Pricing training and development programs using stochastic CVP analysis

This paper sets forth, analyzes and applies a stochastic cost‐volume‐profit (CVP) model specifically geared toward the determination of enrollment fees for training and development (T+D) programs. It is a simpler model than many of those developed in the research literature, but it does incorporate one advanced component: an ‘economic’ demand function relating the expected sales level to price. Price is neither a constant nor a random variable in this model but rather the decision‐maker's basic control variable. The simplicity of the model permits analytical solutions for five ‘special prices’: (1) the highest price which sets breakeven probability equal to a minimum acceptable level; (2) the price which maximizes expected profits; (3) the price which maximizes a Cobb–Douglas utility function based on expected profits and breakeven probability; (4) the price which maximizes breakeven probability; and (5) the lowest price which sets breakeven probability equal to a minimum acceptable level. The model is applied to data provided by the Center for Management and Professional Development at the authors' university. The results suggest that there could be a significant payoff to fine‐tuning a T+D provider's pricing strategy using formal analysis. Copyright © 2005 John Wiley & Sons, Ltd.     

Modelling market fundamentals: A model of the aluminium market

The standard approach to modelling primary commodity markets under rational expectations is to relate the commodity price to the production and consumption ‘surprises’ (i.e. the innovations on the equations). Using the world aluminium market, we show how this approach can be modified so that both the price and stock can be written in terms of one or more market ‘fundamentals’ which reflect the supply—demand balance on the market. This approach allows joint estimation of production, consumption, stock demand and price equations subject to cross-equation restrictions. It may be seen as a formalization of the approach adopted by metals industry analysts.     

Valuing not-for-profit and charity brands—real insight or just smoke and mirrors

Brands introduce emotional decision-making criteria, differentiating all brands across the not-for-profit sector. Brands shift the demand curve upwards and the cost curve downwards. The result is higher turnover, profit and surplus ‘consumer utility’. Brand equity is a measure of the emotional reservoir that shows how far the demand curve has moved and what the future cash flows will be. Brand valuation is a snapshot of those future cash flows. David Haigh and Stephen Gilbert's article describes how these three concepts fit together and explains how and why they have become best practice in marketing and financial management. Copyright © 2005 John Wiley & Sons, Ltd.     

The demand for computer services: A disaggregate decision model

Pricing schedules for computer resources have traditionally been based on ‘cost-recovery’ principles. While economists have begun to address pricing based on marginal congestion costs, most models take demand to be exogenous and given. Discrete alternatives are inadequately treated, and aggregation of data precludes any assessment of the impact of transaction size on consumers' decisions. Using disaggregated data, this paper derives empirical results confirming that consumers are strongly influenced by transaction sizes. Simulation experiments demonstrate that price incentives designed to modify the use of computer resources are considerably more effective if the distribution of demand is weighted towards large transactions.     

Looking across borders: A test of spatial policy interdependence using local government efficiency ratings

Spatial patterns in (local) government taxation and spending decisions have received a lot of attention. Still, the focus on taxation or expenditure levels in previous studies may be incomplete. Indeed, (rational) individuals are likely to consider the level of spending on (or taxation for) public goods provision simultaneously with how much public goods they actually receive—thus assessing the ‘price/quantity’ of government policies. Therefore, the present paper argues that incumbents may want their ‘price/quantity’ ratio to be close to that in neighbouring regions. Analysing Flemish local governments' efficiency ratings for the year 2000 (which relate total spending to the quantity of locally provided public goods), we confirm the existence of neighbourhood effects in local government policies.     

Interindustry Linkages: Virtuous and Vicious?

Although overall linkages are steadily increasing in growth processes, em-pirical data supply strong evidence of large intercountry and intertemporal fluctuations of the domestic-to-overall linkages ratio. This paper tries to explain this phenomenon by modelling a producers' behaviour which appears more realistic than that usually assumed in interindustry or computable general equilibrium models. The main novelty of the results is that the same causes that generate interindustry multipliers can also ‘trap’ domestic linkages into reinforcing (‘virtuous’) or weakening (‘vicious’) circles, depending on whether the price competitiveness of domestic activities is above or below a threshold related to the non-price competitiveness of those activities. These results can help to explain the fluctuations of domestic linkages with respect to overall linkages by spatial and temporal shifts of the threshold between the vicious and the virtuous ‘areas’. Moreover, they emphasize the importance of supply policies-mainly R&D policies—because of their ‘pushing down’ effect on this threshold.     

