bluuebunny/crossref_metadata_2025 huggingface dataset:
Improving Economic Incentives in Hospital Prospective Payment Systems Through Equilibrium Pricing
Authors: Shwartz Michael , Lenard Melanie L.
Published: November 2008

Under the Prospective Payment System (PPS) implemented by Medicare in 1983, hospitals are paid a set price for each Medicare patient treated, rather than being reimbursed for the patient's costs as had been done previously. An increasing number of other insurers have adopted a similar method of hospital payment. In these systems, the price, which depends on the patient's Diagnosis Related Group (DRG), is derived from the average cost over all hospitals of all patients in that DRG. We propose an alternative method for setting prices in hospital prospective payment systems, called equilibrium pricing, in which prices are derived from a linear programming model of competitive equilibrium. To evaluate the improvement in incentives associated with equilibrium pricing, we define a measure, called the disincentive index, of the extent to which a set of prices creates economic disincentives to efficient behavior. In the situation in which all hospitals compete in a single market area, we show that equilibrium pricing creates the best possible economic incentives, i.e., by reducing the disincentive index to zero. The analysis is then extended to the more realistic situation where hospitals compete in limited geographical market areas, whereas prices must be uniformly set for a number of such market areas. We prove that, with an appropriate generalization of the disincentive index, equilibrium prices for a single market area are also optimal for multiple market areas. Finally, actual cost and utilization data from hospitals that compete in eastern Massachusetts are used to determine prices and to evaluate the associated disincentive index for a simulated prospective payment system. This empirical study shows a dramatic improvement in the incentives created by equilibrium pricing compared to average-cost pricing.
Sequential Defect Removal Sampling
Authors: Bonett Douglas G. , Woodward J. Arthur
Published: November 2008

Standard inspection methods underestimate the true number of defects or nonconformities in a complex product (e.g., automobile, mobile home, airplane, circuit board, computer program) when an inspector is unable to identify every defect with certainty. A nonlinear statistical model with a nonlinear constraint is developed for estimating the unknown number of defects in a product when inspection is imperfect. A sequential defect removal sampling plan is defined in which two or more inspectors examine in sequence a product or sample of products and then mark or correct any observed defects prior to the next inspection. The number of defects identified by each inspector provides the information needed to estimate the number of defects in the product in addition to the number of defects that have eluded all inspectors. A goodness-of-fit test of model assumptions is presented. A test of hypothesis regarding the unknown number of defects in quality improvement experiments also is described.
Database Allocation in a Distributed Environment: Incorporating a Concurrency Control Mechanism and Queuing Costs
Authors: Ram Sudha , Narasimhan Sridhar
Published: November 2008

This research investigates the problem of allocating database fragments across a set of computers connected by a communication network. A mathematical model is presented to aid designers in the development of distributed database systems. The model takes into account the pattern of usage of the databases, communication costs in the network, delays due to queuing of data requests, costs for maintaining consistency among the various copies of a database, and storage costs. A solution procedure based on Lagrangian relaxation is proposed to solve the model. Computational results are reported along with several useful observations. The model is applicable to organizations that are considering migration from a centralized to a distributed computing environment.
Quoting Customer Lead Times
Authors: Duenyas Izak , Hopp Wallace J.
Published: November 2008

We consider the problem of quoting customer lead times in a manufacturing environment under a variety of modeling assumptions. First, we examine the case where capacity is infinite. For this case, we derive a closed-form expression for the optimal lead time quote. Second, we consider the case where capacity is finite and the firm processes jobs in first-come-first-served (FCFS) order. We prove the optimality of different forms of control limit policies for the situations where the lead time is dictated by the market and where firms are able to compete on the basis of lead time. Finally, we consider the case where the firm may choose to schedule jobs in other than FCFS order and give conditions under which the optimal due-date-quoting/order-scheduling policy will process jobs in earliest due date (EDD) order.
Technical Dialog as an Incentive for Vertical Integration in the Semiconductor Industry
Authors: Monteverde Kirk
Published: November 2008

A curious structural change observed in the American semiconductor industry (the appearance of a class of “fabless” firms) is examined within a general transaction costs framework. The framework is refined for empirical application with the introduction of the construct “unstructured technical dialog.” The necessary level of this form of interpersonal communication between engineers in the design and fabrication stages of production is hypothesized to be positively related to the efficiency of a vertically integrated structure in which both stages are organized under a single hierarchy “Fablessness” (i.e., the organizational separation of the design and fabrication stages) is argued to be efficient for only those firms whose particular product portfolios have only a minimal requirement for such unstructured technical dialog. The hypothesis is tested upon a set of relatively young semiconductor firms. Support is found for the theoretically derived relationship even after controlling for rival explanations found in the literature.
Belief Assessment: An Underdeveloped Phase of Probability Elicitation
Authors: Benson P. George , Curley Shawn P. , Smith Gerald F.
Published: November 2008

