experimental evidence on scaling up education reforms in kenya abstract what constraints arise when translating successful ngo programs to improve public services in developing countries into government policy we report on a randomized trial embedded within a nationwide reform of teacher hiring in kenyan government primary schools new teachers offered a fixed term contract by an international ngo significantly raised student test scores while teachers offered identical contracts by the kenyan government produced zero impact observable differences in teacher characteristics explain little of this gap instead data suggests that bureaucratic and political opposition to the contract reform led to implementation delays and a differential interpretation of identical contract terms additionally contract features that produced larger learning gains in both the ngo and government treatment arms were not adopted by the government outside of the experimental sample

tracking the market dynamic pricing and learning in a changing environment dynamic pricing of commodities without knowing the exact relation between price and demand is a much studied problem most existing studies assume that the parameters describing the market are constant during the selling period this severely reduces their practical applicability since in reality market characteristics may change all the time without the firm always being aware of it in the present paper we study dynamic pricing and learning in a changing market environment we introduce a methodology that enables the price manager to hedge against changes in the market and provide explicit upper bounds on the regret a measure of the performance of the firm s pricing decisions in addition this methodology guides the selection of the optimal way to estimate the market process we provide numerical examples from practically relevant situations to illustrate the methodology

optimal monopolist pricing under demand uncertainty in dynamic markets we examine pricing policy for a monopolist facing uncertain demand in a market characterized by dynamics on the demand side such as diffusion or saturation effects and or on the cost side experience curve effects our model explicitly incorporates the impact of demand uncertainty and thus allows us to analyze the implications of uncertainty on the optimal price path by contrasting the stochastic policy with the corresponding deterministic policy we begin with an analysis of the general model and then focus on several special cases based on well known demand specifications to gain more specific insights and to suggest directional guidelines for dynamic pricing decisions in an uncertain environment in general the interaction among uncertainty demand and or cost dynamics and firm s discount rate thus farsighted firms operating under dynamic market conditions with high demand uncertainty such as high tech companies with innovative products for consumer or industrial markets should attach partic

improving management with individual and group based consulting results from a randomized experiment in colombia differences in management quality are an important contributor to productivity differences across countries a key question is how to best improve poor management in developing countries this paper tests two different approaches to improving management in colombian auto parts firms the first uses intensive and expensive one on one consulting while the second draws on agricultural extension approaches to provide consulting to small groups of firms at approximately one third of the cost of the individual approach both approaches lead to improvements in management practices of a similar magnitude 8 10 percentage points so that the new group based approach dominates on a cost benefit basis moreover the paper finds some evidence that the group based intervention led to increases in firm size over the next three years while the impacts on firm outcomes are smaller and statistically insignificant for the individual consulting the results point to the potential of group based approaches as a pathway to scaling up management improvements

durable goods monopolists durable goods monopolists face special problems because the sale of their products creates a secondhand market not controlled by the monopolist to the extent the monopolist is able to rent his product rather than sell it or to make binding promises about his future production such problems are ameliorated given the inability to do the above the monopolist is led to producing goods less durable than those produced by either competitive firms or monopolist returns a reverse averch johnson result that monopolist sellers may invest less in fixed costs including plant modernization and research and development than would the renters is shown it is also shown that even though sellers have less monopoly power than renters and nondurable goods monopolists it is possible that the seller will cause a greater deadweight loss than the other types of monopolies

a note on merton s optimum consumption and portfolio rules in a continuous time model in the paper optimum consumption and portfolio rules in a continuous time model by r c merton j econ theory 3 1971 373 413 solutions obtained in cases when marginal utility at zero consumption is finite are not feasible while they do satisfy the hamilton jacobi bellman equations they do not represent appropriate value functions because the boundary behavior near zero wealth is not satisfactorily dealt with in this note we specify the boundary behavior and characterize optimal solutions journal of economic literature classification numbers 022 213

strikes scabs and tread separations labor strife and the production of defective bridgestone firestone tires this paper provides a case study of the effect of labor relations on product quality we consider whether a long contentious strike and the hiring of permanent replacement workers by bridgestone firestone in the mid 1990s contributed to the production of an excess number of defective tires using several independent data sources we find that labor strife in the decatur plant closely coincided with lower product quality count data regression models based on two data sets of tire failures by plant year and age show significantly higher failure rates for tires produced in decatur during the labor dispute than before or after the dispute or than at other plants also an analysis of internal firestone engineering tests indicates that p235 tires from decatur performed less well if they were manufactured during the labor dispute compared with those produced after the dispute or compared with those from other non striking plants monthly data suggest that the production of defective tires was particularly high around the time wage concessions were demanded by firestone in early 1994 and when large numbers of replacement workers and permanent workers worked side by side in late 1995 and early 1996

