optimized is the call price minimization and maximi

decreasing absolute risk aversion and option pricing bounds in this paper efficient bounds for the price of a call option are obtained using the decreasing absolute risk aversion dara dominance rule such lower and upper bounds are obtained minimizing and maximizing respectively the objective function of a nonlinear optimization problem an explicit formula related to an exponential utility function is given for the special case of three states of nature a large number of experiments have been carried out and the numerical results support the conjecture that the same formula holds for problems with a number of states n 3 moreover dara bounds are more efficient than the bounds obtained using different criteria

transfer pricing in a dynamic marketing operations interface abstract a transfer price mechanism is proposed to coordinate the strategies of the marketing and operations functional areas operating in a dynamic interface environment in a decentralized firm marketing and operations are strategic decision makers in a differential game in which marketing has price and advertising and operations has production as control variables and advertising goodwill and production backlog are state variables a constant transfer price is entered into the objective functionals for marketing and operations and subgame perfect feedback strategies are derived for price advertising and production as functions of the state variables the feedback strategies allow a solution for the dynamic system involving goodwill and backlog and the total payoff to the firm the sum of the payoffs to marketing and operations is determined as a function of the transfer price finally for certain parameter conditions an interior maximum of the payoff function is achieved and the optimal transfer price is identified

chapter 4 competitive marketing strategies game theoretic models publisher summary this chapter reviews the key developments in the understanding of competitive marketing strategies product price advertising and distribution competition are all addressed while the emphasis is on models the chapter surveys the empirical literature as well there is a significant amount of empirical work to report but the ratio of theoretical to empirical work is nevertheless unpleasantly large much progress has been made in the last ten years or so in the study of competitive marketing strategies most of this chapter has been theoretical using simple models of firm and consumer behavior these models serve the function of demonstrating rigorously the existence of certain effects factors which need to be considered in analyzing real world competition

bounds on contingent claims based on several assets abstract in 1987 lo derived an upper bound on the price of a european call option on a single asset lo s bound depends only on the mean and variance of the terminal asset price and is termed a semi parametric bound this paper derives similar semi parametric bounds on a european call on the maximum of any number of assets a distribution free bound for the price of this option is obtained the bound depends only on the means and covariance matrix of the returns on n underlying assets the bound is obtained by optimizing over the entries of a positive definite matrix a this can be accomplished by a technique known as semidefinite programming we demonstrate the methodology using two specific applications the first concerns the valuation of a european call option on the maximum of several assets this is known as an outperformance option and is of some practical interest the second application concerns the valuation of a discretely adjusted lookback option these lookback options are of interest in connection with certain equity annuity insurance products

capital accumulation games of infinite duration abstract consider a market in which firms accumulate capital according to the nerlove arrow capital accumulation equation each player chooses a path of investment and thus an induced path of capital to maximize his total discounted profits which depend on his own capital and the capital stocks of his rivals existence is proved for such a nonzero sum infinite horizon differential game and conditions under which the game converges to a particular stationary point regardless of the initial conditions are shown thus the game possesses the property of conditional global asymptotic stability

option prices and the underlying asset s return distribution this work examines the relation between option prices and the true as opposed to risk neutral distribution of the underlying asset if the underlying asset follows a diffusion with an instantaneous expected return at least as large as the instantaneous risk free rate observed option prices can be used to place bounds on the moments of the true distribution an illustration of the paper s results is provided by the analysis of the information concerning the mean and standard deviation of market returns contained in the prices of s p 100 index options although it seems natural that the prices of claims to various parts of the underlying asset s distribution should contain information about the shape of that distribution cox and ross 1976 established that an option s price equals its expected payoff discounted at the risk free rate where the expectation is taken over the risk neutral rather than the true distribution of the underlying asset linking the risk neutral distribution implicit in option prices to the true distribution remains a comparative mystery a necessary condition for the risk neutral pricing methodology to be applicable is that the true and the risk neutral distribution share a common support the only information about the true distribution that can be obtained from observed option prices alone is information about that support this paper demonstrates though that observed option prices when used in conjunction with simple assume d restrictions on the true distribution do contain information about the noncentral moments of the true distribution not directly implied by those assumed restrictions alone the intuition for the result that option prices can be useful in placing bounds on the moments of the true distribution is straightforward first we generalize the results in lo 1987 to show how the expected payoff to a call can be bounded above in terms of any chosen set of the noncentral moments of the return on the underlying asset second we establish restrictions on the

complements and substitutes in profiting from innovation a choice experimental approach the ability of firms to effectively use mechanisms that support them in profiting from technological innovation is key to outperforming competitors yet such mechanisms have for the most part been studied in isolation without accounting for interactions between them we address this gap by developing a conjoint based method to study such interactions and by applying it to analyze interactions between product related patents and three other appropriability mechanisms to this end we conduct and analyze a series of discrete choice experiments with 319 managers within a leading international communications equipment company as a result we find the number of product related patents to be complementary to the overall size of the patent portfolio and complementary with an interesting exception to contributions to open standards we also find indications of a substitutive interaction with lead time advantages hence the effectiveness of patents seems to be leveraged by controlled diffusion of the underlying technologies and by the size of the firm s patent portfolio a finding that may contribute to explaining the patent paradox theoretical and managerial implications are discussed

analytical upper bounds for american option prices american options require numerical methods namely lattice models to provide accurate price estimates the computations can become expensive when more than one state variable is involved analytical upper bounds can therefore provide a useful guideline for how high american values can reach in this paper we derive analytical closed form upper bounds for american option prices under stochastic interest rates stochastic volatility and jumps where american option prices are difficult to compute with accuracy in a stochastic volatility model heston 1993 and scott 1997 that has two random factors we demonstrate that the upper bound only takes a very small fraction of the time that the american option needs to compute

