bluuebunny/crossref_metadata_2025 huggingface dataset:
Notes: Installation vs. Echelon Stock Policies for Multilevel Inventory Control
Authors: Axsäter Sven , Rosling Kaj
Published: November 2008

This paper compares installation and echelon stock policies for multilevel inventory control. The major results are for serial and assembly systems. For (Q, r)-rules, echelon stock policies are, in general, superior to installation stock policies. A Kanban-policy is identified as a restricted type of installation stock (Q, r)-policy.
Leadership Style and Incentives
Authors: Rotemberg Julio J. , Saloner Garth
Published: November 2008

We study the relationship between a firm's environment and its optimal leadership style. We use a model in which contracts between the firm and managers are incomplete so that providing incentives to subordinates is not straightforward. Leadership style, whether based on organizational culture or on the personality of the leader, then affects the incentive contracts that can be offered to subordinates. We show that leaders who empathize with their employees adopt a participatory style and that shareholders gain from appointing such leaders when the firm has the potential for exploiting numerous innovative ideas. By contrast, when the environment is poor in new ideas, shareholders benefit from hiring a more selfish (i.e., more profit maximizing) leader whose style is more autocratic.
Structural Properties and a Heuristic for Kanban-Controlled Serial Lines
Authors: Tayur Sridhar R.
Published: November 2008

Kanban-controlled serial manufacturing systems have been popular in Japan for many years. The analytical intractibility of such systems makes simulation and heuristics essential in studying them. In this paper we develop some theoretical results—reversibility and dominance—that characterize the dynamics of these systems, provide insight into their behavior and help greatly reduce the simulation effort needed to study them. These structural results also provide the basis for developing heuristics to deal effectively with particular cases. Reversibility deals with certain permutations of the machines; dominance deals with the allocation of kanbans to cells. In addition, we show that if our goal is to maximize the throughput with a given total fixed number of cards, all of the machines should be placed in a single cell. These structural results hold in general because no assumptions are made on the processing time distribution of the machines, the number of cells, the total number of kanbans, or whether or not the machines are identical. Based on the structural results, we also develop a heuristic for the allocation of kanbans to a balanced line. We briefly describe an implementation of this model at a laminate manufacturing plant.
Use of Piecewise Linear Value Functions in Interactive Multicriteria Decision Support: A Monte Carlo Study
Authors: Stewart Theodor J.
Published: November 2008

This paper describes a Monte Carlo study conducted to evaluate the effects of modelling assumptions and design parameters on the behaviour of interactive methods for the discrete choice MCDM problem, based on explicit value function models. The purpose of the study is to identify those assumptions and parameters which lead to the most efficient use of preference judgements made by the decision maker, and to the greatest robustness to judgmental errors. It is concluded that nonlinearities in the value function need to be modelled, achieved here by use of a piecewise linear form. It was also found that search for indifference points, rather than using simple preference judgements alone, is of great advantage, best realized by expressing judgements in terms of pairwise trade-offs. Methods incorporating these features are highly robust to judgmental errors. Interactive methods of this class are compared with a priori fitting of similar value functions, and found to give a very similar quality of solution.
The Effect of a Large Shareholder on Corporate Value
Authors: Huddart Steven
Published: November 2008

This article analyzes the value of a corporation as a function of its ownership structure. Shareholders can acquire costly information about the manager's effort to produce output. Concentrating share ownership leads the largest shareholder to (i) acquire more precise signals of effort and (ii) modify the compensation contract. Better monitoring increases output, and hence firm value. However, the (risk averse) large shareholder bears more idiosyncratic firm risk as his stake in the firm increases. These forces equilibrate at a unique welfare maximizing ownership structure. Under a strong condition on the purchase or sale of shares by large stockholders, investors have incentives to trade toward the ownership structure that maximizes the social surplus. When all investors are price takers only a diffuse ownership structure can arise in a competitive equilibrium.
Boom, Bust, and Failures to Learn in Experimental Markets
Authors: Paich Mark , Sterman John D.
Published: November 2008

