bluuebunny/crossref_metadata_2025 huggingface dataset:
Model Selection Criteria: An Investigation of Relative Accuracy, Posterior Probabilities, and Combinations of Criteria
Authors: Rust Roland T. , Simester Duncan , Brodie Roderick J. , Nilikant V.
Published: November 2008

We investigate the performance of empirical criteria for comparing and selecting quantitative models from among a candidate set. A simulation based on empirically observed parameter values is used to determine which criterion is the most accurate at identifying the correct model specification. The simulation is composed of both nested and nonnested linear regression models. We then derive posterior probability estimates of the superiority of the alternative models from each of the criteria and evaluate the relative accuracy, bias, and information content of these probabilities. To investigate whether additional accuracy can be derived from combining criteria, a method for obtaining a joint prediction from combinations of the criteria is proposed and the incremental improvement in selection accuracy considered.

Based on the simulation, we conclude that most leading criteria perform well in selecting the best model, and several criteria also produce accurate probabilities of model superiority. Computationally intensive criteria failed to perform better than criteria which were computationally simpler. Also, the use of several criteria in combination failed to appreciably outperform the use of one model. The Schwarz criterion performed best overall in terms of selection accuracy, accuracy of posterior probabilities, and ease of use. Thus, we suggest that general model comparison, model selection, and model probability estimation be performed using the Schwarz criterion, which can be implemented (given the model log likelihoods) using only a hand calculator.
The Finite Horizon Nonstationary Stochastic Inventory Problem: Near-Myopic Bounds, Heuristics, Testing
Authors: Morton Thomas E. , Pentico David W.
Published: November 2008

Nonstationary stochastic periodic review inventory problems with proportional costs occur in a number of industrial settings with seasonal patterns, trends, business cycles, and limited life items. Myopic policies for such problems order as if the salvage value in the current period for ending inventory were the full purchase price, so that information about the future would not be needed. They have been shown in the literature to be optimal when demand “is increasing over time,” and to provide upper bounds for the stationary finite horizon problem (and in some other situations). Some results are also known, given special salvaging assumptions, about lower bounds on the optimal policy which are near-myopic. Here analogous but stronger bounds are derived for the general finite horizon problem, without such special assumptions. The best upper bound is an extension of the heuristic used by industry for some years for end of season (EOS) problems; the lower bound is an extension of earlier analytic methods. Four heuristics were tested against the optimal obtained by stochastic dynamic programming for 969 problems. The simplest heuristic is the myopic heuristic itself: it is good especially for moderately varying problems without heavy end of season salvage costs and averages only 2.75% in cost over the optimal. However, the best of the heuristics exceeds the optimal in cost by an average of only 0.02%, at about 0.5% of the computational cost of dynamic programming.
Effects of Warranty Execution on Warranty Reserve Costs
Authors: Patankar Jayprakash G. , Mitra Amitava
Published: November 2008

Previous research has usually assumed full execution of warranty if a product fails within the warranty time. This paper investigates the effect of warranty execution on the expected warranty reserves of a linear pro rata rebate plan. The failure distribution investigated includes the Weibull distribution with different parameter values. A weight function is used that depicts the effect of warranty execution. Several forms of this warranty execution modeling consumer behavior, which is influenced by factors such as the rebate plan, warranty time, product class, and warranty attrition, are studied. Expected present value of warranty reserves, by using a factor that includes the firm’s discount rate and the general inflation rate, are found for the different warranty execution functions. The impact of the warranty execution function on the warranty reserves per unit is explored. The paper also investigates the effects of the model parameters, such as the failure distribution parameters and differences in consumer behavior in claiming warranties on warranty costs per unit.
Electronic Data Interchange: Competitive Externalities and Strategic Implementation Policies
Authors: Wang Eric T. G. , Seidmann Abraham
Published: November 2008

Electronic Data Interchange (EDI) is an emerging type of standardized inter-organizational information system. We analyze the impact of EDI on the upstream suppliers’ competitive position in a simple two-level hierarchical market structure where the buyer faces a linear demand curve and the competing heterogeneous suppliers have an upward-sloping marginal cost function. We show that a suppliers’ adoption of EDI can generate positive externalities for the buyer and negative (or competitive) externalities for other suppliers. As a result, the buyer provides a price premium to those suppliers who adopt EDI and increases their sales volume and market share. Moreover, when the benefits that the buyer can derive from implementing EDI are substantial, and the suppliers’ EDI adoption costs are high, it may be in the buyer’s best interest to subsidize the suppliers so as to encourage them to adopt EDI, instead of mandating them to do so. Regardless of whether the buyer employs a mandatory or a subsidizing policy, the buyer and the end consumers may be the only ones who gain from this new technology. Consequently, a partial adoption by the supplier base may be optimal for the buyer when the suppliers’ adoption costs are sufficiently high. We also show that, while EDI reduces the transaction costs of the buyer, the upstream market tends to become more concentrated as a result of increased cost differentials. These results provide one economic explanation of the fact that many companies have actually reduced their supplier base after implementing EDI, despite a significant reduction in their market transaction costs.
Modeling as Constrained Problem Solving: An Empirical Study of the Data Modeling Process
Authors: Srinivasan Ananth , Te’eni Dov
Published: November 2008