order of entry as a moderator of the effect of the marketing mix on market share order of entry has been demonstrated to have a significant effect on market share a number of explanations for this effect have been suggested in the marketing and strategy literatures to date the market share advantage gained by pioneers has typically been treated as a main effect an automatic regularity treating order of entry as a main effect implies that there is no penalty on the effectiveness of a brand s marketing instruments for late entry and that a late entrant can compensate for being late by dedicating sufficient marketing resources to their product in this study we investigate the influence of order of entry into a market on the effectiveness of a firm s marketing mix decisions by asking the question can followers compensate for not being first by their marketing mix decisions also even if they can compensate for being late does this effort become increasingly more difficult with later entry that is are there asymmetries in the effectiveness of a brand s marketing mix variables that relate to its order of entry into the market or as has been typically assumed to date is order of entry strictly a main effect an asymmetry exists for example if the market response to advertising is different for the first entrant versus the second or third entrant an asymmetry also exists if the effects of say a price change by the first entrant on the second entrant are different than the effects on the third entrant we develop a market share attraction model where the parameters vary as a function of order of entry our main contribution is in modeling the sources of order of entry advantage as asymmetries in the effectiveness of a brand s marketing instruments hence distinct from previous research we explain why there are inherent order of entry effects this paper is potentially of interest to researchers developing market share models and studying the effectiveness of marketing mix variables the substantive implication of our results concern directly academics interested in marketing strategy as well as the practicing marketing strategists we model asymmetries in the market response of early entrants versus late entrants using data from two durables and three nondurables categories with one exception all data sets are established from the inception of the category and hence do not suffer from the possible bias of excluding pioneers who have failed results show that asymmetries in the effectiveness of a brand s marketing mix variables are an essential source of order of entry effects we find that the main effects of order of entry are minimal order of entry effects do not necessarily lead to lower shares but overcoming these effects is not without substantial cost to the late entrant our results support previous research that has demonstrated advantages to early entry in addition we provide guidelines for how late entrants should compete later entry tends to reduce a competitor s price sensitivity suggesting that they not instigate in a price war with earlier entrants in order to gain share order of entry tends to decrease response to quality and to promotion to achieve the same impact on market share later entrants need a bigger change in quality and need to spend more on promotion our data did not support an asymmetric effect on advertising

behavioral spillover effects from a social information campaign abstract we investigate whether a social information campaign aimed at reducing water use causes a spillover effect on the use of electricity on average water use decreased by 6 percent for the treatment group we identify a positive spillover effect on electricity use among households that had efficient use of water before the campaign the effect is sizeable almost a 9 percent reduction we argue that these results are consistent with a model of cognitive dissonance where the efficient households infer information about electricity use from the water use information

the social basis of interdependent preferences abstract most economists are sympathetic to the idea that concerns for relative position are an important aspect of many economic problems there has traditionally been a reluctance to include such concerns primarily because models that included them often allow such a broad range of behavior that there are few if any restrictions on equilibrium behavior and hence such models would have little or no predictive power in this paper we discuss how reduced form models may naturally give rise to utility functions that depend in part on relative standing there are several advantages of modelling concern for relative standing in reduced form utility functions even when there is no similar concern in the deep preferences it provides structure and constraints on the way that relative standing affects utility and further it can yield testable implications about the way that changes in the underlying environment affect the concern for relative standing we discuss the advantages and disadvantages of modelling social concerns in this way and provide examples that illustrate how concerns for relative standing can affect savings investment and labor choice decisions

disentangling pioneering cost advantages and disadvantages existing literature discusses a number of possible pioneering cost advantages and disadvantages in this paper we empirically test three different sources of long term pioneering cost advantage experience curve effects preemption of input factors and preemption of ideal market space and three different sources of pioneering cost disadvantage imitation vintage effects and demand orientation we disentangle these sources by breaking total cost of a business unit into three different components purchasing production and selling general and administrative sg a costs and identifying conditions that intensify or reduce the effect of the proposed source using two samples of business units one for consumer goods and one for industrial goods we find support for five of the six sources of pioneering cost advantage and disadvantage in both samples while the advantage due to preemption of ideal market space is limited to the consumer goods sample the unconditional analysis shows a pioneering purchasing cost advantage but even larger pioneering production and sg a cost disadvantages the complexity of our obtained findings suggests that managers need to think carefully about their particular conditions before making assumptions about the cost and therefore profit implications of a pioneering strategy

investigating the sensitivity of equilibrium profits to advertising dynamics and competitive effects the author investigates the validity of the flat maximum principle the insensitivity of a firm s profits to changes in its optimal advertising level in a duopolistic market in which advertising by the two firms has carryover effects two alternative competitive scenarios are examined i in which total industry sales are allowed to vary over time and ii where firms are engaged in market share rivalry for i the open loop nash equilibrium advertising strategies for the firms are derived assuming a specific sales response function and an infinite time horizon a numerical analysis of the sensitivity of firms profit functions to advertising expenditures is performed at different levels of the a discount rate b advertising elasticity and c advertising decay rate an empirical illustration from the pharmaceutical industry is provided special cases of the model formulation are examined analytically in order to highlight the intuition behind the flatness of the maximum and to study the sensitivity of results obtained to choice of equilibrium strategy closed loop vs open loop for the market share game closed loop policies are considered and the flat maximum principle is illustrated in the context of coke pepsi rivalry in the soft drinks market