A cognitive analysis of subjective probability is applied to the evaluation of techniques used by decision analysts for eliciting probabilities from experts. The construction of a subjective probability requires both the formation of a belief and the assessment of a probability that qualifies the belief. The former process involves judgment and reasoning; the latter is purely judgmental. Subjective probabilities have traditionally been portrayed and studied as arising from judgment. Consequently, belief assessment procedures have been particularly underdeveloped. Procedures currently used by analysts to and belief assessment are classified and evaluated. Although such procedures facilitate the communication of beliefs and offer important guidance for constructing probabilities, additional prescriptive development is possible. It is argued that significant improvements in assessment practice can be realized by providing better support for the reasoning employed by experts in belief assessment. Opportunities for descriptive and prescriptive research in belief assessment are identified.
Minimal Adjustment Costs and the Optimal Choice of Inputs Under Time-of-Use Electricity Rates
Authors: Spector Yishai , Tishler Asher , Ye Yinyu
Published: November 2008

In Time-of-Use(TOU) pricing schemes, utilities charge rates that depend on the time of day and the season of the year at which electricity is used. Estimates of the effects of TOU rates on business customers in the U.S. and Israel demonstrate that most firms do not appear to respond at all to newly introduced TOU rates, but those that do respond make substantial adjustments. In this paper we show that adjustment costs associated with changing the level of employment can explain the observed pattern of behavior in the U.S. and Israel. We apply our model to large industrial firms in Israel and show that it predicts their actual responses to TOU rates quite well.
Characterization and Generation of a General Class of Resource-Constrained Project Scheduling Problems
Authors: Kolisch Rainer , Sprecher Arno , Drexl Andreas
Published: November 2008

This paper addresses the issue of how to generate problem instances of controlled difficulty. It focuses on precedence- and resource-constrained (project) scheduling problems, but similar ideas may be applied to other network optimization problems. It describes a network construction procedure that takes into account a) constraints on the network topology, b) a resource factor that reflects the density of the coefficient matrix, and c) a resource strength, which measures the availability of resources. The strong impact of the chosen parametric characterization of the problems is shown via an in depth computational study. Instances for the single- and multi-mode resource-constrained project scheduling problem are benchmarked by using the state of the art (branch and bound) procedures. The results provided, demonstrate that the classical benchmark instances used by several researchers over decades belong to the subset of the very easy ones. In addition, it is shown that hard instances, being far more smaller in size than presumed in the literature, may not be solved to optimality even within a large amount of computation time.
Strategic Determinants of Service Quality and Performance: Evidence from the Banking Industry
Authors: Roth Aleda V. , Jackson William E.
Published: November 2008

This paper focuses on an important new service management strategy: the operations capabilities-service quality-performance (C-SQ-P) triad. In order to understand what generic operations capabilities influence the strategic behavior of high performing service firms, we explore three related questions: What generic operations capabilities are among the strategic determinants of service quality? Does service quality affect market performance? How is market conduct related to the C-SQ-P triad? These questions are investigated using a stylized capabilities-based model of service quality that simultaneously assesses their impact upon a firm’s market performance. Several insights emerge from our research: a) generic operations capabilities affect service quality and performance, although not all relationships are direct; b) service quality know-how and innovations can be directly observed and imitated; c) the effects of technological leadership and market acuity on service quality are moderated by the absorptive capacity of employees to recognize and exploit their potential, and hence, investments in people are critical to success; d) market conduct influences the generic capabilities of the firm more than market performance, ceteris paribus; and e) total factor productivity and service quality are negatively correlated.
The Impact of a Customer Service Intervention and Facility Design on Firm Performance
Authors: Sulek Joanne M. , Lind Mary R. , Marucheck Ann S.
Published: November 2008

The purpose of this research was to investigate the impact of a customer service intervention and store design on store performance within a regional food retailing chain. A longitudinal study examines the organization’s implementation of a customer service intervention which utilized new service standards and customer feedback mechanisms. Moreover, the chain provided a natural experiment, since the forty-six stores in this chain represented three levels of facility design ranging from the traditional supermarket to the extended “store of the future” format. A theoretical model relating the customer service intervention, variations in store design, and customer satisfaction to sales performance was developed. Using both operational performance data from each of the stores and 1,537 responses from customer satisfaction surveys, a LISREL model was used to test the predictive fit of the model. The results indicate that both the store design and the customer service intervention had a significant, positive impact on customer satisfaction which, in turn, significantly affected sales performance (sales per labor hour). In addition, the customer service intervention had a direct effect on sales performance, although there was no support for a direct relationship between store design and sales performance. This research provides a theoretical basis in helping management understand how to leverage customer service for improved sales performance.
Hiring and Leasing with Nonlinear Prices
Authors: Dobbs Ian M.
Published: November 2008