Modeling is a powerful tool for managing complexity in problem solving. Problem solvers usually build a simplified model of the real world and then use it to generate a solution to their problem. To date, however, little is known about how people actually behave when building a model. This study concentrates on data modeling, which involves the representation of different types of data and their interrelationships. It reports on two laboratory studies, in which subjects engage in data modeling to solve a complex problem. Using a think-aloud process-tracing methodology, we examine the data modeling behavior as a set of activities that are managed by several heuristics. We found that some heuristics were effective in reducing the complexity of the problem. An important aspect we observed was how subjects moved across levels of abstraction in the problem representation. Overall, these observations help to explain how people deal with complexity in data modeling. They also suggest that it may be advantageous to design systems that support work at various levels of abstraction and support transitions among those levels.
Measuring the Impact of a Delay Buffer on Quality Costs with an Unreliable Production Process
Authors: Moinzadeh Kamran , Klastorin T. D.
Published: November 2008

In this paper, we consider an unreliable production process which produces nondefective items when operating in control, but produces defective items with a probability α when the process has shifted to an out-of-control state. Following a JIT philosophy, we stop the entire line and repair the machine as soon as detect that the process has shifted to an out-of-control state. To test whether a process shift has occurred, we inspect the last m units for every n units produced and stop the machine if a defective unit is found. More important, we place a “delay buffer” immediately after the unreliable process, which serves to delay the movement of items from the unreliable machine to other processes (or customers) downstream in the production system. When we detect that the machine has shifted to an out-of-control state, we stop the entire line and examine all previously uninspected items in the delay buffer; in this way, the buffer serves to reduce the expected rework and penalty (e.g., warranty) costs downstream when a process shift has occurred. In this paper, we develop a model for this approach and use this model to test the operating characteristics of our system. Computational results illustrate our hypothesis that a delay buffer may significantly reduce expected total costs of a quality control process.
Improved Implicit Optimal Modeling of the Labor Shift Scheduling Problem
Authors: Thompson Gary M.
Published: November 2008

This paper presents an integer programming model for developing optimal shift schedules while allowing extensive flexibility in terms of alternative shift starting times, shift lengths, and break placement. The model combines the work of Moondra (Moondra, S. L. 1976. An L. P. model for work force scheduling for banks. J. Bank Res. 7(4) 299–301.) and Bechtold and Jacobs (Bechtold, S. E., L. W. Jacobs. 1990. Implicit optimal modeling of flexible break assignments in labor staffing decisions for service operations. Management Sci. 36(11) 1339–1351.) by implicitly matching meal breaks to implicitly represented shifts. Moreover, the new model extends the work of these authors to enable the scheduling of overtime and the scheduling of rest breaks.

We compare the new model to Bechtold and Jacobs' model over a diverse set of 588 test problems. The new model generates optimal solutions more rapidly, solves problems with more shift alternatives, and does not generate schedules violating the operative restrictions on break timing.
Single Facility Due Date Setting with Multiple Customer Classes
Authors: Duenyas Izak
Published: November 2008

We consider the interrelated problems of (1) quoting a due date to each customer arriving to a production system modeled as a single-server queue and (2) sequencing customer orders once they are in the system. We allow several different classes of customers, each with different preferences for lead time and price. We first formulate the problem of quoting due dates under the assumption that customer orders are processed on a FCFS basis. Next, we consider the case where the firm has the option to schedule orders in other than FCFS order. For this case, we develop a heuristic for quoting due dates and sequencing orders. Simulation results suggest that policies that take into account customer price and due date preferences in scheduling and quoting due dates significantly outperform due date setting policies that do not.
Delay Cost and Incentive Schemes for Multiple Users
Authors: Radhakrishnan Suresh , Balachandran Kashi R.
Published: November 2008

This paper examines the role of cost application in the presence of delay and agency costs. Two risk neutral division managers share a common (production) facility and decide on (a) the demand (usage) rates, and (b) productive action. Each division manager causes costly delays at the common production facility for the other division manager. The expected delay depends on the demand rates chosen by the division managers. An M/G/1 queuing framework is used to characterize delay costs. The unobservability of demand rates leads to stochastic choice hazard, and the unobservability of productive actions leads to moral hazard problems. The headquarters designs incentive schemes such that the use of the common facility is optimal for the firm.