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

third order extensions of lo s semiparametric bound for european call options computing semiparametric bounds for option prices is a widely studied pricing technique in contrast to parametric pricing techniques such as monte carlo simulations semiparametric pricing techniques do not require strong assumptions about the underlying asset price distribution we extend classical results in this area specifically we derive closed form semiparametric bounds for the payoff of a european call option given up to third order moment i e mean variance and skewness information on the underlying asset price we analyze how these bounds tighten the corresponding bounds when only second order moment i e mean and variance information is provided we describe applications of these results in the context of option pricing as well as in other areas such as inventory management and actuarial science

deconstructing the pioneer s advantage examining vintage effects and consumer valuations of quality and variety several studies have demonstrated an order of entry effect on market share suggesting that pioneers outperform later entrants however other research has pointed out the limitations of these studies and found evidence that many pioneers fail or have low market share given this background the purpose of this research is to understand the conditions under which pioneers are more likely and also less likely to have an advantage we propose a game theoretic model that includes important sources of pioneer advantages as well as disadvantages specifically we incorporate a pioneer advantage due to preemption in markets with heterogeneous tastes in addition we incorporate a potential pioneer disadvantage due to technology vintage effects where later entrants utilizing improved technology can have lower costs and higher quality the model allows us to evaluate the extent of vintage effects necessary to overcome a pioneer s advantage key relationships are found between the magnitude of the pioneer advantage or disadvantage and consumer valuations of product attributes e g variety and quality we empirically validate the model with vintage effect data in 36 product categories and measures of consumer valuations of product variety and quality for 12 of these 36 categories the results show that pioneers do better in product categories wherevariety is more important and worse in categories where productquality is more important pioneers in categories with high vintage effects are shown to have lower market shares and higher failure rates similar results appear when analyzing persistence of market leadership over time further validating our model s major implications we also present two case studies that illustrate key elements of the model

risk and rationalization the role of affect and cognitive dissonance for sexual risk taking this paper analyzes the mechanisms underlying excessive sexual risk taking in the presence of hiv drawing ideas from psychology on decision making processes and risk evaluation a theoretical mode

inverse productivity or inverse efficiency evidence from mexico abstractusing a unique panel data set from rural mexico we find strong evidence of a negative relationship between farm size and both productivity and technical efficiency large farms not only have a lower value of output per hectare than small farms they also produce further from the efficiency frontier our findings suggest that in spite of the ongoing transformation of agricultural supply chains and economists recommendations for small farmers to exit crop production there may be sustained advantages for smallholder farms our analysis offers new insights into inverse farm size relationship the productivity efficiency relationship and the use of stochastic frontier techniques

social organization status and savings behavior abstract we develop a model of status seeking in the presence of incomplete information and derive its implications for aggregate savings status seeking endogenously takes the form of conspicuous consumption its impact on savings depends on the scheduling of the contests for status over the life cycle if individuals engage in conspicuous consumption when old aggregate savings are increased we also study the role of social segmentation while social segmentation reduces the inequality across status seekers and fuels social rivalry under complete information we show that under incomplete information social segmentation weakens the incentive to strive for greater status

correlated equilibrium as an expression of bayesian rationality if it is common knowledge that the players in a game are bayesian utility maximizers who treat uncertainty about other players actions like any other uncertainty then the outcome is necessarily a correlated equilibrium random strategies appear as an expression of each player s uncertainty about what the others will do not as the result of willful randomization use is made of the common prior assumption according to which differences in probability assessments by different individuals are due to the different information that they have where information may be interpreted broadly to include experience upbringing and genetic makeup copyright 1987 by the econometric society

option bounds in discrete time extensions and the pricing of the american put in a recent paper perrakis and ryan 1984 upper and lower bounds on european option prices were derived in discrete time these bounds were based on an extension of the discrete time derivation of black scholes pricing first presented in the work of black and scholes 1973 the bounds are functions of the stock and exercise prices the riskless rate of interest the time to maturity and the entire distribution of stock returns in other words they need more information than black scholes for their computation and the derived results are weaker on the other hand they are significantly more general in their assumptions insofar as they do not rely on the continuous time riskless hedge of the original black scholes derivations or on the assumption of a binomial distribution of stock returns used in cox ross and rubinstein 1979 and rendleman and bartter 1979 for this reason they are likely to be particularly useful in valuing options on assets for which the black scholes methodology is clearly this paper generalizes and tightens the discrete time bounds for european options and develops similar bounds for american puts the stock return has a distribution with a finite range and is subject to the restriction that the stock be nonnegative beta the bounds are derived from arbitrage portfolios using the stock the option and the riskless asset they converge to the previous ones when the range coincides with the nonnegative real line and they both become equal to the binomial option model under a two state stock return upper and lower bounds for the american put are derived recursively by the same method with arbitrage portfolios involving the stock the riskless asset and american and european puts an example is provided with a trinomial return distribution part of this research was done while i was a visiting professor 1983 84 ecole superieure de commerce et d administration des entreprises reims france i wish to thank peter ryan albert madansky and a referee of this journal for helpful advice and comment while retaining all responsibility for any remaining errors or omissions 1 note however that this is also true of other blackscholes generalizations such as merton 1976

dynamics of competing with quality and advertising based goodwill goodwill formation is a complex process and many factors influence the formation of goodwill of a firm the implications of advertising enabled goodwill formation are reported in several articles in the research literature in this paper we extend this stream of research by including quality in the goodwill formation process we adopt a dynamic model of competition utilizing a differential game approach and derive expressions for open loop markovian nash equilibrium investments in advertising and quality the insights gained from the analysis of our model and from the equilibrium solutions are presented in the form of research propositions

an economic theory of church strictness this paper introduces spatial location models into the economics of religion we offer a new explanation for the observed tendency of state monopoly churches to locate toward the low tension end of the strictness continuum obtained through the conjunction of benevolent preferences denominations care about the aggregate utility of members and asymmetric costs of going to a more or less strict church than one prefers we derive implications regarding the relationship between religious strictness and membership religious market interactions and asymmetric costs of membership highlight new explanations for some well established stylised facts opening the way to new empirical comparisons with more traditional explanations

