capacity expansion contraction of a facility with demand augmentation dynamics we analyze the cost effective addition or removal of capacity from a facility governed by demand augmentation dynamics that is if the demand for goods or services exceeds the planned capacity of the facility during any period of a multiperiod planning horizon then additional capacity must be introduced within that period to meet the deficit the paper obtains an optimal management strategy that minimizes the sum of capital labor maintenance and underpro vision costs for n consecutive periods in the face of uncertain demands dynamic programming is used to demonstrate that under certain conditions on the cost functions an inventory like s s policy is optimal appropriately interpreted to define the removal as well as the augmentation of capacity the threshold levels s and s can be evaluated for each period without a costly search procedure in addition we show how to calculate various quantities of interest associated with the optimal policy

noncooperation by popular vote expectations foreign intervention and the vote in the 2015 greek bailout referendum when popular referendums fail to ratify new international agreements or succeed in reversing existing ones it not only affects domestic voters but also creates negative spillovers for the other parties to such agreements we explore how voters respond to this strategic environment we use original survey data from a poll fielded just one day before the 2015 greek bailout referendum a referendum in which the stakes for other countries were particularly high to investigate how expectations about the likely foreign response to a noncooperative referendum outcome influence voting behavior and to what extent foreign policymakers can influence those expectations our analysis of the greek referendum shows that such expectations had a powerful effect on voting behavior voters expecting that a noncooperative referendum outcome would force greece to leave the eurozone were substantially more likely to vote cooperatively than those believing that it would result in renewed negotiations with the country s creditors leveraging the bank closure that took place right before the vote we also show that costly signals by foreign actors made voters more pessimistic about the consequences of a noncooperative vote and substantially increased the share of cooperative votes

optimal capacity expansion over an infinite horizon the problem of choosing an optimal initial capacity expansion from a finite number of durable facility sizes is affected by potential future expansion decisions as we consider such expansions over longer and longer study horizons the optimal initial facility choice can fluctuate due to end of study effects we discuss an algorithm that will determine for arbitrary deterministic demand profiles how long a horizon is sufficient to reach stability in the first facility choice moreover it is shown that this first choice is the optimal first choice for the infinite horizon problem we also establish an explicit analytical formula for a study horizon guaranteed to provide a first facility size that followed by an infinite horizon expansion strategy will attain a discounted cost within a predetermined maximal error of the optimal infinite horizon cost

operational hedging strategies and competitive exposure to exchange rates this paper investigates the impact of operational flexibility on firms economic exposure to currency fluctuations in the presence of global competition we consider a global firm who sells as a monopolist in the domestic market and also sells to a foreign market facing competition from a local competitor of certain capacity we compare the effects of two operational strategies of the global firm namely matching currency footprints natural hedge and the capacity pooling strategy with allocation flexibility for a two stage stochastic model we derive the optimal capacity and selling decisions for the global firm and from the comparative statics analysis of our model we infer useful managerial insights 1 we find that operational flexibility enables the global firm to exploit the possible high exchange rate i e devalued home currency realizations for profit improvement and thus increases in the long run the firm s expected profit 2 furthermore operational flexibility allows for downside risk control as the exchange rate becomes more volatile since the resource pooling option cleverly exercised minimizes the impact of unfavorable currency realizations 3 the global firm s operational flexibility increases its competitor s downside risk but may also benefit the competitor s expected profit since a flexible global firm may decide not to compete when the exchange rate is not favorable in conclusion our paper substantiates that natural hedge is not effective from a profit maximization perspective we clearly illustrate the robust profit maximizing performance and reasonable downside risk control of operational hedging approaches which rely on the clever exercising of operational flexibility options such as resource pooling and allocation in handling competitive exposure to fluctuating exchange rates

the mass political economy of capital controls this article examines mass public opinion toward international financial market regulations known as capital controls conventional wisdom maintains that most voters do not pay attention to or c

multi resource investment strategies operational hedging under demand uncertainty abstract consider a firm that markets multiple products each manufactured using several resources representing various types of capital and labor and a linear production technology the firm faces uncertain product demand and has the option to dynamically readjust its resource investment levels thereby changing the capacities of its linear manufacturing process the cost to adjust a resource level either up or down is assumed to be linear the model developed here explicitly incorporates both capacity investment decisions and production decisions and is general enough to include reversible and irreversible investment the product demand vectors for successive periods are assumed to be independent and identically distributed the optimal investment strategy is determined with a multi dimensional newsvendor model using demand distributions a technology matrix prices product contribution margins and marginal investment costs our analysis highlights an important conceptual distinction between deterministic and stochastic environments the optimal investment strategy in our stochastic model typically involves some degree of capacity imbalance which can never be optimal when demand is known

optimal capacity investment decisions with two sided fixed capacity adjustment costs in this paper we consider the optimal management of capacity when a firm faces fixed costs and variable costs to purchase capacity the firm can also salvage capacity and receive a variable value per unit capacity salvaged but faces a different fixed cost in this case each period the firm faces a stochastic demand and maintenance costs for capacity that it decides to keep the firm would thus like to decide how much capacity it should purchase or salvage each period we introduce a new concept which we call k1 k2 concavity and show that the profit to go function satisfies this property this enables us to characterize the structure of an optimal policy which is rather complex consisting of multiple regions in which different decisions are made we show how special cases of this problem e g no fixed costs expansion or contraction not allowed reduce to well known results and how k1 k2 concavity is a generalization of concavity k concavity and sym k concavity we also show how different lead times for purchasing or salvaging capacity can be integrated into the model finally we extend the model to the case where demand is markov modulated and a portion of capacity can deteriorate in each period

