bluuebunny/crossref_metadata_2025 huggingface dataset:
Managing radical innovation: an overview of emergent strategy issues
Authors: McDermott Christopher M. , O'Connor Gina Colarelli
Published: September 2003

Despite differences in definitions, researchers understand that radical innovation within an organization is very different from incremental innovation [13,17,21] and that it is critical to the long‐term success of firms. Unfortunately, research has also shown that it is often difficult to get support for radical projects in large firms [14], where internal cultures and pressures often push efforts toward more low risk, immediate reward, incremental projects. Interestingly, we know considerably less about the effective management of the product development process in the radical than in an incremental context. The purpose of this study is to explore the process of radical new product development from a strategic perspective, and to outline key observations and challenges that managers face as they move these projects to market. The findings presented here represent the results of a longitudinal (since 1995), multidisciplinary study of radical innovation projects. A multiple case study design was used to explore the similarities and differences in management practices applied to twelve radical innovation projects in ten large, established North American firms. The findings are grouped into three high‐level strategic themes. The first theme, market scope, discusses the challenges associated with the pursuit of familiar versus unfamiliar markets for radical innovation. The second theme of competency management identifies and discusses strategic challenges that emerge as firms stretch themselves into new and unfamiliar territory. The final theme relates to the people issues that emerge as both individuals and the project teams themselves try to move radical projects forward in organizations that are not necessarily designed to support such uncertainty.

A breadth of subtopics emerge within and across this framework relating to such ideas as risk management, product cannibalization, team composition, and the search for a divisional home. Taken together, our observations reinforce the emerging literature that shows that project teams engaging in radical innovation encounter a much different set of challenges than those typically faced by NPD teams engaged in incremental innovation.
The Early Stages of New Product Development in Entrepreneurial High‐Tech Firms
Authors: Pavia Teresa M.
Published: September 2003

This study examines the most valuable sources of new product ideas and the criteria used to screen potential new products in entrepreneurial, high‐tech firms. Teresa Pavia explored the practices of 118 small, young, high‐tech firms. Her findings complement a variety of existing studies of the new product process in large firms and the few existing studies of the process in entrepreneurial, high‐tech firms. The firms participating in this study rely on informal techniques to generate new product ideas. They place heavy reliance on input from their customers and often develop new products in response to problems articulated by these customers. Although the annual strategic plan is not used by most firms as a new product identification tool, it is highly rated by the most successful firms. Successful firms also actively engage in environmental scanning. The majority of the respondents do not use financial measures as a screening criterion, preferring to evaluate new products by “gut feel.” However, the firms that have experienced the fastest growth in sales employ financial hurdles for project selection. The educational background of the key GO/NO GO decision‐makers was also evaluated. Two thirds of the firms reported having a key decision‐maker with an educational background in business. The educational background of the key decision‐makers had little impact on the aspects of the new product process studied here.
Product Innovation Management in Spain
Authors: Sanchez Angel Martinez , Elola Luis Navarro
Published: September 2003

In line with the latest studies of product innovation management, Angel Martinez Sanchez and Luis Navarro Elola report results from their study of 56 industrial firms in Spain. The results reveal a systematic process of new products development with little consideration given to innovation, but with a contrasting preoccupation with market activities.
New Industrial Financial Services: What Distinguishes the Winners
Authors: Cooper Robert G. , de Brentani Ulricke
Published: September 2003

Robert Cooper and Ulricke de Brentani report the results of their study of firms participating in the industrial financial services industry. Using a self‐administered questionnaire, they obtained data on 56 successful and 50 failed products and found that success and failure are strongly associated with eleven important dimensions: synergy, product/market fit, quality of execution of the launch, unique/superior product, quality of execution of marketing activities, market growth and size, service expertise, quality of execution of technical activities, quality of service delivery, quality of execution of pre‐development activities, and the presence of tangible elements of the service offering. They report some surprises, including their observation that while new to the firm, products entail more risk than “close to home” ones, the resulting level of success is not sharply reduced.
Designers' Impressions of Direct Contact Between Product Designers and Champions of Innovation
Authors: Bailetti Antonio J. , Guild Paul D.
Published: September 2003