social status education and growth this paper investigates the implications of social rewards on the allocation of talent in society and consequently on the process of economic growth we consider two sources of heterogeneity among workers nonwage income and innate ability a greater emphasis on status may induce the wrong individuals that is those with low ability and high wealth to acquire schooling causing workers with high ability and low wealth to leave the growth enhancing industries this crowding out effect taken alone discourages growth growth may be enhanced by a more egalitarian distribution of wealth which reduces the demand for status

channel coordination over time incentive equilibria and credibility abstract the paper studies a channel of distribution consisting of a manufacturer and a retailer in a dynamic game of pricing and advertising the carry over effects of channel member s advertising efforts are summarized in a stock of advertising goodwill each channel member has perfect information about the other channel member s price and advertising effort if each firm employs marketing strategies that are linear functions of the other member s actions and these strategies are jointly carried out a pareto optimal joint profit maximization outcome can be realized the paper also addresses the question of credibility of the incentive strategies

club goods and group identity evidence from islamic resurgence during the indonesian financial crisis this paper tests a model in which group identity in the form of religious intensity functions as ex post insurance i exploit relative price shocks induced by the indonesian financial crisis to demonstrate a causal relationship between economic distress and religious intensity koran study and islamic school attendance that is weaker for other forms of group identity consistent with ex post insurance credit availability reduces the effect of economic distress on religious intensity religious intensity alleviates credit constraints and religious institutions smooth consumption shocks across households and within households particularly for those who were less religious before the crisis

modeling process switching decisions under product life cycle uncertainty abstract we address the process switching decision of a firm that adopts a mixed process strategy with respect to a new product in the context of product life cycle uncertainty a mixed process strategy uses a flexible process in the early stages of the product s life cycle and later switches to a dedicated process to gain cost economies we present a model that captures uncertainty through alternative life cycle demand functions to guide the process switching decision we develop a dynamic decision rule that can be used with any uncertainty resolution scheme and demonstrate its application and robustness using an illustrative numerical example

further turnpike properties for general capital accumulation games abstract we consider a class of finite and infinite horizon discrete time n player capital accumulation games three turnpike results for the case of open loop nash equilibrium solutions are derived under fairly weak conditions

efficient status seeking externalities and the evolution of status games abstract status seeking games are games in which an individual s utility is determined by his relative expenditure on status seeking activities rather than his absolute consumption there are a number of parallels between status seeking and rent seeking activities for example a tendency for pareto excessive private investment however many status seeking activities differ from rent seeking activities insofar as they generate significant benefits to individuals not actively involved in the game given an array of more or less productive status seeking games it is likely that relatively efficient status conferring mechanisms will tend to displace less efficient ones

belief in a just world and redistributive politics international surveys reveal wide differences between the views held in different countries concerning the causes of wealth or poverty and the extent to which people are responsible for their own fate at the same time social ethnographies and experiments by psychologists demonstrate individuals recurrent struggle with cognitive dissonance as they seek to maintain and pass on to their children a view of the world where effort ultimately pays off and everyone gets their just deserts this paper offers a model that helps explain i why most people feel such a need to believe in a just world ii why this need and therefore the prevalence of the belief varies considerably across countries iii the implications of this phenomenon for international differences in political ideology levels of redistribution labor supply aggregate income and popular perceptions of the poor the model shows in particular how complementarities arise endogenously between individuals desired beliefs or ideological choices resulting in two equilibria a first american equilibrium is characterized by a high prevalence of just world beliefs among the population and relatively laissez faire policies the other european equilibrium is characterized by more pessimism about the role of effort in economic outcomes and a more extensive welfare state more generally the paper develops a theory of collective beliefs and motivated cognitions including those concerning money consumption and happiness as well as religion

does wealth imply secularization and longevity we develop a simple life cycle model with endogenous longevity where religious firms influence religious beliefs using donations as an input the model suggests that either wealth and economic development or competition by religiousfirms can explain cross countryvariationinreligiousbeliefs buttoexplaincross countryvariationinreligiousbeliefs longevity and consumption both development and competition are required our results depend on the wealth and substitution effects that accompany economic development and religious market competition

semi parametric upper bounds for option prices and expected payoffs abstract upper bounds on the expected payoff of call and put options are derived these bounds depend only on the mean and variance of the terminal stock price and not on its entire distribution so they are termed semi parametric a corollary of this result is a set of upper bounds for option prices obtained by the risk neutral valuation approach of cox and ross as an example these bounds are shown to obtain across both lognormal diffusions and mixed diffusion jump processes for any given data set we present an illustrative example that suggests these bounds may be of considerable practical value

recovering an asset s implied pdf from option prices an application to crude oil during the gulf crisis we develop a general method for estimating the implied martingale equivalent probability density function pdf for futures prices from american options prices the early exercise feature of american options precludes expressing the price of the option in terms of the pdf there exist tight bounds for the price of american options in terms of the pdf we demonstrate how these bounds together with observed option prices can be used to estimate the parameters of the pdf we estimate the distribution for crude oil during the persian gulf crisis and find the distribution differs significantly from that recovered using standard techniques

analytical models of competition with implications for marketing issues findings and outlook the authors review a representative cross section of analytical models of competition using a framework for competitive analysis developed from a marketing perspective models are classified by the