This paper examines the problem of a monopolist setting an optimal nonlinear pricing schedule in the face of consumers of unknown type who arrive randomly over time and self-select a choice of hire period. The major determinant of pricing policy is the customer arrival distribution, with the overall level of price higher than in the atemporal yield management/nonuniform pricing solution by a margin which increases with the average frequency with which potential customers arrive. By contrast, the solution is generally fairly insensitive to variations in the time rate of discount, although there is a tendency for the rate of price discount to increase with increases in the time discount rate.
Numerical Valuation of High Dimensional Multivariate European Securities
Authors: Barraquand Jèôme
Published: November 2008

We consider the problem of pricing a contingent claim whose payoff depends on several sources of uncertainty. Using classical assumptions from the Arbitrage Pricing Theory, the theoretical price can be computed as the discounted expected value of future cash flows under the modified risk-neutral information process. Although analytical solutions have been developed elsewhere for a few particular option pricing problems, computing the arbitrage prices of securities under several sources of uncertainty is still an open problem in many instances. In this paper, we present efficient numerical techniques based upon Monte Carlo simulation for pricing European contingent claims depending on an arbitrary number of risk sources. We introduce in particular the method of quadratic resampling (QR), a new powerful error reduction technique for Monte Carlo simulation. Quadratic resampling can be efficiently combined with classical variance reduction methods such as importance sampling. Our numerical experiments show that the method is practical for pricing claims depending on up to one hundred underlying assets.
A Survey of the Implications of the Behavior of the Central Path for the Duality Theory of Linear Programming
Authors: Güler O. , Roos C. , Terlaky T. , Vial J.-Ph.
Published: November 2008

The literature in the field of interior point methods for Linear Programming has been almost exclusively algorithmic oriented. Very few contributions have been made towards the theory of Linear Programming itself. In particular none of them offer a simple, self-contained introduction to the theory of Linear Programming and linear inequalities. The purpose of this paper is to show that the interior point methodology can be used to introduce the field of Linear Programming. Starting from scratch, and using only elementary results from calculus and linear algebra, we prove that for every value of the barrier parameter, the logarithmic barrier function for the primal-dual problem has a unique minimizer, and that the path of these minimizers (the central path) converges to a strictly complementary pair of optimal solutions. These results were proved more than a decade ago with advanced mathematical arguments. Our proofs are new: they are also simpler and often more natural than the ones currently known. They provide a new approach to the fundamental results of Linear Programming, including the existence of a strictly complementary solution, and the strong duality theorem.
A Method for Discrete Stochastic Optimization
Authors: Andradóttir Sigrún
Published: November 2008

This paper addresses the problem of optimizing a function over a finite or countably infinite set of alternatives, in situations where this objective function cannot be evaluated exactly, but has to be estimated or measured. A special focus is on situations where simulation is used to evaluate the objective function. We present two versions of a new iterative method for solving such discrete stochastic optimization problems. In each iteration of the proposed method, a neighbor of the “current” alternative is selected, and estimates of the objective function evaluated at the current and neighboring alternatives are compared. The alternative that has a better observed function value becomes the next current alternative. We show how one version of the proposed method can be used to solve discrete optimization problems where the objective function is evaluated using transient or steady-state simulation, and we show how the other version can be applied to solve a special class of discrete stochastic optimization problems and present some numerical results. A major strength of the proposed method is that it spends most of the computational effort at local minimizers of the objective function. In fact, we show that for both versions of the proposed method, the alternative that has been visited most often in the first m iterations converges almost surely to a local optimizer of the objective function as m goes to infinity.
An Experiment Assessing Group Support System and Facilitator Effects on Meeting Outcomes
Authors: Anson Robert , Bostrom Robert , Wynne Bayard
Published: November 2008

This paper is dedicated to the memory of Bye Wynne, who never held back from life, charging those he touched with his vigor, heart, and mind. Thanks.

This article reports on an experiment investigating the effects of a human facilitator and a computerized Group Support System (GSS) on group meeting outcomes. These treatments were applied in the same way as they are in real organizational situations, with experimental conditions used to control confounding influences of other outside factors. Forty-eight groups were supported by one, both, or neither of the GSS and facilitator treatments. Groups designed a coordinated production strategy during the meeting and then implemented their strategy. Group performance, perceptions of group cohension, and group interaction processes were assessed as the primary dependent variables.