Suppliers of telecommunications and computer equipment, as well as other firms operating in rapidly changing environments, rely increasingly on their product designers for the formulation of opportunities for innovative new products—those that are more than simple refinements or extensions of established designs. This contrasts with the traditional use of designers to translate opportunities into products with specific properties and features only after they have been formulated by marketing and product managers. In this article, Antonio Bailetti and Paul Guild report on preliminary findings of a study undertaken by a leading world‐wide supplier of telecommunications equipment to improve search methods leading to the formulation of opportunities for innovative new products. The implementation of a search method that relied upon direct contact between multidisciplinary teams with carefully selected sources of outside knowledge provided the setting for the study. Reported are 40 designers' impressions of the benefits derived from face‐to‐face exposure to external champions of innovation; the relationship between the characteristics of the sites that had been visited and the designers' perceptions of usefulness of the information acquired from the visits; and the differences in visiting and non‐visiting designers' perceptions of the visits. The study is exploratory in nature and draws attention to the fact that more effort should be spent on examining how designers can best participate in the opportunity formulation process.
Innovators, Organization Structure and Management of the Innovation Process in the Securities Industry
Authors: Iwamura Akira , Jog Vijay M.
Published: September 2003

This article examines innovation in the securities industry with the central objective of identifying factors that separate innovators from non‐innovators. Akira Iwamura and Vijay Jog report results based on their survey of corporate finance vice presidents or CEO's of 43 investment houses from around the world. They conclude that innovative companies seem to be larger and have a well‐defined strategy, with management defining the focus of the business. In addition, the firms have developed better communication channels, both internally and with their customers. Yet, the most significant difference that separates innovators from non‐innovators is their management of the idea generation process, including concept generation and management's support. Innovators tend to approach idea generation in the following ways: they employ a variety of idea sources, both internal and external; they assign a specific person or group to be in charge of developing new ideas; they encourage employees at all levels to generate new ideas; they use a variety of innovative techniques to stimulate creativity; they reward their employees by non‐monetary means; and they encourage group‐level participation in evaluation decisions.
“Forced” Adoption of Innovations in Organizations: Consequences and Implications
Authors: Ram S. , Jung Hyung‐Shik
Published: September 2003

Once organizations adopt an innovation, they may force various individuals to use it. While researchers have frequently studied perspectives of suppliers and their customers, they have sometimes neglected the important roles of those who must use the innovation when it is provided to them. S. Ram and Hyung‐Shik Jung report results of their investigation of organizational members' responses when they are forced to adopt an innovation. The results suggest that even innovative individuals resist the innovation in the context of forced adoption. Product trial and repetitive usage significantly reduce innovation resistance and create favorable post‐adoption evaluation (attitude and satisfaction judgments). Individuals who perceive themselves to have technical competence offer less resistance to the innovation. Further, organizational members deal with forced adoption through the use of coping mechanisms such as complaining and seeking peer help.
Strategic Mutual Learning Between Producing and Buying Firms During Product Innovation
Authors: Meyers Patricia W. , Athaide Gerard A.
Published: September 2003

The product innovation activities and strategies employed by successful innovators often differ from those used by firms having more mature products. Marketing strategies for innovating firms can vary along two dimensions of knowledge: technological development (stable and evolving) and market needs (known and emerging). In addition, producers often commit to forms of strategic relationships with their buyers because of the difficulties encountered when buying firms adopt and implement technological innovations. Starting with these two orienting constructs from the literature, Patricia Meyers and Gerard Athaide describe the kinds of learning that develop between producers and buyers when markets for a technological innovation are forming.
When Technologies Compete: The Role of Externalities in Nonlinear Market Response
Authors: Redmond William H.
Published: September 2003

When competing technologies are introduced at about the same time, they may either share the market for an extended period or one may eventually dominate the other. Using actual data from the VCR market, William Redmond explores product and market conditions that favor the emergence of a dominant technology. Recent developments in the theory of nonlinear economic processes yield straightforward models of the dominant or all‐or‐nothing response pattern. In this study, the role of externalities, or infrastructure, emerges as a critical determinant in producing the nonlinear market response pattern. One intriguing aspect of nonlinear market processes is a propensity for small, outside influences to exercise a powerful and long‐term influence on market response, that is, “luck” may play a role in these models.
From Experience: Japanese Product Development Process
Authors: Kennard R. B.
Published: September 2003

Writing from his experiences as Monsanto's business development director for Asia, Robert Kennard shares some important insights into the complex relationships between culture, values and business practices. He notes the high priority assigned to innovation, along with a commitment to concentration of resources at critical early phases of the developmental effort. While some of these practices are being used by successful companies outside Japan, others represent challenges to the traditional ways in which business is practiced in Western economies.
Product Design Strategies for Target‐Market Positioning
Authors: Green Paul E. , Krieger Abba M.
Published: September 2003

