Firm interdependence in oligopolistic markets

This paper develops an econometric model capable of identifying the pattern of interdependent behavior among firms in an oligopolistic industry. The model is based on the necessary conditions for producer equilibrium which, for a firm in an oligopolistic market, include the firm's conjectural variations. The conjectural variations are unknown parameters. The production model is based on the translog production function. The domestic coffee roasting industry is analyzed. Industry and size class specific Cournot and equality hypotheses are tested. Interdependent behavior cannot be rejected.     

Inefficiency of equilibria with incomplete markets

As is well known, equilibria with incomplete markets are generically Pareto inefficient. In this paper, we demonstrate the leading role of a budget constraint in the occurrence of Pareto inefficiency of equilibria with incomplete markets. Specifically, on the basis of the classical two-period one-good pure exchange model we prove that so long as a budget constraint is met for all agents, equilibria with incomplete markets are generically Pareto inefficient in initial endowments and utility functions regardless of the optimization behavior of each agent. All we require of utility functions is a very weak hypothesis called current monotonicity. A simple unified method applicable to both a real asset case and a nominal asset case is presented, so that our claim is proved in both cases.     

Differentiated oligopolistic markets with concave cost functions via Ky Fan inequalities

A Nash–Cournot model for oligopolistic markets with concave cost functions and a differentiated commodity is analyzed. Equilibrium states are characterized through Ky Fan inequalities. Relying on the minimization of a suitable merit function, a general algorithmic scheme for solving them is provided. Two concrete algorithms are therefore designed that converge under suitable convexity and monotonicity assumptions. The results of some numerical tests on randomly generated markets are also reported.     

Financial markets with volatility uncertainty

We investigate financial markets under model risk caused by uncertain volatilities. To this end, we consider a financial market that features volatility uncertainty. We use the notion of G-expectation and its corresponding G-Brownian motion recently introduced by Peng (2007) to ensure a mathematically consistent framework. Our financial market consists of a riskless asset and a risky stock with price process modeled by geometric G-Brownian motion. We adapt the notion of arbitrage to this more complex situation, and consider stock price dynamics which exclude arbitrage opportunities. Volatility uncertainty results in an incomplete market. We establish the interval of no-arbitrage prices for general European contingent claims, and deduce explicit results in the Markovian case.     

A simple proof of the equivalence theorem for oligopolistic mixed markets

In a rather long and complicated way Shitovitz proved that in mixed markets with at least two large traders all of the same ‘type’, all core allocations are competitive. We provide a simple and short proof for this important result. Unlike Shitovitz, we do not prove directly this equivalence. Rather, we first show that the core of an oligopolistic market coincides with the core of the atomless market derived by splitting the atoms into a continuum of traders. We then apply Aumann's Equivalence Theorem to this atomless market, whose set of competitive equilibria coincides with that of the original mixed market.     

Comparison of solutions to the incomplete markets model with aggregate uncertainty

This paper compares numerical solutions to the model of Krusell and Smith [1998. Income and wealth heterogeneity in the macroeconomy. Journal of Political Economy 106, 867–896] generated by different algorithms. The algorithms have very similar implications for the correlations between different variables. Larger differences are observed for (i) the unconditional means and standard deviations of individual variables, (ii) the behavior of individual agents during particularly bad times, (iii) the volatility of the per capita capital stock, and (iv) the behavior of the higher-order moments of the cross-sectional distribution. For example, the two algorithms that differ the most from each other generate individual consumption series that have an average (maximum) difference of 1.63% (11.4%).     

Solving the incomplete markets model with aggregate uncertainty by backward induction

This paper describes a method to solve models with a continuum of agents, incomplete markets and aggregate uncertainty. I use backward induction on a finite grid of points in the aggregate state space. The aggregate state includes a small number of statistics (moments) of the cross-sectional distribution of capital. For any given set of moments, agents use a specific cross-sectional distribution, called “proxy distribution”, to compute the equilibrium. Information from the steady state distribution as well as from simulations can be used to chose a suitable proxy distribution.     

