Capital Investment under Alternative Marketing Scenarios in the Hog Industry: A Real Option Approach

This paper uses a real option approach to analyze the impact of alternative marketing contracts on the decision to invest in a cooperatively owned hog facility. For the numerical analysis of the impact, this paper uses a simulation method that incorporates early exercise, multiple‐state variables, multi‐choice decisions and temporal optimality. The results show that the option values that stem from the value of waiting to invest and choosing between alternative marketing methods amounts to 20–36% of the initial investment. Further, having an option to choose an alternative marketing method with different risk structure does add to the value of waiting to invest. Having an option to enter a 15‐year marketing contract increases the value of waiting by as much as $117,097 for the pork production example in this paper. Finally, the value of the option to wait is unilaterally lower under a risk‐reducing contract scenario than under a spot market alternative. This could explain the explosion in hog production facility investment during the 1990s when prevalence of contract production increased. Les auteurs ont recouru à l'approche du choix véritable pour analyser l'impact d'autres solutions de mise en marché sur la capacité d'investir ou pas dans un élevage de porcs exploitéà la manière d'une coopérative. Aux fins de l'analyse, on s'est servi d'une méthode de simulation intégrant une brève campagne, de multiples variables d'État, des décisions à choix multiple et des conditions optimales dans le temps. Les résultats indiquent que l'existence d'un choix réel permettant à l'exploitant d'attendre avant d'investir et de sélectionner entre plusieurs méthodes de mise en marché représente 20 à 36 pour cent de l'investissement initial. Par ailleurs, le fait d'avoir accès à une autre méthode de mise en marché, à structure de risque différente, ne donne pas plus de valeur à la capacité d'attendre avant de procéder aux investissements. La possibilité de signer une entente de commercialisation de quinze ans accroît la valeur de l'attente de jusqu'à 117,097 $ pour le type d'élevage porcin retenu comme exemple. Enfin, l'existence d'une entente de commercialisation atténuant les risques réduit unilatéralement la valeur de l'option « attente », comparativement à ce qui se produit quand l'éleveur n'a d'autre choix qu'écouler ses bêtes sur le marché au comptant. Ces résultats pourraient expliquer l'explosion des investissements observée dans le secteur du porc au cours des années 90, où la production sous contrat avait sensiblement augmenté.     

The case of the team-spirit tailspin

Richard Johnson, newly appointed president of Century Airlines, knew the company's survival depended on customer service, which in turn depended on motivated employees. So he created the Century Spirit program to build team spirit by encouraging employee participation, individual initiative, and open communication. Among the program's early successes was a newspaper started by a group of flight attendants. The Plane Truth published information about benefits and work conditions as well as feature stories and humorous articles. It quickly became popular not only with flight attendants but also with pilots, machinists, and baggage handlers. As time went on, though, the Plane Truth began to run articles critical of the company. When management cut back workers' hours, the newspaper questioned what sacrifices the executives were making. When technical services released figures showing long turnaround times, the paper questioned the machinists' work ethic. Worried that customers might see the newspaper, Richard Johnson wanted to cancel it. The president of the flight attendants union also wanted to see it go because it was stirring up trouble with the machinists. Joan Raffin, Century's human resources director, was asked to stop the publication. But she hesitated. She knew that employee morale was on the brink, but she didn't know whether the newspaper was venting workers' frustrations and reinforcing team spirit or stirring up old animosities and bringing the whole company down. Was it creating more tension than unity or vice versa? Experts on organizational change, motivation, and management analyze the situation and make recommendations for what Joan Raffin should do.     

Dimensions of quality upgrading

The impact of the Central and Eastern European (CEE) economies’ trade integration with European markets on CEE trade structures has been studied extensively. These studies frequently observe a quality upgrading of CEE exports. In this paper we consider three dimensions of quality upgrading: upgrading across industries, upgrading across different quality segments within industries and, finally, product upgrading within quality segments inside industries. For the analysis we partition industries into quality segments based on EU‐15 import unit values. The results for ten CEE countries (comprising the CEE‐5, the Baltics and South East Europe) and thirteen industries suggest fundamental differences, both across country groups and across the three different notions of quality upgrading. The CEE‐5 show no evidence of entering a ‘low‐quality trap’ in all three dimensions. By contrast, while there is a general catching‐up process across industries and inside quality segments, the second notion of low‐quality specialization may be applicable within the high‐tech industries to the performance for the Baltics and South East Europe as a group.     

Devolution and disabled workers: the experiences of union equality representatives in Wales

In contrast to the Coalition Government, the Welsh Assembly embraced the original objectives of the Public Sector Equality Duty and provided financial support to develop a network of union equality representatives (ERs). With reference to ER support for disabled workers, this article examines the role of devolution in equalities bargaining.     

Energy,knowledge and economic growth

It is argued that the explosive growth experienced in much of the World since the middle of the 19th Century is due to the exploitation and use of fossil fuels which, in turn, was made possible by capital good innovations that enabled this source of energy to be used effectively. Economic growth is viewed as the outcome autocatalytic co-evolution of energy use and the application of new knowledge associated with energy use. It is argued that models of economic growth should be built from innovation diffusion processes, unfolding in history, rather than from a timeless aggregate production function. A simple ‘evolutionary macroeconomic’ model of economic growth is developed and tested using almost two centuries of British data. The empirical findings strongly support the hypothesis that growth has been due to the presence of a ‘super-radical innovation diffusion process’ following the industrial deployment of fossil fuels on a large scale in the 19th Century. Also, the evidence suggests that large and sustained movements in energy prices have had a very significant long term role to play.     

Evolutionary macroeconomics: a research agenda

In this article, the goal is to offer a new research agenda for evolutionary macroeconomics. The article commences with a broad review of the main ideas in the history of thought concerning the determinants of economic growth and an introduction to the evolutionary perspective. This is followed by a selective review of recent evolutionary approaches to macroeconomics. These approaches are found to be somewhat disconnected. It is argued that the ‘micro-meso-macro’ approach to economic evolution is capable of resolving this problem by offering an analytical framework in which macroeconomics can be built upon ‘meso-foundations’, not micro-foundations, as asserted in the mainstream. It is also stressed that the economic system and its components are complex adaptive systems and that this complexity must not be assumed away through the imposition of simplistic assumptions made for analytical convenience. It is explained that complex economic systems are, at base, energetic in character but differ from biological complex systems in the way that they collect, store and apply knowledge. It is argued that a focus upon stocks and flows of energy and knowledge in complex economic systems can yield an appropriate analytical framework for macroeconomics. It is explained how such a framework can be connected with key insights of both Schumpeter and Keynes that have been eliminated in modern macroeconomics. A macroeconomic framework that cannot be operationalized empirically is of limited usefulness so, in the last part of the article, an appropriate methodology for evolutionary macroeconomics is discussed.