iceland on the rocks the mass political economy of sovereign debt resettlement we undertake an individual level analysis of mass political behavior toward sovereign debt resettlement by leveraging the unique circumstances of a 2011 referendum on debt repayment in iceland this allows us to engage broader questions about mass international political economy against the recent thrust of a growing literature we find evidence of material economic pocketbook effects self interest on voting behavior operating alongside symbolic sociotropic and partisan political logics contrary to expectations these self interest effects are not conditional on voter sophistication we conclude that conventional sampling frames may be inappropriate for understanding contemporary democratic contestation over international economic policy

who is against immigration a cross country investigation of individual attitudes toward immigrants abstract this paper empirically analyzes economic and noneconomic determinants of individual attitudes toward immigrants within and across countries the two survey data sets used covering a wide range of developed and developing countries make it possible to test for interactive effects between individual characteristics and country level attributes in particular theory predicts that the correlation between pro immigration attitudes and individual skill should be related to the skill composition of natives relative to immigrants in the destination country skilled individuals should favor immigration in countries where natives are more skilled than immigrants and oppose it otherwise results based on direct and indirect measures of the relative skill composition are consistent with these predictions noneconomic variables also are correlated with immigration attitudes but they don t alter significantly the labor market results

learning to love globalization education and individual attitudes toward international trade recent studies of public attitudes toward trade have converged on one central finding support for trade restrictions is highest among respondents with the lowest levels of education this has been interpreted as strong support for the stolper samuelson theorem the classic economic treatment of the income effects of trade that predicts that trade openness benefits those owning factors of production with which their economy is relatively well endowed those with skills in the advanced economies while hurting others low skilled workers we reexamine the available survey data showing that the impact of education on attitudes toward trade is almost identical among respondents in the active labor force and those who are not even those who are retired we also find that while individuals with college level educations are far more likely to favor trade openness than others other types of education have no significant effects on attitudes and some actually reduce the support for trade even though they clearly contribute to skill acquisition combined these results strongly suggest that the effects of education on individual trade preferences are not primarily a product of distributional concerns linked to job skills we suggest that exposure to economic ideas and information among college educated individuals plays a key role in shaping attitudes toward trade and globalization this is not to say that distributional issues are not important in shaping attitudes toward trade just that they are not clearly manifest in the simple broad association between education levels and support for free trade the authors would like to thank james alt jeffry frieden robert lawrence dani rodrik ron rogowski ken scheve andy baker peter gourevitch and beth simmons for helpful comments on earlier drafts

analysis of compound bullwhip effect causes abstract this research investigates compound causes of the bullwhip effect bwe by considering an inventory system with multiple price sensitive demand streams joint price and demand dynamics are captured by a vector time series process that incorporates the stochastic co movements in price and demand we study two bwe measures one for each demand stream individually and one for the aggregated demand we show that demand parameters including demand autocorrelation cross correlation and price sensitivity serve as root causes of the bwe we prove that the impact of these parameters on the bwe can be additively decomposed conditions are established under which a pair of simultaneous compound causes may attenuate or dampen the bwe when demand streams are aggregated we derive a pooling factor that quantifies the impact of demand aggregation on order stability when positive the pooling factor corresponds to a synergy effect that captures the gain in the stability of the pooled orders conditions for the existence of the synergy effect are obtained for several special cases involving a zero leadtime we also discuss how our analytical findings can be managerially applied to bullwhip mitigation strategies

revenue adequate bidding strategies in competitive electricity markets energy trading in a competitive electricity market can be modeled as a two level optimization at the top level a centralized economic dispatch ced uses a priority list method to solve the fundamental problem of reliable market clearing with price discovery the lower level consists of a set of decentralized bidding db subproblems the db model uses a self unit scheduling simulator based on parametric dynamic programming to produce hourly bid curves for the central dispatch coordinator unit operating constraints and costs such as the unit minimum up and minimum down times ramp rates and the unit start up no load and sunk capital costs are internalized in the bid curves through the simulator a special algorithm is presented to solve the revenue adequacy problem for marginal units both ced and db models are based on the revenue maximization in contrast with the cost minimization criteria used in the conventional unit commitment uc the proposed method has been tested in a study case and some interesting results have been demonstrated

integrated capacity and inventory management with capacity acquisition lead times we model a make to stock production system that utilizes permanent and contingent capacity to meet non stationary stochastic demand where a constant lead time is associated with the acquisition of contingent capacity we determine the structure of the optimal solution concerning both the operational decisions of integrated inventory and flexible capacity management and the tactical decision of determining the optimal permanent capacity level furthermore we show that the inventory either before or after production the pipeline contingent capacity the contingent capacity to be ordered and the permanent capacity are economic substitutes we also show that the stochastic demand variable and the optimal contingent capacity acquisition decisions are economic complements finally we perform numerical experiments to evaluate the value of utilizing contingent capacity and to study the effects of capacity acquisition lead time providing useful managerial insights

