Competition for goods in buyer-seller networks

Abstract. This paper studies competition in a network and how a network structure determines agents' individual payoffs. It constructs a general model of competition that can serve as a reduced form for specific models. The paper shows how agents' outside options, and hence their shares of surplus, derive from “opportunity paths” connecting them to direct and indirect alternative exchanges. Analyzing these paths, results show how third parties' links affect different agents' bargaining power. Even distant links may have large effects on agents' earnings. These payoff results, and the identification of the paths themselves, should prove useful to further analysis of network structure.     

Application of optimal control in man power planning

Many techniques are met in the literature (see for instance Bartholomew and Forbes (Statistical Techniques for Manpower Planning. wiley, New York 1979); Gunz (Organiz. Stud. 9(4), 529–554, 1988); Becker and Huselid (Human Resour. Manage. 38, 287–301, 1999); Wagner et al. (J. Manage. Med. 14(5/6), 383–405, 2000); Harris and Ogbonna (J. Business Res. 51, 157–166, 2001); Rogg et al. (J. Manage. 27, 431–449, 2001), among others), for planning the manpower resources. However, we haven’t seen in the literature an empirical study regarding the proper application of optimal control, which considered to be the most efficient method for multi-objective programming. With this in mind, we analyse in this paper the way of applying optimal control for manpower planning. For this purpose, and in order to facilitate the presentation, we first adopted a comparatively simple dynamic system (plant), with analytical presentation of stocks and flows. Next we proceed to the formulation of an optimal control problem, aiming to achieve in the most satisfactory way some preassigned targets. These targets mainly refer to a desirable trajectory of the plant stocks over time, in order to fully satisfy the needs for human resources over the planning horizon. Finally we present a method of solution of the formulated control problem which is based on the use of the generalized inverse Lazaridis (Qual. Quan. 120, 297–306, 1986). We believe that it is very important for successful management, that the policy makers have to know the effect of their polices and to determine the optimal path of the state variables (i.e. the ones describing the system) before the realization of the plan, so as to be able to reform their strategies, reallocate the resources and arrange the infrastructure accordingly, if all these are necessary, as it can be depicted from the optimal control solution.     

Multivariate L1 mean

The center of a univariate data set {x ₁,…,x _n} can be defined as the point μ that minimizes the norm of the vector of distances y′=(|x ₁−μ|,…,|x _n−μ|). As the median and the mean are the minimizers of respectively the L ₁- and the L ₂-norm of y, they are two alternatives to describe the center of a univariate data set. The center μ of a multivariate data set {x ₁,…,x _n} can also be defined as minimizer of the norm of a vector of distances. In multivariate situations however, there are several kinds of distances. In this note, we consider the vector of L ₁-distances y′₁=(∥x ₁- μ∥₁,…,∥x _n- μ∥₁) and the vector of L ₂-distances y′₂=(∥x ₁- μ∥₂,…,∥x _n-μ∥₂). We define the L ₁-median and the L ₁-mean as the minimizers of respectively the L ₁- and the L ₂-norm of y ₁; and then the L ₂-median and the L ₂-mean as the minimizers of respectively the L ₁- and the L ₂-norm of y ₂. In doing so, we obtain four alternatives to describe the center of a multivariate data set. While three of them have been already investigated in the statistical literature, the L ₁-mean appears to be a new concept. Received January 1999     

Arbitrage pricing theory and risk-neutral measures

Abstract We consider a market with countably many risky assets and finite factor structure, as in the “arbitrage pricing theory” of Ross (1976). We prove necessary and sufficient conditions in terms of parameters for the existence of an equivalent risk-neutral measure, i.e., a measure under which each asset return has zero expected value. We relate these conditions to a certain absence of arbitrage property of the model. Mathematics Subject Classification (2000): 91B24, 91B28 Journal of Economic Literature Classification: G10, G12     

Public support to innovation and imitation in a non-scale growth model

This paper studies technology policy within a version of Jones's [1995. R&D-based models of economic growth. Journal of Political Economy 103, 759–784] non-scale R&D-based growth framework that incorporates imitation of foreign techniques. In the model, imitation is the most important source of productivity growth at the beginning of the convergence process, whereas innovation dominates later on. In addition, the transitional dynamics of the model can account for well-known empirical regularities regarding the relationship between the level of economic development and public support to technology innovation and imitation. The paper shows as well that, even though policy in Jones-type non-scale models has no long-run growth effects, level effects can be substantial.     