Boom and bust is a pervasive dynamic for new products. Word of mouth, marketing, and learning curve effects can fuel rapid growth, often leading to overcapacity, price war, and bankruptcy. Previous experiments suggest such dysfunctional behavior can be caused by systematic “misperceptions of feedback,” where decision makers do not adequately account for critical feedbacks, time delays, and nonlinearities which condition system dynamics. However, prior studies often failed to vary the strength of these feedbacks as treatments, omitted market processes, and failed to allow for learning. A decision making task portraying new product dynamics is used to test the theory by varying the strength of key feedback processes in a simulated market. Subjects performed the task repeatedly, encouraging learning. Nevertheless, performance relative to potential is poor and is severely degraded when the feedback complexity of the environment is high, supporting the misperception of feedback hypothesis. The negative effects of feedback complexity on performance were not moderated by experience, even though average performance improved. Models of the subjects' decision making heuristics are estimated; changes over trials in estimated cue weights explain why subjects improve on average but fail to gain insight into the dynamics of the system. Though conditions for learning are excellent, experience does not appear to mitigate the misperceptions of feedback or systematic dysfunction they cause in dynamic decision making tasks. We discuss implications for educational use of simulations and games.
Near Myopic Heuristics for the Fixed-Life Perishability Problem
Authors: Nandakumar Purushottaman , Morton Thomas E.
Published: November 2008

This paper details the application of a class of heuristics to the Fixed-life Perishability Problem formulated by Nahmias (1975a) and Fries (1975). Various assumptions for this model include i.i.d. demand, linear ordering, holding and penalty costs. Goods have a known fixed lifetime and perished goods cause a linear outdating cost to be incurred. The approach we use, that of developing heuristics from ‘near myopic’ bounds, involves viewing periodic inventory problems in the framework of the classic “newsboy” model. We exploit various properties of the problem under consideration to derive tight bounds on the newsboy parameters, thus leading to efficient bounds on the order quantities. Computational studies reveal that the heuristic policies are near optimal, and are easy to compute.
Evaluating and Combining Physicians' Probabilities of Survival in an Intensive Care Unit
Authors: Winkler Robert L. , Poses Roy M.
Published: November 2008

In this paper, probabilities of survival assessed by physicians for patients admitted to an intensive care unit are studied. The probabilities from each of four types of physicians are evaluated on an overall basis and in terms of specific attributes, and the groups are compared. The physicians with the most experience and expertise perform better overall. All four groups appear to be reasonably well calibrated, and the key factor in relative overall performance is the level of discrimination provided by the probabilities. Averages of two, three, and four probabilities for each individual patient are also analyzed. As the number of the probabilities in the average increases, performance improves on average on all dimensions, although the best overall performance is exhibited by a combination of probabilities from the two physician types performing best individually. Some comparisons are made with previous work, and implications for probability assessment and combination in medicine and more generally in other areas of application are discussed. Important characteristics of the study are the fact that it was conducted on-line in a real setting, the involvement of individuals with different levels of expertise, the use of a true predictive situation with a clearly-defined event, the consideration of multiple dimensions of the quality of judgments, and the collection of multiple probabilities for each case to permit the investigation of a variety of possible combinations of probabilities.
Notes: A Reformulation of a Mean-Absolute Deviation Portfolio Optimization Model
Authors: Feinstein Charles D. , Thapa Mukund N.
Published: November 2008

The purpose of this note is to present a reformulation of the model presented by Konno and Yamazaki (1991). In their paper, it was claimed that (under the assumption that there is no upper limit on the investment in an asset) the number of nonzero assets in the optimal portfolio is at most 2T + 2, where T is the number of time periods in the data base used to approximate the parameters of the return distributions of the assets. The formulation we present, which is shown to be equivalent to that of Konno and Yamazaki, has a bound of T + 2 on the number of nonzero assets in the optimal portfolio.
The Diffusion of Flexible Manufacturing Systems in Japan, Europe and the United States
Authors: Mansfield Edwin
Published: November 2008

This paper is concerned with the rate of diffusion of flexible manufacturing systems, one of the most important industrial applications of information technology. Using data from about 175 firms, I analyze diffusion rates in Japan, Western Europe and the United States, a major purpose being to determine whether, as is often claimed, U.S. firms have been relatively slow to introduce this innovation, and if so, why.
Heuristics for Pricing and Positioning a Product-Line Using Conjoint and Cost Data
Authors: Dobson Gregory , Kalish Shlomo
Published: November 2008

Designing and pricing a product-line is the very essence of every business. In recent years quantitative methods to assist managers in this task have been gaining in popularity. Conjoint analysis is already widely used to measure preferences for different product profiles, and build market simulation models. In the last few years several papers have been published that suggest how to optimally choose a product-line based on such data.