Designing optimal positioning strategies for target segments has become an area of intense research interest over the past few years. This article examines a variety of strategies that can be operationalized from conjoint analysis input data. Paul Green and Abba Krieger discuss strategies for modifying buyer perceptions, ideal‐level preferences and attribute importances that are attractive for a firm's existing brand(s). They then consider longer run strategies for modifying the current brand's attribute levels and develop a case to illustrate applications of the techniques.
A Retailer's View of Industrial Innovation: An Interview with David Glass, President and CEO of Wal‐Mart Stores Inc.
Authors: Udell Gerald G. , Pettijohn Linda S.
Published: September 2003

Sales of innovative products are heavily influenced by the role of important channels of distribution. Gerald Udell and Linda Pettijohn interviewed David Glass, the President and CEO of the world's largest retail organization. Their conversation spanned a number of topics of interest to managers of innovation programs: the economic impact of innovation in the consumer sector, the rarity of truly innovative products capable of creating new business categories, difficulties in getting new products developed and produced in the US and the long‐term consequences of emphasizing product improvement over product innovation strategies. David Glass challenges us to translate the American spirit of innovation into effective results.
A Profile of the New Product Professional
Authors: Feldman Laurence P.
Published: September 2003

This article reports the results of a survey of members of the Product Development and Management Association conducted in April 1990. A central purpose of the research was to obtain information about the career characteristics of new product professionals, and relate it to their level of financial compensation. Information is also provided relative to educational preparation, markets served, job characteristics, and new product responsibilities. Where appropriate, the situations of practitioners, consultants and academics are compared on these factors.
Managing for Speed To Avoid Product Obsolescence: A Survey of Techniques
Authors: Cordero Rene
Published: September 2003

Competition among product manufacturers is intensifying in many industries. The nature of this competition forces firms to manage the product supply process for speed to avoid product obsolescence and decreased competitiveness. Rene Cordero describes a number of time‐saving techniques and develops a framework for managing the product supply process for speed: making speed a central objective of the firm, selecting faster product strategies, managing for the speedy implementation of these product strategies, and managing human resources for speed. Although speeding the product supply process requires significant changes in the traditional management of product development, managing for speed can bring benefits such as faster response to market needs, reduced product cost, and increased product quality.
The Institutional Domain of Technology Diffusion
Authors: Reddy N. Mohan , Aram John D. , Lynn Leonard H.
Published: September 2003

Marketing implications of technological innovation have received considerable attention in the recent past. In this article, Mohan Reddy, John Aram, and Leonard Lynn suggest that the institutional scope for understanding technology diffusion, in addition to supplier and user organizations and industries, should include organizations that manufacture technological complementarities, institutions that possess vertical complementary assets, and the nonmarket sector. The nonmarket sector includes trade associations, professional societies, governmental agencies, independent research agencies, and public service organizations. The authors develop a set of propositions and discuss the implications of our framework for marketers of technical products.
Japanese and British Companies Compared: Contributing Factors to Success and Failure in NPD
Authors: Edgett Scott , Shipley David , Forbes Giles
Published: September 2003

The success or failure of a new product is an issue of continuing concern to management in the 1990s. Little research, however, has been conducted on this issue from a British perspective. In this article, Scott Edgett, David Shipley and Giles Forbes report the findings of an investigation into success and failure in Japanese‐ and British‐owned firms that conduct business in the United Kingdom. The results from this comparative study illustrate that new product failure rates are still high, with the Japanese firms only marginally outperforming British owned firms.
Making Trade‐Offs in the New Product Development Process: A German/US Comparison
Authors: Gupta Ashok K. , Brockhoff Klaus , Weisenfeld Ursula
Published: September 2003

Using a conjoint analysis experiment, Ashok Gupta, Klaus Brockhoff and Ursula Weisenfeld present how R&D, marketing, and manufacturing managers in Germany make trade‐offs among three critical variables in the new product (NPD) process: development schedule, development costs, and product performance. The findings are compared with a similar study of US firms. This comparison underscores the basic problem: US managers do not emphasize product development speed to the same extent as do German managers.
Where Does Your New Technology Fit into the Marketplace?
Authors: Lynn Frank , Heintz Susan
Published: September 2003

Many companies are prepared to make considerable investments in developing technologies to support sustainable competitive advantages. Yet translating technological capability into business opportunities remains a difficult problem. Frank Lynn and Susan Heintz report their experiences with a three‐level technology screening process, starting with a needs screen, moving to an economics screen and ending with a time screen. The screening process is designed to emphasize the importance of identifying realistic market opportunities and it also helps to define a product rollout timetable.
Technology Transfer to the Private Sector: A Field Study of Manufacturer Buying behavior
Authors: Large David W. , Barclay Donald W.
Published: September 2003