bond pricing and the term structure of interest rates a new methodology for contingent claims valuation this paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates the methodology based on the equivalent martingale measure technique takes as given an initial forward rate curve and a family of potential stochastic processee for its subsequent movements a no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk examples are provided to illustrate the key results in relation to the term structure of interest rates arbitrage pricing theory has two purposes the first is to price all zero coupon default free bonds of varying maturities from a finite number of economic fundamentals called state variables the second is to price all interest rate sensitive contingent claims taking as given the prices of the zero coupon bonds this paper presents a general theory and a unifying framework for understanding arbitrage pricing theory in this context of which all existing arbitrage pricing models are special cases in particular vasicek 1977 brennan and schwartz 1979 langetieg 1980 ball and torous 1983 ho and lee 1986 schaefer and schwartz 1987 and artzner and delbaen 1988 the primary contribution of this paper however is a new methodology for solving the second problem i e the pricing of interest rate sensitive contingent claims given the prices of all zero coupon bonds the methodology is new because i it imposes its stochastic structure directly on the evolution of the forward rate curve ii it does not require an inversion of the term structure to eliminate the market prices of risk from contingent claim values and iii it has a stochastic spot rate process with multiple stochastic factors influencing the term structure the model can be used to consistently price and hedge all contingent claims american or european on the term structure and it is derived from necessary and more importantly sufficient conditions for the absence of arbitrage the arbitrage pricing models of vasicek 1977 brennan and schwartz 1979 langetieg 1980 and artzner and delbaen 1988 all require an iformerly titled bond pricing and the term structure of interest rates a new methodology

optimal advertising when envisioning a product harm crisis how should forward looking managers plan advertising if they envision a product harm crisis in the future to address this question we propose a dynamic model of brand advertising in which at each instant a nonzero probability exists for the occurrence of a crisis event that damages the brand s baseline sales and may enhance or erode marketing effectiveness when the crisis occurs because managers do not know when the crisis will occur its random time of occurrence induces a stochastic control problem which we solve analytically in closed form more importantly the envisioning of a possible crisis alters managers rate of time preference anticipation enhances impatience that is forward looking managers discount the present even when the crisis has not occurred more than they would in the absence of crisis building on this insight we then derive the optimal feedback advertising strategies and assess the effects of crisis likelihood and damage rate we discover the crossover interaction the optimal precrisis advertising decreases but the postcrisis advertising increases as the crisis likelihood or damage rate increases in addition we develop a new continuous time estimation method to simultaneously estimate sales dynamics and feedback strategies using discrete time data applying the method to market data from the ford explorer s rollover recall we furnish evidence to support the proposed model we detect compensatory effects in parametric shift ad effectiveness increases but carryover effect decreases or vice versa we also characterize the crisis occurrence distribution that shows that ford explorer should anticipate a crisis in 2 1 years and within 6 3 years at the 95 confidence level finally we find a remarkable correspondence between the observed and optimal advertising decisions

incentives for motivated agents under an administrative constraint consider an agent who has an expertise in producing a non marketable good this good is valued by a single principal and there is a verifiable measure of the agent s performance crucially the agent is intrinsically motivated due to warm glow altruism in addition the agent s budget which is controlled by the principal must not be less than the monetary performance cost faced by the agent this gives rise to a limited liability constraint it also restricts the agent s ability to under report costs in such environment we determine the link between the agent s budget and performance our results come in contrast to the received solution of the principal agent problem and to most in the literature on mission motivated organisations and public services provision

remedying education evidence from two randomized experiments in india this paper presents the results of a two year randomized evaluation of a large scale remedial education program conducted in mumbai and vadodara india the remedial education program hires young women from the community to teach basic literacy and numeracy skills to children who reach standard three or four without having mastered these competencies the program implemented by a ngo in collaboration with the government is extremely cheap it cost 5 dollars per child per year and is easily replicable it has been implemented in 20 indian cities and reached tens of thousands of children we find the program to be very effective on average it increased learning by 0 15 standard deviations in the first year and 0 25 in the second year the gains are the largest for children at the bottom of the distribution children in the bottom third gain 0 2 standard deviations in the first year and 0 32 in the second year in math they gain 0 51 standard deviation in the second year the results are similar in the two grade levels and in the two cities at the margin extending this program would be up to 12 16 times more cost effective than hiring new teachers authors