social status culture and economic performance in analysing the differences in productive capacity among economies it is usual to concentrate on the physical aspects of the population the different attributes of capital including human capital and on the available production technologies societies also differ in culture in ways which are relevant for economic performance the sociological literature recognises that different occupations have different social status and that workers benefit not only from the wage they receive but also from being associated with a particular occupation cultural differences among societies may translate into different status of occupations and can therefore affect the choice of education and occupation and consequently the equilibrium level of output and wages conversely the economic choices of individuals influence the social status of occupations in particular it is well established by sociological research that the social status of an occupation is influenced by economic attributes such as the average wage and the average level of education in the occupation a major objective of our work is to illustrate that sociological and economic approaches can be combined within a unified framework this is in contrast to some social scientists who view the two approaches as competing with each other phelpsbrown i 977 ch 4 in this paper we construct a simple general equilibrium model in which both wages and status are determined endogenously we show that changes in the demand for status triggered by changes in preferences or in income distribution influence the wage structure the level of aggregate output and economic welfare the link between status and aggregate output is created by the fact that differences in occupational status imply occupational wage differences among workers of the same skill the larger is the demand for status the larger is the wage gap and the lower is aggregate output our discussion of status is closely related to the economic analysis of discrimination against ethnic or racial groups becker i 97 i arrow i 973

option pricing bounds with standard risk aversion preferences abstract for a theoretical valuation of a financial option various models have been proposed that require specific hypotheses regarding both the stochastic process driving the price behaviour of the underlying security and market efficiency when some of these assumptions are removed we obtain an uncertainty interval for the option price up to now the most restrictive intervals for option prices have been obtained using the decreasing absolute risk aversion dara rule in a state preference approach precautionary saving entails the concept of prudence in particular decreasing absolute prudence is a necessary and sufficient condition that guarantees that the saving of wealthier people is less sensitive to the risk associated to future incomes if this condition is coupled with the dara assumption we obtain standard risk aversion sra which guarantees on the one hand that introducing a zero mean background risk to wealth makes people less willing to accept another independent risk and on the other hand that an increase in the risk of the returns distribution of an asset reduces the demand for this asset the main idea of this contribution is to apply decreasing absolute prudence and sra rules in a state preference context in order to obtain efficient bounds for the value of european style options portfolio strategies lower and upper bounds for the options portfolio value are obtained by solving non linear optimization problems the numerical experiments carried out show the efficiency of the technique proposed

us and them the origin of identity and its economic implications we investigate the origins of identity and the innate proclivity to draw a distinction between insiders and outsiders we propose an evolutionary explanation we argue that identity arises because it facilitates survival in an evolutionary setting we endogenize preferences and demonstrate that the evolutionarily stable preferences fashioned by natural selection would draw a distinction between insiders and outsiders we then work out the implications of such preferences in two contemporary scenarios one entailing rent seeking behavior and the other involving public good provision our results are in conformity with empirical evidence

option pricing bounds in discrete time upper and lower bounds are derived for call options traded at discrete intervals these bounds are independent of assumptions on the stock price distribution other than a restriction satisfied by the stock being non negative beta the development of the bounds relies on the single price law and arbitrage arguments both single period and multiperiod results are produced and put option bounds follow by extension the bounds exist as equilibrium values given a consensus on stock price distribution they are also valid for empirical studies being adjustable for dividends and commissions following the impetus of the black scholes pricing model the majority of option analyses have been in continuous time such approaches have relied on the formation of perfect riskless hedges involving the option its underlying security and a riskless asset since the hedge must be continuously revised and maintained while actual trading opportunities are discrete this crucial assumption limits the accuracy and applicability of the black scholes and related formulae in fact the black scholes formula can only be considered as a valid approximation to the discrete time solution merton 8 p 663 while the closeness of that approximation has not been ascertained in general 1 earlier discrete models such as boness 3 and samuelson 12 have been succeeded by those of brennan 5 cox et al 6 and rubinstein 11 in which distributional restrictions are imposed on share returns usually the discrete formula converges to the black scholes expression under appropriate limit conditions using the rubinstein 11 approach we derive upper and lower bounds for option prices with both a general price distribution and discrete trading opportunities the bounds are functions of the share and exercise prices the riskless rate of interest the distribution of the share price change per period and the number of periods of expiration of the option the lower bound is tighter than that of merton 7 derived from more general arbitrage considerations while being less exact than the results already mentioned for restricted distributions

attitudes and allocations status cognitive dissonance and the manipulation of attitudes abstract economic studies of social status have typically focused on individuals engaging in relative comparisons based on certain characteristics e g consumption wealth without considering why these characteristics are deemed status worthy in this paper individuals choose a status earning characteristic in order to reduce mental discomfort dissonance as a result those individuals with the highest marginal utility from income are often the first to misconstrue or abandon these incentives in favor of alternate forms of seeking status the model provides an explanation for endogenous class formation and highlights the role of redistributive taxation in manipulating individuals attitudes towards status

the political economy of american monetary policy preface 1 introduction thomas mayer 2 studying the fed towards a broader public choice perspective thomas willett 3 the federal reserve reaction function a specification search salwa khouri 4 corporate profitability as a determinant of restrictive monetary policy estimates for the post war united states gerald epstein and juliet schor 5 federal reserve behavior since 1980 a financial market perspective william melton and v vance roley 6 the federal reserve and its institutional environment a review michael munger and brian roberts 7 the political economy of monetary policy robert hetzel 8 political monetary cycles nathaniel beck 9 congress and the fed why the dog does not bark in the night nathaniel beck 10 the federal reserve as a political power james pierce 11 monetary policy and political economy the federal reserve and the bank of japan thomas cargill and michael hutchinson 12 a positive analysis of the policymaking process at the federal reserve raymond lombra and nicholas karamouzis 13 a theory of fomc dissent voting with evidence from the time series thomas havrilesky and robert schweitzer 14 explaining fomc members votes john gildea 15 fed behaviour and x efficiency theory toward a general framework harinder singh and roger frantz 16 minimizing regret cognitive dissonance as an explanation of fomc behavior thomas mayer 17 the discount window william poole 18 leaning against the wind the behavior of the money stock in recession and recovery 1953 8 elmus wicker 19 bureaucratic self interest as an obstacle to monetary reform edward kane index