In Praise of Expansionary Fiscal Contraction

Textbook orthodoxy maintains that increases in the cyclically adjusted budget balance (i.e. reductions in the deficit) withdraw demand from an economy. Those Keynesian economists who believe that fiscal policy is the most powerful single influence on changes in demand expect ‘fiscal contraction’ to be accompanied by below‐trend growth or even declines in output. This article, a response to Martin Wolf's 2013 Wincott Memorial Lecture, considers this Keynesian view. Using a database prepared by the International Monetary Fund, it shows that since the 1980s ‘expansionary fiscal contractions’ have been the norm and not the exception in the USA and the UK. Keynesian support for fiscal activism is unsupported by a large body of recent evidence.     

Estimating consumer preferences using market data—an application to us automobile demand

This paper explores the possibility of using market data to identify consumer preferences. A utility function composed of ‘homogeneous’ characteristics and goods-specific effects is used as a basic link between the goods space and the characteristics space. The functional form for the hedonic price equation, the data requirements and issues of measurement errors for estimating demand and supply of characteristics are discussed. We illustrate the methodology by considering the US automobile demand using 1969–86 data compiled from Consumer Reports and Ward's Automotive Yearbook.     

Entrepreneurship and Firm Boundaries: The Theory of A Firm

abstract In this paper, we consider how a better understanding of entrepreneurial activities can help explain how firm and industry boundaries change over time and how a more comprehensive understanding of boundary setting can explain where entrepreneurial activities are directed. We start from the premise that while entrepreneurs believe themselves to have superior ideas in one or multiple parts of the value chain, they are characteristically short of cash, and of the ability to convince others to provide it. This premise motivates a simple model in which the entrepreneur has a value‐adding set of ideas for ‘upstream’ and ‘downstream’ parts of a value chain, as well as for the ways to make these two parts of the value chain work better when joined under unitary control. Assuming that the entrepreneur's objective is to maximize her wealth, we observe that even in the presence of transactional risks or other factors that might make integration preferable to specialization, initial scope depends also on relatively unexplored factors such as (a) how severe the entrepreneur's cash constraint is, and (b) how much value the entrepreneur's ideas add at each part of the value chain. Entrepreneurs will focus on the areas that provide the maximum profit yield per available cash – a criterion which implies that scope choices depend on cash availability and the depth of the demand for the new idea along the value chain. We also note that entrepreneurs make money not only from the operating profits of their firms, but also from the appreciation of the assets the firm has accumulated. This consideration can change the optimal choice of the firms’ boundaries, as entrepreneurs must be sensitive to choosing the segment that will enable them to benefit not only in terms of profit, but also in terms of asset appreciation. We propose that, in the entrepreneurial context especially, it is helpful to focus on the multiple considerations affecting the choice of boundaries for ‘a’ firm – the context faced by an individual entrepreneur – rather than on generic considerations affecting ‘the’ (representative) firm. Scope choices reflect the entrepreneur's own theory of ‘how to make money’.     

Asset price and wealth dynamics in a financial market with heterogeneous agents

This paper considers a discrete-time model of a financial market with one risky asset and one risk-free asset, where the asset price and wealth dynamics are determined by the interaction of two groups of agents, fundamentalists and chartists. In each period each group allocates its wealth between the risky asset and the safe asset according to myopic expected utility maximization, but the two groups have heterogeneous beliefs about the price change over the next period: the chartists are trend extrapolators, while the fundamentalists expect that the price will return to the fundamental. We assume that investors’ optimal demand for the risky asset depends on wealth, as a result of CRRA utility. A market maker is assumed to adjust the market price at the end of each trading period, based on excess demand and on changes of the underlying reference price. The model results in a nonlinear discrete-time dynamical system, with growing price and wealth processes, but it is reduced to a stationary system in terms of asset returns and wealth shares of the two groups. It is shown that the long-run market dynamics are highly dependent on the parameters which characterize agents’ behaviour as well as on the initial condition. Moreover, for wide ranges of the parameters a (locally) stable fundamental steady state coexists with a stable ‘non-fundamental’ steady state, or with a stable closed orbit, where only chartists survive in the long run: such cases require the numerical and graphical investigation of the basins of attraction. Other dynamic scenarios include periodic orbits and more complex attractors, where in general both types of agents survive in the long run, with time-varying wealth fractions.     