We formalize this problem as a mathematical program where the objective of the firm is either profit or total welfare. Unlike alternative published approaches, we introduce fixed and variable costs for each product profile. The number of products to be introduced is endogenously determined on the basis of their desirability, fixed and variable costs, and in the case of profits, their cannibalization effect on other products. While the problem is difficult (NP-complete), we show that the maximum welfare problem is equivalent to the uncapacitated plant location problem, which can be solved very efficiently using the greedy interchange heuristic. Based on past published experience with this problem, and on simulations we perform, we show that optimal or near optimal solutions are obtained in seconds for large problems. We develop a new greedy heuristic for the profit problem, and its application to simulated problems shows that it too runs quickly, and with better performance than various alternatives and previously published heuristics. We also show how the methodology can be applied, taking existing products of both the firm and the competition into account.
Comparing the Calibration and Coherence of Numerical and Verbal Probability Judgments
Authors: Wallsten Thomas S. , Budescu David V. , Zwick Rami
Published: November 2008

Despite the common reliance on numerical probability estimates in decision research and decision analysis, there is considerable interest in the use of verbal probability expressions to communicate opinion. A method is proposed for obtaining and quantitatively evaluating verbal judgments in which each analyst uses a limited vocabulary that he or she has individually selected and scaled. An experiment compared this method to standard numerical responding under three different payoff conditions. Response mode and payoff never interacted. Probability scores and their components were virtually identical for the two response modes and for all payoff groups. Also, judgments of complementary events were essentially additive under all conditions. The two response modes differed in that the central response category was used more frequently in the numerical than the verbal case, while overconfidence was greater verbally than numerically. Response distributions and degrees of overconfidence were also affected by payoffs. Practical and theoretical implications are discussed.
A Modeling Framework for Coordinating Promotion and Production Decisions within a Firm
Authors: Sogomonian Aram G. , Tang Christopher S.
Published: November 2008

This paper presents a modeling framework for evaluating the benefits of coordinating promotion and production decisions over a finite planning horizon within a firm. These decisions include the timing and level of promotion, and the level of production. The modeling framework consists of the development of a baseline model and an integrated model. In the baseline (integrated) model, the firm would consider those promotion and production decisions separately (jointly). For each of the models, we formulate the problem that determines the optimal promotion and production decisions so that the total net profit is maximized as a mixed integer program. By exploiting the structure of the problem, we show that each problem can be reformulated as a “longest path” problem over a network. Hence, each problem can be solved efficiently. This solution approach enables us to evaluate the benefits of coordinating promotion and production decisions by comparing the total net profit generated by the baseline model to that of the integrated model.
Mt/G/∞ Queues with Sinusoidal Arrival Rates
Authors: Eick Stephen G. , Massey William A. , Whitt Ward
Published: November 2008

In this paper we describe the mean number of busy servers as a function of time in an Mt/G/∞ queue (having a nonhomogeneous Poisson arrival process) with a sinusoidal arrival rate function. For an Mt/G/∞ model with appropriate initial conditions, it is known that the number of busy servers at time t has a Poisson distribution for each t, so that the full distribution is characterized by its mean. Our formulas show how the peak congestion lags behind the peak arrival rate and how much less is the range of congestion than the range of offered load. The simple formulas can also be regarded as consequences of linear system theory, because the mean function can be regarded as the image of a linear operator applied to the arrival rate function. We also investigate the quality of various approximations for the mean number of busy servers such as the pointwise stationary approximation and several polynomial approximations. Finally, we apply the results for sinusoidal arrival rate functions to treat general periodic arrival rate functions using Fourier series. These results are intended to provide a better understanding of the behavior of the Mt/G/∞ model and related Mt/G/s/r models where some customers are lost or delayed.
Moment Methods for Decision Analysis
Authors: Smith James E.
Published: November 2008

Decision models involving continuous probability distributions almost always require some form of approximation. The usual approach to evaluating these kinds of models is to construct a discrete approximation for each continuous distribution and compute value lotteries and certain equivalents using these discrete approximations. Although decision analysts are quite comfortable with this approach, there has been relatively little consideration of how these discrete approximations affect the results of the analysis. In the first part of this paper, we review three common methods of constructing discrete approximations and compare their performance in a simple example.

The results of the example suggest a different approach that offers potential improvements in accuracy and efficiency over the usual approach. The basic idea is that given discrete approximations that accurately represent the moments of assessed “input” distributions, we may easily and accurately compute the moments of the “output” distribution or value lotteries. These moments then summarize what we know about the value lottery and certain equivalent, and provide the basis for computing approximate value lotteries and certain equivalents. In this paper, we discuss the methods supporting this moment approach and evaluate their performance in the context of the example.
Notes: Categorical Outputs in Data Envelopment Analysis
Authors: Rousseau John J. , Semple John H.
Published: November 2008

A new linear programming formulation for handling categorical outputs in DEA is presented which eliminates the difficulties of interpretation and computation that accompanied earlier mixed integer models.
Manufacturing Flexibility: A Strategic Perspective
Authors: Gerwin Donald
Published: November 2008