Facilitated groups experienced improved group processes and greater cohesion, whereas the GSS-supported groups did not. Facilitator and GSS support together tended to enhance one another's effective influence on cohesion and processes. No significant treatment effects on Performance were found. Supplemental analyses revealed that the quality of facilitators and the restrictiveness of different GSS tools moderated their impacts on appropriation processes and group outcomes.
Simulation Designs for the Estimation of Quadratic Response Surface Gradients in the Presence of Model Misspecification
Authors: Donohue Joan M. , Houck Ernest C. , Myers Raymond H.
Published: November 2008

This article considers the construction of simulation designs for the ordinary least squares estimation of second-order metamodels. Two premises underlie the development of these experimental strategies. First it is assumed that the postulated metamodel may be misspecified due to the true model structure being of third-order. It is therefore important that the locations of the simulation experiments be specified to provide protection against bias, as well as variance, in the estimation of metamodel parameters. The second premise is based on the observation that, in many applications of metamodels, functions of the fitted model coefficients (such as the slope gradients) are of greater interest than the response function. The integrated mean squared error of slopes design criterion that is implemented here addresses both premises. This criterion finds application in various optimum seeking methods and sensitivity analysis procedures. Combinations of four important classes of response surface designs and three pseudorandom number assignment strategies constitute the basis structure of the simulation designs studied. The performance of these simulation designs is evaluated and, subsequently, compared to a similar set of experimental plans that have as their focus the estimation of the response function.
Sensitivity Analysis for Base-Stock Levels in Multiechelon Production-Inventory Systems
Authors: Glasserman Paul , Tayur Sridhar
Published: November 2008

Effective management of inventories in large-scale production and distribution systems requires methods for bringing model solutions closer to the complexities of real systems. Motivated by this need, we develop simulation-based methods for estimating sensitivities of inventory costs with respect to policy parameters. These sensitivity estimates are useful in adjusting optimal parameters predicted by a simplified model to complexities that can be incorporated in a simulation.

We consider capacitated, multiechelon systems operating under base-stock policies and develop estimators of derivatives with respect to base-stock levels. We show that these estimates converge to the correct value for finite-horizon and infinite-horizon discounted and average cost criteria. Our methods are easy to implement and experiments suggest that they converge quickly. We illustrate their use by optimizing base-stock levels for a subsystem of the PC assembly and distribution system of a major computer manufacturer.
First-Strike Stability in a Multipolar World
Authors: Best Melvin , Bracken Jerome
Published: November 2008

First-strike stability in a multipolar world measures the incentives of all major nuclear weapon countries, in all possible coalitions, to refrain from preemptive attack. The analysis integrates the interactions of offensive weapon arsenals, vulnerable offensive weapons within these arsenals, defensive weapons, and value targets reflecting the national assets at stake. In the previously-dominant bipolar paradigm, when the United States and the Soviet Union possessed almost all of the strategic nuclear weapons in the world, first-strike stability was an important criterion for assessing defensive deployments of the two sides, without consideration of any other countries. In the emerging multipolar world, however, the United States and Russia are dramatically reducing their offensive forces, and the offensive arsenals of Britain, France, and China are becoming relatively more important. Also, proliferation of medium-range ballistic missiles to other countries capable of attacking Russia, Britain, France, and China; but not necessarily the United States (due to range limitations), greatly complicates the overall situation. The main thrust of this paper is to investigate the first-strike stability implications of the deployment of strategic defenses by the United States and Russia. The principal finding is that in a multipolar world first-strike stability increases with the deployment of small to medium sized strategic defenses whereas in a bipolar world it usually decreases. Although the incentives for the United States and Russia to preempt increase, the incentives of the other countries decrease, with the combined effect over all coalitions of decreasing the incentive to preempt.
Robust Scheduling to Hedge Against Processing Time Uncertainty in Single-Stage Production
Authors: Daniels Richard L. , Kouvelis Panagiotis
Published: November 2008

Schedulers confronted with significant processing time uncertainty often discover that a schedule which is optimal with respect to a deterministic or stochastic scheduling model yields quite poor performance when evaluated relative to the actual processing times. In these environments, the notion of schedule robustness, i.e., determining the schedule with the best worst-case performance compared to the corresponding optimal solution over all potential realizations of job processing times, is a more appropriate guide to schedule selection. In this paper, we formalize the robust scheduling concept for scheduling situations with uncertain or variable processing times. To illustrate the development of solution approaches for a robust scheduling problem, we consider a single-machine environment where the performance criterion of interest is the total flow time over all jobs. We define two measures of schedule robustness, formulate the robust scheduling problem, establish its complexity, describe properties of the optimal schedule, and present exact and heuristic solution procedures. Extensive computational results are reported to demonstrate the efficiency and effectiveness of the proposed solution procedures.
Two-Person Ratio Efficiency Games
Authors: Rousseau J. J. , Semple J. H.
Published: November 2008