The stability and efficiency of directed communication networks

Abstract. This paper analyzes the formation of directed networks where self-interested individuals choose with whom they communicate. The focus of the paper is on whether the incentives of individuals to add or sever links will lead them to form networks that are efficient from a societal viewpoint. It is shown that for some contexts, to reconcile efficiency with individual incentives, benefits must either be redistributed in ways depending on “outsiders” who do not contribute to the productive value of the network, or in ways that violate equity (i.e., anonymity). It is also shown that there are interesting contexts for which it is possible to ensure that efficient networks are individually stable via (re)distributions that are balanced across components of the network, anonymous, and independent of the connections of non-contributing outsiders.     

Monitoring risk in a ruin model perturbed by diffusion

We construct a nonparametric sequential test for the ruin probability and a corresponding change-point test in a risk model perturbed by diffusion. Some limiting properties are derived, which extend and improve on recent results of Conti (Stat Prob Lett 72:333–343, 2005) and Jahnke (Diploma thesis, University of Cologne, 2007). It is shown that the monitoring procedures can be designed such that the tests have an asymptotic prescribed false alarm rate (size) α and power 1. Some results from a small simulation study are also presented.     

A conceptual model of public sector corporate entrepreneurship

Entrepreneurship has been conceptualized as a process that can occur in organizations of all sizes and types (Burgelman, Academy of Management Review, 8, 32–47, 1983; Miller, Management Science, 29, 770–791, 1983; Gartner, Academy of Management Review, 10, 696–706, 1985; Kao, Entrepreneurship, creativity and organization, 1989). This paper develops a conceptual model of public sector corporate entrepreneurship. The proposed model is intended to depict the main antecedents that relate to corporate entrepreneurship within the public sector and the impact of corporate entrepreneurship on public sector organizational performance (growth, development and productivity), as well as factors influencing its continuous performance. Following discussion of the model’s contents, the potential value for researchers and those engaging in public sector corporate entrepreneurship are described.     

sk−p Fractional factorial designs in sb blocks

Draper and Guttman (1997) shows that for basic 2^k−p designs, p≥0, k − p replicates of blocks designs of size two are needed to estimate all the usual (estimable) effects. In this work, we provide an algebraic formal proof for the two-level blocks designs results and present results applicable to the general case; that is, for the case of s ^k factorial (p=0) or s ^k−p fractional factorial (p >0) designs in s ^b blocks, where 0<b<k− p, at least replicates are needed to clear up all possible effects. Through the theoretical development presented in this work, it can provide a clearer view on why those results would hold. We will also discuss the estimation equations given in Draper and Guttman (1997).  Research supported in part by the National Science Council of Taiwan, R.O.C., Grant No. NSC 89-2118-M110-010. Acknowledgement. The authors would like to thank the referee for very helpful comments.     

Chi-Square Tests Under Models Close to the Normal Distribution

Many test statistics follow a χ² distribution because a normal model is assumed as underlying distribution. In this paper we obtain good analytic approximations for the p-value and the critical value of χ² tests when the underlying distribution is close but different from the normal model. With these approximations we study the robustness of validity of χ² tests     

A theory of rent seeking with informational foundations

I develop a model of rent seeking with informational foundations and an arbitrary number of rent seekers, and I compare the results with Tullock’s (1980) classic model where the influence activities are “black-boxed.” Given the microfoundations, the welfare consequences of rent seeking can be studied. In particular, I show that competition among rent seekers can be socially beneficial, since the additional information that the decision maker gets access to makes the increase in rent-seeking expenditures worthwhile. However, the analysis also highlights a logic that, under natural parameter assumptions, makes the rent seekers spend more resources on rent seeking than is in society’s interest, which is consistent with the spirit of the rent-seeking literature.      

Likelihood ratio tests for model selection of stochastic frontier models

An important issue when conducting stochastic frontier analysis is how to choose a proper parametric model, which includes choices of the functional form of the frontier function, distributions of the composite errors, and also the exogenous variables. In this paper, we extend the likelihood ratio test of Vuong, Econometrica 57(2):307–333, (1989) and Takeuchi’s, Suri-Kagaku (Math Sci) 153:12–18, (1976) model selection criterion to the stochastic frontier models. The most attractive feature of this test is that it can not only be used for testing a non-nested model, but also still be applicable even when the general model is misspecified. Finally, we also demonstrate how to apply this test to the Indian farm data used by Battese and Coelli, J Prod Anal 3:153–169, (1992), Empir Econ 20(2):325–332, (1995) and Alvarez et al., J Prod Anal 25:201–212, (2006).     