the economics of career concerns part i comparing information structures many incentives in organizations arise not through explicit formal incentive contracts but rather implicitly through career concerns this paper models career concerns through agents trying to manipulate the market assessment of their future productivity the information flow from current actions to market assessment is therefore crucial in determining the nature of these incentives improved information may either increase or reduce incentives the impact of information provides a major distinction between the explicit and implicit incentives model the paper derives general results on comparisons of information structures which serve as counterparts to the standard results on information structures in the principal agent model sufficient statistic impact of a blackwell garbling comparison of inclusive information structures 1999 the review of economic studies limited

a new product growth for model consumer durables this article originally appeared in management science january 1969 volume 15 number 5 pp 215 227 published by the institute of management sciences a growth model for the timing of initial purchase of new products is developed and tested empirically against data for eleven consumer durables the basic assumption of the model is that the timing of a consumer s initial purchase is related to the number of previous buyers a behavioral rationale for the model is offered in terms of innovative and imitative behavior the model yields good predictions of the sales peak and the timing of the peak when applied to historical data a long range forecast is developed for the sales of color television sets

informational origins of political bias towards critical groups of voters abstract we show how non symmetric politicization can arise in a democracy where voters are distributed across several ex ante symmetric sectors the voters are uncertain about the administrative ability of an elected official they observe the quality of her performance which depends on her ability and her effort the official can allocate her efforts symmetrically or non symmetrically across sectors we show the existence of a non symmetric equilibrium in which the official allocates more effort to administering one critical sector because voters in other sectors rationally respond less to what they observe about the quality of to her administration

politics and economics in weak and strong states abstract while much research in political economy points out the benefits of limited government political scientists have long emphasized the problems created in many less developed nations by weak states which lack the power to tax and regulate the economy and to withstand the political and social challenges from non state actors i construct a model in which the state apparatus is controlled by a self interested ruler who tries to divert resources for his own consumption but who can also invest in socially productive public goods both weak and strong states create distortions when the state is excessively strong the ruler imposes such high taxes that economic activity is stifled when the state is excessively weak the ruler anticipates that he will not be able to extract rents in the future and underinvests in public goods i show that the same conclusion applies in the analysis of both the economic power of the state i e its ability to raise taxes and its political power i e its ability to remain entrenched from the citizens i also discuss how under certain circumstances a different type of equilibrium which i refer to as consensually strong state equilibrium can emerge whereby the state is politically weak but is allowed to impose high taxes as long as a sufficient fraction of the proceeds are invested in public goods the consensually strong state might best correspond to the state in oecd countries where taxes are high despite significant control by the society over the government

dynamic monopoly pricing under a poisson type uncertain demand this article explores dynamic pricing strategies in the presence of uncertainty diffusion dynamics experience curve effects and a poisson type of uncertainty in the demand are incorporated in a model using the framework of a stochastic control problem the results indicate that the movement of the expected price depends on the relative strength of the contingent effects and the effects of the experience if the direction of the former is opposite to the latter and is substantial enough to dominate it the expected price path will show a pattern different from the one predicted by a deterministic model copyright 1992 by university of chicago press

power system planning under electricity spot pricing there is a reluctance to discuss power system planning under spot pricing the subject is either seen as an increased part of a utility s entrepreneural activities or it is assumed that planning will go on just as before spot pricing this paper critically examines the four ways of dealing with this subject i extending present supply side cost minimisation ii using joint supply demand side net benefit maximisation iii using entrepreneural ship and iv combinations of these the paper shows which way is likely to be best under various circumstances and suggests future research

