improving supply chain performance and managing risk under weather related demand uncertainty we consider a manufacturer retailer supply chain for a seasonal product whose demand is weather sensitive the retailer orders from the manufacturer supplier prior to the selling season and then sells to the market we examine how a manufacturer can structure a weather linked rebate to improve his expected profit the proposed class of rebate contracts offers several advantages over many other contract structures including no required verification of leftover inventory and or markdown amounts and no adverse effect on sales effort by the retailer we provide a thorough analysis of the manufacturer s and retailer s decisions in this context we show that the weather linked rebate can take many different forms and this flexibility allows the supplier to design contracts that are pareto improving and or limit his risk in offering the contract and the retailer s risk in accepting it for weather rebates with certain characteristics the manufacturer can fully hedge his risks of offering a weather rebate by paying a risk premium we show how this can be accomplished we also show that the basic structural results extend to settings in which the two parties would like to limit their risk

longevity risk subjective survival expectations and individual saving behavior abstract we provide evidence of individuals awareness of longevity risk the uncertainty about future survival probabilities based on subjective survival expectations elicited in the survey of health ageing and retirement in europe share and matching data on longevity risk from the human mortality database we find a positive relationship between the forecast dispersion in subjective survival estimates and longevity risk which indicates that individuals are to some extent aware of longevity risk our analysis of savings behavior shows that the dispersion in survival estimates is primarily explained by individuals disagreeing on the survival probability and not by their true awareness of the underlying uncertainty individuals do not save more on average when faced with longevity risk although theory suggests they should

the allocation of inventory risk in a supply chain push pull and advance purchase discount contracts while every firm in a supply chain bears supply risk the cost of insufficient supply some firms may even with wholesale price contracts completely avoid inventory risk the cost of unsold inventory with a push contract there is a single wholesale price and the retailer by ordering his entire supply before the selling season bears all of the supply chain s inventory risk a pull contract also has a single wholesale price but the supplier bears the supply chain s inventory risk because only the supplier holds inventory while the retailer replenishes as needed during the season examples include vendor managed inventory with consignment and drop shipping an advance purchase discount has two wholesale prices a discounted price for inventory purchased before the season and a regular price for replenishments during the selling season advance purchase discounts allow for intermediate allocations of inventory risk the retailer bears the risk on inventory ordered before the season while the supplier bears the risk on any production in excess of that amount this research studies how the allocation of inventory risk via these three types of wholesale price contracts impacts supply chain efficiency the ratio of the supply chain s profit to its maximum profit it is found that the efficiency of a single wholesale price contract is considerably higher than previously thought as long as firms consider both push and pull contracts in other words the literature has exaggerated the value of implementing coordinating contracts i e contracts that achieve 100 efficiency such as buy backs or revenue sharing because coordinating contracts are compared against an inappropriate benchmark often just a push contract furthermore if firms also consider advance purchase discounts which are also simple to administer then the coordination of the supply chain and the arbitrary allocation of its profit is possible several limitations of advance purchase discounts are discussed

the value of fast fashion quick response enhanced design and strategic consumer behavior a fast fashion system combines quick response production capabilities with enhanced product design capabilities to both design hot products that capture the latest consumer trends and exploit minimal production lead times to match supply with uncertain demand we develop a model of such a system and compare its performance to three alternative systems quick response only systems enhanced design only systems and traditional systems which lack both enhanced design and quick response capabilities in particular we focus on the impact of each of the four systems on strategic or forward looking consumer purchasing behavior i e the intentional delay in purchasing an item at the full price to obtain it during an end of season clearance we find that enhanced design helps to mitigate strategic behavior by offering consumers a product they value more making them less willing to risk waiting for a clearance sale and possibly experiencing a stockout quick response mitigates strategic behavior through a different mechanism by better matching supply to demand it reduces the chance of a clearance sale most importantly we find that although it is possible for quick response and enhanced design to be either complements or substitutes the complementarity effect tends to dominate hence when both quick response and enhanced design are combined in a fast fashion system the firm typically enjoys a greater incremental increase in profit than the sum of the increases resulting from employing either system in isolation furthermore complementarity is strongest when customers are very strategic we conclude that fast fashion systems can be of significant value particularly when consumers exhibit strategic behavior this paper was accepted by yossi aviv operations management

assortment planning in fashion retailing methodology application and analysis abstract assortment planning is the process conducted by the retailer to determine the number and types of products in a line key questions that arise in this process include choosing the inventory depth and variety breadth and the mix between basic and fashion merchandise of the assortment to maximize expected profits we describe a method for resolving these questions using demand forecasts derived from historical sales patterns we use a nonlinear integer programming model to make the assortment choice efficient heuristics are developed to solve this problem we applied our method at a large catalog retailer specializing in women s apparel we compared our method to the existing rules used by this retailer and found that it could choose the assortment in a manner that reduces markdowns due to excessive inventory and lost margins due to stockouts by enough to increase profits by at least 40 insights are developed to better understand why products are included in an assortment and the implications of this choice on the realized profit we extend our model to include shelf space constraints and the effect of assortment choice on product demand

conditions that cause risk pooling to increase inventory abstract we say product a is a partial substitute for product b if a fraction of the customers who prefer b are willing to accept a when b is out of stock when demand is uncertain it is intuitive and true that a larger willing to substitute fraction implies larger expected profits a higher willing to substitute fraction allows one to pool the risk of individual products it may also be intuitive that a larger willing to substitute fraction might result in lower optimal total inventory for the full substitution structure several researchers have shown that for certain distributions such as the exponential this latter intuition is not true we show that this full substitution anomaly can occur with any right skewed demand distribution we assume i i d demand distributions unless we indicate otherwise we also show that the anomaly can occur for a number of realistic situations of partial substitution with commonly used demand distributions such as normal exponential poisson and uniform we also demonstrate the anomaly for more than one period with backlogging lost sales more than two products and with setup costs