We show that a franchise contract is necessary to implement the first-best solution (similar to Harris and Raviv 1979), but is not sufficient. Specifically, when the action aversion of one division manager is small, the use of a franchise contract leads to “greedy” behaviour by the that division manager. The cost application required is greater than the expected marginal cost of delay to preclude the greedy behavior and ensure a stable equilibrium.
Single-Facility Resource Allocation Under Capacity-Based Economies and Diseconomies of Scope
Authors: Mazzola Joseph B. , Schantz Robert H.
Published: November 2008

We consider the optimal allocation of a resource in a single-facility production environment in the presence of capacity-based economies and diseconomies of scope. This setting generalizes the usual approach to single-facility resource allocation by allowing for the effective capacity of a facility to be a (nonlinear) function of the number of different items produced or the services delivered by the facility. Economies or diseconomies of scope are attributable to factors such as production changeover time, overall process management requirements, and complementary production requirements that vary with the product or service mix. We consider the problem setting in which the effective capacity depends on the number of tasks assigned to the facility. The resulting model (SCOPE) generalizes the well-known 0–1 knapsack problem. We also consider the more general problem (GENCAP) in which capacity consumption depends on the specific set of tasks assigned to the facility. We define tabu-search heuristics, as well as exact branch-and-bound algorithms for SCOPE and GENCAP. On the basis of extensive computational experience, the solution procedures are seen to be extremely effective. In particular, the heuristics consistently obtain high-quality solutions to the test problems. Furthermore, the tractability of solving problems to optimality is demonstrated through the solution of SCOPE problems having as many as 500 tasks and GENCAP problems involving as many as 50 tasks and more than 16,500 nonlinear capacity interactions.
A Decomposition Method for Quadratic Zero-One Programming
Authors: Chardaire Pierre , Sutter Alain
Published: November 2008

This paper proposes a decomposition method to compute a lower bound for unconstrained quadratic zero-one minimization. First, we show that any quadratic function can be expressed as a sum of particular quadratic functions whose minima can be computed by a simple branch and bound algorithm. Then, assuming some hypothesis, we prove that, among all possible decompositions, the best one can be found by a Lagrangian decomposition method. Moreover, we show that our algorithm gives at least the roof dual bound and should give better results in practice. Eventually, computational results and comparison with Pardalos and Rodgers' algorithm demonstrate the efficiency of our method for medium size problems (up to 100 variables).
The Effects of Retailer and Consumer Response on Optimal Manufacturer Advertising and Trade Promotion Strategies
Authors: Neslin Scott A. , Powell Stephen G. , Schneider Stone Linda
Published: November 2008

This research examines how retailer and consumer responses influence a manufacturer's optimal advertising and trade promotion plans. We develop a dynamic optimization model which considers the actions of the manufacturer, retailers, and consumers. The manufacturer attempts to maximize its profits by advertising directly to consumers and offering periodic trade deal discounts to the retailer in the hope that the retailer will in turn “pass through” a retailer promotion to the consumer. We show how the manufacturer's optimal allocation depends on consumer response to advertising, consumer response to retailer promotions, retailer inventory carrying cost, and retailer passthrough behavior. For example, we find that retailer carrying costs and promotion wearout play a central role in constraining expenditures on trade promotions. We predict that as trade promotions are designed to eliminate forward buying, manufacturers will find it in their interest to promote more steeply. We also find a natural tendency for advertising and trade dealing to substitute for each other in an optimal plan.
Near Optimal Solutions for Product Line Design and Selection: Beam Search Heuristics
Authors: Nair Suresh K. , Thakur Lakshman S. , Wen Kuang-Wei
Published: November 2008

Many practical product line design problems have large numbers of attributes and levels. In this case, if most attribute level combinations define feasible products, constructing product lines directly from part-worths data is necessary. For three typical formulations of this important problem, Kohli and Sukumar (Kohli, R., R. Sukumar. 1990. Heuristics for product-line design using conjoint analysis. Management Sci. 36 1464–1478.) present state-of-the-art heuristics to find good solutions. In this paper, we develop improved heuristics based on a beam search approach for solving these problems.