Solving the incomplete markets model with aggregate uncertainty using explicit aggregation

We propose a method to solve models with heterogeneous agents and aggregate uncertainty. The law of motion describing aggregate behavior is obtained by explicitly aggregating the individual policy rule. The algorithm is simpler and faster than existing algorithms that rely on parameterization of the cross-sectional distribution and/or a computationally intensive simulation step. Explicit aggregation establishes a link between the individual policy rule and the set of necessary aggregate state variables, an insight that can be helpful in determining what state variables to include in other algorithms as well.     

Solving the incomplete markets model with aggregate uncertainty using parameterized cross-sectional distributions

This note describes how the incomplete markets model with aggregate uncertainty in Den Haan et al. [Comparison of solutions to the incomplete markets model with aggregate uncertainty. Journal of Economic Dynamics and Control, this issue] is solved using standard quadrature and projection methods. This is made possible by linking the aggregate state variables to a parameterized density that describes the cross-sectional distribution. A simulation procedure is used to find the best shape of the density within the class of approximating densities considered. This note compares several simulation procedures in which there is—as in the model—no cross-sectional sampling variation.     

Computational suite of models with heterogeneous agents: Incomplete markets and aggregate uncertainty

This paper describes the first model considered in the computational suite project that compares different numerical algorithms. It is an incomplete markets economy with a continuum of agents and an inequality (borrowing) constraint.     

Human resource management strategies in declining industries

The conceptualization presented in this article suggests that top management should take into account the role of the human resource function in formulating and implementing strategic responses to decline. Such responses must be formulated within the context of the skills and knowledge available to the organization and according to the type of environmental conditions encountered. These influences will force the human resource manager to focus on sharpening competencies existing within the organization, consolidating competencies so that only those currently required by the organization are retained, adding new competencies, or replacing existing competencies so that the organization can move to a new domain activity. The emphasis on human resource processes such as recruitment and termination, training and development, and evaluation, reward, and retention for purposes of development and maintenance of the competencies needed to implement strategic responses to decline will vary according to the nature of the environmental conditions encountered.     

Forecasting among alternative strategies in the management of uncertainty

This paper explores why expectations elicited from corporate decision-makers may fall short of the rational expectations ideal: the formation of an informed forecast may just not be part of the optimal management of uncertainty. The analysis of an investment decision shows that when forecasting is expensive, this strategy is likely to be superseded by the possibility to wait, to switch between projects, or the alternative to eliminate inferior projects over time. Even at low forecasting costs it may be optimal not to forecast and instead to diversify over different projects. © 1998 John Wiley & Sons, Ltd.     

Key human resource strategies in an organization downturn

Increasingly often, executives are being called upon to manage organizations through downturns. Of critical importance to the long-term health of a firm is how its employees are treated during these stressful periods. Human resource strategies must minimize the loss of key personnel needed for organizational survival and turnaround. The purpose of this article is to discuss why key employees leave organizations following a downturn. We propose two reasons: Either employees abandon a sinking ship or upon considering a lack of career opportunities, they take well-timed exits. Then, by considering individual career issues that arise from an organization downturn, ways to counteract ill-timed employee exit are identified. These human resource strategies either reduce organizational uncertainty or increase career opportunity.     

Inefficiency of equilibria in digital mechanisms with continuous valuations

A digital mechanism is defined as an iterative procedure in which bidders select an action, from a finite set, in each iteration. When bidders have continuous valuations and make strategic reports, we show that any ex post implementation of the Vickrey choice rule via such a mechanism needs infinitely many iterations for almost all realizations of the bidders’ valuations. Thus, when valuations are drawn from a continuous probability distribution, the Vickrey choice rule can only be used at the expense of a running time that is infinite with probability one. This infeasibility result even holds in the case of two bidders and the Vickrey choice rule only being required to be established with probability one. Establishing the efficient allocation when the $n$ bidders’ report truthfully contrasts starkly to the previous setting: a bisection procedure has a finite running time almost always, and an expected number of reports are equal to $2n$. Using a Groves payment scheme rather than Vickrey’s second price payment scheme somewhat mitigates the problem. We provide an example mechanism with a Groves payment scheme, in which the running time of the mechanism in equilibrium is finite with probability $\frac{1}{2}$.     