To help meet competitive realities operations managers need to know more about the strategic aspects of manufacturing flexibility. This paper takes steps toward meeting that need by critically reviewing the literature and establishing a research agenda for the area. A conceptual model, which places flexibility within a broad context, helps to identify certain assumptions of theoretical studies which need to be challenged. The model also provides a basis for identifying specific flexibility dimensions. The manner in which these dimensions may limit the effectiveness of a manufacturing process, and the problems in operationalizing them are discussed. Focusing next on the neglected area of applied work, concepts are presented for analyzing whether desired amounts of flexibility are being achieved and whether the potential for flexibility built into a manufacturing process is being tapped. Once more, a procedure is outlined for altering a plant's types and amounts of flexibility over time. The research agenda, which grows out of the appraisal of theoretical and applied work, indicates the value in studying generic flexibility strategies, the flexibility dimensions, methods of delivery, ways of evaluating and changing a process's flexibility, and above all measurement problems. The conclusions indicate principles for strategic research, some of which have relevance for the development of mathematical models.
Alternative Conceptions of Feedback in Dynamic Decision Environments: An Experimental Investigation
Authors: Sengupta Kishore , Abdel-Hamid Tarek K.
Published: November 2008

Studies conducted in recent years have shown that outcome feedback in dynamic decision-making tasks does not lead to improved performance. This has led researchers to examine alternatives to outcome feedback for improving decision makers' performance in such tasks. This study examines the feasibility of improving performance in dynamic tasks by providing cognitive feedback or feedforward. We report a laboratory experiment in which subjects managed a set of simulated software development projects. Results indicate that subjects provided with cognitive feedback performed best, followed by those provided with feedforward. Subjects provided with outcome feedback performed poorly. We discuss the implications of the results for decision support in dynamic tasks.
Zero-Tolerance Policies: Do They Inhibit or Stimulate Illicit Drug Consumption?
Authors: Caulkins Jonathan P.
Published: November 2008

Some have suggested fighting the drug problem with so-called “zero-tolerance” policies that impose stiff sanctions for possession of even trace amounts of illicit drugs. Such policies can swamp the criminal justice system and violate the principle that the punishment should fit the crime, but these objections have often been suppressed by an overriding desire to minimize consumption.

This paper argues to the contrary that under plausible conditions zero-tolerance policies may actually encourage controlled users to consume more, not less, than they would if the punishment increased in proportion to the quantity possessed at the time of arrest. This result holds even if for every quantity the punishment under the proportional policy is less than or equal to that under the zero-tolerance policy.

The argument relies on a mathematical model that describes how a typical controlled user's purchasing habits are affected by the punishment anticipated as a function of the quantity possessed. A variety of possible punishment policies are evaluated. The consumption minimizing policy for a given individual user is obtained, as well as the consumption minimizing policy that belongs to a restricted class of policies that are more likely to be politically feasible.
The Bootstrap Approach for Testing Skewness Persistence
Authors: Muralidhar Krishnamurty
Published: November 2008

This study presents a new methodology for testing changes in skewness between time periods (or samples) using the bootstrap method. A Monte Carlo simulation experiment was conducted to compare the effectiveness of the bootstrap method with the method suggested by Lau, Wingender and Lau (1989) to test skewness persistence. The results show the bootstrap method to be more powerful than the other method. The bootstrap method was also used to determine the persistence of skewness in stock returns. The results show that, in a large percentage of stocks, skewness persists over time.
The Rational Effect of Price Promotions on Sales and Consumption
Authors: Assunção João L. , Meyer Robert J.
Published: November 2008

We explore the rational effect of price variation on sales and consumption in markets where consumers are uncertain about the future price of goods. We first derive an optimal ordering policy which expresses the amount a consumer should purchase and consume in a given period as a function of the observed price of the good, the distribution of future prices, and the nature of his or her inventory. This policy extends previous normative models of inventory control, such as those by Golabi (1985) and Kalymon (1970) to the case where the amount to consume in a given period is an explicit decision variable and prices follow a first-order stochastic process. We then use this model to explore how changes in the long-run frequency and temporal correlations of price promotions should normatively affect the contemporaneous relationship between purchase, consumption and price. Among the predictions which follow from the model are that consumption should rationally increase with the size of existing inventories, the short-term sensitivity of sales to prices should be greater than that of consumption to price, and this discrepancy increases with decreases in the temporal correlation of price deals and the long-term relative frequency of price deals.
A Synthesis of Decision Models for Tool Management in Automated Manufacturing
Authors: Gray Ann E. , Seidmann Abraham , Stecke Kathryn E.
Published: November 2008

The evidence is clear that a lack of attention to structured tool management has resulted in the poor performance of many manufacturing systems. Plant tooling systems affect product design options, machine loading, job batching, capacity scheduling, and real-time part routing decisions. With increasing automation in manufacturing systems, there is a growing need to integrate tool management more thoroughly into system design, planning and control.