In our computations for 435 simulated problems, significant improvements occur in five important performance measures used. Our heuristic solutions are closer to the optimal, have smaller standard deviation over replicates, take less computation time, obtain optimal solutions more often and identify a number of “good” product lines explicitly. Computation times for these problems are no more than 22 seconds on a PC, small enough for adequate sensitivity analysis. We also apply the heuristics to a real data set and clarify computational steps by giving a detailed example.
The Risk-Averse (and Prudent) Newsboy
Authors: Eeckhoudt Louis , Gollier Christian , Schlesinger Harris
Published: November 2008

The effects of risk and risk aversion in the single-period inventory (“newsboy”) problem are examined. Comparative-static effects of changes in the various price and cost parameters are determined and related to the newsboy's risk aversion. The addition of a random background wealth and of an increase in the riskiness of newspaper demand are also examined. Although many of the comparative effects generally are ambiguous, some fairly simple restrictions on preferences and/or risk increases are shown to lead to qualitatively deterministic results.
Valuing Risky Projects: Option Pricing Theory and Decision Analysis
Authors: Smith James E. , Nau Robert F.
Published: November 2008

In the academic literature and professional practice, there are a number of alternative and apparently competing methods for valuing risky projects. In this paper, we compare and contrast three different approaches: risk-adjusted discount-rate analysis, option pricing analysis, and decision analysis, focusing on the last two. We show that, in contrast to some of the claims made in the “real options” literature, when both option pricing and decision analysis methods are correctly applied, they must give consistent results. We also explore ways in which option pricing and decision analysis methods can be profitably integrated. In particular, we show how option pricing techniques can be used to simplify decision analysis when some risks can be hedged by trading and, conversely, how decision analysis techniques can be used to extend option pricing techniques to problems with incomplete securities markets.
Sequential Choice Under Ambiguity: Intuitive Solutions to the Armed-Bandit Problem
Authors: Meyer Robert J. , Shi Yong
Published: November 2008

The process by which individuals learn from feedback when making recurrent choices among ambiguous alternatives is explored. We describe an experiment in which subjects solve a variant of the classic armed-bandit problem of dynamic decision theory, set in the context of airline choice. Subjects are asked to make repeated choices between two hypothetical airlines, one having an on-time departure probability which is known a priori, and the other has an ambiguous probability whose true value can only be discovered by making sample trips on the airline. Subjects attempt to make choices in such a way as to maximize the total number of one-time departures over a fixed planning horizon. We examine the extent to which actual choice patterns over time are consistent with those which would be made by a decision maker acting as an optimal Bernoulli sampler. The data offer support for a number of expected—and some unexpected—departures from optimality, including a tendency to underexperiment with promising options and overexperiment with unpromising options, and a tendency to increasingly switch between airlines as the average base rate of departures decreases. Implications of the work for the descriptive validity of normative dynamic decision models is explored, as well as for the generalizability of previous findings about choice under ambiguity to dynamic settings.
Optimal Batch Sizing and Repair Strategies for Operations with Repairable Jobs
Authors: So Kut C. , Tang Christopher S.
Published: November 2008

This paper presents a model of a bottleneck facility that performs two distinct types of operations: “regular” and “repair.” Both switch-over time and cost are incurred when the facility switches from performing one type of operation to a different type. Upon the completion of a batch of jobs in the regular mode, each batch is subjected to a test, where the entire batch (of jobs) will be classified accordingly as either nondefective, repairable, or nonrepairable. A nondefective batch continues its process downstream, a nonrepairable batch is scrapped, and a repairable batch can be cycled back to the bottleneck facility for repair. The objective of this paper is to determine the optimal repair policy for the bottleneck facility so that the long run average operating profit is maximized. We first characterize the optimal repair policy by showing that the optimal repair policy must take one of the two forms: a “repair-none” policy under which all repairable batches are scrapped, or a “repair-all” policy under which all repairable batches are repaired. We then develop optimality conditions for the repair-none policy and the repair-all policy. When the repair-all policy is optimal, we further show that there exists an optimal “threshold” operating policy that can be described as follows: upon completion of a regular batch, switch over to the repair mode only if the number of available repairable batches exceeds a certain threshold value. We also evaluate the impact of batch sizes, yield, and switch-over cost on the optimal operating policy.
Price Competition and Compatibility in the Presence of Positive Demand Externalities
Authors: Xie Jinhong , Sirbu Marvin
Published: November 2008

In many cases, the benefit to a consumer of a product increases with the number of other users of the same product. These demand interdependencies are referred to in the literature as positive demand externalities or network externalities. This paper examines the dynamic pricing behaviors of an incumbent and a later entrant, with special attention to the impacts of demand externalities, compatibility, and competition on prices and profits. Defining market power as the ability to price above a competitor without losing market share, we show how demand externalities and installed base combine to confer market power. We model optimal pricing as a differential game with the optimal price trajectory established as Nash open-loop controls. For a duopoly durable goods market with strong demand externalities, the results show an increasing price trajectory can be optimal. As expected, a new entrant is better off if its products are compatible with those of the incumbent, especially when demand externalities are strong and the installed base of the incumbent is large. Less intuitively, the incumbent as well may be better off agreeing on common standards. The comparison of monopoly and duopoly shows that under strong demand externalities and a small installed base, the incumbent profits from compatible entry.
Some Comments on Saaty's AHP
Authors: Pérez Joaquin
Published: November 2008