is hotelling s rule relevant to domestic oil production a model of oil supply from known reserves is developed to incorporate geological and engineering principles in the oil field operator s decision problem oil production from existing wells within an oil field is isolated from the drilling of new wells the geo engineering

forecasting demand for single period products a case study in the apparel industry the problem considered is that of forecasting demand for single period products before the period starts we study this problem for the case of a mail order apparel company that needs to order its products pre season the lack of historical demand data implies that other sources of data are needed advance order data can be obtained by allowing a selected group of customers to pre order at a discount from a preview catalogue judgments can be obtained from purchase managers or other company experts in this paper we compare several existing and new forecasting methods for both sources of data the methods are generic and can be used in any single period problem in the apparel or fashion industries among the pre order based methods a novel top flop approach provides promising results for a small group of products from the case company expert judgment methods perform better than the methods based on advance demand information the comparative results are obviously restricted to the specific case study and additional testing is required to determine whether they are valid in general

impact of loss aversion on the newsvendor game with product substitution abstract this paper studies a newsvendor game in which two substitutable products are sold by two different retailers newsvendors with loss averse preferences each loss averse retailer facing stochastic customer demand and deterministic substitution rate will make an order quantity decision to maximize his expected utility since product substitution causes two retailers to make decisions in a competitive environment game theory is used to find the retailers optimal order quantities it is shown that under certain conditions there exists a unique nash equilibrium in the newsvendor game under a symmetry assumption each retailer s equilibrium order quantity is decreasing in the loss aversion coefficient and increasing in the substitution rate further if the effect of loss aversion on the order quantity is strong enough to dominate the effect of competition the total inventory level of a decentralized supply chain will be lower than that of a centralized supply chain numerical experiments are conducted to illustrate our results

hedging price volatility using fast transport abstract purchasing goods from distant locations introduces a significant lag between when a product is shipped and when it arrives these transit lags are trade barriers for firms facing volatile demand who must place orders before knowing the resolution of demand uncertainty we provide a model in which airplanes bring producers and consumers together in time fast transport allows firms to respond quickly to favorable demand realizations and to limit the risk of unprofitably large quantities during low demand periods the model predicts that the likelihood and extent to which firms employ air shipments is increasing in the volatility of demand they face decreasing in the air premium they must pay and increasing in the contemporaneous realization of demand we confirm all three conjectures using detailed us import data fast transport thus provides firms with a real option to smooth demand volatility on international markets and we provide simple calculations of that option value this enables us to identify how the option value relates to goods characteristics and to changes in air transport premia associated with technological and policy change including the introduction of jet engines and liberalization of trade in air services

two period production planning and inventory control we study a single product two period production inventory model in which the demands at each period are independent random variables to optimally satisfy these random demands quantities can be produced at the beginning of each period using slow or fast production mode under capacity constraints in addition to the usual decision variables for such models we consider that a certain quantity can be salvaged at the beginning of each period such salvage processes are useful if the initial inventory of a period is considered to be too high the unsatisfied demands for each period are backlogged to be satisfied during the next periods after the end of the second period a last quantity is produced in order to satisfy remaining orders and to avoid lost sales the remaining inventory if any is salvaged we formulate this model using a dynamic programming approach we prove the concavity of the global objective function and we establish the closed form expression of the second period optimal policy then via a numerical solution approach we solve the first period problem and exhibit the structure of the corresponding optimal policy we provide insights via numerical examples that characterize the basic properties of our model and the effect of some significant parameters such as costs demand variabilities or capacity constraints

product portfolio management with production flexibility in agribusiness the acquisition of production flexibility is a well documented strategy pursued by many firms to counteract certain operational constraints however these flexibilities can increase the complexity of a production system and the difficulties in managing increased complexity may hinder exploiting the full benefit of flexibility in this paper we consider one such flexibility paradox at an agribusiness firm for an annual 800 million production decision the firm produces a number of products hybrid seeds using limited inventories of several raw materials parent seeds and a production process that is subject to random variations to handle the raw material availability constraint and to partially mitigate the supply risk the firm invests in a costly second production in south america that can be used if the yield in the first production in north america is low we solve this joint problem of raw material allocation and sequential production by reformulating it as a tractable simultaneous optimization

future capacity procurements under unknown demand and increasing costs in this paper we study a situation in which a broker must manage the procurement of a short life cycle product as the broker observes demand for the item she learns about the demand process however as is often the case in practice it becomes either more difficult or more expensive to procure the item as the selling season advances thus the broker must trade off higher procurement costs against the benefit of making ordering decisions with better information about demand problems of this type arise for example in the travel industry where a travel agent s cost of procuring airline and hotel reservations increases as the date of a vacation package approaches we develop a newsvendor like characterization of the optimal procurement policy in a numerical analysis we demonstrate how broker procurements tend to cluster just before price increases and how brokers can benefit from explicitly considering the effects of information about demand in their ordering policies

