design and analysis of simulated consumer choice or allocation experiments an approach based on aggregate data the authors integrate concepts in conjoint analysis and discrete choice theory in econometrics to develop a new approach to the design and analysis of controlled consumer choice or resource allocat

an efficiency explanation for why firms second source firms facing research costs and demand uncertainty may engage in second sourcing in which potential suppliers agree to pool production facilities i show how sellers and buyers both can benefit from the practice second sourcing allows firms to meet a wider range of possible rates of demand and often to supply a given rate of demand at a lower total cost than under non cooperation buyers benefit through a reduced probability of stock outs and frequently a lower purchase price semiconductor industry data are found to be consistent with the paper s predictions i introduction the practice of second sourcing is frequently observed among firms facing technological and demand uncertainty second sourcing encompasses agreements between buyers and sellers requiring that a firm license its proprietary technology to rivals as well as agreements among potential suppliers to pool production facilities the first type of agreement is often explained as guaranteeing buyers a secure supply at a fair price in this type of second sourcing agreement control over production and pricing decisions resides with each supplier the second arrangement where the owner of the production technology controls production and pricing has largely been overlooked by the literature despite its adoption by firms in a wide range of technologically dynamic industries including semiconductors robotics and biotechnology a primary motivation for this second form of secondsourcing i will argue is to achieve a more efficient matching between the industry s productive capacity and market demand this paper indicates how second sourcing of this form may benefit both purchasers and suppliers and identifies the conditions making second sourcing profitable for firms the existing literature has offered two explanations for second sourcing according to the first explanation second sourcing is sought by prospective buyers purchasers may require that a developer license alternative suppliers to force revelation of private cost information in the contract bidding process or to discipline the eventual supplier s pricing behavior examples of this line of reasoning are found in riordan and sappington 1989 anton and yao 1987 demski sappington and spiller 1987 and rob 1986 if this motivation is correct however it is sufficient for firms to compete at the contract bidding stage demsetz 1968 in contrast we often observe competition at the production stage with active second sourcing and a large number of licensed alternative suppliers in a single industry see section v this explanation s exclusive focus on the gains to buyers from second sourcing also is inconsistent with swann s 1987 observation that many manufacturers have actually sought second sources the literature s alternative explanation suggests that second sourcing may be preferred by producers farrell and gallini 1988 and shepard 1987 show how a monopoly supplier can use second sourcing as a commitment not to raise price or lower product quality in the future either of which would debase the value of sunk investments made by prospective purchasers if credible this commitment may stimulate industry demand sufficiently to yield higher profits for the former monopolist despite increased product market competition an important shortcoming of this second explanation is its apparent incongruity with the existence of five six or more second sourced suppliers in a single industry shepard 1987 for example shows that a single licensed alternate supplier will provide the monopolist with its desired credible commitment to future price and quality this paper suggests an alternative explanation that is consistent with observed trends in second sourcing i depart from the existing literature s focus upon principal agent problems to analyze secondsourcing in a market flamework the paper indicates why sellers may secondsource voluntarily explains why multiple second sources will be preferred and shows how both sides in the agreement may benefit

the non linear link between electricity consumption and temperature in europe a threshold panel approach this paper investigates the relationship between electricity demand and temperature in the european union we address this issue by means of a panel threshold regression model on 15 european countries over the last two decades our results confirm the non linearity of the link between electricity consumption and temperature found in more limited geographical areas in previous studies by distinguishing between north and south countries we also find that this non linear pattern is more pronounced in the warm countries finally rolling regressions show that the sensitivity of electricity consumption to temperature in summer has increased in the recent period

an ideal point probabilistic choice model for heterogeneous preferences this paper presents a new ideal point probabilistic choice model unlike the model suggested by cooper and nakanishi cooper l g m nakanishi 1983 two logit models for external analysis of preferences psychometrika48 4 607 619 which attempts to capture choices via a single ideal point the proposed model though based on aggregate data allows for heterogeneity in preferences by estimating a distribution of ideal points the model accounts for substitutability among choice alternatives and alleviates one of the major sources for the violation of the independence from irrelevant alternatives property it is demonstrated that the final form of the model is a multinomial probit with a covariance matrix that depends on the relative position of the choice alternatives an empirical application is provided and the resulting parameters are compared to the distributions of ideal points and attribute weights obtained via linmap at the individual level and via both the logit and probit versions of the model proposed by cooper and nakanishi at the aggregate level