through a glass and darkly attitudes toward international trade and the curious effects of issue framing are most voters opposed to globalization a growing body of empiri cal research using data from available surveys of public opinion suggests that anti globalization sentiments are strong especially among blue collar workers this article reports the findings from a survey experiment aimed at measuring the impact of issue framing on individuals stated attitudes toward international trade respondents given an antitrade introduction to the survey question linking trade to the possibility of job losses were 17 percent less likely to favor increasing trade with other countries than were those asked the same question without any introduction at all curiously respondents who were given a protrade introduction to the question suggesting that trade can lead to lower prices for consumers were not more likely to express sup port for trade than those who received no introduction in addition the responses of less educated individuals were more sensitive to framing effects than those of highly educated individuals without measuring and taking these types of framing effects into account opinion surveys offer unreliable guides to gauging the extent and dis tribution of opposition to trade among voters results from a second experiment reveal that knowledge of the endorsement of trade openness by economists mitigates framing effects and raises overall support for trade liberalization by a substantial degree

capacity pricing and production under supply and demand uncertainties with an application in agriculture abstract we consider capacitated joint lot sizing and pricing problems when supply and a price sensitive demand are uncertain in cases where there is excess capacity the decision maker has the option to rent her capacity we model the case where price and production quantity are determined before the yield is realized joint decisions as well as the case where the price is determined after the yield is known sequential decisions in the joint decisions case we introduce the concept of expected demand fill rate elasticity and characterize the conditions in which a one sided production and pricing policy is optimal we extend the results to the case when there is a fixed production cost and show that a two sided production and pricing policy is optimal we also investigate the conditions under which it is optimal for the decision maker to rent her capacity in addition we look at the case in which the decision maker is risk averse and analyze the effect of the risk attitude on the optimal price and production quantity we extend our model to the multi period case and the case where there is a lead time to acquire new capacity we show that a one sided production pricing and capacity planning policy is optimal in this situation as well we apply our model to the agricultural sector and present numerical examples using data from the california almond industry

the effect of production versus consumption based emission tax under demand uncertainty abstract emission tax is an instrument widely adopted by countries and regions to incentivize emission abatement by emission intensive firms including manufacturers however policies differ in how they allocate emission responsibilities among stakeholders for example the chile emission tax directly penalizes manufacturers for the emissions they generate during their production production based emission tax whereas the sweden electricity emission tax penalizes the consumption of electricity rather than its production consumption based emission tax these two methods have potentially varying implications on manufacturers profits their emission abatement decisions as well as the resulting emission levels especially when demand uncertainty is involved in this paper we investigate the impact of the two distinct methods by studying a profit maximizing manufacturer facing stochastic demand under either production or consumption based emission tax the manufacturer s optimal decisions on its selling price production quantity and emission abatement investment are derived perhaps surprisingly we show that under either tax it is possible for an increase in the emission tax to discourage the manufacturer from investing in emission abatement the impact of tax rate abatement technology efficiency and demand uncertainty on the manufacturer s profitability and abatement decision are also studied interestingly higher demand uncertainty may motivate the manufacturer to invest more in emission abatement under production based emission tax using a numerical example of an electricity power generator we offer further insights into the comparison between the two taxes and find that there exist cases for either tax to dominate the other in terms of both profit and emissions

capacity decisions for high tech products with obsolescence abstract modern high tech products experience rapid obsolescence capacity investments must be recouped during the brief product lifecycle during which prices fall continuously we employ a multiplicative demand model that incorporates price declines due to both market heterogeneity and product obsolescence and study a monopolistic firm s capacity decision we investigate profit concavity and characterize the structure of the optimal capacity solution moreover for products with negligible variable costs we identify two distinct strategies for capacity choice demarcated by an obsolescence rate threshold that relates both to market factors and capacity costs finally we empirically test the demand model by analyzing shipping and pricing data from the pc microprocessor market

optimal production planning with emissions trading emissions trading is a market based mechanism for curbing emissions and it has been implemented in europe north america and several other parts of the world to study its impact on production planning we develop a dynamic production model where a manufacturer produces a single product to satisfy random market demands the manufacturer has access to both a green and a regular production technology of which the former is more costly but yields fewer emissions to comply with the emissions regulations the manufacturer can buy or sell the allowances in each period via forward contracts in an outside market with stochastic trading prices while needing to keep a nonnegative allowance account balance at the end of the planning horizon we first derive several important structural properties of the model and based upon them we characterize the optimal emissions trading and production policies that minimize the manufacturer s expected total discounted cost in particular the optimal emissions trading pol

a capacitated production inventory model with periodic demand for a single product single stage capacitated production inventory model with stochastic periodic cyclic demand we find the optimal policy and characterize some of its properties we study the finite horizon the discounted infinite horizon and the infinite horizon average cases a simulation based optimization method is provided to compute the optimal parameters based on a numerical study several insights into the model are also provided