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

effective control policies for stochastic inventory systems with a minimum order quantity and linear costs abstract we consider a model of single item periodic review inventory system with stochastic demand linear ordering cost where in each time period the system must order either none or at least as much as a minimum order quantity moq optimal inventory policies for such a system are typically too complicated to implement in practice in fact the s s type of policies are often utilized in the real world we study the performance of a simple heuristic policy that is easily implementable because it is specified by only two parameters s t we develop an algorithm to compute the optimal values for these parameters in the infinite time horizon under the average cost criterion through an extensive numerical study we demonstrate that the best s t heuristic policy has performance close to that of the optimal policies when the coefficient of variation of the demand distribution is not very small furthermore the best s t policy always outperforms the best feasible s s policies and on average the percentage differences are significant finally we study the impact of moq on system performance

reducing the cost of demand uncertainty through accurate response to early sales traditionally fashion products have incurred high losses due to stockouts and inventory obsolence because long lead times coupled with a concentrated selling season force all or at least most production to be committed before demand information is available under a quick response system lead times are shortened sufficiently to allow a greater portion of production to be scheduled in response to initial demand we model and analyze the decisions required under quick response and give a method for estimating the demand probability distributions needed in our model we applied these procedures with a major fashion skiwear firm and found that cost relative to the current informal response system was reduced by enough to increase profits by 60 relative to the cost that would have been incurred if no response were used optimized response reduces cost by enough to roughly quadruple profits

taxation depletion and welfare a simulation study of the u s petroleum resource abstract exhaustible resources in the united states are subject to taxes on property value production and corporate income as applied in practice each tax can cause high grading the elimination of incentives to explore develop and produce marginal resources and each can tilt the time path of production toward the present or the future the potential for such tax induced distortions has been shown in the theoretical literature due to the dynamic nature of resource exploitation and the resulting complexity of models developed to study it however purely theoretical exercises have been unable to provide detailed results of a sort that could help guide tax policy the present paper develops a simulation model of the u s petroleum resource and uses it to study the effects of taxation on exploration and production the model is partial equilibrium in scope and views the industry as a present value maximizing representative firm given expectations on the future time path of price and a function that relates reserve additions to exploratory effort the industry chooses time paths for exploration and production parameters of relevant functions are estimated with data for u s petroleum operations in the onshore region of the lower 48 states the simulated outcomes indicate that property and production severance taxes cause substantial deadweight losses a tax on corporate income from extraction imposes a very small deadweight loss and the property tax significantly biases utilization of the resource away from the future and toward the present

demand uncertainty and sales a study of fashion and markdown pricing the theory of clearance sales is expanded and applied to explain why markups markdowns and the frequency of sales of merchandise sold by department stores have increased dramatically in recent years and why they differ across merchandise groups tha major theme of the paper is that the growing role of fashion and product variety is an important reason for these increases and for the differences between merchandise groups the growing importance of fashion is illustrated by documenting the declining use of whites and the increasing use of colors and prints estimates of the effects of imports and technological and demographic changes on markups and markdowns are presented copyright 1988 by american economic association

public ownership of the external world and private ownership of self liberal political philosophy represented classically by john locke and today by libertarians defends great inequality of economic outcome on the basis that people own themselves and are entitled to establish private property in the external world by virtue of that self ownership contemporary nonlibertarian political philosophers such as john rawls and ronald dworkin achieve their relatively egalitarian conclusion by effectively denying self ownership as a premise an alternative challenge to liberalism which does not take the radical starting point of denying self ownership is to declare that while certain rights to benefit by virtue of superior skill should be protected a degree of self ownership productive assets in the external world be viewed as publicly owned and not privately appropriable what allocation mechanisms on a space of possible economies satisfy axioms that are necessary to guarantee both private ownership of self and public or joint ownership of the external world we propose a

capacitated multi item inventory systems with random and seasonally fluctuating demands implications for postponement strategies we address multi item inventory systems with random and seasonally fluctuating and possibly correlated demands the items are produced in two stages each with its own lead time in the first stage a common intermediate product is manufactured the production volumes in the first stage are bounded by given capacity limits we develop an accurate lower bound and close to optimal heuristic strategies of simple structure the gap between them evaluated in an extensive numerical study is on average only 0 45 we use the model to investigate the benefits of various delayed product differentiation postponement strategies as well as other strategic questions including i the benefits of flexible versus dedicated production facilities ii the trade off between capacity and inventory investments and iii the trade off between capacity investments and service levels

the effect of payment schemes on inventory decisions the role of mental accounting does the payment scheme have an effect on inventory decisions in the newsvendor problem keeping the net profit structure constant we examine three payment schemes that can be interpreted as the newsvendor s order being financed by the newsvendor herself scheme o by the supplier through delayed order payment scheme s and by the customer through advanced revenue scheme c in a laboratory study we find that inventory quantities exhibit a consistent decreasing pattern in the order of schemes o s and c with the order quantities of scheme s being close to the expected profit maximizing solution these observations are inconsistent with the expected profit maximizing model contradict what a regular or hyperbolic time discounting model would predict and cannot be explained by the loss aversion model instead they are consistent with a model that underweights the order time payments which can be explained by the prospective accounting theory in the mental accounting literature a second study shows that the results hold even if all physical payments are conducted at the same time suggesting that the framing of the payment scheme is sufficient to induce the prospective accounting behavior we further validate the robustness of our model under different profit conditions our findings contribute to the understanding of the psychological processes involved in newsvendor decisions and have implications for supply chain financing and contract design this paper was accepted by christian terwiesch operations management

robust price setting newsvendor model with interval market size and consumer willingness to pay we consider a price setting newsvendor problem with partial information the newsvendor does not know the price dependent probability distribution of demand but is able to estimate lower and upper limits of the market size and consumer willingness to pay the objective is to minimize the maximum loss in expected profit or minimax regret we derive closed form expressions for optimal quantity and price and identify managerial insights