Public sector R&D is an important source of new product technologies and concepts. If the transfer of these technologies to private sector manufacturers is viewed from a marketing perspective, manufacturing organizations can be analyzed as industrial “buyers.” David Large and Donald Barclay report on case‐based research that explores this technology buying process. Findings are induced that suggest: user value, patent/proprietary position, prototype efficacy, and strategic fit are the most important attributes of the transfer proposal; and business empathy and credibility are the most important attributes of the transfer agent. The R&D director is identified as a key influencer in the transfer decision and represented by a model of the director's attitude toward technology transfer proposals. The authors develop implications for public sector managers/agents and suggest opportunities for further research.
The Effects of Cognitive Problem‐Solving Orientation and Technological Familiarity on Faster New Product Development
Authors: McDonough Edward F. , Barczak Gloria
Published: September 2003

This study examines the relationships between speed of development and the cognitive problemsolving orientations of both members of the team and the project leader when they work with more familiar or less familiar technologies. Edward McDonough and Gloria Barczak collected data from 32 new product development projects in 12 British companies. They report that technological familiarity moderates the relationship between speed of development and the cognitive problem‐solving orientation of both project leaders and project teams and they explore implications of these results for R&D managers.
A Survey of Major Approaches for Accelerating New Product Development
Authors: Millson Murray R. , Raj S. P. , Wilemon David
Published: September 2003

Product life‐cycles are becoming shorter, leading firms to reduce the time to bring new products to market. Being early can provide a significant competitive advantage, making the acceleration of new product development (NPD) an important area for research and inquiry. Based on their review of a wide range of literatures in business strategy, marketing, new product development, manufacturing and organization management, Murray Millson, S. P. Raj and David Wilemon report a general set of techniques for reducing the developmental cycle time for new products. The article develops a hierarchy of available NPD acceleration approaches and discusses potential benefits, limitations and significant challenges to successful implementation.
The NewProd System: The Industry Experience
Authors: Cooper Robert G.
Published: September 2003

Robert G. Cooper presents an update on the NewProd model, a new product screening, evaluation and diagnostic tool first described in this journal in 1985. He reviews the model's original development and describes subsequent modifications. Next, he presents validation results from North America and Europe, revealing a predictive ability of 73–84%. An actual case study demonstrates NewProd in use, complete with computer output graphics and analysis.
New Product Models: Practice, Shortcomings and Desired Improvements
Authors: Mahajan Vijay , Wind Jerry
Published: September 2003

Vijay Mahajan and Jerry Wind report the results of a study conducted to assess the role of new product models in supporting and improving the new product development process. The study focused on current industry practice in deciding which models and methods to use, their shortcomings and desired improvements. The results have implications for developers, suppliers and users of new product forecasting models. The article concludes with a research and implementation agenda to further foster and benefit from advances in new product models.
FROM EXPERIENCE: Balancing the Product Development Process: Achieving Product and Cycle‐Time Excellence in High‐Technology Industries
Authors: Anthony Michael T. , McKay Jonathan
Published: September 2003

Most companies' product development process (PDP) is inefficient and slow. Consequently, products are often late‐to‐market, over cost and not well‐aligned with customer's needs. Because it involves all levels of the organization and crosses all functional boundaries, the PDP is very difficult to control. Unbalanced control is at the root of many of the symptoms of a troubled PDP. Michael T. Anthony and Jonathan McKay investigate the four primary unbalanced PDP behaviors exhibited by organizations and present four balancing mechanisms to correct these flaws. In their view, a balanced PDP contains a structured development methodology and project reviews at specific, high‐impact points that involves top management appropriately while still allowing empowerment of the project teams.
Measuring Technology Incorporation/Infusion
Authors: Zmud Robert W. , Apple L. Eugene
Published: September 2003

For a technological innovation to be truly valuable, it must be incorporated within the adopting organization's operational or managerial work systems. Prior studies have examined an aspect of incorporation referred to as routinization (e.g., the adjustment of an organization's governance systems to account for the innovation). In this article, Robert W. Zmud and L. Eugene Apple introduce a second component of incorporation, that of infusion (e.g., the extent to which the full potential of the innovation has been embedded within an organization's operational or managerial work systems). They report findings of a combined quantitative and qualitative study aimed at measuring both the routinization and infusion of electronic scanners in supermarket chains and suggest that infusion can be measured and is distinct from routinization.
The Hidden Costs of Accelerated Product Development
Authors: Crawford C. Merle
Published: September 2003