what determines individual trade policy preferences abstract this article provides new evidence on the determinants of individual trade policy preferences using individual level survey data for the united states there are two main empirical results first we find that factor type dominates industry of employment in explaining support for trade barriers second we find that home ownership also matters for individuals trade policy preferences independent of factor type home ownership in counties with a manufacturing mix concentrated in comparative disadvantage industries is correlated with support for trade barriers this finding suggests that in addition to current factor incomes driving preferences as in standard trade models preferences also depend on asset values

a continuous strategy game for power transactions analysis in competitive electricity markets this article presents a game theory application for analyzing power transactions in a deregulated energy marketplace such as poolco where participants especially generating entities maximize their net profits through optimal bidding strategies i e bidding prices and bidding generations in this article the electricity market for power transactions is modeled as a noncooperative game with complete information where the solution is determined in a continuous strategy domain having recourse to the nash equilibrium idea in order to provide more apprehensible analysis we suggest a new hybrid solution approach employing a two dimensional graphical approach as well as an analytical method finally the proposed approach is demonstrated on a sample power system

voting for change calculation community and euro referendums referendum votes on adoption of the euro in denmark 2000 and sweden 2003 provide unprecedented natural experiments through which to study the political economy of money using exit polling data and multinomial logit statistical models that allow us to separate preferences for the euro from preferences for the european union eu we test economic calculation and political community as determinants of individual level preferences over adoption of the euro we find that calculation operates most clearly where as in sweden the choice of a fixed versus a floating exchange rate regime is at stake while community exerts strong effects across the two cases we would like to thank krister andersson jerry cohen robert fishman jennifer fitzgerald jeff frieden eric helleiner jacques hymans lars jonung kate mcnamara jennifer wolak and the anonymous reviewers for helpful comments and helga sverrisdottir for outstanding research assistance we are grateful to jens wagner of the danish data archive and torbja rn berglund of the swedish social science dataservice for providing the data used in this note neither these individuals nor their respective agencies are responsible for the interpretations contained herein

simultaneous capacity and production management of short life cycle produce to stock goods under stochastic demand this paper derives the optimal simultaneous capacity and production plan for a shortlife cycle produce to stock good under stochastic demand capacity can be reduced as well as added at exogenously set unit prices in both cases studied with and without carryover of unsold units a target interval policy is optimal there is a usually different target interval for each period such that capacity should be changed as little as possible to bring the level available into that interval our contribution in the case of no carry over is a detailed characterization of the target intervals assuming demands increase stochastically at the beginning of the life cycle and decrease thereafter in the case of carry over we establish the general result and show that capacity and inventory are economic substitutes the target intervals decrease in the initial stock level and the optimal unconstrained base stock level decreases in the capacity level in both cases optimal service rates are not necessarily constant over time a numerical example illustrates the results

inventory management under price based and stockout based substitution abstract we examine a stochastic inventory and pricing problem for a firm that sells two vertically differentiated products the demands for the two products are determined by total random market size and the customers net utility from buying the two products which is determined by the products quality attributes the individual quality valuation unknown to the firm and the selling prices in case the preferred product is out of stock customers may be willing to buy a substitute instead if their net utility is non negative therefore we analyze an inventory and pricing model considering price based and stockout based substitution we show that the demand function is not continuous in price by decomposing the profit function into different price regimes we are able to derive closed form expressions for the stockout based substitution rates upward and downward substitution and the optimal inventory levels under exogenous pricing under endogenous pricing we find that the profit function is not necessarily unimodal however we show that a unique solution exists for the integrated price and inventory problem under price based substitution only numerical results reveal that not considering stockout based substitution i leads to lower profit margins for high quality products and ii may cause severe supply demand mismatches throughout the entire assortment finally we show the performance of two approximated pricing policies

managing inventories with one way substitution a newsvendor analysis abstract this paper presents an insightful approach to analyze two item periodic inventory systems with one way substitution the objective is to minimize the expected total cost per period which consists of expected purchasing costs expected inventory holding costs expected shortage costs and expected adjustment costs this approach helps derive the optimality conditions in both single period and infinite horizon settings and yields useful insights into the impact of substitution on the service level the optimality of a borderline case in which the order up to level of the inflexible item is reduced to zero and the pivotal role of the purchasing cost

educated preferences explaining attitudes toward immigration in europe recent studies of individual attitudes toward immigration emphasize concerns about labor market competition as a potent source of anti immigrant senti ment in particular among less educated or less skilled citizens who fear being forced to compete for jobs with low skilled immigrants willing to work for much lower wages we examine new data on attitudes toward immigration available from the 2003 european social survey in contrast to predictions based on conventional argu ments about labor market competition which anticipate that individuals will oppose immigration of workers with similar skills to their own but support immigration of workers with different skill levels we find that people with higher levels of educa tion and occupational skills are more likely to favor immigration regardless of the skill attributes of the immigrants in question across europe higher education and higher skills mean more support for all types of immigrants these relationships are almost identical among individuals in the labor force that is those competing for jobs and those not in the labor force contrary to the conventional wisdom then the connection between the education or skill levels of individuals and views about immigration appears to have very little if anything to do with fears about labor market competition this finding is consistent with extensive economic research show ing that the income and employment effects of immigration in european economies are actually very small we find that a large component of the link between educa tion and attitudes toward immigrants is driven by differences among individuals in cultural values and beliefs more educated respondents are significantly less racist and place greater value on cultural diversity than do their counterparts they are also more likely to believe that immigration generates benefits for the host economy as a whole