strategic commitments for an optimal capacity decision under asymmetric forecast information we study the important problem of how to assure credible forecast information sharing between a supplier and a manufacturer the supplier is responsible for acquiring the necessary capacity before receiving an order from the manufacturer who possesses private forecast information for her end product we address how different contracts affect the supplier s capacity decision and hence the profitability of the supplier and the manufacturer we fully develop two contracts and provide explicit formulae to enable credible forecast information sharing the first is a nonlinear capacity reservation contract under which the manufacturer agrees to pay a fee to reserve capacity the second is an advance purchase contract under which the manufacturer is induced to place a firm order before the supplier secures the component capacity used to build the end product these contracts serve a strategic role in information sharing the capacity reservation contract enables the supplier to detect the manufacturer s private forecast information while the advance purchase contract enables the manufacturer to signal her forecast information we show that channel coordination is possible even under asymmetric forecast information by combining the advance purchase contract with an appropriate payback agreement through our structural and numerical results we also show that the degree of forecast information asymmetry and the risk adjusted profit margin are two important drivers that determine supply chain efficiency and which contract to adopt

supply chain coordination with multiple shipments the optimal inventory subsidizing contracts we study a supply chain involving a supplier retailer relationship when production lead time is long and the selling season is short the retailer has to place an order ahead of the season which resembles the classical newsvendor model however we consider the situation when the supplier agrees to deliver the order in multiple shipments in the season and then the retailer needs to determine the quantity and or timing of each shipment under a centralized setting we derive the optimal quantity and or timing decisions of the retailer under a decentralized setting incentive misalignment arises from ineffective allocation of inventory costs between the parties in addition to the well known double marginalization effect hence we devise an incentive contract which involves a risk sharing mechanism at the end of the season and an inventory subsidizing scheme for the entire season in practice the inventory subsidizing scheme can be implemented in different ways such as a direct subsidizing scheme o

enriching demand forecasts with managerial information to improve inventory replenishment decisions exploiting judgment and fostering learning this paper is concerned with analyzing and modelling the effects of judgmental adjustments to replenishment order quantities judgmentally adjusting replenishment quantities suggested by specialized statistical software packages is the norm in industry yet to date no studies have attempted to either analytically model this situation or practically characterize its implications in terms of learning we consider a newsvendor setting where information available to managers is reflected in the form of a signal that may or may not be correct and which may or may not be trusted we show the analytical equivalence of adjusting an order quantity and deriving an entirely new one in light of a necessary update of the estimated demand distribution further we assess the system s behavior through a simulation experiment on theoretically generated data and we study how to foster learning to efficiently utilize managerial information judgmental adjustments are found to be beneficial even when the probability of a correct signal is not known more generally some interesting insights emerge into the practice of judgmentally adjusting order quantities

managing stochastic inventory systems with free shipping option abstract in many industries customers are offered free shipping whenever an order placed exceeds a minimum quantity specified by suppliers this allows the suppliers to achieve economies of scale in terms of production and distribution by encouraging customers to place large orders in this paper we consider the optimal policy of a retailer who operates a single product inventory system under periodic review the ordering cost of the retailer is a linear function of the ordering quantity and the shipping cost is a fixed constant k whenever the order size is less than a given quantity the free shipping quantity fsq and it is zero whenever the order size is at least as much as the fsq demands in different time periods are i i d random variables we provide the optimal inventory control policy and characterize its structural properties for the single period model for multi period inventory systems we propose and analyze a heuristic policy that has a simple structure the s t s policy optimal parameters of the proposed heuristic policy are then computed through an extensive numerical study we demonstrate that the heuristic policy is sufficiently accurate and close to optimal

institutions sans frontieres international agreements and foreign investment we examine whether the presence of international investment agreements iias negotiated among countries for foreign investor protection lowers political risk faced by multinational enterprises mnes drawing on research from international business political science and international law we argue that iias increase expected future cash flows and hence the value of foreign assets by limiting the ability of host governments to make discriminatory policy changes however the need for iia protection and the ability to benefit from it varies with firm characteristics using detailed transaction level data for sale of petroleum assets in 45 countries we find that mnes pay significantly higher amounts for those protected by iias than similar but unprotected assets an effect moderated by the firm s reserve size and state ownership

do natural resources fuel authoritarianism a reappraisal of the resource curse a large body of scholarship finds a negative relationship between natural resources and democracy extant cross country regressions however assume random effects and are run on panel datasets with relatively short time dimensions because natural resource reliance is not an exogenous variable this is not an effective strategy for uncovering causal relationships numerous sources of bias may be driving the results the most serious of which is omitted variable bias induced by unobserved country specific and time invariant heterogeneity to address these problems we develop unique historical datasets employ time series centric techniques and operationalize explicitly specified counterfactuals we test to see if there is a long run relationship between resource reliance and regime type within countries over time both on a country by country basis and across several different panels we find that increases in resource reliance are not associated with authoritarianism in fact in many specifications we generate results that suggest a resource blessing

pre season stocking and pricing decisions for fashion retailers with multiple information updating abstract motivated by the industrial practice we investigate in this paper the pre season inventory and pricing decisions for fashion retailers before the selling season a retailer can place orders for a seasonal fashion product from her supplier at two distinct stages via two different delivery modes market information from the sales of a pre seasonal product is collected and used to update the demand forecast of the seasonal product at the succeeding stages by using bayesian approach we formulate a dynamic optimization problem and obtain the optimal stocking policy after the ordered seasonal product has arrived and just before the start of the selling season the retailer can determine the optimal selling price of the product with respect to the latest demand information and the amount of product on hand we study the pricing policy under different objectives sensitivity analysis is carried out and the features of the policies are revealed managerial insights are generated