Rarely has a strategic management option captured American industry as has the thrust of accelerated product development. When accompanied by the goals of lowered cost and increased new product quality, it seems almost unstoppable. However, industry may have been swept up in the enthusiasm. Any strategic option so tempting (with long lists of advantages and no suggested limitations) needs to be viewed critically. Merle Crawford reveals several “hidden costs” of accelerated development. He does not oppose the new strategy, and indeed endorses it highly, but urges that it be considered carefully before application. His analysis suggests that acceleration is far more widely applied than is good for any industrialized economic system.
Collapsing New Product Development Times: Six Case Studies
Authors: Mabert Vincent A. , Muth John F. , Schmenner Roger W.
Published: September 2003

Today's customers are sophisticated. They demand product variety, functionality and performance. To survive in this arena, successful companies in a global economy must rapidly introduce new products (new product lines or improvements to existing lines) by collapsing their product development times. Vincent Mabert, John Muth and Roger Schmenner report results from a comparative case study of six new product introduction projects at six different firms, identifying those elements that are important to product introduction lead time and how they are influenced by customer and organizational and technical factors. They note that the new product innovation process is very complex, sensitive to external forces like customer demands or expectations and to internal issues like how team leadership is defined for the development team. The article describes the participating companies and analyzes the six projects with particular attention to four structural elements: motivation, workings of teams, external vendor's cooperation with the teams and project control. The authors conclude by identifying the top priority factors influencing new product introduction time.
FROM EXPERIENCE: Developing New Product Concepts Via the Lead User Method: A Case Study in a “Low‐Tech” Field
Authors: Herstatt Cornelius , von Hippel Eric
Published: September 2003

Conventional market research methods do not work well in the instance of many industrial goods and services, and yet, accurate understanding of user need is essential for successful product innovation. Cornelius Herstatt and Eric von Hippel report on a successful field application of a “lead user” method for developing concepts for needed new products. This method is built around the idea that the richest understanding of needed new products is held by just a few users. It is possible to identify these “lead users” and then draw them into a process of joint development of new product concepts with manufacturer personnel. In the application described, the lead user method was found to be much faster than traditional ways of identifying promising new product concepts as well as less costly. It also was judged to provide better outcomes by the firm participating in the case. The article includes practical detail on the steps that were used to implement the method at Hilti AG, a leading manufacturer of products and materials used in construction.
An Organizational Learning Approach to Product Innovation
Authors: McKee Daryl
Published: September 2003

This article examines product innovation as an organizational learning process. It provides a framework allowing managers and scholars to relate product‐innovation learning skills to organizational goals. Daryl McKee shows how different types of organizational learning skills are involved in incremental innovation, discontinuous innovation and institutionalization of innovation within the organization. This conceptualization can help scholars and managers diagnose an organization's learning skills and how they relate to new product management; direct the organization toward learning more efficient and effective product innovation; and provide scholars with a structure for future research.
Developing an Effective Concept Testing Program for Consumer Durables
Authors: Page Albert L. , Rosenbaum Harold F.
Published: September 2003

Recent empirical research studies of the new product development process indicate little marketing research is done in the early stages of the process to determine the degree of buyers' interest in the new product idea. Concept testing is a research technique designed to provide this sort of early, market‐based input. The literature and theory about concept testing is oriented towards packaged goods, but durable goods manufacturers can find concept testing especially useful. There, the substantial investment involved in the tooling to make prototypes can be saved if concept tests indicate future buyers have little interest in the product. Albert Page and Harold Rosenbaum describe the development and use of an effective concept testing procedure for durable goods by Sunbeam Appliance Company that is particularly appropriate for the presentation of product concepts that are more complicated than consumer packaged goods. The procedure has wide applicability to other types of durable products, so its use is illustrated in detail with the description of its application in a complete concept testing study.
How Involving More Functional Areas Within a Firm Affects the New Product Process
Authors: Rochford Linda , Rudelius William
Published: September 2003

Effective new product development decisions are often based on information obtained from multiple functional areas in the organization, making effective communications an important part of successful development efforts. Linda Rochford and William Rudelius examine the effects on new product performance of obtaining information from multiple functional areas during the stages of the new product development process. In addition, they explore the effects of information sharing among functional areas on new product performance. Results suggest that a surprisingly large number of functional areas in the medical products firms in the study do not contribute or use information in many of the new product development stages. However, for several stages of the new product process, obtaining information from more functional areas and sharing information among more functional areas has a positive impact on new product performance.
From Experience: Avoiding Marketing's Best‐Of‐The‐Best Specification Trap
Authors: Rosenau Milton D.
Published: September 2003