lessons from a collapse of a financial system the paper draws lessons from the collapse of iceland s banking system in october 2008 the rapid expansion of the banking system following its privatization in the early 2000s is explained as well as the inherent fragility due to the size of the banking system relative to the domestic economy and the central bank s reserves market manipulation enabling bank capital to expand rapidly and the weak and understaffed public institutions most of iceland s banking system was traditionally in state hands but was privatized and sold to politically favoured entities at the turn of the century with laws and regulations subsequently changed to facilitate the expansion of the banking system political connections and the tacit support of the authorities enabled senior bank managers and key shareholders to extract significant private benefits while shifting risk to domestic and foreign taxpayers and foreign creditors these problems were exacerbated by symptoms of what the paper terms the small country syndrome the size of the banking sector made the central bank incapable of serving as the lender of last resort the domestic supervisor the central bank and the ministries in charge of economic affairs were understaffed and lacking in experience in how to manage a large financial sector the rapid growth was also ultimately unsustainable due to high levels of leverage and a weak capital base due to both the rapid expansion of balance sheets and lending to finance investment in own shares the episode demonstrates the importance of closely monitoring rapidly growing financial institutions and even possibly slowing growth when institutions are systemically important one lesson to be drawn from the crisis relates to the role of politics in a financial crisis the icelandic authorities as a matter of policy encouraged the creation of an international banking centre this involved the privatization and deregulation of the banking system rules and regulations being relaxed and the neglect of financial supervision another lesson is that floating exchange rates can be hazardous in the presence of large capital flows the central bank raised interest rates during the boom years in order to meet an inflation target this created an interest rate differential with other countries that encourages a large volume of carry trades and incentivized domestic agents to borrow in foreign currency both conspired to create an asset price bubble excessive currency appreciation and counter intuitively high inflation the result was that monetary policy as conducted was ineffective at curbing domestic demand the eventual large depreciation of the currency made a large section of the economy insolvent finally there are lessons about the european passport system in financial services and the common market the icelandic banks had the right to set up branches in the european union by means of the passport on the explicit assumption that home regulators were exercising adequate controls the collapse of the banks left the united kingdom and the netherlands with significant costs demonstrating the inherent weakness in the passport when one member country can undercut the supervisory standards of other member countries for the passport system to work the home supervisor must be trustworthy sigridur benediktsdottir jon danielsson and gylfi zoega

why are people more pro trade than pro migration i analyze individual attitudes towards trade and immigration in comparative terms i find that individuals are on average more pro trade than pro immigration across several countries i identify a key source of this difference the cleavage in trade preferences absent in immigration attitudes between individuals working in traded as opposed to non traded sectors

joint inventory and cash management for multidivisional supply chains this paper develops a centralized supply chain model that integrates material flows with cash flows the supply chain is owned by a single firm with two divisions the downstream division headquarters facing random customer demand replenishes materials from the upstream division the firm installs a financial services platform that pools the divisions cash into a master account managed by the headquarters in each period cash is received from customers and paid to the outside vendor after materials are delivered the headquarters determines how much cash to retain for inventory replenishment the objective is to determine an optimal joint inventory replenishment and cash retention policy for the entire supply chain we prove that the optimal policy has a surprisingly simple structure both divisions implement a base stock policy for inventory replenishment the headquarters monitors the corporate working capital and implements a two threshold policy for cash retention this result is obtained by exte

hedging your bets and assessing the outcome abstract hedging offsets the risk of an existing stake by counterbalancing it with a new stake for example complementing a bet on the race favorite with another bet on a promising upstart in three experiments the authors find that rather than assessing the hedge as a whole people tend to react to the hedging outcome by focusing on either the original stake or the new one the authors show that the hedger s focus is linked to a psychological motivation of whether to pursue safety and security by minimizing losses known as a prevention orientation or to pursue growth and advancement by maximizing gains known as a promotion orientation when the context is gambling prevention oriented people fixate on what happens to the status quo stake whereas promotion oriented people attend to the new stake experiment 1 the same conclusion emerges from a stock investing context experiments 2a and 2b moreover because selective attention to status quo and change is the mechanism at work the authors fin

government spending and public support for trade in the oecd an empirical test of the embedded liberalism thesis according to the embedded liberalism thesis governments committed to free trade provide insurance and other transfers to compensate those who lose economically from expanded trade the goal of this spending is to maintain public support for trade liberalization we provide a micro level test of the critical assumption behind the embedded liberalism thesis that government programs designed to protect individuals harmed by imports reduce opposition to free trade our micro results have important implications for the macro relationship between trade and government spending which we also test we find empirical support for the embedded liberalism thesis in both our micro and macro level analyses earlier versions of this article were presented at the midwest political science association s 2002 meeting and at the university of illinois during summer 2003 we thank the respective panel and seminar participants for their feedback in addition we want to acknowledge valuable comments from william bernhard rebecca blank kerwin charles alan deardorff john dinardo john freeman brian gaines jim granato nathan jensen william keech layna mosley robert pahre ken scheve marina whitman two anonymous reviewers and lisa martin they of course are not responsible for any errors