a note on price discount based on early order commitment in a single manufacturer multiple retailer supply chain abstract early order commitment eoc is a strategy for supply chain coordination wherein the retailer commits to purchasing from a manufacturer a fixed order quantity a few periods in advance of the regular delivery lead time in this paper we formulate and analyze the eoc strategy for a decentralized two level supply chain consisting of a single manufacturer and multiple retailers who face external demands that follow an autocorrelated ar 1 process over time we characterize the special structure of the optimal solutions for the retailers eoc periods to minimize the total supply chain cost and discuss the impact of demand parameters and cost parameters we then develop and compare three solution approaches to solving the optimal solution using this optimal cost as the benchmark we investigate the effectiveness of using the wholesale price discount scheme for the manufacturer to coordinate this decentralized system we give numerical examples to show the benefits of eoc to the whole supply chain examine the efficiency of the discount scheme in general situation and provide the special conditions when the full coordination is achieved

scarf s state reduction method flexibility and a dependent demand inventory model we consider a finite horizon inventory model with linear holding shortage and ordering costs the demand random variables are dependent and average demand is described by an exponential smoothing formula this model can be formulated as a two state variable inventory level weighted past demands dynamic program using a procedure first developed by scarf for a bayesian inventory model we are able to reformulate the model as a one state variable dynamic program resulting in a considerable computational saving over the two state variable formulation we also show that this dependent demand model orders less than or equal the amount ordered by a comparable independent demand model we establish this result under the assumption that demand represents failures that are repaired by the beginning of the next period

why do leaders nationalize the oil industry the politics of resource expropriation why do leaders nationalize the oil industry in line with a general utility maximizing theory i argue that leaders nationalize to maximize state revenues while minimizing costs the latter includes international retaliation and domestic political constraints using a novel longitudinal dataset on the establishment of national oil companies nocs the empirical evidence presented in this paper lends support to four primary findings states are most likely to establish nocs 1 in periods of high oil prices when the risks of expropriation are outweighed by the financial benefits 2 in non democratic systems where executive constraints are limited 3 in waves that is after other countries have nationalized reflecting reduced likelihood of international retaliation and though with weaker empirical support 4 in political settings marked by resource nationalism this last factor is proxied by opec membership in large n analysis and in a two case comparison by the difference in retained profits between the host and foreign governments the theory and empirics presented here offer some clues for policy makers and multinational companies alike as to when to expect leaders to opt for nationalization

single item inventory control under periodic review and a minimum order quantity in this paper we study a periodic review single item single stage inventory system with stochastic demand in each time period the system must order none or at least as much as a minimum order quantity qmin since the optimal structure of an ordering policy with a minimum order quantity is complicated we propose an easy to use policy which we call r s qmin policy assuming linear holding and backorder costs we determine the optimal numerical value of the level s using a markov chain approach in addition we derive simple news vendor type inequalities for near optimal policy parameters which can easily be implemented within spreadsheet applications in a numerical study we compare our policy with others and test the performance of the approximation for three different demand distributions poisson negative binomial and a discretized version of the gamma distribution given the simplicity of the policy and its cost performance as well as the excellent performance of the approximation we advocate the application of the r s qmin policy in practice

taxation ore quality selection and the depletion of a heterogeneous deposit of a nonrenewable resource abstract the effect of taxation on depletion is examined when ore quality varies within a deposit and the firm s selection of the sequence of exploitation is constrained tax policies in this setting are less conserving of the resource than if ore quality is homogeneous and can be less conserving of the resource than in other models of ore quality selection for example a constant severance tax can induce faster depletion decrease the life of the mine reduce total recovery and increase metal output in periods when extraction is positive

design for postponement a comprehensive characterization of its benefits under unknown demand distributions recent papers have developed analytical models to explain and quantify the benefits of delayed differentiation and quick response programs these models assume that while demands in each period are random they are independent across time and their distribution is perfectly known i e sales forecasts do not need to be updated as time progresses in this paper we characterize these benefits in more general settings where parameters of the demand distributions fail to be known with accuracy or where consecutive demands are correlated here it is necessary to revise estimates of the parameters of the demand distributions on the basis of observed demand data we analyze these systems in a bayesian framework assuming that our initial information about the parameters of the demand distributions is characterized via prior distributions we also characterize the structure of close to optimal ordering rules in these systems for a variety of types of order cost functions

endogenous oil rents oil rents may at times fall like manna from heaven into the fiscal coffers of the state yet politicians also make decisions that can increase or decrease the extent to which oil rents accrue to the central government though counterintuitive various evidence suggests that politicians sometimes do not seek to maximize the state s claim on rents in this article the author substantiates this observation with evidence from venezuela and then develops a formal model of the relationship between electoral competition and rent choice the author argues that the model can explain why politicians allowed the central government s share of rents to decline in venezuela beginning in the 1990s even though a decline in rents plausibly contributed to the destabilization of venezuelan democracy the argument illuminates patterns of rent capture in other cases whereas the model may be useful in many settings in which the gains from economic investment are realized over several electoral terms

doing the right thing or doing the thing right allocating resources between marketing research and manufacturing matching production with sales potential is essential for survival in volatile markets manufacturing and marketing managers compete for staff space cash and other assets as they struggle both to determine what and how many products ought to be produced and to actually produce them we develop an analytical framework to answer one simple question how much marketing research should a firm do when it takes resources away from manufacturing the goods that generate revenue to understand the costs and benefits of marketing research we account for the lost opportunities to produce these goods some analytical findings are striking firms without initial knowledge of their potential customers should allocate one third of the firm s resources to marketing research the model suggests a host of issues to be more deeply studied by management scientists