history lessons institutions factor endowments and paths of development in the new world the explanations offered for the contrasting records of long run growth and development among the societies of north and south america most often focus on institutions the traditional explanations for the sources of these differences in institutions typically highlight the significance of national heritage or religion we in contrast argue that a hemispheric perspective across the wide range of colonies established in the new world by the europeans suggests that although there were many influences factor endowments or initial conditions had profound and enduring effects on the long run paths of institutional and economic development followed by the respective economies

differential game models of advertising competition abstract differential game methodology combines two attractive features that are critical to the study of advertising competition dynamics and multi competitor decision making a focused review of two decades of differential game modeling of advertising competition indicates that insights gained to date while valuable are of a limited nature and research in the area needs to extend beyond present limits four recent studies are offered as examples of possible directions to follow in continued research

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

an industry equilibrium analysis of downstream vertical integration this paper investigates the effect of product substitutability on nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer which may be either a franchised outlet or a factory store static linear demand and cost functions are assumed and a number of rules about players expectations of competitors behavior are examined it is found that for most specifications product substitutability does influence the equilibrium distribution structure for low degrees of substitutability each manufacturer will distribute its product through a company store for more highly competitive goods manufacturers will be more likely to use a decentralized distribution system this article was originally published in marketing science volume 2 issue 2 pages 161 191 in 1983

crime and punishment again the economic approach with a psychological twist abstract akerlof and dickens 1982 suggested that in a model of criminal behavior which considered the effects of cognitive dissonance increasing the severity of punishment could increase the crime rate this paper demonstrates that that conjecture was correct with cognitive dissonance people may have to rationalize not committing crimes under normal circumstances if punishment is not severe the rationalization may lead them to underestimate the expected utility of committing crimes when opportunities present themselves if punishment is severe then rationalization may not be necessary and people may be more likely to commit crimes when opportunities arise

economics and identity this paper considers how identity a person s sense of self affects economic outcomes we incorporate the psychology and sociology of identity into an economic model of behavior in the utility function we propose identity is associated with different social categories and how people in these categories should behave we then construct a simple game theoretic model showing how identity can affect individual interactions the paper adapts these models to gender discrimination in the workplace the economics of poverty and social exclusion and the household division of labor in each case the inclusion of identity substantively changes conclusions of previous economic analysis

the impact of competitive entry in a developing market upon dynamic pricing strategies this paper analyzes dynamic pricing strategies for new durable goods in a two period context the first period is characterized as a monopoly market structure for a new product having dynamic demand the second period begins when a new firm enters the market and thereby changes the market structure to a duopolistic one we begin by analyzing the pricing strategies of three types of monopolists nonmyopic myopic and surprised a nonmyopic monopolist is a first entrant who perfectly predicts the competitive entry a myopic monopolist totally discounts the duopolistic period and a surprised monopolist is a first entrant who has the longer time horizon of the nonmyopic monopolist but who does not foresee the competitive entry our results indicate that the nature of these pricing strategies may be quite different it is optimal for the nonmyopic firm to price its product at a higher level than the myopic monopolist additional results indicate under what circumstances the surprised monopolist will p

social norms savings behavior and growth we argue that many goods and decisions are not allocated or made through markets we interpret an agent s status as a ranking device that determines how well he or she fares in the nonmarket sector the existence of a nonmarket sector can endogenously generate a concern for relative position in for example the income distribution so that higher income implies higher status moreover it can naturally yield multiple equilibria it is thus possible to explain differences in growth rates across countries without recourse to differences in underlying preferences technologies or endowments different social organizations lead to different reduced form preferences which lead to different growth rates

optimal pricing strategies for new products in dynamic oligopolies this paper deals with the determination of optimal pricing policies for firms in oligopolistic markets the problem is studied as a differential game and optimal pricing policies are established as nash open loop controls cost learning effects are assumed such that unit costs are decreasing with cumulative output discounting of future profits is also taken into consideration initially the problem is addressed in a general framework and we proceed to study some specific cases that are related to models presented in recent literature three basic classes of sales dynamics are analyzed competition with price effects only competition with price as well as adoption effects and competition with adoption effects only in some cases it turns out that results which hold for the monopoly case carry over to the multi firm case in the sense that the qualitative structure of optimal pricing strategies is the same in the monopoly and the oligopoly cases however due to competitive interdependencies differences certainly exist in the levels as well as the rates of change of optimal prices

dynamic effects of the order of entry on market share trial penetration and repeat purchases for frequently purchased consumer goods a time series cross sectional analysis of 18 successful later entrants in 8 categories of consumer packaged goods over the period from october 1983 to january 1988 confirms previous empirical findings that after correcting for differences in marketing effort later entrants suffer a long term market share disadvantage new evidence of the penalties associated with later entry are found in statistical estimation of models of cumulative trial first repeat and subsequent repeat purchasing significantly lower asymptotic levels are found in both trial and repeat behavior however based on this data the rate of approach of later entrants to their lower asymptotic performance measures is either equal to or faster than early entrants and provides evidence of a compensating partial effect accrued by later entrants

on stochastic dominance and decreasing absolute risk averse option pricing bounds merton perrakis and ryan levy and ritchken have established option pricing bounds under first and second stochastic dominance preferences these bounds are particularly important for valuing contingent claims when continuous trading in the claim and or underlying security does not exist this article provides option bounds under higher orders of dominance specifically option bounds are obtained by solving mathematical programs where preference structures on prices are represented by constraints for first second third and higher orders of stochastic dominance preferences the special linear structure of the mathematical programs allow analytical solutions to be obtained for the bounds for dara preferences third order stochastic dominance while being necessary is not sufficient and additional constraints must be imposed unfortunately these additional constraints are nonlinear while in this case closed form analytical solutions for the option bounds are not obtained numerical examples are presented to illustrate their strength

