A REAL OPTIONS DESIGN FOR QUALITY CONTROL CHARTS

We develop a financial model for a manufacturing process where quality can be affected by an assignable cause. We value the real options associated with applying a statistical process control chart using the Black-Scholes equation, binomial and pentanomial lattices, and Monte Carlo simulation methods. This valuation gives decision makers a way to choose the appropriate quality control strategy based on an integrated view of the market dynamics with the manufacturing operational aspects. An industry case is used to demonstrate the application of real options to value control chart decisions. Web based programs are given to value the alternatives in the case study, making the valuation task accessible to other users.     

ON THE INFORMATIONAL CONTENT OF WAGE OFFERS*

This article investigates signaling and screening roles of wage offers in a single‐play matching model with two‐sided unobservable characteristics. It generates the following predictions as matching equilibrium outcomes: (i) “good” jobs offer premia if “high‐quality” worker population is large; (ii) “bad” jobs pay compensating differentials if the proportion of “good” jobs to “low‐quality” workers is large; (iii) all firms may offer a pooling wage in markets dominated by “high‐quality” workers and firms; or (iv) Gresham's Law prevails: “good” types withdraw if “bad” types dominate the population. The screening/signaling motive thus has the potential of explaining a variety of wage patterns.     

PUBLIC ENTERPRISES IN TURKEY*

ABSTRACT: Public enterprises have played a distinct role in promoting economic development and have been instrumental in initiating the industrialization of Turkey, and in facilitating its balanced regional development, especially during the early stages of its economic development. However, since the late 1960s, public enterprises have been a drag on the economic performance of the country because of the economic problems they have caused. In response to the problems associated with public enterprises, privatization entered the political arena in the early 1980s. The Turkish government has now adopted a timetable to privatize the public enterprises. In this paper, an attempt is made to investigate the place and the weight of the public enterprises and their problems in the Turkish economy.     

A REAL OPTIONS DESIGN FOR PRODUCT OUTSOURCING

Product outsourcing is recognized as a way to gain flexibility for competitive advantage. We formulate the outsourcing problem using real options. We develop a financial model to assess the option value of product outsourcing. Specifically, we consider a three state-variable problem and use Monte Carlo simulation to estimate the value of the option. This valuation gives decision makers a way to choose the appropriate outsourcing strategy based on an integrated view of the market dynamics. A case example from the apparel manufacturing industry is used to demonstrate the application of real options to value outsourcing flexibility. We show that the inability of classical net present value methods to address dynamics in the market condition leads to an undervaluing of the outsourcing strategy. Numerical results and sensitivity analysis show how the real options approach can be used to give a better view of the long-term value of outsourcing.     

Unshrouding: Evidence from Bank Overdrafts in Turkey

Lower prices produce higher demand… or do they? A bank's direct marketing to holders of “free” checking accounts shows that a large discount on 60% APR overdrafts reduces overdraft usage, especially when bundled with a discount on debit card or autodebit transactions. In contrast, messages mentioning overdraft availability without mentioning price increase usage. Neither change persists long after the messages stop. These results do not square easily with classical models of consumer choice and firm competition. Instead, they support behavioral models where consumers underestimate and are inattentive to overdraft costs, and firms respond by shrouding overdraft prices in equilibrium.