The Use of Valuation Models by UK Investment Analysts

This paper examines the use of valuation models by UK investment analysts. The study is based on, first, semi-structured interviews with 35 sell-side analysts from 10 leading investment banks and with 7 buy-side analysts from 3 asset management firms and, second, content analysis based on 98 equity research reports for FTSE-100 companies covered by the sell-side interviewees. We observe that analysts perceive the discounted cash flow (DCF) (and to some extent ‘sophisticated’ models in general) to have become significantly more important than prior survey evidence suggests, although we also find the (somewhat paradoxical) continued importance of ‘unsophisticated’ valuation multiples, notably the price/earnings ratio (PE). We find perceived limitations in the technical applicability of the DCF, which cause analysts to rely in practice upon valuation multiples and subjective judgement of whether the market price ‘feels right’. We also find that contextual factors, notably the analysts' need for their research to be credible to buy-side clients, cause the use of subjective, unsophisticated methods of valuation to be played down. Given the inherent flexibility of the DCF model, coupled with its ostensible credibility, it becomes the natural vehicle for conveying the analyst's research, even though it is very rarely relied upon to determine target prices and investment recommendations. We conclude that, while the literature has focused on the technical merits of alternative valuation models, analysts' actual usage of valuation models also requires an understanding of social and economic context and motivations.     

A new approach to peak load pricing

This paper explores an alternative method of ‘solving’ the problem of recurring time variable demands in a public utility context. It views the utility's load curve as a series of horizontal layers or ‘slices’ of varying lengths, rather than as a series of vertical slices as in the traditional approach. Several cases are examined, and traditional time-of-day pricing is shown to be inefficient or inapplicable in some of them, while ‘demand-layer’ pricing, based on horizontal slicing, is efficient. In still other cases, neither method of pricing is efficient.     

To err is rational: A theory of excess demand for tickets

This paper examines the relationship between chronic excess demand for sporting events, a robust ticket resale market and the market for seasons tickets. The main argument focuses on property rights associated with the purchase of season tickets. Given the impossibility of pricing games individually, season-ticket holders act as brokers. The ‘broker's fees’ are paid in the form of priorities for playoff tickets and premium seats in future years. Since a pure monopoly price would render season-ticket property rights worthless, a profit-maximizing strategy requires apparent underpricing.     

Accounting and the Truth of Earnings Reports: Philosophical Considerations

This paper investigates the philosophical nature of accounting reports of earnings. Standard setters' authoritative pronouncements (conceptual frameworks, GAAP, EITFs, etc.) hold to the realist philosophical view that true earnings reports are ex post representations of some ex ante out-there, preexisting, extra-linguistic real economic increase in the enterprise's wealth. Contra this view, in practice financial accounting executives, in league with investment analysts, routinely engage in earnings management and manipulation in order to satisfy the capital market's insatiable demands for earnings levels which will support and enhance the enterprise's stock market price. The paper considers this state of affairs from Harold Frankfurt's truth, lies and ‘bullshit’ treatise (2005, 2006). It sees earnings reports as ‘short of lies’, and so the accountants can only be faulted for their indifference to the truth and for giving the impression that they are trying to present the truth. A poststructuralist philosophical perspective, however, problematizes this conclusion on the basis that accounting language is not a transparent medium but rather is the material used to manufacture accounting ‘truths’. It sees accounting ‘truths’ as contingent upon linguistic doctrinal accounting discourses currently ceded place of privilege by standard setters and upon the subjective considerations of accountants when they produce reports of earnings. The paper concludes that both Frankfurt's perspective and that of poststructuralist philosophers can provide valuable insights into this ironic state of affairs.     

Arbitrage and equilibrium in economies with infinitely many commodities

An ‘arbitrage opportunity’ for a class of agents is a commodity bundle that will increase the utility of any of the agents and that has non-positive price. The non-existence of ‘arbitrage opportunities’ is necessary and sufficient for the existence of an economic equilibrium. A bundle is ‘priced by arbitrage’ if there is a unique price that it can command without causing an ‘arbitrage opportunity’ to exist. For economies that have infinitely many commodities, appropriate notions of ‘arbitrage opportunities’ and ‘bundles priced by arbitrage’ depend on the continuity of agents’ preferences. This paper develops these notions, thereby providing a foundation for recent work in financial theory concerning arbitrage in continuous-time models of securities markets.     

HAROLD WILSON'S DEVALUATION: A SALUTARY LESSON

The 1967 sterling devaluation opened the final act of the Keynesian epoch. The assurance ‘that the pound here in Britain, in your pocket or purse or in your bank’ had not been devalued, rests upon a ‘fixed price’ assumption invoked by John Maynard Keynes for the 1930s. It carried the implication that a currency revaluation is the only price change that is relevant to international competitiveness. That is nonsense. Devaluation succeeds in readjusting international payments only if it reduces the value of the pound in our pocket, purse or bank.     