Too often companies fall into a trap when developing a list of performance specifications for a new product. Milton Rosenau calls this the best‐of‐the‐best specification trap. The problem arises whenever a company bases a specification on the combination of the best single features observed in available competitive products. When this happens, the new product's design is driven by competition and is not derived from a unique market insight. This may not provide the basis for a sustainable advantage. Sometimes, rumors of competitive improvements may even lead to sudden changes in the specification, creating delays in the development process. A far better goal is to develop a specification that responds to an unrecognized and unfilled user need, one that adds high value to users. His points are illustrated with several examples.
The Fractal Structure of Real Estate Investment Trust Returns: The Search for Evidence of Market Segmentation and Nonlinear Dependency
Authors: Ambrose Brent W. , Ancel Esther , Griffiths Mark D.
Published: September 2003

This article presents a further test for market segmentation between the real estate market and the capital markets. We use rescaled range analysis developed in the fractal geometry literature to test for nonlinear trends in the returns series for different asset classes. We make three major conclusions: (1) the stock market displays tendencies consistent with a random walk, (2) portfolios of mortgage and equity REIT returns display tendencies consistent with a random walk and, (3) conditional upon the methods used, segmentation does not exist between different real estate markets and between the real estate and stock markets.
The Principal‐Agent Relationship in Real Estate Brokerage Services
Authors: Arnold Michael A.
Published: September 2003

This article investigates the principal‐agent relationship between the owner of a house and her real estate broker. The principal's (owner's) problem is to design a contract that induces the agent (broker) to adopt a selling strategy that maximizes the owner's expected return. A sequential search model is utilized to analyze this principal‐agent relationship. Three different systems for paying the broker are considered: fixed‐percentage commission, flat‐fee, and consignment. Both the discount factors of the owner and the broker and the net costs of ownership incurred while attempting to sell the house play a central role in determining the nature of the optimal contract. The analysis demonstrates that the fixed‐percentage commission system is the only one of the three systems considered that can induce a first‐best, incentive‐compatible contract. A numerical analysis provides insights regarding the effect of the fixed‐percentage commission system on competition in the real estate brokerage industry.
The Price Effects of Cash versus Mortgage Transactions
Authors: Asabere Paul K. , Huffman Forrest E. , Mehdiany Seyed
Published: September 2003

This paper investigates the price effects of cash versus mortgage transactions. Our hypothesis that home sales involving all‐cash transactions will sell at discount is borne out by the results of this study. Analyzing a sample of comparable row home dwelling units, we find that all‐cash transactions are associated with roughly a 13% price discount relative to transactions involving financing terms that are typical of the market. Cash is King. The findings are consistent with theories regarding buyer—seller behavior.
Research on Office Markets
Authors: Pollakowski Henry O.
Published: September 2003

The American Real Estate and Urban Economics Association is pleased to acknowledge the support of the Homer Hoyt Institute for this special issue on office markets. I am particularly grateful to Maury Seldin, President of the Homer Hoyt Institute, for recognizing the importance of this emerging and timely research area. His support for office market research and his ability to bring together academics, practitioners, and crucial data constitute a valuable contribution to this research area. I also acknowledge the advice and assistance of the former editors of the AREUEA Journal, Donald Haurin and Patric Hendershott; and the current editors, Dennis Capozza, James Shilling, and Kerry Vandell.
Integrating Research on Markets for Space and Capital†
Authors: Fisher Jeffrey D.
Published: September 2003

This article discusses the importance of recognizing that there are two distinct but interrelated real estate markets: the market for tenant space and the market for investment capital. The use decision is made in the space market whereas the investment decision is made in the capital market. The article points out that past research has tended to focus on a separate analysis of each of these two markets. That is, research historically has focused on understanding how changes in supply and demand affect equilibrium in either the space market or the capital market as if each market was autonomous. A graphical framework is illustrated that can be used to examine the effect of an exogenous shock to market equilibrium from either the market for space or the market for capital.
The Markets for Real Estate Assets and Space: A Conceptual Framework
Authors: DiPasquale Denise , Wheaton William C.
Published: September 2003

