Regulatory inertia and risk reduction

This paper is adapted from Chapter IV of the author's Ph.D. dissertation. The author gratefully acknowledges helpful comments from Therese Flaherty. Hajime Miyazaki, James Rosse, participants in the Stanford Economics Department Workshop in Industrial Organization and Applied Microeconomics, and an anonymous referee. This paper embodies the views of the author and does not represent the views or policy of the Federal Reserve System or the Federal Reserve Bank of New York.     

Selective cost-reducing innovation

In the short run, capital-saving technological change may reduce fixed cost whereas labor-saving innovation reduces variable costs. It is shown that risk averse firms prefer the former type of innovation when facing random demand. Deterministic incentives for competitive firms are also discussed. This paper embodies the views of the authro and does not represent the views or policy of the Federal Reserve System or the Federal Reserve Bank of New York. The author is grateful for helpful comments from Robert Clower and an anonymous referee.     

Recent Developments at DG Competition: 2013–2014

The Directorate General for Competition at the European Commission enforces competition law in the areas of antitrust, merger control, and state aids. In 2013–2014 important antitrust decisions (Samsung and Motorola) were in the area of standard essential patents. In merger control the European Commission carried out an ex-post evaluation of past mergers in the INEOS/Solvay case in order to obtain valuable insights for the merger under review. In state aid, as a part of the State Aid Modernisation programme, guidelines were prepared to help EU member states to design and carry out ex post assessments of state aid schemes.     

Depreciation,investor compensation,and welfare under rate-of-return regulation

Depreciation schedules allocate capital expenditure over time. Investors are properly compensated under any full depreciation schedule, when the allowed rate of return plus inflation adjustments to the rate base just equal the investors' nominal discount rate. Whether changes in this nominal rate are reflected in adjustments to the rate base or the rate of return, depreciation schedules can be chosen to generate efficient time paths of output prices. Practical limits on depreciation schedules, nominal rates, or information may affect the choice between adjusting the rate base or rate of return for temporal changes in capital cost.     

Managerial stereotypes in Singaporean subsidiaries of multinational corporations

The responses of 365 managers from 34 Singaporean subsidiaries of multinational companies are used to profile the stereotypes these individuals hold of each other. The managers' replies to 18 semantic differential items show greater agreement on each other's managerial performance and style between expatriate and local managers in British corporations than in Japanese corporations. The results from American corporations are between these two. Stereotyping has been shown to be a very common phenomenon in international relationships (Davidson and Thomson, 1980). Despite some recognition of the importance of stereotyping in international business situations (Hays, 1972), very little empirical work has been conducted into the general process of stereotyping in multinational corporations (viz. Stening and Everett, 1980; Whitehead and King, 1973). Even less research has been conducted on the stereotypes held by expatriate and local personnel in multinational corporations of their own group (auto-stereotypes) and of other groups (hetero-stereotypes). This study examines the auto-stereotypes and hetero-stereotypes held by expatriate and local managers in Singaporean subsidiaries of British, Japanese and American corporations. It is apparent from the comparative management literature that there are differences in attitudes and behaviour among managers from these countries (Haire, Ghiselli, and Porter, 1966; Ronen and Kraut, 1977). There is insufficient basis, however, for anticipating variations among them in terms of their auto-stereotypes and their hetero-stereotypes. This exploratory study presents evidence on the nature of those variations.     

A review of: “ENGINEERING ECONOMY, 4th. Ed.” By E. Paul DeGarmo The Macmillan Company 1967 532 pp. $10.95.

A risk measure, expected opportunity loss (EOL), is introduced to quantify the potential loss of making an incorrect choice in risk-based decision making. Different from Savage's (1951 Savage, L. J. 1951. The theory of statistical decision. Journal of the American Statistical Association, 46(253): 55–67. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]) minimax regret principle, EOL can account for the unbounded continuous random outcomes of alternatives and decision makers’ acceptable risk. This article studies the effects of the forms of loss function, correlation among outcomes, and the acceptable risk on the ranking results by considering the loss function in the power form. The results show that the loss functions and the outcomes correlations can significantly influence the rankings of alternatives in risk-based decision making.     