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

optimal incentive contracts in the presence of career concerns theory and evidence this paper studies optimal incentive contracts when workers have career concerns concerns about the effects of current performance on future compensation we show that the optimal compensation contract optimizes total incentives the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract thus the explicit incentives from the optimal compensation contract should be strongest for workers close to retirement because career concerns are weakest for these workers we find empirical support for this prediction in the relation between chief executive compensation and stock market performance

the regulation of multiproduct firms part i theory abstract this paper develops a normative model of the regulation of a multiproduct firm with private information about its technology and cost reducing activity it first characterizes the optimal regulatory scheme and illustrates it through examples it then derives necessary and sufficient conditions for the pricing incentive dichotomy to hold i e conditions under which the cost reimbursement rule but not pricing is used to provide incentives last the paper studies the regulation of the multiproduct firm in a general equilibrium framework both to assess the validity of the partial equilibrium approach and to formalize the notion of taxation by regulation

managerial career concerns and investments in information we extend the implicit incentives literature by analyzing how career concerns affect a riskneutral manager s decision about how much to learn about a project before investing in it the manager has unknown ability that determines the probability with which a good project is available so the market updates ability assessments from project outcomes while project choice is efficient in equilibrium an unobservable investment in the precision of project evaluation allows the manager to control the probabilities of future reputational states this distorts his investment in precision above first best when project payoffs can be observed only on accepted projects

effect of price on the demand for durables modeling estimation and findings the focus of this article is on the effect of price on the adoption of durables most empirical research on the timing of adoption of new products has centered on the growth without explicitly incorporating any marketing mix variables recently some researchers have pursued ways of enriching the bass model by including such controllable variables as price and advertising our interest in this article is to propose diffusion models that incorporate price we use these models to study the price effect for four durable products we report the estimation results and discuss the insights they provide in particular our empirical results suggest that price influences consumers decisions on whether or not to buy and the diffusion process governs the timing of purchase given the decision to buy moreover we find that the estimated coefficient of imitation in the bass model is understated if price is inappropriately modeled

term structure movements and pricing interest rate contingent claims this paper derives an arbitrage free interest rate movements model ar model this model takes the complete term structure as given and derives the subsequent stochastic movement of the term structure such that the movement is arbitrage free we then show that the ar model can be used to price interest rate contingent claims relative to the observed complete term structure of interest rates this paper also studies the behavior and the economics of the model our approach can be used to price a broad range of interest rate contingent claims including bond options and callable bonds

innovation diffusion uncertainty advertising and pricing policies we develop and analyze a normative and structurally stochastic model of innovation diffusion by depicting the market at an aggregate level model dynamics are defined through the flow pattern of individuals that move from the innovation unaware stage to the innovation aware and ultimately to the adopter stages the stochastic evolution of this stage wise transition unfolds according to tractable stochastic processes and is influenced by such factors as price word of mouth and advertisement efforts in this environment techniques of contingent claims analysis and stochastic control theory are employed to obtain optimal pricing or advertising policies that maximize the value of the innovation to account for their optimal adjustment over time these policies are modeled as positive real valued adapted processes given this setting policy adjustments over time i e advertising or pricing are viewed as a value additive sequence of nested real options we present closed form analytic results regarding the optimal policies simulations provide a numeric insight to the models behavior

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

incentives work getting teachers to come to school we use a randomized experiment and a structural model to test whether monitoring and financial incentives can reduce teacher absence and increase learning in india in treatment schools teachers attendance was monitored daily using cameras and their salaries were made a nonlinear function of attendance teacher absenteeism in the treatment group fell by 21 percentage points relative to the control group and the children s test scores increased by 0 17 standard deviations we estimate a structural dynamic labor supply model and find that teachers respond strongly to financial incentives our model is used to compute cost minimizing compensation policies jel i21 j31 j45 o15

measuring the economic value of demand side and supply resources in integrated resource planning models when comparing the economics of alternative portfolios of supply and demand side resources utility planners should consider not only costs but also effects upon the benefits or value that electricity consumers receive a method for including such effects in comprehensive resource planning models is presented this method considers the value impacts of electric rate changes takeback of energy savings in conservation programs and increases in energy services provided by load building or valley filling programs in general the method rewards resource portfolios that cause rates to move closer to marginal cost or increase the energy services provided applications of a net value objective in several resource planning models are summarized they confirm that optimizing net value can yield different resource portfolios than minimizing cost

an empirical model of optimal dynamic product launch and exit under demand uncertainty this paper considers the decision problem of a firm that is uncertain about the demand and hence profitability of a new product we develop a model of a decision maker who sequentially learns about the true product profitability from observed product sales based on the current information the decision maker decides whether to scrap the product central to this decision problem are sequential information gathering and the option value of scrapping the product at any point in time the model predicts the optimal demand for information e g in the form of test marketing and it predicts how the launch or exit policy depends on the firm s demand uncertainty furthermore it predicts what fraction of newly developed products should be launched on average and what fraction of these products will fail i e exit the model is solved using numerical dynamic programming techniques we present an application of the model to the case of the u s ready to eat breakfast cereal industry simulations show that the value of reducing uncertainty can be large and that under higher uncertainty firms should strongly increase the fraction of all new product opportunities launched even if their point estimate of profits is negative alternative simpler decision rules are shown to lead to large profit losses compared to our method finally we find that the high observed exit rate in the u s ready to eat cereal industry is optimal and to be expected based on our model