channel incentives in sharing new product demand information and robust contracts abstract demand for a new product is often highly uncertain as the developer of a new product the manufacturer may reduce the uncertainty of the product s demand through observing progress in his product development process or receiving demand signals directly from customers this paper first shows that a centralized channel always benefits from improved demand information yet to realize this benefit in a decentralized manufacturer retailer channel the manufacturer needs to disclose his private demand information to the retailer we show that the manufacturer s incentive to share his improved demand information depends on the supply contract signed with the retailer furthermore mandating the manufacturer to disclose his improved demand information can actually reduce the total channel profit we provide managerial insights by analyzing three widely used contract forms we investigate whether these contracts are robust under an unanticipated demand information update observed by the manufacturer we show that the quantity flexibility contract with a high return rate is not robust the buyback contract however is robust and always achieves information sharing while preserving channel performance

selling to the newsvendor with a forecast update analysis of a dual purchase contract we consider a supply chain in which a manufacturer sells to a procure to stock retailer facing a newsvendor problem with a forecast update under a wholesale price contract the retailer waits as long as she can and optimally places her order after observing the forecast update we show that the retailer s wait and decide strategy induced by the wholesale price contract hinders the manufacturer s ability to 1 set the wholesale price and maximize his profit 2 hedge against excess inventory risk and 3 reduce his profit uncertainty to mitigate the adverse effect of wholesale price contract we propose the dual purchase contract through which the manufacturer provides a discount for orders placed before the forecast update we characterize how and when a dual purchase contract creates strict pareto improvement over a wholesale price contract to do so we establish the retailer s optimal ordering policy and the manufacturer s optimal pricing and production policies we show how the dual purchase contract reduces profit variability and how it can be used as a risk hedging tool for a risk averse manufacturer through a numerical study we provide additional managerial insights and show for example that market uncertainty is a key factor that defines when the dual purchase contract provides strict pareto improvement over the wholesale price contract

loss averse newsvendor model with two ordering opportunities and market information updating abstract a fashion supply chain characterized by a long lead time and a short selling season is considered in this paper facing demand uncertainty the risk averse retailer has two opportunities to make order decisions before the demand is realized the risk aversion is modelled as a penalty to the decision maker the retailer if a target profit is not attained we derive the retailer s optimal ordering decisions and analyze the monotonicity behaviours of the critical market signal the optimal first stage order quantity and the optimal expected payoff with respect to the penalty coefficient we also examine the impact of demand forecast quality on the retailer s decisions and extend the study to the case where order cancellation is allowed

a note on the effect of tax brackets on non renewable resource extraction abstract tax brackets are a common feature of non renewable resource taxes although the introduction of brackets would seem to be an innocuous way of approximating a non linear tax system the dynamic effects are surprising this paper shows that the presence of tax brackets in both a severance tax system and a profits tax system can induce the extractive firm to depart from the well known monotonically declining extraction profile and to choose instead a profile which has constant extraction rates over some interval of time

the effects of an undisclosed regular price and a positive leadtime in a presale mechanism abstract a presale program is popular with manufacturers who wish to reduce the risk posed by uncertain demands we introduce a new price mechanism in which the manufacturer during the presale period does not disclose the exact regular price in the sale period although it is guaranteed to customers to be higher than the presale price as positive leadtime is much overlooked in presale models we analyze the rationality of including one the numerical results in this paper show that both the specific price mechanism and the positive leadtime have significant effects on the manufacturer s policy production quantity presale price regular price the expected profit and customer behaviors the optimal discount rate should be greater than 50 percent this conclusion is consistent with existing results of surveys on saturation points the manufacturer can take advantage of the latest information on demand gathered in the presale period to update their policy and increase their expected profit

managing product variety with advance selling and capacity restrictions abstract in this research we analyze the impact of advance selling with price discount on a firms ability to maximize the expected profit the production environment of the firm is characterized by short selling cycle multiple products demand variability and capacity restrictions the advance orders are randomly distributed with the parameters dependent on the discount levels under advance selling the advance orders are used to update the demand forecast of selling season and are delivered at the start of the selling season the problem is modeled as a three stage stochastic non linear programming problem we derive the concavity of the problem under customers willingness to buy in advance our solution methodology comprises the variance reduction technique of antithetic variates that gives credible value of price discount levels for different sets of demand values we also provide sensitivity analysis of the problem parameters to derive insights into the behavior of the expected profit and the benefits due to advance selling under capacity restrictions

on efficiency inducing taxation for a non renewable resource monopolist the problem of using taxes to induce a monopolist supplier of a non renewable resource to extract efficiently has been solved under the assumption that the government has perfect information about the monopolist s cost function and reserves and is able to precommit to an entire sequence of taxes over time we extend this literature by constructing an efficiency inducing tax mechanism that does not require the government to have any information about the cost function or reserves and which does not require it to precommit to a sequence of taxes over time

determining the production order of two seasonal products under capacity constraint abstract in this paper the production sequence of two seasonal products is analyzed when the parameters of demand forecasts are not certainly known in advance the accuracy of these forecasts improves as the season is approached however the expected demand remains a probability variable when production decisions are made on the production order and volume of the products at the beginning of the planning horizon the novel side of the approach applied in this paper is a capacity constraint inserted into the analyses in which the production volume depends on a probability variable namely on the expected demand