This paper demonstrates that a class of two-person games with ratio payoff functions can be solved using equivalent primal-dual linear programming formulations. The game’s solution contains specialized information which may be used to conduct the efficiency evaluation currently done by the CCR ratio model of Data Envelopment Analysis (DEA). Consequently a rigorous connection between DEA’s CCR model and the theory of games is established. Interpretations of these new solutions are discussed in the context of current ongoing applications.
From Project to Process Management: An Empirically-Based Framework for Analyzing Product Development Time
Authors: Adler Paul S. , Mandelbaum Avi , Nguyen Viên , Schwerer Elizabeth
Published: November 2008

While product development efforts are often viewed a unique configurations of idiosyncratic tasks, in reality different projects within an organization often exhibit substantial similarity in the flow of their constituent activities. Moreover, while most of the planning tools available to managers assume that projects are independent clusters of activities, in reality many organizations must manage concurrent projects that place competing demands on shared human and technical resources. This study develops an empirically-based framework for analyzing development time in such contexts. We model the product development organization as a stochastic processing network in which engineering resources are “workstations” and projects are “jobs” that flow between the workstations. At any given time, a job is either receiving service or queueing for access to a resource. Our model’s spreadsheets quantify this division of time, and our simulation experiments investigate the determinants of development cycle time. This class of models provides a useful managerial framework for studying product development because it enables formal performance analysis, and it points to data that should be collected by organizations seeking to improve development cycle times. Such models also provide a conceptual framework for characterizing commonalities and differences between engineering and manufacturing operations.
Mixed-Model Sequencing to Minimize Utility Work and the Risk of Conveyor Stoppage
Authors: Tsai Li-Hui
Published: November 2008

This paper investigates the problem of sequencing N products on an assembly line with two objectives: minimizing (1) the risk of conveyor stoppage and (2) the total utility work. For a single station with arbitrary processing times, this problem is proved NP-hard in the strong sense for each of the two objectives. For a single station with two product types, each of which has a constant processing time, a sequence minimizing both objectives can be found in O(log N) computation time.
An Integer Programming Model for Locating Vehicle Emissions Testing Stations
Authors: Swersey Arthur J. , Thakur Lakshman S.
Published: November 2008

Connecticut and other states not in compliance with federal air quality standards are required to implement a motor vehicle inspection program to test vehicles for pollutants—hydrocarbons and carbon monoxide. The problem is to determine the number, size, and locations of stations given constraints on the maximum travel distance from each town to its nearest station and the average waiting time at a station. In this paper we use simulation to find the maximum allowable arrival rates (in vehicles per hour) of stations of different sizes and formulate the station location problem as a set covering model. We generate a range of solutions through sensitivity analysis, varying both the average waiting time and maximum distance constraints. Comparing the current configuration of stations in Connecticut to our integer programming solutions we find that the integer programming approach reduces the objective function by at least $3 million. The current configuration has more stations than the IP solutions but they are not as well distributed.
The Unpredictability of Standard Back Propagation Neural Networks in Classification Applications
Authors: Wang Shouhong
Published: November 2008

This note offers an extension of Tam and Kiang (Tam, K. Y., M. Y. Kiang. 1992. Management applications of neural networks: The case of bank failure predictions. Management Sci. 38(7) 926–947.). First the weakness of the standard back propagation neural network learning algorithm is discussed, and then a warning is issued regarding applications of artificial neural networks in the management science field. Also suggested is a possible way of improving the performance of neural networks in managerial applications.
Bidding for Contests
Authors: Seshadri Sudhindra
Published: November 2008

The procurement of product development and production services brings special strategic considerations to the buyer-seller relationship in industrial and institutional markets. Multiple sourcing, in particular dual sourcing, is a likely way of dealing with the increased risks faced by buyers. However, there is lack of dual sourcing models that analyze the selection and control process in an integrated fashion. This omission had led to apparently contradictory findings in agency and auction theory. The paper models the strategic issues for a cost containment contest between two suppliers. The suppliers are drawn from several vendors who participate in a bidding competition. The supplier with the lower final cost in the contest wins a larger share of the pooled profit fee. Propositions are derived for the optimal cost-plus contest, and comparisons are made with the common incentive contract for the integrated selection and control model. The larger the winner's share, the greater the effort. The buyer can make a credible commitment to the optimal winner's share. As the winner's share rises, however, the bid prices increase due to increased contract risk. This incentive-risk tradeoff determines (a) the optimal winner's share that minimizes expected procurement price, (b) the corresponding profit fee bid by suppliers, (c) the ensuing cost control effort, and (d) the final price for the procurement. Comparisons with the common incentive contract tell us when the cost-plus contest induces more effort, and when bidding for a contest results in a lower final procurement price.
Principles on the Benefits of Manufacturing Process Flexibility
Authors: Jordan William C. , Graves Stephen C.
Published: November 2008