testing predicted choices against observations in probabilistic discrete choice models probabilistic discrete choice models such as multinomial logit models are widely used to predict changes in market shares or total demand resulting from changes in policy variables under management control these models often are evaluated in terms of their ability to predict choices in a holdout sample this paper presents a new test for comparing predicted and observed choices the results of a monte carlo experiment indicate that the new test has good finite sample properties and high power in several circumstances likely to arise frequently in applications

international evidence on tradables and nontradables inflation abstract using 1970 1985 sectoral data for the oecd we find that inflation in nontradable goods exceeds inflation in tradables we identify a demand shift towards nontradables and faster growth of total factor productivity in the tradable goods sector as the prime causes of the differential inflation in addition disinflation attempts and the exchange rate regime appear to have exerted significant influence on the relative inflation rate

using neoclassical consumer choice theory to produce a market map from purchase data this article presents a new model for estimating the spatial representation of objects and preference vectors from actual choice behavior of individuals or households it is based on neoclassical economic theory of consumer choice the model integrates both decisions of which good s to buy and the quantity of purchase overall preference is decomposed into price effects and intrinsic preference for the good a maximum likelihood method for estimating the model parameters is described and illustrated using choice data of ketchup brands collected by the use of electronic supermarket scanners

market boundaries and product choice illustrating attraction and substitution effects what happens to the share of choices each item receives when the choice set boundaries are extended by adding a new item that is extremely good on one dimension but poor on the others first there is a substitution effect whereby the new item takes choice share mainly from similar items in the set second there is an attraction effect resulting in a general shift of preference toward the added item experimental studies show that choice patterns conflict with current theoretical and common sense ideas about the effect of added alternatives on choice

mean gini analysis of stochastic externalities the case of groundwater contamination the mean gini approach is used to analyze stochastic externalities generated by agricultural production the model addresses the problem of groundwater pollution caused by excessive fertilizer application inherent in the mean gini approach to expected utility maximization is a two fold value the simplicity of the two parameter mean variance model and satisfaction of necessary and sufficient conditions for stochastic dominance price and quantity policy recommendations to control externalities are formulated based upon the relative assessment of uncertainty by the regulatory authority and the farmers using the gini as a measure of risk allows for the quantification of control policy measures under differentiated risk aversion and multiple sources of pollution the model shows that when producers underestimate uncertainty quota policies restricting fertilizer are more efficient than tax policies in reducing groundwater contamination

total price uncertainty and the theory of the competitive firm in the past ten years our understanding of the behaviour of the firm under uncertainty has developed rapidly 1 this has been due to research in two broad areas the sources of uncertainty in the firm s operations and the pricing of that uncertainty by the firm s stockholders in the first area baron 1968 sandmo 1971 leland 1972 and batra and ullah 1974 have all examined the impact of price uncertainty blair 1974 holthausen 1976 and hartman 1976 the impact of factor cost uncertainty and hartman 1972 turnovsky 1973 and epstein 1978 the extent to which technological flexibility affects the impact of price and cost uncertainty these original contributions have invariably assumed that the objective of the firm is to maximize a shareholder s expected utility function this approach implicitly assumes that the price of risk is affected by the firm s decision and thus that the firm is a monopolist in the financial market that allocates risk concurrent with this literature has been the development of theories of market valuation under uncertainty arrow 1971 debreu 1959 and hirshleifer 1970 have developed the time state preference model tsp and sharpe 1964 and lintner 1965 the capital asset pricing model cap to provide a specification of the firm s market value under uncertainty hence if the equilibrium assumptions of either model hold the managers of the firm can maximize shareholder utility by maximizing an objective market value of the firm then as hite 1978 and nielsen 1975 have shown the theory of the firm under uncertainty is formally identical to the theory of the firm under certainty the only difference is that the certainty value is replaced by the certainty equivalent value determined from the equilibrium valuation equation unfortunately it is not realistic to assume that markets are either complete or perfect the most obvious incompleteness is the lack of full commodity markets some commodity markets do exist however the firm cannot remove technology or wage risk the result is that stock markets exist to allocate residual income risk whereas in a complete market all of the components of that risk would have their own commodity market thus making the stock 2 market redundant hence this paper will consider the joint interaction of total price uncertainty that is product price and factor cost uncertainty in a model where there is only a stock market to allocate residual income risk moreover we will allow the completeness of this residual income market to vary to examine its impact on the firm s operating decisions this paper can therefore be considered a synthesis and generalization of previous work in this area