Competitive market equilibrium under asymmetric information

This paper studies the existence of a competitive market equilibrium under asymmetric information. There are two agents involved in the trading of the risky assets: an “informed” trader and an “ordinary” trader. The market is competitive and the ordinary agent can infer the insider information from the price dynamics of the risky assets. The insider information is considered to be the total supply of the risky assets. The definition of market equilibrium is based on the law of supply-demand as described by a rational expectations equilibrium of the Grossman and Stiglitz (Am Econ Rev 70:393–408, 1980) model. We show that equilibrium can be attained by linear dynamics of an admissible price process of the risky assets for a given linear supply dynamics.      

Consistent estimation in the bilinear multivariate errors-in-variables model

A bilinear multivariate errors-in-variables model is considered. It corresponds to an overdetermined set of linear equations AXB=C, A∈ℝ^m×n, B∈ℝ^p×q, in which the data A, B, C are perturbed by errors. The total least squares estimator is inconsistent in this case.  An adjusted least squares estimator is constructed, which converges to the true value X, as m →∞, q →∞. A small sample modification of the estimator is presented, which is more stable for small m and q and is asymptotically equivalent to the adjusted least squares estimator. The theoretical results are confirmed by a simulation study. Acknowledgements. We thank two anonymous reviewers for their suggestions and corrections.? A. Kukush is supported by a postdoctoral research fellowship of the Belgian office for Scientific, Technical and Cultural Affairs, promoting Scientific and Technical Collaboration with Central and Eastern Europe.? S. Van Huffel is a full professor with the Katholieke Universiteit Leuven.? I. Markovsky is a research assistant with the Katholieke Universiteit Leuven.? This paper presents research results of the Belgian Programme on Interuniversity Poles of Attraction (IUAP V-22), initiated by the Belgian State, Prime Minister's Office – Federal Office for Scientific, Technical and Cultural Affairs of the Concerted Research Action (GOA) projects of the Flemish Government MEFISTO-666 (Mathematical Engineering for Information and Communication Systems Technology), of the IDO/99/03 project (K.U. Leuven) “Predictive computer models for medical classification problems using patient data and expert knowledge”, of the FWO projects G.0078.01, G.0200.00, and G0.0270.02.? The scientific responsibility is assumed by its authors.     

Determinants of Economic Interaction: Behavior or Structure

Experimental economics originated as examination of the behavior of aggregate phenomena, especially markets, populated by human participants motivated by their desire to attain their goals. The past two decades have brought two newer trends. One is a gradual but steady shift in the focus of the questions sought to be addressed through human experiments towards examination of micro level phenomena – individual preferences and behavior. The second is the expansion in the role of computer simulations to examine questions about aggregate level phenomena. This shift to individual behavior has accentuated the ever-present dilemma of social sciences in trying to be a science on one hand, and to understand our own self-conscious selves – human beings – on the other. To address this dilemma, it would be useful to recognize three streams of experimental economics: (1) macro stream to examine the properties of social structures, (2) micro stream to examine the behavior of individuals, and (3) agent stream to explore the links between the micro and macro phenomena using computer simulations. At least the structural stream can be firmly rooted in the tradition of sciences (bypassing the free-will dilemma of social sciences), while the agent stream can span the gap between the behavioral and structural streams.The author is thankful to Dorota Dobija and Juergen Huber for their helpful comments. Science does not know its debt to imagination. – Ralph Waldo Emerson Vivisection is a social evil because if it advances human knowledge, it does so at the expense of human character. – George Bernard Shaw The theoretical broadening which comes from having many humanities subjects on the campus is offset by the general dopiness of the people who study these things. – Richard P. Feynman Economics has an amazing capacity to summarize staggeringly complex phenomena by the application of only a handful of principles. – Charles R. Plott Being outside and above individual and local contingencies, collective consciousness sees things only in their permanent and fundamental aspects, which it crystallizes in ideas that can be communicated. – Emile Durkheim     

Dynamic Lobbying Conflicts

This paper analyzes a dynamic lobbying model in which two antagonistic lobbies compete with each other for a prize over two time periods that are linked through status quo bias. The attacker has to decide whether to attempt an attack on the status quo already in the first period or whether to wait. We identify how the attacker’s behavior in the dynamic model differs from that in a comparable static model. Two antagonistic effects are the “option value effect” that is similar to the real option effect in the theory of investment decisions under uncertainty; and a “defender discouragement effect” that often makes change cheaper to achieve than in a comparable static model.      

