Quality competition with motivated providers and sluggish demand

We study incentives for quality provision in markets where providers are motivated (semi-altruistic); prices are regulated and firms are funded by a combination of block grants and unit prices; competition is based on quality, and demand adjusts sluggishly. Health or education are sectors in which the mentioned features are the rule. We show that the presence of motivated providers makes dynamic competition tougher, resulting in higher steady-state levels of quality in the closed-loop solution than in the benchmark open-loop solution, if the price is sufficiently high. However, this result is reversed if the price is sufficiently low (and below unit costs). Sufficiently low prices also imply that a reduction in demand sluggishness will lead to lower steady-state quality. Prices below unit costs will nevertheless be welfare optimal if the providers are sufficiently motivated.     

Dynamics of Open Source Movements

This paper considers a dynamic model of the evolution of open‐source software projects, focusing on the evolution of quality, contributing programmers, and users who contribute customer support to other users. Programmers who have used open‐source software (OSS) are motivated by reciprocal altruism to publish their own improvements. The evolution of the open‐source project depends on the form of the altruistic benefits: in a base case the project grows to a steady‐state size from any initial condition; whereas adding a need for customer support makes zero‐quality a locally absorbing state. We also analyze competition by commercial firms with OSS projects. Optimal pricing policies again vary: in some cases the commercial firm will set low prices when the open‐source project is small; in other cases it mostly waits until the open‐source project has matured.     

客运专线C50箱梁高性能混凝土的配制

为满足湘桂高速铁路扩能改造工程C50箱梁高性能混凝土的特殊要求，优选原材料，找出最佳组合，配制出高强度、高性能的混凝土，从而使施工周期缩短，工程造价降低，满足了施工及设计要求，确保了工程质量。     

Steady‐state priors for vector autoregressions

Bayesian priors are often used to restrain the otherwise highly over‐parametrized vector autoregressive (VAR) models. The currently available Bayesian VAR methodology does not allow the user to specify prior beliefs about the unconditional mean, or steady state, of the system. This is unfortunate as the steady state is something that economists usually claim to know relatively well. This paper develops easily implemented methods for analyzing both stationary and cointegrated VARs, in reduced or structural form, with an informative prior on the steady state. We document that prior information on the steady state leads to substantial gains in forecasting accuracy on Swedish macro data. A second example illustrates the use of informative steady‐state priors in a cointegration model of the consumption‐wealth relationship in the USA. Copyright © 2009 John Wiley & Sons, Ltd.     

Competition Among Health Plans: A Two‐Sided Market Approach

We set up a two‐sided market framework to model competition between a Prefered Provider Organization (PPO) and a Health Maintenance Organization (HMO). Both health plans compete to attract policyholders on one side and providers on the other. The PPO, which is characterized by a higher diversity of providers, attracts riskier policyholders. Our two‐sided framework allows us to examine the consequences of this risk segmentation on the providers' side, especially in terms of remuneration. The outcome of the competition depends mainly on two effects: a demand effect, influenced by the value put by policyholders on the providers access and an adverse selection effect, captured by the characteristics of the health risk distribution. If the adverse selection effect is too strong, the HMO receives a higher profit in equilibrium. On the contrary, if the demand effect dominates, the PPO profit is higher in spite of the unfavorable risk segmentation. We believe that by highlighting the two‐sided market structure of the health plans' competition, our model provides a new insight to understand the increase in the PPOs' market share as observed in the USA during the last decade.     

CHALLENGES OF MIXED‐ECONOMY SOLUTIONS IN HEALTHCARE: THE EXAMPLES OF SWITZERLAND AND SINGAPORE

In the search for improved healthcare systems able to cope with rising costs, policy‐makers are likely to turn to mixed‐economy solutions. The lure of integrating ‘the best of both worlds’ generally leads to a blend of public and private providers, high regulation density as well as legal constraints on consumers based on top‐down political prerogatives. The Swiss and Singaporean healthcare systems perfectly exemplify this strategy. Both combine market features and government planning. They differ significantly, however, when it comes to the specific policies being implemented and the scope of private sector involvement in each country. This article discusses the Swiss and Singaporean healthcare systems and highlights the dissimilarities between the two countries.     

Corporate social responsibility,durable‐goods and firm profitability

Utilizing a two‐period durable‐goods framework, we show that in uncommitted sales markets a firm may earn higher profits as it increases its level of corporate social responsibility (CSR). We find that this occurs even though CSR has no direct impact other than increasing the durable‐goods firm's manufacturing costs. We show that in sales markets, CSR may allow the firm to credibly commit itself to lower production in the future. This, in turn, can enhance their profits even though the CSR activities are costly and provide no direct demand or marketing benefit in our model. This is important because it provides another, hereto unexplored, strategic rationale for the willingness of profit‐maximizing firms to undertake costly CSR activities. Copyright © 2010 John Wiley & Sons, Ltd.     