Increasing manufacturing flexibility is a key strategy for efficiently improving market responsiveness in the face of uncertain future product demand. Process flexibility results from being able to build different types of products in the same plant or production facility at the same time. In Part I of this paper, we develop several principles on the benefits of process flexibility. These principles are that 1) limited flexibility (i.e., each plant builds only a few products), configured in the right way, yields most of the benefits of total flexibility (i.e., each plant builds all products) and 2) limited flexibility has the greatest benefits when configured to chain products and plants together to the greatest extent possible. In Part II, we provide analytic support and justification for these principles. Based on a planning model for assigning production to plants, we demonstrate that, for realistic assumptions on demand uncertainty, limited flexibility configurations (i.e., how products are assigned to plants) have sales benefits that are approximately equivalent to those for total flexibility.

Furthermore, from this analysis we develop a simple measure for the flexibility in a given product-plant configuration. Such a measure is desirable because of the complexity of computing expected sales for a given configuration. The measure is ∏(M*), the maximal probability over all groupings or sets of products (M) that there will be unfilled demand for a set of products while simultaneously there is excess capacity at plants building other products. This measure is easily computed and can be used to guide the search for good limited flexibility configurations.
Bayesian Process Control for Attributes
Authors: Calabrese Joel M.
Published: November 2008

We consider a process control procedure with fixed sample sizes and sampling intervals, where the fraction defective is the quality variable of interest, a standard attributes control chart methodology. We show that relatively standard cost assumptions lead to formulation of the process control problem as a partially observed Markov decision process, where the posterior probability of a process shift is a sufficient statistic for decision making. We characterize features of the optimal solution and show that the optimal policy has a simple control limit structure. Numerical results are provided which indicate that the procedure may provide significant savings over non-Bayesian techniques.
Lower Bounds for the Hub Location Problem
Authors: O'Kelly Morton , Skorin-Kapov Darko , Skorin-Kapov Jadranka
Published: November 2008

We present a new lower bound for the Hub Location Problem (HLP) where distances satisfy the triangle inequality. Our lower bound is based on a linearization of the problem and its modification obtained by incorporating the knowledge of a known heuristic solution. A lower bound was computed for some standard data sets from the literature ranging between 10 and 25 nodes, with 2, 3, and 4 hubs, and for different values for the parameter α, representing the discount for the flow between hubs. The novel approach of using a known heuristic solution to derive a lower bound in all cases reduced the difference between the upper and lower bound. This difference measures the quality of the best known heuristic solution in percentages above the best lower bound. As a result of this research, for smaller problems (all instances with 10 and 15 nodes) the average difference is reduced to 3.3%. For larger sets (20 and 25 nodes) the average difference is reduced to 5.9%.
Note: On the Value of Function Evaluation Location Information in Monte Carlo Simulation
Authors: DiCiccio Thomas J. , Glynn Peter W.
Published: November 2008

The point estimator used in naive Monte Carlo sampling weights all the computed function evaluations equally, and it does not take into account the precise locations at which the function evaluations are made. In this note, we consider one-dimensional integration problems in which the integrand is twice continuously differentiable. It is shown that if the weights are suitably modified to reflect the location information present in the sample, then the convergence rate of the Monte Carlo estimator can be dramatically improved from order n−1/2 to order n−2, where n is the number of function evaluations computed.
Unification of Linear Programming with a Rule-Based System by the Post-Model Analysis Approach
Authors: Lee Jae Kyu , Song Yong Uk
Published: November 2008

We attempt to unify a linear programming model with a rule-based system via overlapped decision variables. Since a rule base can be regarded as an acyclic AND/OR digraph, the unified model is virtually a multiobjective decision making problem that considers both numeric and symbolic objectives and decision variables. To solve this problem, the Post-model Analysis approach is adopted. An essential feature of the Post-model Analysis is that it supports nondominated tradeoffs among the numeric and symbolic objectives. So, this paper proposes a set of methods for computing the nondominated solutions. A prototype, UNIK-PMA that realizes the idea is developed as a subsystem of the UNIK (UNIfied Knowledge) system.
Line Reversibility of Tandem Queues with General Blocking
Authors: Cheng Dinah W.
Published: November 2008