需求价格弹性和销售收入关系的数学探析

文章认为,许多经济学教材中关于需求价格弹性对销售收入影响的结论存在明显缺陷,通过严格的数学分析,无论如何都不能得出需求价格弹性大于1时,降价会使销售收入增加这样的结论。正确的结论应该是:对同一条需求曲线,对应不同的点有不同的弹性,中点的价格弹性为1,是销售收入最大点,销售收入的变化由销售点在需求曲线上的位置及移动方向共同决定。     

Developing Alteratives: Energy,Offices and the Environment

This paper maps some of the social and commercial forces shaping the debate around ‘realistic’ or ‘appropriate’ levels of energy specification in the commercial office market. It discusses how the dynamics of the market, alternative lease arrangements, enhanced building management standards, technological innovation and shifts in cultural taste are all redefining contemporary office space and presenting new opportunities for environmental innovation. Drawing upon interviews with developers, investors, agents, occupiers and property researchers in Britain and France, the changing, often conflicting, priorities underpinning decisions about energy standards are explored. The paper explores possible ‘futures’ for office development processes in the United Kingdom. Highlighting the ebb and flow of the market, the paper points to the changing nature of tenant demand and current ‘opportunities’ for the development of alternative, more ‘realistic’ energy specification levels. Looking beyond the current property slump it examines the cultural and structural shifts likely to sustain any reformation of British real estate practices. In particular, the paper highlights contemporary debates around transformation of the institutional lease and legislative codification of energy and environmental standards. It is argued that this loose constellation of social forces promises a significant, new mutuality of interests between developers and occupiers which is cultivating ‘appropriate’ specification and procurement practices. Cet article retrace certaines des formes sociales et commerciales qui modèlent le débat sur les niveaux ‘réalistes’ ou ‘appropriés’ de spécification de l'énergie dans le marché des bureaux commerciaux. Il explique comment les dynamiques du marché, l'organisation alternative du bail, une meilleure gestion des immeubles, la nouveauté technologique et le changement des goûts culturels redéfinissent l'espace contemporain du bureau et présentent de nouvelles opportunités d'innovation de l'environnement. M'appuyant sur des entrevues avec des promoteurs, des agents, des occupants et des chercheurs sur les propriétés immobilières en Grande-Bretagne et en France, j'examine les priorités changeantes et souvent contradictoires qui supportent les décisions quant aux niveaux d'énergie. Cet article explore les ‘futurs’ possibles pour les processus de développement des bureaux au Royaume Uni. Soulignant le va et vient du marché, cet article démontre la nature changeante de la demande des locataires et les ‘opportunités’ actuelles quant au développement de niveaux alternatifs et plus ‘réalistes’ de spécification de l'énergie. En regardant par delà l'effrondement actuel du marché immobilier, il examine les mouvements culturels et structuraux qui pourraient supporter une réforme des pratiques des agents immobiliers britanniques. Cet article souligne en particulier les débats contemporains sur la transformation du bail institutionnel et la codification législative de la qualité de l'environnement et de l'énergie. Je soutiens que cette constellation décousue de forces sociales promet une nouvelle et significative mutualité d'intérêts entre les promoteurs et les occupants qui cultive les spécifications ‘appropriées’ et les pratiques d'acquisition.     

EVALUATING SUPPLY-SIDE AND DEMAND-SIDE SHOCKS FOR FISHERIES: A COMPUTABLE GENERAL EQUILIBRIUM (CGE) MODEL FOR ALASKA

This study used computable general equilibrium (CGE) models to investigate the economic effects of three exogenous shocks to Alaska fisheries: (1) reduction in pollock allowable catch (TAC); (2) increase in fuel price; and (3) reduction in demand for seafood. Two different model versions, ‘Keynesian’ and ‘neoclassical’, were used to estimate impacts on endogenous output, employment, value added, and household income. By using a CGE model, this study overcomes the limitations of fixed-price models (such as input–output models) including (1) inability to calculate welfare effects due to fixed prices; and (2) difficulty of addressing supply-side shocks. There are currently few examples of CGE studies addressing fisheries issues appearing in the literature. Among those, this study is unique in that it uses a relatively disaggregated sector scheme and examines both supply-side and demand-side shocks.     

Consumer Search Ability,Price Dispersion and the Digital Divide

The ‘digital divide’ in online activities is believed to arise from differences in Internet access, but this paper advances an alternative explanation that is related to consumer search ability. It argues that this leads to greater price dispersion, causing some consumers to be discriminated against. It analyses price data for the UK Internet motor insurance market, collecting data on 32,255 prices for 110 sub‐markets, where differences in price dispersion across these by age, occupation and sex of the driver are argued to reflect differences in search ability. Allowing for price dispersion to also depend on the insurance risk, it finds greater price dispersion for consumers with weaker search abilities, i.e. older, unemployed, retired or female consumers. As this is not explained by alternative hypotheses, the paper concludes that improved Internet access alone will not close the ‘digital divide’. The implication is that policymakers should address the online search abilities of individuals as well as Internet access.