determining the appropriate depth and breadth of a firm s product portfolio abstract some firms have broad product lines others have lean product lines to determine the appropriate number of entries in a specific firm s product line the author develops a model that balances the benefits of increased revenue from a broad product line against production and engineering costs two innovations were central in the development of the model 1 redefining how products are scored on various product attributes so that attribute scores vary normally across the population of products and 2 redefining how the number of entries in a product portfolio is calculated in order to discount the significance of entries that are highly similar to existing products the author also introduces the notion of a centroid time to more easily adjust sales and total development costs for product life cycle and investment life cycle effects these redefinitions enable a firm s profit to be modeled as a simple function of its effective number of product entries the effective number of competitors entrie

contractual union firm agreements and the theory of the firm under uncertainty abstract this article analyzes the consequence of introducing union firm contractual agreements in the theory of the firm under uncertainty generalizing the works on the labor managed firm it is shown that the risk averse firm produces more than the risk neutral firm or the firm operating under certainty as long as equilibrium employment is negatively related to union wages that is when union power over wages is higher than that over employment

wage distortion and resource allocation under uncertainty the effects of uncertainty on resource allocation have been examined in a two sector general equilibrium model of production constructing a model in which firms are risk indifferent and face uncertainty regarding the use of capital rothenberg and smith 9 considered the implications of uncertainty for welfare resource allocation and income distribution their model was refined by batra 3 to permit uncertainty in production to influence the firms decisions to hire both capital and labor batra s approach appears to be more general in that producers are assumed to be risk averse in lieu of risk neutral the writing of this paper is inspired by batra s contributions 2 3 batra s well known intermediate run equilibrium model is reformulated to allow for wage distortion utilizing the model several issues regarding the effects of changes in factor supplies in commodity prices and in the degree of wage distortion will be examined factor market distortions in the absence of uncertainty have been studied extensively in literature 2 their impacts on resource allocation in stochastic environment have not been explored however we argue that the introduction of the wage differential has a major impact on batra s results first relative value factor intensities generally replace relative physical factor intensities in determining signs of

adjustment to production uncertainty and the theory of the firm this paper considers the behavior of the firm which faces uncertainty in its production process but can adjust its output once the uncertainty is resolved ex post adjustment unlike previous treatments involves a marginal cost penalty if more output is required and a lowering of price if too much is produced with ex post adjustment allowed in this fashion it is found that nonlinear risk preferences do not affect the sign of the firm s marginal risk premium at optimum ex ante output the firm will produce less output than under certainty whether it is risk averse risk neutral or prefers risk

testing competitive market structures an accurate understanding of the structure of competition is important in the formulation of many marketing strategies for example in new product launch product reformulation or positioning decisions the strategist wants to know which of his competitors will be most affected and hence most likely to respond many marketing science models have been proposed to identify market structure in this paper we examine the managerial problem and propose a criterion by which to judge an identified market structure basically our criterion is a quantification of the intuitive managerial criterion that a submarket is a useful conceptualization if it identifies which products are most likely to be affected by our marketing strategies we formalize this criterion within the structure of classical hypothesis testing so that a marketing scientist can use statistical statements to evaluate a market structure identified by 1 behavioral hypotheses 2 managerial intuition or 3 market structure identification algorithms mathematically our criterion is based on probabilities of switching to products in the situation where an individual s most preferred product is not available submarkets are said to exist when consumers are statistically more likely to buy again in that submarket than would be predicted based on an aggregate constant ratio model for example product attributes e g brand form size use situations e g coffee in the morning versus coffee at dinner and user characteristics e g heavy versus light users are specified as hypotheses for testing alternate competitive structures measurement and estimation procedures are described and a convergent approach is illustrated an application of the methodology to the coffee market is presented and managerial implications of six other applications are described briefly