the economics of faith using an apocalyptic prophecy to elicit religious beliefs in the field abstract we model religious faith as a demand for beliefs following the logic of the pascalian wager we show how standard experimental interventions linking financial consequences to falsifiable religious statements can elicit and characterize beliefs we implemented this approach with members of a group that expected the end of the world to occur on may 21 2011 by varying monetary prizes payable before and after may 21st to our knowledge this is the first incentivized elicitation of religious beliefs ever conducted the results suggest that the members held extreme sincere beliefs that were unresponsive to experimental manipulations in price

introduction to the economics of religion after a very long hiatus economists have begun again to study the relationship between economics and religion this article seeks to summarize and evaluate the principal themes and empirical findings that have appeared in some 200 recent papers on the economics of religion although some of the research concerns the economic consequences of religiosity most applies standard economic theory to the study of individual religious activity the characteristics of religious groups and the impact of regulation and competition on religious markets

identity economics 2016 where do social distinctions and norms come from abstract identity economics provides a framework to analyze economic outcomes by establishing people s identities not just pecuniary incentives as primary motivations for choice the heart of the framework is social difference and norms this paper engages the emerging economic research into sources of divisions and norms individuals families schools governments and social movements the task at hand is to further to develop the micro foundations of identity in order to build a socially framed understandings of human motivation that will yield more robust accounts of behavior and institutions and yet better predictions of the implications of policy

equilibrium pricing in incomplete markets given the exogenous price process of some assets we constrain the price process of other assets that are characterized by their final payoffs we deal with an incomplete market framework in a discrete time model and assume the existence of the equilibrium in this setup we derive restrictions on the state price deflators these restrictions do not depend on a particular choice of utility function we investigate numerically a stochastic volatility model as an example our approach leads to an interval of admissible prices that is more robust than the arbitrage pricing interval

a differential game model of the marketing operations interface in the development of their dynamic strategies the marketing and operations functions within a firm have differing objectives and conflict between the two functions is common the strategic interdependence involving marketing and operations decisions is modeled as a noncooperative differential game demand is assumed to be a function of price and advertising goodwill and marketing controls price and advertising to maximize its discounted stream of revenue net of advertising costs backlogging is allowed and operations controls production to minimize its discounted stream of production and backlog costs a feedback nash equilibrium is derived for the game which allows a solution of the system of differential equations for goodwill and backlog and is analyzed to study the nature of the dynamic strategies for price advertising and production

turnpike properties of capital accumulation games abstract a differential game is considered in which players accumulate capital their payoff functions depend upon the capital stocks of both players and their cost functions are convex previous existence and stability results are relied upon to show that the game under an additional assumption possesses the following properties a every equilibrium of the infinite horizon game converges to the unique stationary equilibrium b for a time horizon long enough the finite horizon equilibrium stays in the neighborhood of the infinite horizon equilibrium except for some final time c for a time horizon long enough the finite horizon equilibrium stays in the neighborhood of the stationary equilibrium except for some initial and final time

subjective stochastic dominance put writing and stock purchases with extensions to option pricing and portfolio composition initially an investor has the choice of two risky assets writing a european put option or buying the underlying share under broad conditions a risk averse investor will be subjectively better off writing the put when homogeneous expectations are invoked an upper bound for the put premium is obtained a numerical example using the lognormal density function illustrates the broad conditions for risk averters subjectively preferring the put writing strategy additional conditions permit this preference for writing puts to be extended to the portfolio context transactions costs only reinforce this preference in the one period horizon considered

stochastic dominance bounds on derivatives prices in a multiperiod economy with proportional transaction costs by applying stochastic dominance arguments upper bounds on the reservation write price of european calls and puts and lower bounds on the reservation purchase price of these derivatives are derived in the presence of proportional transaction costs incurred in trading the underlying security the primary contribution is the derivation of bounds when intermediate trading in the underlying security is allowed over the life of the option a tight upper bound is derived on the reservation write price of a call and a tight lower bound is derived on the reservation purchase price of a put these results jointly impose tight upper and lower bounds on the implied volatility

positional spending and status seeking in rural china focusing on a remote area in rural china we use a panel census of households in 26 villages to show that socially observable spending has risen sharply in recent years we demonstrate that such spending by households is highly sensitive to social spending by other villagers this suggests that social spending is either positional in nature i e motivated by status concerns or subject to herding behavior we also document systematic relations between social spending and changes in higher order terms of the income distribution we find that the implications of status seeking for spending are not unidimensional they vary across income groups and expenditure categories in particular and consistent with theories of rank based status seeking we find that the poor increase spending on funerals and gifts as competition for status intensifies in addition poor families of grooms expend more for wedding ceremonies as local income competition increases while the families of brides do not the welfare implications of spending in order to keep up with the joneses are potentially large particularly for poor households