selecting a portfolio of suppliers under demand and supply risks we analyze a planning model for a firm or public organization that needs to cover uncertain demand for a given item by procuring supplies from multiple sources each source faces a random yield factor with a general probability distribution the model considers a single demand season all supplies need to be ordered before the start of the season the planning problem amounts to selecting which of the given set of suppliers to retain and how much to order from each so as to minimize total procurement costs while ensuring that the uncertain demand is met with a given probability the total procurement costs consist of variable costs that are proportional to the total quantity delivered by the suppliers and a fixed cost for each participating supplier incurred irrespective of his supply level each potential supplier is characterized by a given fixed cost and a given distribution of his random yield factor the yield factors at different suppliers are assumed to be independent of the season s demand which is described by a general probability distribution determining the optimal set of suppliers the aggregate order and its allocation among the suppliers on the basis of the exact shortfall probability is prohibitively difficult we have therefore developed two approximations for the shortfall probability although both approximations are shown to be highly accurate the first based on a large deviations technique ldt has the advantage of resulting in a rigorous upper bound for the required total order and associated costs the second approximation is based on a central limit theorem clt and is shown to be asymptotically accurate whereas the order quantities determined by this method are asymptotically optimal as the number of suppliers grows most importantly this clt based approximation permits many important qualitative insights

a referendum on trade theory voting on free trade in costa rica research on mass opinion in international political economy overwhelmingly relies on survey data this poses problems of external validity especially for a frequently low salience issue such as trade policy to examine whether survey findings about attitudes toward economic openness apply outside of surveys this note considers patterns of voting in the 2007 costa rican plebiscite about joining the central american free trade area several extant theories appear to explain voting patterns but the results are less in line with traditional economic models based on locally important economic sectors

a game theoretic model for strategic maintenance and dispatch decisions maintenance decisions in an oligopolistic market attains a strategic dimension because gencos are often able to manipulate market prices through capacity withdrawal a closely related issue is that of strategically withholding generation from available capacity an analytic framework is presented that enables joint evaluation of maintenance and generation strategies the cournot nash equilibrium cne concept is extended for intertemporal decision making on maintenance and generation for multiple gencos each genco maximizes its profit by strategically putting its capacity on maintenance as well as withholding generation from available capacity taking into account its rival gencos decisions the cne problem is posed as a continuous or mixed integer nonlinear programming optimization problem duality theory is employed to derive insights about the marginal profit that a genco may earn from an increment in its availability in an oligopolistic market setup illustrative numerical examples are presented of cne maintenance and generation strategies and these are compared and contrasted against those of a perfectly competitive scenario

planning for surprise water resources development under demand and supply uncertainty i the general model a study of water resources development in south sweden revealed that water consumption unexpectedly stopped growing after construction had begun on a large project to expand water supplies the project had a long lead time for completion and planning had been based on traditional deterministic forecasts of future water use to explore the implications of such an uncertain structural shift in future consumption patterns we develop a model for determining the timing for initiating such a project in this model the original consumption forecast may be disrupted at some random future time by an event called a surprise as in the swedish situation we have modeled the surprise as an unexpected stagnation in future demand growth and benefit levels we show that this form of uncertainty makes desirable delaying the initiation of the project beyond the time optimal under the original forecast we then extend the model to include the lead time for the project as a variable and demonstrate that the lead time should be reduced from that optimal under a deterministic future finally we incorporate the option of abandoning the project when the surprise occurs and show that higher salvage values for the project lead to earlier optimal commitment times

optimal investment in product flexible manufacturing capacity this paper presents a model and an analysis of the cost flexibility tradeoffs involved in investing in product flexible manufacturing capacity flexible capacity provides a firm with the ability to respond to a wide variety of future demand outcomes but at the expense of the increased cost of acquiring flexible manufacturing capacity as compared with dedicated or nonflexible capacity we formulate the product flexible manufacturing capacity investment decision as a two stage stochastic program in the first stage the firm must make its investment decision in manufacturing capacity before the resolution of uncertainty in product demand in the second stage after demand for products are known the firm implements its production decisions constrained by the first stage investments the main contributions of this paper are threefold first we develop a model of the firm s flexible manufacturing investment decision that conceptually captures some of the key characteristics of this complex decision probl

trade off between capacity invested and inventory needed a multi item capacitated make to order production system with considerable demand fluctuations is discussed the relationship between the available capacity and the inventory needed to meet customer requirements with a pre defined service level is modeled furthermore the total cost for both capacity and inventory is minimized and it is shown that assuming negligible change over times the double of the surplus inventory cost has to be equal to the excess capacity cost to ensure minimum total cost

capacity expansion under stochastic demands we consider the problem of optimally meeting a stochastically growing demand for capacity over an infinite horizon under the assumption that demand for product follows either a nonlinear brownian motion or a non markovian birth and death process we show that this stochastic problem can be transformed into an equivalent deterministic problem consistent with earlier work by a manne the equivalent problem is formed by replacing the stochastic demand by its deterministic trend and discounting all costs by a new interest rate that is smaller than the original in approximate proportion to the uncertainty in the demand