The purpose of this short paper is to help clarify some questions which have arisen with respect to the suitability, or even the correctness, of the way Saaty's AHP method handles criteria weights, sometimes causing the rank reversal phenomenon. The position set forth in this paper is that this undesirable effect does not, per se, invalidate that method, but it does make it necessary to identify the kind of situations in which the method is suitable.
The Introduction and Performance of Store Brands
Authors: Raju Jagmohan S. , Sethuraman Raj , Dhar Sanjay K.
Published: November 2008

We present an analytical framework for understanding what makes a product category more conducive for store brand introduction. We also investigate market characteristics that help explain differences in store brand market share across product categories. Our findings suggest that the introduction of a store brand is likely to increase retailer's profits in a product category if the cross-price sensitivity among national brands is low and the cross-price sensitivity between the national brands and the store brand is high. Our model predicts that the store brand share would also be greater under these conditions. In addition, we find that the introduction of a store brand is more likely to lead to an increase in category profits if the category consists of a large number of national brands—even though the store brand market share is expected to be lower when there are a large number of national brands. We compare the key predictions of our model with data on 426 grocery product categories. The data are consistent with the predictions of the model.
A Contextual Uncertainty Condition for Behavior Under Risk
Authors: Bell David E.
Published: November 2008

Suppose that your choice between uncertain financial prospects is made more difficult by two independent contextual uncertainties concerning the size of your existing wealth. One contextual uncertainty has a greater spread than the other. If you could resolve one of these contextual uncertainties before making your choice, would you rather it be the larger or the smaller? In this paper we explore the intuitive notion that it ought to be more advantageous to resolve larger rather than smaller contextual uncertainties. The utility function for wealth u(w) = aw − be−cw (a, b, c ≥ 0) is the only utility function that satisfies this condition and that is also increasing and risk averse at all wealth levels.
Evaluating Efficiency-Effectiveness-Equality Trade-Offs: A Data Envelopment Analysis Approach
Authors: Golany Boaz , Tamir Eran
Published: November 2008

This paper presents a resource allocation model based on Data Envelopment Analysis (DEA). The model extends the original objective of the DEA methodology from measuring efficiency to include the evaluation of various aspects of effectiveness and equality considerations. The model is formulated as a linear program that can be solved by means of a Dantzig-Wolfe decomposition algorithm. Theoretical properties of the model are compared with those corresponding to the model developed by Mandell (Mandell, M. B. 1991. Modelling effectiveness-equity trade-offs in public service delivery systems. Management Sci. 37(4) 467–482.) to evaluate the trade-off between equity and effectiveness. A numerical example is used to illustrate the comparison between the models.
Models and Algorithms for Transient Queueing Congestion at Airports
Authors: Peterson Michael D. , Bertsimas Dimitris J. , Odoni Amedeo R.
Published: November 2008

We develop a new model for studying the phenomenon of congestion in a transient environment, focusing on the problem of aircraft landings at a busy “hub” airport. Our model is based on a Markov/semi-Markov treatment of changes in the weather, the principal source of uncertainty governing service times, together with a treatment of the arrival stream as time-varying but deterministic. The model is employed to compute moments of queue length and waiting time via a recursive algorithm. To test the model, we conduct a case study using traffic and capacity data for Dallas-Fort Worth International Airport. Our results show that the model's estimates are reasonable, though substantial data difficulties make validation difficult. We explore, as examples of the model's potential usefulness, two policy questions: schedule interference between the two principal carriers, and the likely effects of demand smoothing policies on queueing delays.
Dual Sourcing in Repeated Procurement Competitions
Authors: Klotz Dorothy E. , Chatterjee Kalyan
Published: November 2008

The issue of maintaining competition over time in a repeated procurement setting is important for both government and private sector buyers. The U.S. Department of Defense has experimented with splitting production quantities between two or more contractors in an effort to make government business more attractive for the private sector. This paper analyzes the effectiveness of this strategy. We find that in a two-period model with production learning and entry costs, dual sourcing, even for the specific mechanism we consider, in some cases, reduces overall expected cost. Moreover, if buyers are unable to commit to long-term contracts or suppliers are unable to bid away anticipated gains, the incentives to dual source are often stronger.
Measuring System Usage: Implications for IS Theory Testing
Authors: Straub Detmar , Limayem Moez , Karahanna-Evaristo Elena
Published: November 2008

There is widespread agreement among researchers that system usage, defined as the utilization of information technology (IT) by individuals, groups, or organizations, is the primary variable through which IT affects white collar performance. Despite the number of studies targeted at explaining system usage, there are crucial differences in the way the variable has been conceptualized and operationalized. This wide variation of system usage measures hinders the efforts of MIS researchers to compare findings across studies, thus impeding the accumulation of knowledge and theory in this area.