optimal pricing and quantity of products with two offerings this paper analyzes the decision of a firm offering two versions of a product a deluxe and a regular while both products satisfy the same market the deluxe version is sold at a high price relative to its cost and is aimed at the high end of the demand curve the regular version is sold at a low price relative to its cost and is targeted to customers at the low end of the demand curve this two offering strategy is especially popular with book publishers where a paperback book is introduced some time after the hardbound version is introduced the time between the introduction of the two versions of the product is accompanied by a downward shift in the demand curve due to customers losing interest in the product or satisfying their demand from a secondary used market we solve a profit maximization model for a firm using a two offering strategy the model is solved for linear and exponential deterioration in demand which is assumed to be deterministic also a model with linear deterioration in demand which is assumed to be stochastic is solved the results indicate that substantial improvements in profit can be obtained by using the two offering strategy numerical sensitivity analysis and examples are used to illustrate the results

joint production and pricing decisions with setup costs and capacity constraints we consider the problem of setting prices and choosing production quantities for a single product over a finite horizon for a capacity constrained manufacturer facing price sensitive demands there is a fixed cost per production run and a variable cost per unit produced both of which may vary by period we characterize properties of the optimal solution considering cases with constant and time varying capacity and with and without speculative motive for holding inventory we show that counter to intuition optimal prices may increase as the capacity increases even when capacity is constant over the horizon we also show that increases in capacity do not always exhibit diminishing marginal returns our procedure produces solutions with much higher profits than can be obtained from a sophisticated sequential procedure in which a well informed and optimum seeking marketing department makes pricing decisions and the manufacturing department seeks to satisfy the resulting demands at minimum cost our results also suggest that firms with seasonal demand and tight capacity constraints should be more aggressive in setting prices to manage their demands than what is typically done in practice finally we discuss how a decision maker can use our procedure as an aid in solving multiproduct versions of the problem

the economics of career concerns part ii application to missions and accountability of government agencies the paper uses a simple multitask career concern model in order to analyse the incentives of government agencies officials incentives are impaired by the agency pursuing multiple missions a lack of focus is even more problematic in the case of fuzzy missions that is when outsiders are uncertain about the exact nature of the missions actually pursued by the agency consequently agencies pursuing multiple missions receive less autonomy the paper further shows that professionalization creates a sense of mission for the agency and that the specialization of officials raises their incentives last the paper compares its predictions with the stylized facts on government bureaucracies 1999 the review of economic studies limited

green supply chain performance with cost learning and operational inefficiency effects environmental issues are receiving significant attention from the public accelerating the development of green supply chain in operations management this study focuses on the green supply chain performance in a single manufacturer retailer setup in which the manufacturer determines energy efficiency level and wholesale price while the retailer decides on sales price the unit production cost is jointly affected by cost learning and operational inefficiency effects open loop feedback and myopic equilibria are subsequently derived and the corresponding supply chain performance and profit distribution are analyzed the main results show that forward looking behavior is preferred to myopic one for channel members feedback equilibrium is beneficial to the manufacturer but is harmful to the retailer the supply chain efficiencies in forward looking and myopic situations are lower than the static supply chain efficiency which results from cost learning and operational inefficiency effects as well as non price variable the manufacturer and the retailer extract more profits under certain conditions i e high cost learning effect large energy efficiency effectiveness low operational inefficiency effect or discount rate however the corresponding supply chain efficiencies decrease and the manufacturer s profit proportions are less than 2 3 investigation of supply chain performance with competition from multiple retailers implies that the effects of system parameters on supply chain performance keep the same directions of single manufacturer retailer setup while competition improves supply chain efficiency and manufacturer s profit proportion this work contributes in involving cost learning and operational inefficiency effects simultaneously in a dynamic environment to explore supply chain performance