information acquisition for capacity planning via pricing and advance selling when to stop and act this paper investigates a capacity planning strategy that collects commitments to purchase before the capacity decision and uses the acquired advance sales information to decide on the capacity in particular we study a profit maximization model in which a manufacturer collects advance sales information periodically prior to the regular sales season for a capacity decision customer demand is stochastic and price sensitive once the capacity is set the manufacturer produces and satisfies customer demand to the extent possible from the installed capacity during the regular sales period we study scenarios in which the advance sales and regular sales season prices are set exogenously and optimally for both scenarios we establish the optimality of a control band or a threshold policy that determines when to stop acquiring advance sales information and how much capacity to build we show that advance selling can improve the manufacturer s profit significantly we generate insights into how operating conditions such as the capacity building cost and market characteristics such as demand variability affect the value of information acquired through advance selling from this analysis we identify the conditions under which advance selling for capacity planning is most valuable finally we study the joint benefits of acquiring information for capacity planning through advance selling and revenue management of installed capacity through dynamic pricing

capacity expansion with interrupted demand growth abstract in most long range planning problems accurate forecasting of demand growth is often difficult sometimes unexpected shocks in the economy occur and disrupt the predicted growth rate of demand for example growth can unexpectedly cease for and indeterminate length of time due to crucial occurrnces such as wars economic recessions or oil price shocks in this paper we examine the effects of unforeseen demand plateaus on the capacity expansion problem of sizing and timing production facilities we assume that demand for capacity follows a stochastic process that is we allow for plateaus to happen at random future times and to continue for an uncertain duration when the demand process is generated by an alternating renewal process we show that demand plateaus result in a modified discounting rate and a modified import cost

a new game theoretic framework for maintenance strategy analysis in this paper a new approach to maintenance scheduling of generating units msu in competitive electricity markets is presented the main contribution of this study can be focused on modeling a game theoretic framework for the msu problem to analyze strategic behaviors of generating companies gencos the msu problem is formulated as a dynamic noncooperative game with complete information the player corresponds to the profit maximizing individual genco and the payoff of each player is defined as the profit from the energy auction market the optimal strategy profile is defined by the nash equilibrium of the game numerical results for two genco systems are used to demonstrate the basic ideas of the proposed scheme and large scale ieee reliability test systems are also considered to show the applicability of the proposed framework the results obtained indicate that maintenance schedule can be one of the crucial strategic behaviors whereby genco maximizes their profit in a competitive market environment

the impact of demand aggregation through delayed component allocation in an assemble to order system we consider an assemble to order system in which multiple products are assembled from a common component and a set of product dedicated components component capacities are chosen prior to a finite horizon selling season and the common component is allocated to the products based on observed demands we propose a collection of allocation mechanisms involving varying degrees of demand aggregation ranging from a scheme under which all demands are observed prior to making the allocation decision to allocations made for each arriving demand in this context we explore the impact of the allocation scheme on sales profits and capacity decisions including the degree of capacity imbalance we find that the benefit from increased demand aggregation is closely linked to the degree of capacity imbalance profit gains from delayed allocation tend to be higher in systems in which the optimal capacity portfolio is highly unbalanced when the allocation decision is made after observing all demands we develop insights into what detailed system parameters lead to the largest gains from demand aggregation and also explore the trade offs associated with the choice of an allocation scheme when customers exhibit impatience if the allocation scheme forces them to wait to be served this paper was accepted by ananth iyer operations and supply chain management

why are some people and countries more protectionist than others we analyze two cross country data sets that contain information on attitudes toward trade as well as a broad range of socio demographic and other indicators we nd that pro trade preferences are signi cantly and robustly correlated with an individual s level of human capital in the manner predicted by the factor endowments model preferences over trade are also correlated with the trade exposure of the sector in which an individual is employed individuals in non traded sectors tend to be the most pro trade while individuals in sectors with a revealed comparative disadvantage are the most protectionist third an individual s relative economic status has a very strong positive association withpro trade attitudes finally non economic determinants in the form of values identities and attachments play an important role in explaining the variation in preferences over trade high degrees of neighborhood attachment and nationalism patriotism are associated withprotectionist tendencies c

flexible service capacity optimal investment and the impact of demand correlation we consider a firm that provides multiple services using both specialized and flexible capacity the problem is formulated as a two stage single period stochastic program the firm invests in capacity before the actual demand is known and optimally assigns capacity to customers when demand is realized sample applications include a car rental company s use of mid sized cars to satisfy unexpectedly high demand for compact cars and an airline s use of business class seats to satisfy economy class demand we obtain an analytical solution for a particular case when services may be upgraded by one class the simple form of the solution allows us to compare the optimal capacities explicitly with a solution that does not anticipate flexibility given that demand follows a multivariate normal distribution we analytically characterize the effects of increasing demand correlation on the optimal solution for the case with two customer classes the effects of demand correlation are intuitive increasing correlation induces a shift from flexible to dedicated capacity when there are three or more classes there are also adjustments to the resources not directly affected by the correlation change as correlation rises these changes follow an alternating pattern for example if the optimal capacity of one resource rises then the optimal capacity of the adjacent resource falls these results make precise conjectures based on numerical experiments that have existed in the literature for some time