The purpose of this paper is to address conceptual as well as methodological issues related to measuring system usage. First, via LISREL measurement modeling techniques, we compare subjective and objective measures of system usage, namely, self-reported versus computer-recorded measures. Next, using a modified form of Davis' Technology Acceptance Model (TAM) as a nomological net, we test the nomological validity of these system usage constructs and measures.

Results of the LISREL measurement and nomological net analysis suggest that system usage should be factored into self-reported system usage and computer-recorded system usage. Contrary to expectations, these constructs do not appear to be strongly related to each other. Moreover, while self-reported measures of system usage are related to self-reported measures of TAM independent variables, objective, computer-recorded measures show distinctly weaker links.

In the face of such counter-evidence, it is tempting to argue that research that has relied on subjective measures of system usage (for example, research confirming TAM) may be artifactual. There are several alternative explanations, though, that maintain the integrity of TAM and studies that measure system usage subjectively. These alternative explanations suggest directions for further research as well as new approaches to measurement.
Optimal Starting Times for End-of-Season Sales and Optimal Stopping Times for Promotional Fares
Authors: Feng Youyi , Gallego Guillermo
Published: November 2008

Many industries face the problem of selling a fixed stock of items over a finite horizon. These industries include airlines selling seats before planes depart, hotels renting rooms before midnight, theaters selling seats before curtain time, and retailers selling seasonal goods such as air-conditioners or winter coats before the end of the season. Given a fixed number of seats, rooms, or coats, the objective for these industries is to maximize revenues in excess of salvage value. When demand is price sensitive and stochastic, pricing is an effective tool to maximize revenues. In this paper we address the problem of deciding the optimal timing of a single price change from a given initial price to either a given lower or higher second price. Under mild conditions, we show that it is optimal to decrease (resp., to increase) the initial price as soon as the time-to-go falls below (resp., above) a time threshold that depends on the number of yet unsold items.
Note on Adjustments to Analysts' Earnings Forecasts Based Upon Systematic Cross-Sectional Components of Prior-Period Errors
Authors: Elgers Pieter T. , Lo May H. , Murray Dennis
Published: November 2008

This study assesses the effectiveness of using systematic components of cross-sectional forecast errors from prior years in order to adjust current analysts' earnings forecasts. The empirical results document that a significant component of the cross-sectional MSE in analysts' forecasts is systematic, and that parameter estimates from earlier periods enable the elimination of a substantial portion of the systematic errors in current forecasts. Further improvements in forecast accuracy are attained by the incorporation of prior-year excess security returns in order to reduce unsystematic error.
Project Evaluation and Control in Decentralized Firms: Is Capital Rationing Always Optimal?
Authors: Paik Tae-Young , Sen Pradyot K.
Published: November 2008

When capital investments are made in an agency setting, we show that, even without risk considerations, capital rationing need not be the only rational outcome. We analyze a principal-agent model with risk neutrality and with two productive inputs: the agent's efforts and capital investment. The two inputs can be either economic complements or substitutes. The agent has pre-contract private information about his own type. The output is measured with an additive noise. We show that when the two inputs are substitutes, the optimal solution entails a marginal capital rationing. But when the two inputs are complements, then either a marginal capital rationing or a marginal leniency could be the optimal response. Our results, therefore, provide an explanation for why firms may employ a capital rationing for a project that may increase manufacturing complexity and hence may reduce (managerial) labor productivity, yet employ a less strict criterion for evaluating a productivity-enhancing project. This result contrasts with earlier results where only a capital rationing is shown to be optimal.
Optimal Timing of Reviews in Concurrent Design for Manufacturability
Authors: Ha Albert Y. , Porteus Evan L.
Published: November 2008

Concurrent design can reduce the time required to develop new products and redesign old ones. In contrast to the conventional approach, in which the product design is (nearly) completed before it is “thrown over the wall” to the process design group, concurrent design for manufacturability, as conceptualized here, conducts a number of progress reviews during the product design process. Frequent reviews have two benefits: (1) (Parallel Development) process designers receive sufficient information about the design to enable them to work in parallel with the product designers, and (2) (Quality Control) flaws in the design are discovered soon after they are introduced, saving the time and resources required for redesign later. The disadvantage of frequent reviews is that each review requires setup/penalty time that otherwise would not be required. The optimal policy is derived for some special stationary cases of the model. When the parallel development benefit dominates, the review periods either increase or decrease according to the rate at which product design work empowers useful process design work to be conducted. When the quality control benefit dominates, the review periods will vary only to the extent that the quality related parameters change. Numerical examples illustrate the insights gained from the analysis.
Configurations of Interorganizational Relationships: A Comparison Between U.S. and Japanese Automakers
Authors: Bensaou M. , Venkatraman N.
Published: November 2008