We extend the “line reversibility” property to a serial production system controlled using the “general blocking” scheme. The control mechanism is characterized by three vectors of integer parameters (a, b, k) which are, respectively, control parameters for the number of raw jobs, finished jobs, and buffer positions at each stage. We establish conditions under which the time to process a given set of jobs in a system does not change when the control parameters are in the reversed order. For cases where reversibility does not hold, we introduce a more restrictive from reversibility—referred to as “semi-reversibility”—and establish conditions under which the property holds. Our results imply reversibility of the kanban system and provide an alternative proof for previous results established for the communication and the manufacturing blockings. Our approach is simple and readily extends to closed systems where the number of jobs in the system is kept constant. Finally, we show, via an example, that in general reversibility does not prevail for this blocking mechanism.
Fast Solution and Detection of Minimal Forecast Horizons in Dynamic Programs with a Single Indicator of the Future: Applications to Dynamic Lot-Sizing Models
Authors: Federgruen Awi , Tzur Michal
Published: November 2008

In most dynamic planning problems, one observes that an optimal decision at any given stage depends on limited information, i.e., information pertaining to a limited set of adjacent or nearby stages. This holds in particular for planning problems over time, where an optimal decision in a given period depends on information related to a limited future time horizon, a so-called forecast horizon, only. In this paper we identify a general class of dynamic programs in which an efficient forward algorithm can be designed to solve the problem and to identify minimal forecast horizons. Such a procedure specifies necessary and sufficient conditions for a stage to arise as a forecast horizon. This class of dynamic programs includes the single-item dynamic lot-sizing model with general concave costs, both with and without backlogging, to which special attention is given.
A Sequence of Servers with Arbitrary Input and Regular Service Times Revisited
Authors: Avi-Itzhak Benjamin , Levy Hanoch
Published: November 2008

The March 1965 issue of Management Science saw a sequence of two papers by Avi-Itzhak and Yadin, the first presenting analysis of a two-server tandem system, with manufacturing blocking and no intermediate queue, leading to the second paper, which analyzes an arbitrary number of tandem servers with manufacturing blocking.

In this work we present generalized results for the same systems under k-stage blocking. One-stage blocking is the so-called manufacturing blocking in which a job entering the jth service position in the sequence requires attendance by the jth server only. Upon completion of service the job will move to position (j + 1) if that position is not occupied. Otherwise, it will continue to stay in position j, blocking it, until the next position is vacated. Two-stage blocking is the so-called communication blocking in which a job entering the jth position needs simultaneous attendance by the jth and the (j + 1)-th servers. Thus, start of service may be delayed until the (j + 1)-th server is freed. In k-stage blocking, the job requires at each position in the sequence the joint attendance of the server of that position together with the servers of the next k − 1 positions.

One interesting result is that for k > 1 the waiting times are not order-insensitive while the G/D/1 equivalence is maintained.
Profit Maximizing Cost Allocation for Firms Using Cost-Based Pricing
Authors: Pavia Teresa M.
Published: November 2008

This work develops a profit maximizing cost allocation scheme for firms that allocate all costs to their various outputs and then use these costs to set prices, a process known as fully-distributed cost-based pricing. If the costs incurred by the firm are not easily traced to a particular output (for example, the electric bill for a shared manufacturing plant), the costs must be allocated. The demand for a given output is assumed to be a function of the price. Hence, the cost allocation scheme that is selected will affect both the price and the demand for the output. The allocation of common costs that maximizes the firm's overall profit under these conditions is identified. Frequently, the profit maximizing allocation allocates none of the untraceable common costs to one or more of the outputs. This allocation scheme stands in contrast to common practices of sharing costs equally or proportionally across outputs. Examples explore the implications of such a profit maximizing cost allocation on prices and demand in four scenarios: i) no constraints, ii) constraints on maximum allowable prices, iii) a change in market size, and iv) cost containment incentives.
The Impact of Outliers and Leverage Points for Technical Efficiency Measurement Using High Breakdown Procedures
Authors: Seaver Bill L. , Triantis Konstantinos P.
Published: November 2008

Given that most data used for production studies have not been accumulated for such purposes, it is important that the quantitative tools for messy data which can affect the accuracy of computed technical efficiency measures be found. In this study, high breakdown robust methods are used in conjunction with a robust distance measure defined relative to the minimum volume ellipsoid estimator. The standardized robust residuals from the high breakdown estimators and the robust distance measures are used to statistically and graphically depict both multivariate outliers and leverage points.