Generating price‐effective intermodal routes

We describe the problem of intermodal international freight transport that is faced by some logistic service providers and the solution that ORTEC's logistic suite offers to these customers. This solution is based on a state of the art k‐shortest path algorithm for directed networks. Our focus is on the modeling aspects of the problem. In particular, we propose an approach in two phases and methods to reduce the size of the network, so as to obtain a solution within an acceptable calculation time.     

Strategic Buying to Prevent Seller Exit

We consider a dynamic oligopoly model in which a seller may drop out of the market when demand for its product is insufficient in the first period. Buyers suffer some disutility if a seller exits the market and so their first‐period purchase decision not only depends on current period preferences and prices, but also on the potential effect that their behavior has on the probability of seller survival. Specifically, some buyers may choose to purchase from the seller with the lower survival probability even though they like the other seller's product better, a behavior that we call “strategic buying.” We analyze how the incidence of strategic buying depends on parameters and also the implications of the strategic buying motive for sellers' first‐period pricing decisions.     

Planning horizon results for the dynamic warehouse location problem

In the last decade, a number of models for the dynamic facility location problem have been proposed. The various models contain differing assumptions regarding the revenues and costs realized in the opening, operation, and closure of a facility as well as considering which of the facility sites are candidates for acquisition or disposal at the beginning of a time period. Since the problem becomes extremely large for practical applications, much of the research has been directed toward developing efficient solution techniques. Most of the models and solutions assume that the facilities will be disposed of at the end of the time horizon since distant future conditions usually can't be forecasted with any reasonable degree of accuracy. The problem with this approach is that the “optimal” solution is optimal for only one hypothesized post horizon facility configuration and may become nonoptimal under a different configuration. Post-optimality analysis is needed to assure management that the “optimal” decision to open or close a facility at a given point in time won't prove to be “nonoptimal” when the planning horizon is extended or when design parameters in subsequent time periods change. If management has some guarantee that the decision to open or close a facility in a given time period won't change, it can safely direct attention to the accuracy of the design parameters within that time period.This paper proposes a mixed integer linear programming model to determine which of a finite set of warehouse sites will be operating in each time period of a finite planning horizon. The model is general in the sense that it can reflect a number of acquisition alternatives—purchase, lease or rent. The principal assumptions of the model are: a) Warehouses are assumed to have infinite capacity in meeting customer demand, b) In each time period, any non-operating warehouse is a candidate for becoming operational, and likewise any operating warehouse is a candidate for disposal, c) During a given time period, the fixed costs of becoming operational at a site are greater than the disposal value at that site to reflect the nonrecoverable costs involved in operating a warehouse. These costs are separate from the acquisition and liquidation values of the site. d) During a time period the operation of a warehouse incurs overhead and maintenance costs as well as a depreciation in the disposal value.To solve the model, it is first simplified and a partial optimal solution is obtained by the iterative examination by both lower and upper bounds on the savings realized if a site is opened in a given time period. An attempt is made to fix each warehouse open or closed in each time period. The bounds are based on the delta and omega tests proposed by Efroymson and Ray (1966) and Khumawala (1972) with adjustment for changes in the value of the warehouse between the beginning and end of a time period. A complete optimal solution is obtained by solving the reduced model with Benders' decomposition procedure. The optimal solution is then tested to determine which time periods contain “tentative” decisions that may be affected by post horizon data by analyzing the relationship between the lower (or upper) bounds used in the model simplification time period. If the warehouse decisions made in a time period satisfy these relationships and are thus unaffected by data changes in subsequent time periods, then the decisions made in earlier time periods will also be unaffected by future changes.     

Optimal discretionary monetary policy in a micro-founded model with a zero lower bound on nominal interest rate

This paper investigates optimal discretionary monetary policy under the zero lower bound on the nominal interest rate (ZLB) in the case of a distorted steady state due to monopoly and taxation. Solving a fully nonlinear micro-founded (FNL) model using a global method, I find that the central bank in a more distorted economy would cut the interest rate less aggressively under a particularly adverse demand shock. This occurs because inflation and nominal interest rates are higher on average, making the ZLB less likely to bind and causing the economy to escape from the ZLB sooner. However, the social planner would choose the optimal inflation rate of approximately zero. The result emerges because the unconditional benefit of avoiding the ZLB is not big enough to offset the cost of higher relative price dispersion when inflation is significantly positive. In addition, I show that the conventional linear-quadratic (LQ) method is inaccurate in the case of a sufficiently distorted steady state.     

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.     