This paper critically evaluates various tool management approaches, identifying the operational tradeoffs and analyzing the models developed to address management decisions involving tooling. These decisions range from selecting the optimal machining parameters and the most economic processing rate for a particular operation, to the loading of tools and jobs on machines and the determination of the optimal tool-mix inventories needed for a particular production schedule. We present an integrated conceptual framework for resource planning to examine how tool management issues, depending upon their scope, can be classified into tool-level, machine-level, and system-level concerns. This framework specifies how decisions made at one level constrain those at lower levels, and how information from lower levels feeds back to higher level decisions. The framework structures our critical evaluation of the modeling approaches found in the academic literature and points to promising directions for future research.
Minimizing the Makespan in the 3-Machine Assembly-Type Flowshop Scheduling Problem
Authors: Lee Chung-Yee , Cheng T. C. E. , Lin B. M. T.
Published: November 2008

This paper considers minimizing the makespan in the 3-machine assembly-type flowshop scheduling problem. After problem formulation, we present a proof to show that the general version of this problem is strongly NP-complete. We then discuss a few polynomially solvable cases of the problem and present the solution algorithms. Next, a branch and bound solution scheme is suggested. Finally, three heuristics to find approximate solutions to the general problem are proposed and their error bounds are analyzed.
A Single Bottleneck System with Binomial Yields and Rigid Demand
Authors: Grosfeld-Nir Abraham , Ronen Boaz
Published: November 2008

This paper considers a “single bottleneck system”: a multistage production system where all setups except one are zero. The stage with nonzero setup is defined to be the bottleneck; it may be thought of as the critical resource whose throughput largely determines the throughput of the entire system, as a envisioned by the OPT philosophy. Production is in lots with uncertain (binomial) yields and demand needs to be satisfied in full, thus possibly necessitating multiple production runs. We show how the optimal control problem can be reduced to that of optimal lotsizing a single stage.
Notes: “The Dynamics of Plant Layout”
Authors: Balakrishnan Jaydeep
Published: November 2008

This note develops a fathoming procedure for the Dynamic Plant Layout Problem (DPLP) discussed by Rosenblatt (1986) in this journal. This procedure can be used to reduce the number of candidate static layouts to be examined. An important feature of our procedure is that a feasible dynamic solution is not required in order to apply it. The effectiveness of this procedure depends on the relative magnitude of the shifting costs.
Mortgages and Markov Chains: A Simplified Evaluation Model
Authors: Zipkin Paul
Published: November 2008

This paper has two purposes. The first is purely expository: to introduce stochastic interest-rate models and security-evaluation methods in a simple mathematical setting. Specifically, we assume the uncertainties in the model are represented by a discrete-time, finite-state Markov chain. Second, using this framework, we present a relatively simple model for the evaluation of mortgage-backed securities.
Valuation and Analysis of Collateralized Mortgage Obligations
Authors: McConnell John J. , Singh Manoj
Published: November 2008

This study develops a model for the valuation of Collateralized Mortgage Obligations (CMOs). The model is based on a two-factor model of the term structure of interest rates and embeds an empirically estimated mortgage prepayment function. The model is used to analyze various CMO tranches, including standard sequential pay fixed-rate tranches, Planned Amortization Class (PAC) tranches, Targeted Amortization Class (TAC) tranches, floating-rate tranches, Interest Only (IO) and Principal Only (PO) tranches, Z-bonds and Residuals. The results of this analysis illustrate the sensitivity of the various tranches to differences in CMO structure, changes in interest rates, the characteristics of the underlying collateral, and mortgage prepayments.
Optimal Power-of-Two Replenishment Strategies in Capacitated General Production/Distribution Networks
Authors: Federgruen A. , Zheng Yu-Sheng
Published: November 2008

In this paper we develop a model for a capacitated production/distribution network of general (but acyclic) topology with a general bill of materials, as considered in MRP (Material Requirement Planning) or DRP (Distribution Requirement Planning) systems. This model assumes stationary, deterministic demand rates and a standard stationary cost structure; it is a generalization of the uncapacitated model treated in the seminal papers of Maxwell and Muckstadt (1985) and Roundy (1986). The capacity constraints consist of bounds on the frequency with which individual items can or need to be replenished.