This paper seeks to uncover dominant configurations of interorganizational relationships across the United States and Japan in the automotive industry. We integrate relevant theoretical concepts from transaction cost economics, organization theory and political economy to develop a conceptual model of interorganizational relationships based on the fit between information processing needs and information processing capabilities. This model is employed to collect data on 447 buyer-supplier relationships in these two countries. We empirically uncover a set of five naturally occurring patterns of interorganizational relationships. These configurations provide rich explanations of the complexity of interorganizational relationships as well as offer differential insights across United States and Japan. We discuss implications for further research pertaining to the logic and development of configurations.
Channel Coordination and Quantity Discounts
Authors: Weng Z. Kevin
Published: November 2008

This paper presents a model for analyzing the impact of joint decision policies on channel coordination in a system consisting of a supplier and a group of homogeneous buyers. The joint decision policy characterized by the unit selling price and the order quantity is coordinated through quantity discounts and franchise fees. Both the annual demand rate and the operating cost—including the purchase, ordering, and inventory holding costs—depend on the joint decision policy employed. This paper contributes by integrating work addressing quantity discounts on inventory and ordering policies and work focusing on the control mechanism provided by quantity discounts in channel coordination. It is shown that the optimal all-unit quantity discount policy is equivalent to the optimal incremental quantity discount policy in achieving channel coordination. Furthermore, it is shown that quantity discounts alone are not sufficient to guarantee joint profit maximization. The analyses of the general models are illustrated by specific analytical results obtained for a given demand function.
When Efficient Is Insufficient: Fairness in Decisions Affecting a Group
Authors: Boiney Lindsley G.
Published: November 2008

Many key decisions have significant consequences for a group of people, rather than a single individual. In some cases, traditional group decision making techniques such as negotiation, voting, or compromise can be employed by the group members themselves to determine a satisfactory course of action. In other instances, however, the intervention of a central decision maker may be necessary. Intervening on behalf of a group raises additional concerns for the decision maker, one of which is fairness. This paper builds upon envy-based fairness concepts from the fair allocation literature and theories of ex ante and ex post equitable distributions from the social risk literature to develop a model for choice among limited options under uncertainty when preferences are heterogeneous. The model is therefore appropriate when other existing models are not.

An example demonstrates an application of the model for choice under uncertainty and contrasts the approach and decision recommendation with that of existing models. By quantifying the degree of envy rather than treating it dichotomously, the approach captures the balance between fairness and efficiency; some envy may be tolerated if it brings greater overall utility and/or if some envy already exists in the status quo option. Lastly, implementation issues and the impact of differing preferences and attitudes toward risk on fairness and efficiency considerations are explored.
Unreasonable Rationality?
Authors: Clyman Dana R.
Published: November 2008

This paper explores how fractional demands (the optimal fraction of wealth invested in a security) change upon exogenous changes in security returns and wealth. In the first part of the paper, the analysis is conducted in an Arrow-Debreu framework. Here we demonstrate the counterintuitive but completely rational result that fractional demands can remain unchanged or in fact decrease upon an exogenous increase in return. Furthermore, we show that this can occur without any offsetting wealth effect. In the second part of the paper, we apply these results to ordinary securities (those composed of fixed portfolios of Arrow-Debreu securities). Here we derive a complete analytical solution and show that portfolio managers should beware. Even correct information that the return from holding an underlying pure security will improve is not sufficient to conclude that one should increase (or decrease) one's holdings of any particular stock.
Accessibility, Security, and Accuracy in Statistical Databases: The Case for the Multiplicative Fixed Data Perturbation Approach
Authors: Muralidhar Krishnamurty , Batra Dinesh , Kirs Peeter J.
Published: November 2008

Organizations store data regarding their operations, employees, consumers, and suppliers in their databases. Some of the data are considered confidential, and by law, the organization is required to provide appropriate security measures in order to preserve privacy. Yet a number of companies have little or no security measures. The reason for this lack of security may, at least in part, be attributed to a lack of awareness and empirical evidence about the relative effectiveness of security mechanisms. This study investigates the effectiveness of different security mechanisms for protecting numerical database attributes. The trade-off between security, accessibility, and accuracy are examined. A comparison of different security mechanisms reveals that fixed data perturbation is preferred because it maximizes both security and accessibility. An investigation of the different approaches to fixed data perturbation indicates that multiplicative method best meets these criteria.
An O(T3) Algorithm for the Economic Lot-Sizing Problem with Constant Capacities
Authors: van Hoesel C. P. M. , Wagelmans A. P. M.
Published: November 2008