factor demand under conditions of product demand and supply uncertainty the paper develops a theory of factor demand under uncertainty that encompasses neo classical factor demand and keynesian effective factor demand as special cases the model allows factor demand and output to move positively with product demand even with a constant product price this in turn permits real wages to move pro cyclically in response to product demand shocks in addition the model provides a new perspective on the adding up problem which posits that total factor payments exceed output if increasing returns to scale exist and generates positive uncertainty profits that are similar in spirit to those of frank knight

the determinants of international reserves in the emerging countries a nonlinear approach in this article we adopt a nonlinear approach to examine the dynamics of the international reserves holdings by the emerging economies to do so we estimate the demand for international reserves with a panel smooth transition regression pstr model that loosens two restricting hypotheses homogeneity and time stability we find evidence for the presence of a nonlinear behaviour in the demand for international reserves a result that is new to the literature the coefficients are found to change smoothly as a function of two threshold variables out of five candidates tested in total our specification accounts for the acceleration of foreign exchange reserves accumulation that the linear specifications fail to explain

predictive testing of consumer choice models not subject to independence of irrelevant alternatives the probabilistic modeling of the relationship between objective or perceived characteristics of multiattribute alternatives and consumer choice is receiving increased attention in marketing and ot

technological uncertainty and the theory of the firm several recent articles 1 6 have generalized the theory of the firm to incorporate price uncertainty and risk aversion it is now well known that the risk averse entrepreneur will select that level of output at which the expected price equals the marginal cost plus the marginal risk premium leland 5 provides a similar generalization given demand uncertainty however in each case the assumption of a well specified technology is maintained this paper complements and generalizes the earlier work on the theory of the firm by investigating the effect which technological uncertainty has on the firm s optimal production decision like the earlier work on the theory of the firm we show that the firm selects the level of input at which the expected marginal productivity equals the factor price plus the marginal risk premium unlike the earlier work we show that the sign of the marginal risk premium is not always positive and that it depends on the structure of the firm s technology we show that the distinction between price and technological uncertainty is important because each can lead to different implications for firm behavior like its predecessors the model of the firm presented here assumes a single ownerentrepreneur who makes the production decision we modify the baron and sandmo models by assuming that the entrepreneur knows the cost of each production decision but not the output as a result the entrepreneur s decision yields a random variable denoting output and a linear transformation of it denoting profit the entrepreneur chooses the random variable denoting profit to maximize his expected utility there are at least three distinct ways in which our notion of technological uncertainty may be interpreted first the entrepreneur may not know the location of the production surface in this case each production decision yields a random output an increase in the

using discrete choice models with experimental design data to forecast consumer demand for a unique cultural event an approach is developed to forecast participation in unique events with long gestation periods experimental observations of choice are derived for conjoint measurement type multiattribute alternatives that describe possible event configurations the choice data are analyzed by means of discrete choice econometric models a multinomial logit choice model is applied to forecast the choice of attendance at various types of international expositions the empirical work was part of the planning efforts undertaken to investigate the potential demand for an international exposition to be held in eastern australia in conjunction with the australian 1988 bicentennial celebrations

a note on adjustment to production uncertainty and the theory of the firm this paper analyzes the impact of production uncertainty on the firm s optimal output decision if uncertainty is introduced by an additive risk variable then short run optimal output is unchanged but the owner manager s expected utility can change causing long run output effects if uncertainty is introduced by a multiplicative random variable then short run output can change as well

too much of a good thing the adequacy of international reserves in the aftermath of crises this paper has a number of purposes first it revisits the older theory of reserve adequacy and optimality to see whether this can still be used and perhaps strengthened in ways that would inform the current debate second it explores the connection between reserve adequacy and currency crisis in the light of recent experience and empirical research third it critically investigates alternative rule of thumb measures of reserve adequacy fourth and drawing on the foregoing analysis it examines the extent to which crisis countries should seek to replenish and build up their international reserves in the post crisis period additional owned reserves represent a guaranteed and unconditional source of liquidity is this what is needed