We derive a pair of simple and efficient algorithms capable of determining an optimal power-of-two policy. These algorithms consist of a limited number of maximum flow computations in networks closely related to the production/distribution network. The complexity of these algorithms, even when applied to the uncapacitated model, compares favorably with that of the existing alternative solution methods.
Flight Crew Scheduling
Authors: Graves Glenn W. , McBride Richard D. , Gershkoff Ira , Anderson Diane , Mahidhara Deepa
Published: November 2008

A new crew scheduling optimization system has been developed for United Airlines. The system was developed to permit quick response to schedule changes and to reduce crew scheduling costs. It was designed to work efficiently for both the medium sized problems (300 flights daily) and the very large problems (1,700 flights daily) that United must solve. The system has two main components, a generator and an optimizer. The generator creates pairings (candidate crew trips) which are fed as variables to the optimizer as an elastic embedded set partitioning integer programming problem. The optimizer then seeks to find a set of pairings that covers all of the flight segments exactly once with minimal cost. Once a disjoint solution has been found, the system cycles between the generator and the optimizer to improve it. Savings of $16,000,000 annually in crew scheduling costs have been obtained.
A Short-Cut Potential Reduction Algorithm for Linear Programming
Authors: Kaliski John A. , Ye Yinyu
Published: November 2008

As most interior point algorithms iterate, they repeatedly perform costly matrix operations, such as projections, on the entire constraint matrix. For large-scale linear programming problems, such operations consume the great majority of the computation time required. However, for problems where the number of variables far exceeds the number of constraints, operations over the entire constraint matrix are unnecessary. We will examine and extend decomposition techniques which greatly reduce the amount of work required by such interior point methods as the dual affine scaling and the dual potential reduction algorithms. In an effort to judge the practical viability of the decompositioning, we compare the performance of the dual potential reduction algorithm with and without decompositioning over a set of randomly generated transportation problems. Accompanying a theoretical justification of these techniques, we focus on the implementation details and computational results of one such technique.
Compensation Plans for Single- and Multi-Product Salesforces: An Application of the Holmstrom-Milgrom Model
Authors: Lal Rajiv , Srinivasan V.
Published: November 2008

The agency theory approach to understanding salesforce compensation plans is modified to incorporate the intratemporal nature of the salesperson's effort-rate decision, i.e., the decision about the effort-rate at any given point in time potentially depends upon the sales performance up to that point in time in the accounting period. Under the assumptions considered in this paper, Holmstrom and Milgrom (1987) have shown that the optimal compensation plan is linear in total sales over the accounting period. The comparative statics results obtained here corroborate most of the corresponding results in the salesforce compensation literature; moreover, we derive many additional results not available in the literature. It is demonstrated that the commission income as a fraction of total compensation goes up with an increase in the effectiveness of the sales-effort or an increase in base sales. On the other hand, the salary component of the total compensation goes up with increases in uncertainty, absolute risk aversion, marginal cost of production, perceived cost of effort, and/or alternative job opportunities for the salesperson. We provide a discussion of different selling situations where our results may be more or less applicable. An examination of empirical studies already available in the literature reveals support for our findings regarding the relative emphasis of salary and incentive pay in the compensation plan. We also extend the agency theory approach to compare commission rates across products for a multiproduct salesperson. Here it is shown that commission rates are higher for products with higher sales-effort effectiveness, lower levels of uncertainty, and/or lower marginal costs.
The Effects of Risk Aversion on Production Decisions in Decentralized Organizations
Authors: Arya Anil , Fellingham John C. , Young Richard A.
Published: November 2008

This paper presents a principal-agent model in which subsequent to contracting the risk averse agent becomes informed about the production process. Communication of the agent's information is always valuable. The optimal contract given this information asymmetry is characterized by less production and a larger risk premium than when information is symmetric, leading to an efficiency loss. Comparative statics show that the loss in expected production increases as the agent becomes more risk averse.
Outcome Signs, Question Frames and Discount Rates
Authors: Shelley Marjorie K.
Published: November 2008

This study explains why gain/loss discount rate differences reported in previous studies cannot be attributed to outcome sign alone, but rather, must be associated with particular outcome-sign/question-frame combinations. To do so, it extends Loewenstein's (1988) framing model of intertemporal choice to negative outcomes and uses the resulting predictions to interpret and integrate the results of three previous studies comparing subjective discount rates (Thaler 1981, Loewenstein 1988, Benzion et al. 1989). The new framework reveals previously unidentified linkages among outcome signs, question frames, and discount rates. To investigate whether losses and gains are, in fact, discounted differently, an experiment is conducted that includes a neutral-frame intertemporal choice scenario (no proposed change in outcome timing) for each outcome sign. The results show that subjective discount rates vary in a predictable way according to the outcome sign and question frame combination examined.
Massaging Mean-Variance Inputs: Returns from Alternative Global Investment Strategies in the 1980s
Authors: Chopra Vijay K. , Hensel Chris R. , Turner Andrew L.
Published: November 2008

This paper explores the impact of adjustments to the inputs on total returns, terminal wealth, and portfolio turnover in an unconstrained monthly mean-variance (MV) asset allocation over time. It is well known that MV allocations are very sensitive to small forecast errors in the means and covariances. This sensitivity is especially pronounced for errors in means. One way to control this sensitivity to forecast errors is to use Stein estimation. We examined three naive applications of Stein estimation for six individual country stock indexes, five country bond indexes and five cash indexes.