A Shared‐Cost‐Profit Model of Teaching Materials for Higher Education

In this article, I assess the cost‐value crisis facing institutions of higher education; as the cost of higher education grows, students grow increasingly skeptical of the value of their degrees. The COVID‐19 pandemic has accelerated this crisis as institutions across the country have been forced to move to a fully or partially online model of instruction. In an effort to reduce costs, institutions have increased the number of low‐paid, part‐time adjunct faculty teaching introductory courses and have promoted the use of free and open online educational resources (OER). Both solutions lack sustainability and do little to solve the “value” question of higher education. I demonstrate how a shared‐cost‐profit model could address both issues of sustainability and value.     

On Testing Conditional Sigma – Convergence*

In a cross‐section where the initial distribution of observations differs from the steady‐state distribution and initial values matter, convergence is best measured in terms of σ‐convergence over a fixed time period. For this setting, we propose a new simple Wald test for conditional σ‐convergence. According to our Monte Carlo simulations, this test performs well and its power is comparable with the available tests of unconditional convergence. We apply two versions of the test to conditional convergence in the size of European manufacturing firms. The null hypothesis of no convergence is rejected for all country groups, most single economies, and for younger firms of our sample of 49,646 firms.     

The Influence of New Technology on the Home Market Competition and the Strategies Chosen by Norwegian Savings Banks in 2000–2010

The adjustment to the new competitive environment is expected to vary by the bank's status in the home market. Six hypotheses on the conduct of dominant vs. fringe banks are tested on Norwegian savings banks in 2000–2010. As expected, monopolies are the slowest to cut costs or to expand into further‐away markets. Fringe banks try to defend their positions as efficient providers of standard quality, whereas dominant oligopoly banks compete head‐on with both adjacent small and regional large savings banks. They adopt innovations faster and make more efforts to diversify, cut costs, and improve quality as means of competition. Copyright © 2015 John Wiley & Sons, Ltd.     

Economic screening procedures based on correlated variables

Summary Economic screening procedures for improving outgoing product quality based on screening variables are presented for the cases of one- and two-sided specification limits. It is assumed that the performance and screening variables are jointly normally distributed and that costs are incurred by screening inspection and misclassification errors. When all parameters are known, a closed-form solution is obtained for the case of one-sided specification limit and an approximate closed-form solution is derived for the case of two-sided specification limits. Methods for finding optimal solutions based on normal conditioned ont-distribution are presented for the cases of unknown parameters.     

Herding versus Hotelling: Market Entry with Costly Information

Why do businesses such as fast‐food restaurants, coffee shops, and hotels cluster? In the classic analysis of Hotelling, firms cluster to attract consumers who have travel costs. We present an alternative model where firms cluster because one firm is free riding on another firm's information about market demand. One consequence of this free riding is that an informed firm might forego a market that it knows to be profitable. Furthermore, an uninformed firm might earn higher profits when research costs are high, because it can credibly commit to ignorance.     

Tests of Policy Interventions in DSGE Models

This paper considers tests of the effectiveness of a policy intervention, defined as a change in the parameters of a policy rule, in the context of a macroeconometric dynamic stochastic general equilibrium (DSGE) model. We consider two types of intervention, first the standard case of a parameter change that does not alter the steady state, and second one that does alter the steady state, e.g. the target rate of inflation. We consider two types of test, one a multi‐horizon test, where the postintervention policy horizon, H, is small and fixed, and a mean policy effect test where H is allowed to increase without bounds. The multi‐horizon test requires Gaussian errors, but the mean policy effect test does not. It is shown that neither of these two tests are consistent, in the sense that the power of the tests does not tend to unity as H→∞, unless the intervention alters the steady state. This follows directly from the fact that DSGE variables are measured as deviations from the steady state, and the effects of policy change on target variables decay exponentially fast. We investigate the size and power of the proposed mean effect test by simulating a standard three equation New Keynesian DSGE model. The simulation results are in line with our theoretical findings and show that in all applications the tests have the correct size; but unless the intervention alters the steady state, their power does not go to unity with H.     

The performance of logistics service providers and the logistics costs of shippers: a comparative study of Finland and Switzerland

This article analyses the market dynamics between shippers in the manufacturing sector and logistics service providers (LSPs) in Finland and Switzerland, focusing on factors that are characteristic of the demand and supply sides of logistics markets such as performance indicators, financial ratios and relevant macroeconomic indicators. The development of shippers’ logistics costs over a period of ten years is analysed as a proxy for cost savings. This is mirrored against the development of the LSPs’ financial performance. The share of logistics costs in the turnover of Finnish shippers is consistently higher than that of their Swiss peers, whereas Finnish LSPs perform financially better than their Swiss peers. This implies that Finnish and Swiss logistics markets differ in terms of market power and interdependence between shippers and LSPs. The results indicate that the sub-regional interdependence and market power of LSPs, caused by a lack of competition, explain some of the differences in logistics costs.