a monopolistic and oligopolistic stochastic flow revenue management model this paper studies a one shot inventory replenishment problem with dynamic pricing the customer arrival rate is assumed to follow a geometric brownian motion homogeneous customers have an isoelastic demand function and do not behave strategically we find a closed form optimal pricing policy which utilizes current demand information under this pricing policy the inventory trajectory is deterministic and a retailer sells all inventory we show that dynamic pricing coordinated with the inventory decision achieves significantly higher profits than does static pricing furthermore under oligopolistic competition we establish a weak perfect bayesian equilibrium for the price and inventory replenishment game we find the pricing equilibrium to be cooperative even in a noncooperative environment but that inventory competition results in overstock and damages profits finally we examine the trade off between dynamic pricing and price precommitment and find that flexible pricing is still beneficial provided competition is not too intense

theory general equilibrium and political economy in development economics i discuss the role of economic theory in empirical work in development economics with special emphasis on general equilibrium and political economy considerations i argue that economic theory plays should play a central role in formulating models estimates of which can be used for counterfactual and policy analysis i discuss why counterfactual analysis based on microdata that ignores general equilibrium and political economy issues may lead to misleading conclusions i illustrate the main arguments using examples from recent work in development economics and political economy

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

credible communication in dynastic government abstract this paper studies information disclosure in a model of dynastic government when information about past policy choices comes exclusively from the reports of previous administrations each administration has an incentive to choose its suboptimal one shot expenditure policy and then misrepresent its choice to its successor consequently it has been suggested that horizontal accountability i e a system of governance where auditing functions lie outside the executive branch can ensure credible disclosure of a government s activities this paper suggests a cautious approach to that view the baseline model examines the reporting incentives of an external auditor who can independently verify the information each period even with auditing credible disclosure is shown to be problematic various extensions to this baseline model are examined in one extension liberal i e those prefering larger government expenditures and conservative those prefering smaller expenditures regimes and auditors evolve over time it is shown that conservative liberal auditors are not credible when the current regime is also conservative liberal moreover because information transmission stops when the auditor s and the regime s biases coincide effective deterrents even in the good periods when the auditor s and the administration s biases differ are difficult to construct in all periods the equilibrium requirement of auditor neutrality constrains the dynamic incentives for efficient policy choices these constraints are shown to bind away from optimal policies in standard constructions of equilibrium various ways in which auditing protocols can overcome these problems are discussed

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

working for god evidence from a change in financing of nonprofit health care providers in uganda what motivates religious nonprofit health care providers this paper uses a change in financing of nonprofit health care providers in uganda to test two theories of organizational behavior we show

optimal pricing for information goods with piracy and saturation effect we analyze the pricing decision of a firm selling a product for which there is a significant and continuous saturation effect over time and that can be pirated assuming that the firm uses a skimming strategy we solve three profit maximization models given demand that is linearly decreasing in price few prices can be used over the life of the product the effects of both piracy and saturation are combined in the first model in the second model the firm can invest in technology or copyright enforcement to reduce piracy the third model describes the case in which piracy leads to increased awareness of the product and increased demand numerical sensitivity analysis and examples are used to illustrate the results the results indicate that under strong piracy and saturation effects a skimming strategy is suboptimal

double for nothing experimental evidence on an unconditional teacher salary increase in indonesia how does a large unconditional increase in salary affect the performance of incumbent employees in the public sector this paper presents experimental evidence on this question in the context of a policy change in indonesia that led to a permanent doubling of teachers base salaries the analysis uses a large scale randomized experiment across a representative sample of indonesian schools that accelerated this pay increase for teachers in treated schools the findings show that the large pay increase significantly improved teachers satisfaction with their income reduced the incidence of teachers holding outside jobs and reduced self reported financial stress nevertheless after two and three years the increase in pay led to no improvement in student learning outcomes the effects are precisely estimated making it possible to rule out even modest positive impacts on test scores the results suggest that unconditional pay increases are unlikely to be an effective policy option for improving the effort and productivity of incumbent employees in public sector settings