This study has two major conclusions. First, any of the suggested adjustments to inputs dominate the results of an unadjusted-input MV optimization. Adjusted-input portfolios have higher mean return, less variance and greater terminal wealth than unadjusted-input portfolios. Second, these improvements become even greater with transaction costs.
Laplace-Weibull Mixtures for Modeling Price Changes
Authors: Rachev S. T. , SenGupta A.
Published: November 2008

B. Mandelbrot and E. Fama in the sixties, and W. Ziemba in the seventies, suggested stable laws for modeling stock returns and commodity prices. Geometric stable distributions, with Laplace distribution playing the role of a “normal” law, have been found to give better fit to such data. We study the “stability” properties of Laplace and a mixture of Laplace and Weibull and discuss the statistical inference for such mixture models. Application of the mixture distribution to modeling price changes in real estate prices in France is given.
Growth-Security Investment Strategy for Long and Short Runs
Authors: Li Yuming
Published: November 2008

It is well known that the investment policy maximizing the expected logarithm of wealth each period is a long-run optimal capital growth criterion. However, the growth-optimal strategy entails a considerable risk of losing a substantial portion of wealth for the investment in the short run. This paper extends the long-run capital growth criterion to a multiperiod investment policy which maximizes the capital growth and at the same time achieves a given probability of maintaining an accumulated risk-free return over any finite investment horizon.
Characterizing the Output Process of a CONWIP Line with Deterministic Processing and Random Outages
Authors: Duenyas Izak , Hopp Wallace J. , Spearman Mark L.
Published: November 2008

We model a CONWIP (CONstant Work-in-Process) production line with deterministic processing times and exponential failure and repair times as a closed queueing network. We derive an approximation for the mean and variance of the output during a specified interval and give computable conditions under which this approximation performs well. We show through empirical tests that the approximation is robust and illustrate its usefulness as the basis for a procedure for selecting an economic production quota and a card count for a CONWIP line.
Greenfield vs. Acquisition: The Strategy of Japanese Investors in the United States
Authors: Hennart Jean-François , Park Young-Ryeol
Published: November 2008

Multinational firms can enter a foreign market by taking over existing local firms (acquisitions) or by setting up new ventures (greenfield investments). Surprisingly, there has been limited empirical work on this topic. This paper examines the determinants of this choice by looking at Japanese entries into the United States. By focusing on firms of one country entering a single market, we are able to separate the impact of a firm's strategy from that of the characteristics of the target industry or country.

This paper tests simultaneously a number of competing hypotheses. The results suggest that acquisitions are used by Japanese investors with weak competitive advantages, while investors with strong advantages find that greenfield investments are a more efficient way to transfer these advantages to the U.S. Acquisitions are also chosen to enter industries with either very high or very low growth rates, when entry is at a scale that is large relative to the parent, and when entry is into a different industry. The Japanese investor's previous experience of the U.S. market, its financial situation, and its status as a follower in an oligopolistic industry have no statistically significant impact on the entry mode. Neither do U.S. stock market conditions.
Two-Interval Inventory-Allocation Policies in a One-Warehouse N-Identical-Retailer Distribution System
Authors: McGavin Edward J. , Schwarz Leroy B. , Ward James E.
Published: November 2008

For a system of N-identical-retailers we construct a model for determining warehouse inventory-allocation policies which minimize system lost sales per retailer between system replenishments. An allocation policy is specified by: (a) the number of withdrawals from warehouse stock; (b) the intervals between successive withdrawals; (c) the quantity of stock to be withdrawn from the warehouse in each interval; and (d) the division of withdrawn stock among the retailers. We show that in the case of two withdrawals, available stock in each interval should be divided to “balance” retailer inventories.