asymmetric information incentives and price cap regulation a regulatory incentive mechanism is presented in which the regulated firm has superior information about both cost and demand compared to the regulator the mechanism leads to truthful revelation of the demand function and extracts all rents due to private demand information in a nondistorting way the scheme assumes that the regulator can observe lagged expenditures by the firm this mechanism leads to efficient pricing operating and investment behavior by the firm finally it is shown that the mechanism is closely related to recent proposals for price cap regulation and that under certain assumptions simple modifications of these proposals will lead to the mechanisms discussed herein

strategic commitment versus postponement in a two tier supply chain abstract in this paper the trade off between strategic commitment and operational flexibility is examined as it arises in a supply chain when a supplier offers competing buyers opportunities to make early purchase commitments for a product with a short life cycle traditionally the use of incentives for early purchase commitments for short life cycle products has been justified on the basis of a supplier s production lead times or capacity constraints an alternative explanation has been proposed by offering early purchasing opportunities a supplier can influence the form of competition in the downstream market using a single period model it has been shown that below a threshold level of demand uncertainty the supplier can benefit from providing adequate pricing incentives to entice downstream buyers to commit to purchase quantities before demand information is revealed moreover such early purchasing opportunities can benefit the supplier as well as the buyers even in the absence of production lead times or capacity constraints

neutrality and efficiency of petroleum revenue tax a theoretical assessment we use an irreversible investment model of oil development to show how a fiscal regime can be both neutral with respect to development decisions and efficient in recouping economic rents we find that there is a unique rate for calculating the tax deductibility of capital costs which ensures economic neutrality while tax efficiency involves high rates of tax on profits after these deductions using parameters of the uk petroleum revenue tax prt numerical calculations in our simplified model suggest that prt was both neutral and relatively efficient in conclusion the tax efficiency of prt is compared with that of a neutral resource rent tax

production planning of style goods with high setup costs and forecast revisions in this paper we study a problem common to a wide variety of manufacturing companies of determining the production schedule of style goods such as clothing and consumer durables under capacity constraints demand for items is stochastic and occurs in the last season of the planning horizon demand estimates are revised in each period we exploit the problem s two level hierarchical structure which is characterized by families and items production changeover costs from one family to another are high compared to other costs however changeover costs between items in the same family are negligible we first formulate this problem as a difficult to solve stochastic mixed integer programming problem then exploiting the problem s hierarchical structure we formulate a deterministic mixed integer programming problem and solve it by means of an algorithm that provides an approximate solution a lower bound is obtained by applying generalized linear programming to the approximate problem we illustrate the procedure using the disguised data of a consumer electronics company the computational results demonstrate the effectiveness of the proposed approach in a practical setting

the distribution free newsboy problem with resalable returns we study the case of a catalogue internet mail order retailer selling style goods and receiving large numbers of commercial returns returned products arriving before the end of the selling season can be resold if there is sufficient demand a single order is placed before the season starts excess inventory at the end of the season is salvaged and all demands not met directly are lost since little historical information is available it is impossible to determine the shape of the distribution of demand therefore we analyze the distribution free newsboy problem with returns in which only the mean and variance of demand are assumed to be known we derive a simple closed form expression for the distribution free order quantity which we compare to the optimal order quantities when gross demand is assumed to be normal lognormal or uniform we find that the distribution free order rule performs well when the coefficient of variation cv is at most 0 5 but is far from optimal when the cv is large

a simulation framework for forecasting uncertain lumpy demand abstract managing uncertainty when the demand is irregular and sporadic i e lumpy is a complex issue as well as an unexplored one this study analyses the behaviour of forecasting techniques when dealing with lumpy demand at the master production scheduling level in particular three forecasting techniques exponentially weighted moving average early sales and order overplanning are considered it is argued that demand lumpiness is a multidimensional phenomenon generated by different market characteristics namely numerousness of customers heterogeneity of customers frequency of order placing variety of each customer s request and correlation between customers behaviour hence the performances of the three forecasting methods are compared through simulation experiments with different values of the sources of lumpiness a framework is then proposed that indicates the domain of applicability of each forecasting technique according to the prevailing source of lumpiness in the market

a stochastic sequencing problem for style goods with forecast revisions and hierarchical structure this paper addresses the problem of simultaneously determining a production sequence and production volumes of style goods style goods have one selling season per year during the rest of the year manufacturers of style goods build up the inventory while continuously reestimating the demand in the final selling season in this problem products have a two stage hierarchy items and families the production of a family is assumed to be nonpreemptive exploiting the hierarchical structure we formulate the problem as a two stage stochastic sequencing problem the stochastic aggregate sequencing problem and the stochastic disaggregation problem to solve the stochastic aggregate sequencing problem a simple heuristic solution procedure is developed that accounts for the forecast revisions and provides a lower bound on the optimal value the heuristic is tested using the disguised data obtained from a consumer electronics company the computational results demonstrate the applicability of the proposed procedure

the political economy of oil production in latin america 1990s witnessed a significant increase in investments in the oil and gas sector in latin america in most countries private investment took the lead after the privatization and liberalization of the sector in argentina bolivia brazil ecuador and venezuela private oil investment or some form of privatization or both generated significant increases in hydrocarbon production and reserves in the last five years however the region has experienced a new wave of resource nationalism with increases in the government s take and state control oil taxes have risen significantly in argentina bolivia ecuador and venezuela in addition bolivia and venezuela have partially nationalized oil projects we argue that the recent trend is largely the outcome of the rise in the international oil price furthermore we show how the likelihood of expropriation increased after a period of successful investment in exploration and production at the same time the timing of these changes and direction in which the sector has evolved varies considerably across the region in contrast to most other countries in the region brazil colombia and peru have generally strengthened the institutional framework and the property rights of private oil producers this paper provides a political economy rationale for the divergent evolution