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

peer effects teacher incentives and the impact of tracking evidence from a randomized evaluation in kenya to the extent that students benefit from high achieving peers tracking will help strong students and hurt weak ones however all students may benefit if tracking allows teachers to better tailor their instruction level lower achieving pupils are particularly likely to benefit from tracking when teachers have incentives to teach to the top of the distribution we propose a simple model nesting these effects and test its implications in a randomized tracking experiment conducted with 121 primary schools in kenya while the direct effect of highachieving peers is positive tracking benefited lower achieving pupils indirectly by allowing teachers to teach to their level jel i21 j45 o15

a theory of electricity tariff design for optimal operation and investment this study addresses the problem of balancing supply and demand side operation and investment activities existing theory is extended to cover electricity industry models with uncertainty in future conditions and intertemporal linking such as storage and investment an optimal pricing structure which takes these into account is presented it would induce participants suppliers and consumers to make profit maximizing investment and operation decisions which are socially optimal the structure contains two terms a short run marginal cost pricing as well as a new incentive term to account for the interaction of participants at different time points a probabilistic forecast of pricing structures at future time is required a justification of the result and three simple illustrative examples are given

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

competition strategy and price dynamics a theoretical and empirical investigation the authors explore how competition affects dynamic pricing of new products dynamics of diffusion saturation and cost reduction due to experience are all considered with emphasis on the last t

skimming or penetration strategic dynamic pricing for new products current complex dynamic markets are characterized by numerous brands each with multiple products and price points and differentiated on a variety of product attributes plus a large number of new product introductions this study seeks to analyze dynamic pricing paths in a highly complex branded market consisting of 663 products under 79 brand names of digital cameras the authors develop a method to classify dynamic pricing strategies and analyze the choice and correlates of observed pricing paths in the introduction and early growth phase of this market the authors find that despite numerous recommendations in the literature for skimming or penetration pricing market pricing dominates in practice in particular the authors find five patterns skimming 20 frequency penetration 20 frequency and three variants of market pricing patterns 60 frequency where new products are launched at market prices skimming pricing launches the new product 16 above the market price and subsequently increases the price relative to the market price penetration pricing launches the new product 18 below the market price and subsequently lowers the price relative to the market price firms exhibit a mix of these pricing paths across their portfolios the specific pricing paths correlate with market firm and brand characteristics such as competitive intensity market pioneering brand reputation and experience effects the authors discuss managerial implications

dynamic pricing and warranty policies for products with fixed lifetime abstract we consider a repairable product with known market entry and departure times a warranty policy is offered with product purchase under which a customer can have a failed item repaired free of charge in the warranty period it is assumed that customers are heterogeneous in their risk attitudes toward uncertain repair costs incurred after the warranty expires the objective is to determine a joint dynamic pricing and warranty policy for the lifetime of the product which maximizes the manufacturer s expected profit in the first part of the analysis we consider a linearly decreasing price function and a constant warranty length we first study customers purchase patterns under several different pricing strategies by the manufacturer and then discuss the optimal pricing and warranty strategy in the second part we assume that the warranty length can be altered once during the product lifetime in developing a joint pricing and warranty policy numerical studies show that a dynamic warranty policy can significantly outperform a fixed length warranty policy

school governance teacher incentives and pupil teacher ratios experimental evidence from kenyan primary schools this brief summarizes the results of a gender impact evaluation study entitled school governance teacher incentives and pupil teacher ratios experimental evidence from kenyan primary schools conducted between 2005 and 2006 in kenya the study observed the impact of a program under which kenyan parent teacher associations ptas at randomly selected schools were funded to hire an additional teacher on a renewable contract outside normal ministry of education civil service channels at one quarter normal compensation levels on the student teacher and school level despite a dramatic reduction in class size the program generated little improvement for students who remained in the standard system civil service teachers were 13 points less likely to be found in class teaching if their school received funding to hire a contract teacher the program increased test scores by 28 percent of a standard deviation for those students assigned to pta contract teachers there is strong evidence that locally hired and monitored teachers had better incentives they were 15 percent more likely to be in class teaching during unannounced spot checks the school based management program had significant positive impacts on the tendency for civil service teachers to cut effort in response to introduction of a contract teacher funding for the study derived from the world bank government of netherlands

monopolist pricing with dynamic demand and production cost this paper deals with pricing of a new product over time by a monopolist who maximizes the discounted profit stream the interdependency of cost and demand on cumulative production makes the problem inherently dynamic cost is assumed to be declining with cumulative production learning curve effect while demand is a function of price and cumulative sales representing word of mouth and saturation effects the paper addresses this problem in a general framework that includes several previous results as special cases and provides new insights in other situations while the learning curve and word of mouth effect cause prices to be lower than the price that maximizes immediate revenues the saturation factor has the opposite effect the price path over time is affected by these factors and the interest rate we characterize the price path under several different situations and interpret the results for policy guidelines