attitudes toward highly skilled and low skilled immigration evidence from a survey experiment past research has emphasized two critical economic concerns that appear to generate anti immigrant sentiment among native citizens concerns about labor market competition and concerns about the fiscal burden on public services we provide direct tests of both models of attitude formation using an original survey experiment embedded in a nationwide u s survey the labor market competition model predicts that natives will be most opposed to immigrants who have skill levels similar to their own we find instead that both low skilled and highly skilled natives strongly prefer highly skilled immigrants over low skilled immigrants and this preference is not decreasing in natives skill levels the fiscal burden model anticipates that rich natives oppose low skilled immigration more than poor natives and that this gap is larger in states with greater fiscal exposure in terms of immigrant access to public services we find instead that rich and poor natives are equally opposed to low skilled immigration in general in states with high fiscal exposure poor rich natives are more less opposed to low skilled immigration than they are elsewhere this indicates that concerns among poor natives about constraints on welfare benefits as a result of immigration are more relevant than concerns among the rich about increased taxes overall the results suggest that economic self interest at least as currently theorized does not explain voter attitudes toward immigration the results are consistent with alternative arguments emphasizing noneconomic concerns associated with ethnocentrism or sociotropic considerations about how the local economy as a whole may be affected by immigration

valuing operational flexibility under exchange rate risk in this paper we develop a stochastic dynamic programming formulation for the valuation of global manufacturing strategy options with switching costs overall we adopt a hierarchical approach first exchange rates are modeled as stochastic diffusion processes that exhibit intercountry correlation second the firm s global manufacturing strategy determines options for alternative product designs as well as supply chain network designs product options introduce international supply flexibility supply chain network options determine the firm s manufacturing flexibility through production capacity and supply chain network linkages third switching costs determine the cost of operational hedging i e the costs associated with reducing downside risks overall the firm maximizes its expected discounted global after tax value through the exercise of product and supply chain network options and or through exploitation of operational flexibility contingent on exchange rate realizations in this environment the firm must trade off fixed operating costs switching costs and the economic benefits derived from exploiting differentials in factor costs and corporate tax rates a multinomial approximation of correlated exchange rate processes is proposed that leads to a consistent and tractable lattice model for this compound option valuation problem we then demonstrate how the global manufacturing strategy planning model framework can be utilized to analyze financial and operational hedging strategies

incentives and commonality in a decentralized multiproduct assembly system in this paper we explore the impact of decentralized decision making on the behavior of multiproduct assembly systems specifically we consider a system where three components two product specific and one common are used to produce two end products to satisfy stochastic customer demands we study the system under both centralized and decentralized decision making in the decentralized system we prove that for any set of wholesale prices there exists a unique pareto optimal equilibrium in the suppliers capacity game we show that the assembler s optimal wholesale prices lie in one of two regions one leads to capacity imbalance and one does not we use these results to derive insights regarding the inefficiencies that decentralization can cause in such systems in particular several of our findings indicate that outsourcing the management of component supplies may inhibit the use of operational hedging approaches for managing uncertainty

support for free trade self interest sociotropic politics and out group anxiety although it is widely acknowledged that an understanding of mass attitudes about trade is crucial to the political economy of foreign commerce only a handful of studies have addressed this topic these studies have focused largely on testing two models both of which emphasize that trade preferences are shaped by how trade affects an individual s income the factor endowments or heckscher ohlin model posits that these preferences are affected primarily by a person s skills the specific factors or ricardo viner model posits that trade preferences depend on the industry in which a person works we find little support for either of these models using two representative national surveys of americans the only potential exception involves the effects of education initial tests indicate that educational attainment and support for open trade are directly related which is often interpreted as support for the heckscher ohlin model however further analysis reveals that education s effects are less representative of skill than of individuals anxieties about involvement with out groups in their own country and beyond furthermore we find strong evidence that trade attitudes are guided less by material self interest than by perceptions of how the u s economy as a whole is affected by trade

strategic bidding in an energy brokerage this focus of this paper is to present a framework in which strategies may developed for the individual participants in an energy brokerage such a framework is expected to be important with the increasing interest in electricity market structures such as the energy brokerage that deregulation has produced to illustrate the process of strategic bidding a simple suboptimal bidding strategy is presented with the aid of a numerical example the bidding strategy must be suboptimal because of the amount of unknown information about the other bidders further tuning of this strategy will be required before application to realistic scenarios

how can economic interests influence support for free trade recent research on the sources of individual attitudes toward trade policy comes to very different conclusions about the role of economic self interest the skeptical view suggests that long standing symbolic predispositions and sociotropic perceptions shape trade policy opinions more than one s own material well being we believe this conclusion is premature for two reasons first the practice of using one attitude to predict another raises questions about direction of causation that cannot be answered with the data at hand this problem is most obvious when questions about the expected impact of trade are used to predict opinions about trade policy second the understanding of self interest employed in most studies of trade policy attitudes is unrealistically narrow in reality the close relationship between individual economic interests and the interests of the groups in which individuals are embedded creates indirect pathways through which one s position in the economy can shape individual trade policy preferences we use the data employed by mansfield and mutz to support our argument that a more complete account of trade attitude formation is needed and that in such an account economic interests may yet play an important role 1