We also develop an infinite-retailer model and use it to determine two-interval allocation heuristics for N-retailer systems. Simulation tests suggest that the infinite-retailer heuristic policies are near-optimal for as few as two retailers. Simulation tests indicate that the risk-pooling benefits of allocation policies with two well-chosen intervals are comparable to those of base-stock policies with four equal intervals.
Guarantees in Auctions: The Auction House as Negotiator and Managerial Decision Maker
Authors: Greenleaf Eric A. , Rao Ambar G. , Sinha Atanu R.
Published: November 2008

The multimillion dollar price guarantees that an auction house can offer for paintings have already had a large impact on auction house profits, and place new demands on the auctioneer's decision making and negotiating skills. Yet auctioneers have not been studied as independent entities and decision makers. To create a price guarantee, the auction house and the seller must negotiate both the guarantee amount and the extra commission the seller pays if the auction price exceeds the guarantee. We present a normative model of negotiations and find the frontier of guarantee and commission that is the Nash bargaining solution. We also determine the optimal reserve that the auctioneer should place on guaranteed property. We find that guarantees decrease the auction house's expected revenue compared to a conventional auction, but do allow it to attract business which might otherwise be lost. Guarantees benefit sellers, increasing the expected value and lowering the variance of their auction revenue. The auctioneer's optimal strategy depends not only on the distribution of the artwork's auction price, but also the price it will bring if it fails to sell at auction. In the latter case the auction house must pay the seller the guarantee and then sell the artwork, which it now owns, in a private secondary market where buyers regard the property as “damaged goods” and lower their offers. Although all points on the frontier produce equal expected revenue, several frequently used decision making rules suggest that both parties may prefer a guarantee arrangement where the seller pays no additional commission and the guarantee has the lowest value on the frontier.
Economic Equipment Policies: An Evaluation
Authors: Smith Vernon L.
Published: November 2008

The present paper summarizes the results of a detailed empirical investigation of the theory of economic equipment policy as applied to one important kind of industrial equipment, viz line-haul truck-tractor power units. The objective of this research was to ascertain, for a type of equipment which is perhaps best suited to exact replacement analysis, the quantitative importance to the firm of following optimal policies in replacement and in the choice of equipment type. Also it was desired to compare actual with optimal policies in a concrete case.
Management Models and Industrial Applications of Linear Programming
Authors: Charnes A. , Cooper W. W.
Published: November 2008

An accelerating increase in linear programming applications to industrial problems has made it virtually impossible to keep abreast of them, not only because of their number (and diversity) but also because of the conditions under which many are carried out. Industrial (and governmental) secrecy is often present. Other conditions also bar access to ascertainment and assessment of the pattern of applications. Lack of a tradition for publication is one. Failure to ascertain the general significance of particular findings is another, as is discouragement arising from the fact that similar applications have previously been published by others. Immediate remedies are not available for these difficulties. Presumably conventions such as this will help, over a period of time, by encouraging informal contacts between interested persons.

A talk on “industrial applications of linear programming” must be altered to suit these circumstances. In place of a survey or evaluation of industrial studies, two broad issues which are relevant to all such applications will be discussed. These are, (1) use of linear programming models as guides to data collection and (2) analysis (and prognosis) of fruitful areas of additional research, especially those which appear to have been opened by industrial applications.
An Analytic Solution of the Warehouse Problem
Authors: Dreyfus Stuart E.
Published: November 2008

In a recent paper, [Bellman, Richard. 1956. On the theory of dynamic programming—a warehousing problem. Management Sci. 2 (3, April) 272.], Bellman uses dynamic programming to establish a computational algorithm for the solution of the “warehouse” problem. The present paper also employs the dynamic-programming approach and shows that the structure of the solution can be determined analytically, with numerical results easily obtained via recursive formulas.
Programming of Economic Lot Sizes
Authors: Manne Alan S.
Published: November 2008

This paper studies the planning problem faced by a machine shop required to produce many different items so as to meet a rigid delivery schedule, remain within capacity limitations, and at the same time minimize the use of premium-cost overtime labor. It differs from alternative approaches to this well-known problem by allowing for setup cost indivisibilities.

As an approximation, the following linear programming model is suggested: Let an activity be defined as a sequence of the inputs required to satisfy the delivery requirements for a single item over time. The input coefficients for each such activity may then be constructed so as to allow for all setup costs incurred when the activity is operated at the level of unity or at zero. It is then shown that in any solution to this problem, all activity levels will turn out to be either unity or zero, except for those related to a group of items which, in number, must be equal to or less than the original number of capacity constraints. This result means that the linear programming solution should provide a good approximation whenever the number of items being manufactured is large in comparison with the number of capacity constraints.
The Prospects of a Unified Theory of Organizations
Authors: Helmer Olaf
Published: November 2008

Despite the success of numerous sporadic efforts in the study of organizations, there is at present no unified theory of organizations. This would require a clearcut conceptual apparatus and a methodology for prediction. To achieve the former within the foreseeable future it might be wise to tie into the existing terminology of game theory; the latter may require taking a new look at the psychological problems involved and introducing something like an operations research approach to them.