In this study, we present a simple analytic framework that divides the real estate market into two markets: the market for real estate space and the market for real estate assets. After describing the size and character of flows and stocks in the U.S. real estate market, we use our framework to demonstrate the important connections between the space and asset markets. We illustrate how these real estate markets are affected by the nation's macroeconomy and financial markets, tracing out the impacts resulting from various exogenous shocks on rents, asset prices, construction and the stock of real estate.
Towards a Real Estate Land use Modeling Paradigm
Authors: Dokko Yoon , Edelstein Robert H.
Published: September 2003

This article develops a conceptual research‐oriented framework for understanding how land uses are allocated in the marketplace. The analyses highlight the crucial roles that market information and transaction costs play in determining the outcomes of transactions between real estate users and suppliers and the dynamics of real estate land uses and prices.
Security Deposits, Adverse Selection and Office Leases
Authors: Benjamin John D. , Shilling James D. , Sirmans C. F.
Published: September 2003

Our focus in this article is on the extent to which security deposits allow landlords to contract on the intensity with which tenants utilize office space. Much existing discussion recognizes that landlords expect some tenants to be more opportunistic than others, but that landlords often cannot predict a tenant's future behavior. As a consequence, landlords will charge all tenants, both low‐utilization and high‐utilization ones, a rental externality premium. This rental externality premium gives low‐utilization tenants (or tenants with better credit quality than the market perceives) a strong incentive to sort themselves out. Our findings suggest that office rental contracts with large up‐front security deposits are one way in which different tenant types can sort themselves out. Such contracts reduce landlord uncertainty and imply rental discounts in excess of the foregone interest on the deposit monies.
Office Rent Determinants in the Chicago Area
Authors: Mills Edwin S.
Published: September 2003

This paper analyzes 1990 office asking rents in the Chicago metropolitan area. It carefully specifies a measure of the present value of a lease, taking account of important properties of rent offers. This present value is the dependent variable in the statistical analysis. The sample data analyzed pertain to 543 offices that contain about 80% of the office space in the metropolitan area. The present value of asking rents is related to many building characteristics and to each building's location. The analysis demonstrates that asking rents depend on about fifteen characteristics of the building and on a careful specification of its location.
Influence of Rent Differentials on the Choice between Office Rent Contracts with and without Relocation Provisions
Authors: Benjamin John D. , Sa‐Aadu J. , Shilling James D.
Published: September 2003

In this paper we concern ourselves empirically with the influence of rent differentials on the choice between rent contracts with and without relocation provisions investigating the effects of relocation provisions on office rents. The study departs from the extant literature by using a switching simultaneous‐equations model to estimate hedonic rent functions for alternative office lease contracts with choices of relocation provisions. The empirical results suggest that price considerations and certain lease terms are important determinants of the choice of office relocation rights. The results also suggest that certain tenant characteristics, like tenant size and creditworthiness, have only a marginal effect on the choice of relocation rights.
Did Office Market Size Matter in the 1980s? A Time‐Series Cross‐Sectional Analysis of Metropolitan Area Office Markets
Authors: Pollakowski Henry O. , Wachter Susan M. , Lynford Lloyd
Published: September 2003

Recent contributions to the literature have resulted in a standard modelling of office markets. The models provide considerable insight into the working of office markets. • Nonetheless, a major difficulty is the use of data for a single city or aggregate data for the U.S. The latter implicitly assumes that model structure is invariant across cities. In this article we test for structural differences in office markets by size class. Rental data from REIS Reports for twenty‐one metropolitan areas for the time period 1981 to 1990 are used to model office market behavior. Results suggest market outcomes vary by city size, larger markets are better modelled using standard procedures, and Manhattan behaves quite differently from the other markets.
Self‐Selection in the Fixed‐Rate Mortgage Market
Authors: Yang T. L. Tyler
Published: September 2003

This paper analyzes the effect of information asymmetry between the lender and the borrower (i.e., the borrower knows how long he will reside in his home, whereas the lender does not) on the borrower's choice among the interest rate‐discount points combinations available in the fixed‐rate mortgage market. The analysis shows that if the rate‐points trade‐off of the mortgage menu is either too steep or too flat, then all types of borrowers will choose the same loan contract from the menu. In addition, if the rate‐points trade‐off is not convex to the origin, then only the contracts with extreme rate‐points combinations will be chosen by borrowers; all contracts with intermediate rate‐points combinations are redundant and will not be chosen by any borrowers. Intermediate rate‐points combination mortgage contracts would be chosen by some borrowers only if the mortgage menu were to provide a self‐selection function. Several necessary conditions of a self‐selection mortgage menu are depicted.
An Empirical Investigation of the Contingent‐Claims Approach to Pricing Residential Mortgage Debt
Authors: Giliberto S. Michael , Ling David C.
Published: September 2003