optimal pricing and advertising policies for new product oligopoly models in this paper our previous work on monopoly and oligopoly new product models is extended by the addition of pricing as well as advertising control variables these models contain bass s demand growth model and the vidale wolfe and ozga advertising models as well as the production learning curve model and an exponential demand function the problem of characterizing an optimal pricing and advertising policy over time is an important question in the field of marketing as well as in the areas of business policy and competitive economics these questions are particularly important during the introductory period of a new product when the effects of the learning curve phenomenon and market saturation are most pronounced we consider first the monopoly case with linear advertising cost exponential demand and three different pricing rules the optimal variable pricing the instantaneous marginal pricing and the optimal constant pricing rules several theoretical results are established for these rules including the facts that the instantaneous marginal pricing rule is a myopic version of the optimal pricing rule and the optimal constant pricing rule is a weighted average over time of the instantaneous marginal pricing rule another surprising result is that after the market is at least half saturated a pulse of advertising must be preceded by a significant drop in price numerical solutions of a number of examples are discussed oligopolistic models are analyzed as nonzero sum differential games in the rest of the paper the state and adjoint equations are easy to write down but impossible to solve in closed form hence we describe how to reformulate these models as discrete differential games and give a numerical algorithm for finding open loop nash solutions the latter was used to solve three triopoly models in each case it was found that optimal prices and advertising rates start high and steadily decline

cognitive dissonance status and growth of the underclass we present a model of cognitive adaptation to examine the growth and behaviours of the underclass in the model individuals experiencing cognitive dissonance between status seeking and social recognition adapt their attitudes regarding what is deemed status worthy this yields the endogenous formation of an underclass in which non pecuniary social returns counteract the effect of traditional incentives i e wages in motivating behaviour by gaining insight into the process of psychological adaptation of those living in poverty the paper sheds light on economic policies that mitigate the disenfranchisement and hence the growth of the underclass

market share pioneering advantage a theoretical approach in this paper we present an industry in which a pioneer has entered accumulated capital in the form of goodwill and in his monopoly period has also reduced his cost of production as a result of some form of learning by doing at some later date a newcomer enters his production cost is higher than that of the monopolist at that date however due to diffusion of information the costs of the two firms equate at some future date once the new firm enters the market a duopolistic game begins in which the firms choose prices and investment rates analyzing this game we discover the conditions under which the final market shares no longer depend on the order of entry the initial cost advantage the length of the monopoly period or the length of time it took the newcomer to overcome the pioneer s cost advantage we analyze the speed and pattern of convergence to the final market shares and the capital path of the pioneer in his monopoly period depending on his beliefs concerning the possibility of entry

recent developments in dynamic advertising research a variety of continuous time differential functions have been developed to investigate dynamic advertising problems in business and economics fields since major dynamic models appearing before 1995 have been reviewed by a few survey papers we provide a comprehensive review of the dynamic advertising models published after 1995 which are classified into six categories i nerlove arrow model and its extensions ii vidale wolfe model and its extensions iii lanchester model and its extensions iv the diffusion models v dynamic advertising competition models with other attributes and vi empirical studies for dynamic advertising problems for each category we first briefly summarize major relevant before 1995 models and then discuss major after 1995 models in details we find that the dynamic models reviewed in this paper have been extensively used to analyze various advertising problems in the monopoly duopoly oligopoly and supply chain systems our review reveals that the diffusion models have not been used to analyze advertising problems in supply chain operations which may be a research direction in the future moreover we learn from our review that very few publications regarding dynamic advertising problems have considered the supply chain competition we also find that very few researchers have used the diffusion model to investigate the dynamic advertising problems with product quality as a decision variable and the pricing decision has not been incorporated into any extant lanchester model the paper ends with a summary of our review and suggestions on possible research directions in the future

oligopoly models for optimal advertising when production costs obey a learning curve business policy questions frequently involve competitive encounters among several different firms oligopoly theory in economics was devised to answer similar questions but its results so far are largely confined to cases of monopoly one firm duopoly two firms and many firms wheat farmers the cases with n firms where 3 n 10 are of great interest to business policy but are rarely treated in the economics literature because of their extreme difficulty the natural mathematical model for studying such questions is the theory of differential games originally devised by r isaacs isaacs r 1975 differential games robert e krieger publishing co huntington new york originally published by john wiley sons new york 1965 for pursuer evader games later it was extended by j case case j h 1979 economics and the competitive process new york university press new york to nonzero sum differential games for application to questions of economic competition the problem of characterizing an optimal advertising policy over time is an important question in the field of marketing it is especially important during the period of the introduction of a new product and it is also during this time that the production learning curve phenomenon is most pronounced in this paper we study oligopoly models which combine elements of bass s demand growth model bass f m 1969 a new product growth model for consumer durables management sci 15 january 215 227 the vidale wolfe vidale m l h b wolfe 1957 an operations research study of sales response to advertising oper res 5 370 381 and ozga ozga s 1960 imperfect markets through lack of knowledge quart j econom 74 29 52 advertising models with linear or quadratic costs and the production learning curve hirschmann w p 1964 profit from the learning curve harvard bus rev 42 january february 125 139 the boston consulting group 1972 perspectives on experience the boston consulting group boston in the monopoly case n 1 the optimal advertising function is derived by applying green s theorem in the duopoly n 2 and triopoly n 3 cases we use discrete differential game models and find nash equilibrium solutions in each of these models the form of the optimal policy is easy to find but because of the complicated nature of the resulting differential equations closed form solutions for the optimal state and control trajectories are impossible to find hence we use a computer to compute these optimal trajectories and plot them for various parameter settings because 13n parameters must be chosen to define a model with n players a complete search of the parameter space is clearly impossible we content ourselves in this paper with presenting computer plots of four different interesting encounters of the triopoly model our methods can be extended to work just as well for competitive encounters among n players where 1 n 10 we believe that in this paper we have opened up the way to studying oligopoly theory with a small number of participants and under widely varying conditions although the lack of closed form solutions may disappoint some readers we feel that the easy availability of graphical solutions is a more than adequate substitute

on the equality of two lower bounds on the call price a note this note shows that appearances to the contrary the lower bounds on the price of a call option obtained by levy and by ritchken are identical and that this common bound is never inferior to the lower bound obtained by perrakis and ryan