Solving the incomplete markets model with aggregate uncertainty using the Krusell–Smith algorithm

This paper studies the properties of the solution to the heterogeneous agents model in Den Haan et al. [2009. Computational suite of models with heterogeneous agents: incomplete markets and aggregate uncertainty. Journal of Economic Dynamics and Control, this issue]. To solve for the individual policy rules, we use an Euler-equation method iterating on a grid of pre-specified points. To compute the aggregate law of motion, we use the stochastic-simulation approach of Krusell and Smith [1998. Income and wealth heterogeneity in the macroeconomy. Journal of Political Economy 106, 868–896]. We also compare the stochastic- and non-stochastic-simulation versions of the Krusell–Smith algorithm, and we find that the two versions are similar in terms of their speed and accuracy.     

Capacity sharing with different oligopolistic competition and government regulation in a supply chain

This paper constructs a capacity sharing model in a supply chain to reveal the factors affecting equilibrium outcomes. The results show that improving the technical level lowers capacity charge and increases seller profits in any case. Product differentiation has uncertain impacts on equilibrium outcomes, which depend on government regulations and oligopolistic competition models. The improvement of supplier's fixed component of marginal costs improves capacity sharing charge and reduces profits and consumer surplus. The government regulations and oligopolistic competition model directly affect equilibrium outcomes and welfare distribution. Government capacity control helps improve social welfare, but the effect of government subsidies is uncertain.     

The transmission of US economic policy uncertainty shocks to Asian and global financial markets

This paper proposes a novel approach to investigating the spillover effects of US economic policy uncertainty shocks on the global financial markets. Employing a factor-augmented vector autoregression (FAVAR), we model US economic policy uncertainty jointly with the latent factors extracted from equity prices, exchange rates, and commodity prices. We find that US economic policy uncertainty affects these factors significantly. A country-level analysis shows heterogeneous responses to an increase in US economic policy uncertainty. With regard to equities, US economic policy uncertainty adversely affects equity prices. However, its impact on the Chinese equity market is relatively small. As for foreign exchange markets, while many currencies depreciate in response to an increase in US economic policy uncertainty, the US dollar and the Japanese yen appreciate, reflecting their safe-haven status. The Chinese yuan, whose nominal exchange rate is closely linked to the US dollar, also appreciates in response to uncertainty shocks.     

Human resource management and organizational strategies in German- and US-owned companies

The development of the international economy over the past twenty years has bred considerable diversity in the form and substance of employment relations (labour-management relations, human resource management practices) throughout the world. Cases of ‘social partnership’ are today found in the ‘free market’ United States economy; some companies operating in Germany's ‘social’ market economy are rejecting traditional forms of social partnership in the name of more unilateral strategies.

This paper examines (a) the extent to which ‘strategic diversity’ – variation in human resource strategies and policies – is possible within the heavily institutionalized, co-operative and codeterminative German economy, and (b) how managers perceive the effects of different kinds of HR approaches on organizational change and industrial adjustment. It is based on empirical evidence drawn from seven large chemicals companies operating in Germany – three of them US-owned firms and four German-owned.

The main conclusions are that considerable strategic diversity is possible within the German context, and that managers perceive distinct costs and benefits to specific aspects of the typically American ‘unilateral’ style and the more German ‘negotiated’ approach to structuring the relationship with human resources. The paper concludes with a discussion of the implications of these trade-offs for the transferability of HR strategies across international borders, giving special attention to policies to avoid some of these potential costs.     

A typology of international human resource management strategies and processes

This paper develops a framework of international human resource management (IHRM) that moves beyond strategy and structure to focus on processes. The results of six case studies of large German multinational corporations in three countries show different configurations of IHRM strategies and policies. International knowledge flows and coordination varied in intensity, content, direction and mechanisms used. With ‘cognofederate’ IHRM one type was identified that has been hitherto neglected.     

Solving the incomplete markets model with aggregate uncertainty using the Krusell–Smith algorithm and non-stochastic simulations

This article describes the approach to computing the version of the stochastic growth model with idiosyncratic and aggregate risk that relies on collapsing the aggregate state space down to a small number of moments used to forecast future prices. One innovation relative to most of the literature is the use of a non-stochastic simulation routine.