We develop an algorithm that solves the constant capacities economic lot-sizing problem with concave production costs and linear holding in O(T3) time. The algorithm is based on the standard dynamic programming approach which requires the computation of the minimal costs for all possible subplans of the production plan. Instead of computing these costs in a straightforward manner, we use structural properties of optimal subplans to arrive at a more efficient implementation. Our algorithm improves upon the O(T4) running time of an earlier algorithm.
Lot Sizing in Serial Assembly Systems with Multiple Constrained Resources
Authors: Harrison Terry P. , Lewis Holly S.
Published: November 2008

We present a heuristic for lot sizing in serial assembly systems with multiple contrained resources. This procedure, the Coefficient Modification Heuristic (CMH), exploits a special problem structure by solving repetitively a small linear programming restriction of the original problem. The key idea is to modify the constraint coefficients of certain variables in the LP restriction to implicitly account for the capacity consumed in setups.

We compare the performance of the CMH with the commercial code, Optimization System Library (OSL), on three families of test problems. The first set is a collation of small-scale random problems that are solved to optimality to provide known benchmarks. The second is a set of problems based on a real printed circuit board manufacturing situation. The third group is a set of medium-scale randomly generated problems based on the underlying structure of the printed circuit board set. Overall, the CMH found solutions that averaged 18% better than time constrained OSL runs in a small fraction of the corresponding CPU times.
A Theory of Cutoff Formation Under Imperfect Information
Authors: Feinberg Fred M. , Huber Joel
Published: November 2008

Numerous models in the Management Science literature contain constructions that are a variant of the following: A decision-maker must choose from a set of alternatives based on imperfect information as to their relative quality, while further evaluation, through costly, provides more accurate information. We examine decision heuristics in which the optimal search policy entails a screening strategy limiting the number of alternatives in the subsequent, costly evaluation. There are two general methods for accomplishing this screening: Quota cutoffs operate by selecting the optimal number of alternatives to evaluate; Level cutoffs operate by specifying a minimally-acceptable level of the imperfect screening indicator. The present paper has three main objectives. First, to define the Level and Quota cutoff methods, broadly characterize optimal behavior for each and determine what aspects of the decision environment of order statistics as a methodology for exploring decision problems when information is imperfectly known; and third, to discuss the pivotal role of default, or fallback, options in a broad class of search problems.

Quota and Level strategies restrict the number of alternatives passing the cutoff-based screen. Because restrictive cutoffs reduce evaluation costs while lowering the expected quality of the item finally selected, changes in the decision environment making the evaluation process less beneficial or increasing its cost drive the optimal cutoff to be more restrictive. In particular, increases in unit evaluation cost, improvement in the quality of a fallback option, decreases in the total number of alternatives available or improvement in the precision of the final evaluation process all lead to more restrictive cutoffs at optimum. These results hold over a remarkably broad range of assumptions and conditions. We also find that a better screening indicator leads to more restrictive screening when evaluation costs are low but, surprisingly, to less restrictive screening when costs are high. Comparing the two strategies, we find the unexpected result that the Quota cutoff strategy is generally superior to the Level, except under on of two fairly uncommon set of circumstances: when evaluation cost is prohibitively high, or when there is a fallback option of very high quality.
Performance Verifiability and Output Sharing in Collaborative Ventures
Authors: Chi Tailan
Published: November 2008

This paper studies the problem of contracting between two firms when they try to exploit their complementary resources in a collaborative venture (CV), but their performance in the CV cannot be precisely verified by the other party or by a third-party arbiter. Using a mathematical model that treats performance verifiability as a continuous variable, the paper first establishes that a party whose performance cannot be perfectly verified has an incentive to shirk if it is paid only a flat fee and that this shirking problem is more severe as its performance is less verifiable. Then, the paper shows in a general setting that a contract under which each party shares a fraction of the output is superior to a contract under which one of them is paid only a flat fee when performance verifiability is sufficiently low. In addition, with some specific assumptions about the forms of the revenue and cost functions, the paper also shows that a party’s share of the venture’s residual output in the equilibrium is an increasing function of its productivity and a decreasing function of its opportunity cost. Finally, the numerical examples constructed in the paper suggest that a contract which combines the self-enforcing mechanism of output sharing with the third-party enforcement mechanism of arbitration generally performs better than a contract that utilizes only one of these mechanisms.