Self-organized criticality in evolutionary systems with local interaction

This paper studies a stylized model of local interaction where agents choose from an ever increasing set of vertically ranked actions, e.g. technologies. The driving forces of the model are infrequent upward shifts (‘updates’), followed by a rapid process of local imitation (‘diffusion’). Our main focus is on the regularities displayed by the long-run distribution of diffusion waves and their implication on the performance of the system. By integrating analytical techniques and numerical simulations, we come to the following two main conclusions. (1) If non-coordination costs are sufficiently high, the system behaves critically, in the sense customarily used in physics. (2) The performance of the system is optimal at the frontier of the critical region. Heuristically, this may be interpreted as an indication that (performance-sensitive) evolutionary forces induce the system to be placed ‘at the edge of order and chaos’.     

Cost efficiency of Slovenian water distribution utilities: an application of stochastic frontier methods

This study estimates cost inefficiency and economies of scale of Slovenian water distribution utilities over the 1997–2003 period by employing several different stochastic frontier methods. The results indicate that significant cost inefficiencies are present in the utilities. An introduction of incentive-based price regulation scheme might help resolve this problem. However, the inefficiency scores obtained from different cost frontier models are not found to be robust. The levels of inefficiency estimates as well as the rankings depend on the econometric specification of the model. The established lack of robustness can be at least partly explained by different ability of the models to separate unobserved heterogeneity from inefficiency. Newly proposed true fixed effects model (Greene, J Econom 126:269–303, 2005; J Prod Anal 23(1):7–32, 2005) appears to perform better than the conventional panel data models with respect to distinguishing between unobserved heterogeneity and inefficiency. On the other hand, different models produce fairly robust results with respect to estimates of economies of output density, customer density and economies of scale. The optimal size of a company is found to closely corresponds to the sample median. Economies of scale are found in small-sized utilities, while large companies exhibit diseconomies of scale.

Do congressional leaders detect and deter cartel cheating? Evidence from committee assignments

Abstract. The present study extends recent work in the public choice literature that suggests that monopoly legislators form cartel-like organizations in an effort to extract greater benefits in the political process. With any cartel organization cheating is expected to arise. If any political cartel (or business cartel) is to be successful, cheating must be detected and punished. Previous work examining the voting behavior and committee placement of Congressional Black Caucus members presents observable evidence of cartel success, but it fails to examine how cheating by individual Congressional Black Caucus members is detected and deterred. This study points out that (1) use of ADA voting records by Democratic House leaders renders “cartel cheating” easily detectable, (2) any observed cheating is punished by Democratic leaders through placement on less desirable House committees, and (3) such a punishment diminishes the “legislative” level of representation that an individual Representative can provide. Received: 29 May 2001 / Accepted: 29 July 2002 The authors thank two anonymous referees of this journal, Amihai Glazer, David Hobson and Troy Gibson for helpful comments. This work was supported through a Business Advisory Council Faculty Scholars Grant.     

The origins of the mean-variance approach in finance: revisiting de Finetti 65 years later

Abstract In a recent critical review of de Finetti’s paper “Il problema dei pieni’’, the Nobel Prize winner Harry Markowitz recognized the primacy of de Finetti in applying the mean-variance approach to finance, but pointed out that de Finetti did not solve the problem for the general case of correlated risks. We argue in this paper that a more fair sentence would be: de Finetti did solve the general problem but under an implicit hypothesis of regularity which is not always satisfied. Moreover, a natural extension of de Finetti’s procedure to non-regular cases offers a general solution for the correlation case and shows that de Finetti anticipated a modern mathematical programming approach to mean-variance problems. Mathematics Subject Classification (2000): 91B30, 90C20 Journal of Economic Literature Classification: G11, C61, B23, D81, G22