Despite the growth of theoretical mortgage‐pricing research, few empirical tests have been published. The primary objective of this paper is to provide an empirical test of the contingent‐claims approach to pricing residential mortgages. This is accomplished by examining the differences between contract mortgage rates generated by the theoretical contingent‐claims model and corresponding actual rates observed for 121 consecutive months from January 1981 through January 1991. We find that the contingent‐claims model produces an unbiased prediction of changes in actual rates.
What Does the Stock Market Tell Us About Real Estate Returns?
Authors: Gyourko Joseph , Keim Donald B.
Published: September 2003

This paper analyzes the risks and returns of different types of real estate‐related firms traded on the New York and American stock exchanges (NYSE and AMEX). We examine the relation between real estate stock portfolio returns and returns on a standard appraisal‐based index, and find that lagged values of traded real estate portfolio returns can predict returns on the appraisal‐based index after controlling for persistence in the appraisal series. The stock market reflects information about real estate markets that is later imbedded in infrequent property appraisals. Additional analysis suggests that the differences in the return and risk characteristics across different types of traded real estate firms can be explained in part by appealing to real estate market fundamentals relating to the degree of dependence of the real estate firm upon rental cash flows from existing buildings. These findings highlight the heterogeneity of securitized real estate‐related firms.
The Value of Building Codes
Authors: Colwell Peter F. , Yavaş Abdullah
Published: September 2003

We present a double moral hazard model to study the impact of building codes on the safety/quality level chosen by the builder and the level of care expended by the buyer. We show that codes can be a mechanism to implement the first‐best solution provided: (1) The code prescribes the optimum safety level, (2) The code uses the efficient technology to achieve the optimum safety level, and (3) The courts use Negligence Rule as the liability rule. We argue, however, that codes in general do not use the efficient technology. We provide an alternative mechanism to implement the first‐best solution. This mechanism is a contract between the builder and the buyer that specifies the level of safety jquality to be expended by the builder. We prove that the contract is a more effective and more efficient mechanism than are the building codes.
The Welfare Effects of Non‐Price Competition Among Real Estate Brokers
Authors: Miceli Thomas J.
Published: September 2003

This paper examines the role of brokers in economizing on transaction costs in the housing market. By lowering the cost of transactions, brokers create welfare gains compared to a market in which buyers and sellers transact on their own. However, if brokers engage in unproductive, non‐price competition to acquire a larger share of available listings, then some of the welfare gains are dissipated. Using a partial equilibrium model, this paper shows how an excessive commission rate can lead to this result.
A Simple Search and Bargaining Model of Real Estate Markets
Authors: Yavaş Abdullah
Published: September 2003

This paper examines the impact of brokers on buyers' and sellers' search behavior and on the transaction prices in real estate markets. It is shown that the seller and the buyer search less intensively if the house is listed with a broker. The seller gets a higher price when he employs a broker, but the increase in price is smaller than the commission fee. More specifically, the portion of the commission covered by the increase in price is directly related to the bargaining powers of the buyer and the seller. In the special case where the price is determined according to the Nash bargaining solution, the increase in price is shown to be half of the commission fee. It is also shown that an increase in the commission rate increases the equilibrium price but decreases the equilibrium search intensities.
Institutional Portfolios: Diversification through Farmland Investment
Authors: Lins David A. , Sherrick Bruce J. , Venigalla Aravind
Published: September 2003

This article demonstrates that farmland can enhance the overall performance of institutional portfolios which are currently dominated by stocks, bonds, and business real estate. Unlike previous articles on farmland returns, this article addresses the issue of “smoothing bias” associated with appraisal‐based farmland returns. Improved measures of income returns to farmland are also used in developing the estimates of optimal portfolios. Parametric testing revealed that farmland continues to enter the optimal portfolios even for large increases in the variance or for large reductions in the annual returns to farmland.
Mortgage‐Backed Futures and Options
Authors: Ling David C.
Published: September 2003

This paper empirically tests valuation models for the mortgage‐backed futures‐options contracts that traded on the Chicago Board of Trade (CBOT) from June of 1989 until March of 1992. A simple contingent‐claim model is shown to produce call option values on mortgage‐backed futures (MBF) contracts that are unbiased estimates of actual futures‐options prices. The ability of the MBF contract to hedge positions in current coupon Government National Mortgage Association (GNMA) securities relative to the effectiveness of cross‐hedging GNMA positions with T‐note and T‐bond futures contracts is also examined.