Once these points are found, their relationship to those observations that exhibit strong technically efficient or inefficient behavior, scale inefficiency and/or unusual production characteristics is analyzed for three linerboard manufacturing facilities. Additionally, the impact of the outliers and leverage points on the estimated least squares coefficients which are used by the corrected ordinary least squares methodology to compute the full-frontier technical efficiency measures is explored. Finally, a sensitivity analysis of the impact of outliers and leverage points on the computed linear programming based technical efficiency measures is presented.
Transition Times: Distributions Arising from Time Heterogeneous Poisson Processes
Authors: Lenk Peter J. , Rao Ambar G.
Published: November 2008

The units of a heterogeneous population are subjected to shocks. A unit fails, or more generally, undergoes a change of state after a sufficient number of shocks. The shocks for a particular unit are assumed to arrive according to a time heterogeneous Poisson process. The time to a change of state, the transition time, for the unit has a generalized Γ (gamma) distribution. We assume that the intensity of the Poisson process and the number of shocks until the change of state vary independently across the units according to a Γ and negative binomial distribution, respectively. The distribution of the transition time is shown to be the generalized F distribution, which includes a number of standard distributions as special cases. We illustrate these results with two empirical examples: modelling coupon redemptions and traffic accidents. In the latter case, the intensity function of the Poisson process includes time varying predictor variables.
A Note on Multi-Regional Marketing
Authors: Ingene Charles A. , Parry Mark E.
Published: November 2008

This paper examines the profit maximizing behavior of a vertically integrated firm that operates in “n” geographically distinct regions. A pair of alternative managerial decision scenarios are considered. In one scenario, all marketing mix variables are manipulated at the regional level, so that each region may choose different levels of each marketing variable. In the second scenario, one marketing variable is manipulated “globally,” so that its level is identical in all regions. The first scenario generates an n-region version of the “Dorfman-Steiner” first-order conditions for profit maximization. However, under some cost structures the profits associated with this Dorfman-Steiner scenario are dominated by those associated with the second, “Global-Regional” scenario. This second scenario yields an optimal solution in which the global marketing variable may have a negative marginal impact on sales in some regions. As a result, some managerial implications of the second scenario differ strikingly from those of the Dorfman-Steiner scenario.
Global Disaggregation of Information-Intensive Services
Authors: Apte Uday M. , Mason Richard O.
Published: November 2008

Information-intensive services are being globally disaggregated as corporations respond to the pressures of increasing global competition, and take advantage of the opportunities made available by the progress of information technology and the emerging global work force. In order to globally disaggregate services, corporations must decide whether or not to carry out a service activity within the organization, and where to locate it, within or outside the geographic boundary of the home-base country. This paper analyzes the opportunities and challenges of global disaggregation of information-intensive services. Specifically, the paper proposes a taxonomy of disaggregation, and develops a theoretical framework that identifies the criteria and guidelines for successfully selecting service activities to be globally disaggregated.
Effects of Setup and Processing Time Reductions on WIP in the JIT Production Systems
Authors: Samaddar Subhashish , Kaul Tej
Published: November 2008

Sarkar and Zangwill (S-Z, [Sarkar, D., W. I. Zangwill. 1991. Variance effects in cyclic production systems. Management Sci. 37(4, April) 444–453.]) have shown that in the presence of variance, setup and processing time reductions can have “detrimental” effects on the work-in-process (WIP) inventory in both push and pull (JIT) systems. In this note, we point out that the merits of such a warning for JIT production systems are questionable.

If we treat a setup as a PERT network, it is difficult to accept S-Z claim that waiting queues can grow without bound when setup time is reduced. Furthermore, we show that the amount of setup cut, in addition to the level of variance, can determine whether waiting time grows or not. This finding can help in planning a viable setup reduction project. Additionally, we use S-Z example to show that, even when the variances are not reduced proportionately, the expected waiting time does not necessarily increase.
Union-Firm Bargaining and the Influence of Product Market Power and Production Technology on Systematic Risk
Authors: Bughin Jacques
Published: November 2008

The relationship between the CAPM firm beta and the firm's microeconomic decisions is studied by a model under uncertainty, which combines the feature of an ex ante “inputs substituable” production technology and the existence of a union which bargains over various economic dimensions of the firm.

It is shown that the earlier findings of a relationship between the firm beta, the firm product market power, and the labor-capital ratio may be reinforced through the indirect channel of labor market bargaining, but the relationship becomes more complex, and heavily depends on the scope of the union-firm bargaining process.

This yields the empirical prediction, confirmed for a panel of Belgian firms, that any proper estimation of the determinants of firm beta, must control for firms in the sample being unionized.