myopic policies for some inventory models with uncertain demand distributions the majority of papers on stochastic inventory theory make the assumption that the distribution of consumer demand in each time period is known with certainty while this assumption is unsupported in many applied contexts it is conventionally held that more realistic models are more difficult to solve and will not yield simple operational policies this paper shows that a simple inventory policy based upon a critical fractile can be optimal or near optimal in some inventory models with parameter adaptive demand processes in these some parameter of the demand distribution is not known with certainty and estimates of the parameter are updated in a statistical fashion as demand is observed through time examples include exponentially smoothed forecasts and bayesian updating of parameter estimates bounds on the value loss relative to optimal cost when using the critical fractile policy can be calculated directly from the problem data some numerical examples illustrate the technique

decision bias in the newsvendor problem with a known demand distribution experimental evidence in the newsvendor problem a decision maker orders inventory before a one period selling season with stochastic demand if too much is ordered stock is left over at the end of the period whereas if too little is ordered sales are lost the expected profit maximizing order quantity is well known but little is known about how managers actually make these decisions we describe two experiments that investigate newsvendor decisions across different profit conditions results from these studies demonstrate that choices systematically deviate from those that maximize expected profit subjects order too few of high profit products and too many of low profit products these results are not consistent with risk aversion risk seeking preferences prospect theory preferences waste aversion stockout aversion or the consequences of underestimating opportunity costs two explanations are consistent with the data one subjects behave as if their utility function incorporates a preference to reduce ex post inventory error the absolute difference between the chosen quantity and realized demand two subjects suffer from the anchoring and insufficient adjustment bias feedback and training did not mitigate inventory order errors we suggest techniques to improve decision making

the quantity flexibility contract and supplier customer incentives consider a supply chain consisting of two independent agents a supplier e g a manufacturer and its customer e g a retailer the latter in turn serving an uncertain market demand to reconcile manufacturing procurement time lags with a need for timely response to the market such supply chains often must commit resources to production quantities based on forecasted rather than realized demand the customer typically provides a planning forecast of its intended purchase which does not entail commitment benefiting from overproduction while not bearing the immediate costs the customer has incentive to initially overforecast before eventually purchasing a lesser quantity the supplier must in turn anticipate such behavior in its production quantity decision this individually rational behavior results in an inefficient supply chain this paper models the incentives of the two parties identifying causes of inefficiency and suggesting remedies particular attention is given to the quantity flexibility qf contract which couples the customer s commitment to purchase no less than a certain percentage below the forecast with the supplier s guarantee to deliver up to a certain percentage above under certain conditions this method can allocate the costs of market demand uncertainty so as to lead the individually motivated supplier and customer to the systemwide optimal outcome we characterize the implications of qf contracts for the behavior and performance of both parties and the supply chain as a whole

a pragmatic approach to the design of bullwhip controllers it is well known that forecasting mechanisms can greatly increase bullwhip demand variance amplification of orders as processed by both human and algorithmic decision makers this paper is concerned with the application of the well established apiobpcs decision support system a variant of the order up to rule in such circumstances it has two feedback controls based on the inventory and the orders in pipeline respectively with gains set equal according to the deziel eilon rule there is one feed forward control based on exponential forecasting although this is not a restriction on the application of this system we consider the pragmatic role of apiobpcs in the situation where the echelon decision maker may be handling a wide range of sku s in a non altruistic environment where upmarket information may either be withheld or simply unavailable under such circumstances it has been established via site based studies that the decision makers output the orders reflect a wide range of strategies or maybe ignorance three strategies may be regarded as appropriate i e pass orders along demand smoothing and level scheduling depending on context apiobpcs can be adapted to each of these modus operandi in the first case with the added capability of smoothing the sharp edges with a modicum of inventory variation and in the last case with the advantage of built in trend detection players in non altruistic supply chains must be able to cope with added uncertainties due to lead time variations we show that apiobpcs may be well matched to such situations and is hence copable as well as capable the paper includes recommended parameter settings according to desired decision making policies

purchasing pricing and quick response in the presence of strategic consumers we consider a retailer that sells a product with uncertain demand over a finite selling season the retailer sets an initial stocking quantity and at some predetermined point in the season optimally marks down remaining inventory we modify this classic setting by introducing three types of consumers myopic consumers who always purchase at the initial full price bargain hunting consumers who purchase only if the discounted price is sufficiently low and strategic consumers who strategically choose when to make their purchase a strategic consumer chooses between a purchase at the initial full price and a later purchase at an uncertain markdown price in equilibrium strategic consumers and the retailer make optimal decisions given their rational expectations regarding future prices availability of inventory and the behavior of other consumers we find that the retailer stocks less takes smaller price discounts and earns lower profit if strategic consumers are present than if there are no strategic consumers we find that a retailer should generally avoid committing to a price path over the season assuming such commitment is feasible committing to a markdown price or to not mark down at all is often too costly inventory may remain unsold even in the presence of strategic consumers the better approach is to be cautious with the initial quantity and then mark down optimally furthermore we discuss the value of quick response the ability to procure additional inventory after obtaining updated demand information albeit at a higher unit cost than the initial order we find that the value of quick response to a retailer is generally much greater in the presence of strategic consumers than without them on average 67 more valuable and as much as 558 more valuable in our sample in other words although it is well established in the literature that quick response provides value by allowing better matching of supply with demand it provides more value often substantially more value by allowing a retailer to control the negative consequences of strategic consumer behavior