MICROCOMPUTER SOFTWARE COSTING LESS THAN $1000 FOR ECONOMIC AND MULTI-ATTRIBUTE DECISION ANALYSIS∗

Commodity price simulation is useful in many engineering economics applications, yet discrete approximations of the continuous stochastic processes used in modeling commodity prices are not always straightforward. This article describes the exact solution for discretely simulating the Schwartz and Smith (2000 Schwartz, E. and Smith, J. E. 2000. Short-term variations and long-term dynamics in commodity prices. Management Science, 46(7): 893–911. [Crossref], [Web of Science ®] , [Google Scholar]) two-factor model of commodity prices.     

A review of: “APPLIED ECONOMIC ANALYSIS FOR TECHNOLOGISTS,ENGINEERS, AND MANAGERS ” BY MICHAEL S. BOWMAN Prentice-Hall,Inc., Upper Saddle River,New Jersey, 1999, xii + 561 pp., ISBN: 0-13-375932-6, List: $76.75.

In their recent paper Tang and Tang (2003 Tang, S. L. and Tang, H. J. 2003. The variable financial indicator IRR and the constant economic indicator NPV.. The Engineering Economist, Vol. 48(No. 1): pp. 69–78. [Taylor &; Francis Online] , [Google Scholar], pp. 69–78) revive a longstanding controversy—net present value (NPV) versus internal rate of return (IRR)—by characterizing the NPV as an economic indicator and the IRR as a financial one. The paper implies that this distinction justifies ranking financial alternatives by ranking their IRRs. In the current article, it is argued that the direct IRR ranking does not necessarily provide the same evaluation environment—and therefore a fair comparison—for each alternative involved, and that the incremental ranking approach is needed to remedy this shortcoming. The article also points out that Tang and Tang's numerical examples of simple projects with one sign change in their cash flow patterns do not address the problem of multiple IRRs, which consequently renders Tang and Tang's ranking approach dysfunctional. It is demonstrated that the concept of a true rate of return, substituting for the non-performing IRR and applied in conjunction with the incremental approach, provides an adequate tool for ranking mutually exclusive projects or a project's technical or financial alternatives.     

Double vision: Insights about the origin and interpretation of multiple IRRs

The ability of a project's internal rate of return (IRR) to quantify its economic return has been questioned by many scholars over the past 60 years, most recently by Magni (2010 Magni, C.A. (2010) Average internal rate of return and investment decisions: a new perspective. The Engineering Economist, 55(2), 150–180. [Google Scholar], 2013 Magni, C.A. (2013) The internal rate of return approach and the AIRR paradigm: a refutation and a corroboration. The Engineering Economist, 58(2), 73–111. [Google Scholar]). Although IRR is a plausible—albeit imperfect—measure of a project's economic return when the cash flow stream is conventional, IRR can be an untenable measure of an unconventional project's economic return. The goal of this article is to identify a simple, intuitive explanation of IRR, one that can be applied to any cash flow pattern. To do this, the article shows how a project's IRR systematically changes when it first crosses from the conventional into the unconventional realm (i.e., a small cash outflow is appended to a conventional cash flow stream) and then as it becomes progressively more unconventional. This process reveals that the most robust economic interpretation of IRR—for both conventional and unconventional projects—is that a project's IRRs are external benchmarks that divide the set of all plausible discount rates into positive and negative net present value (NPV) ranges, rather than internally generated returns. Because it can be difficult to estimate a project's cost of capital with precision, this information can help guide the sensitivity analysis of a project.     

Quantifizierung und Systematisierung der technischen und verhaltensbedingten Stromeinsparpotenziale der deutschen Privathaushalte

Electricity consumption in German households accounts for more than 10 % of energy-related CO₂ emissions. In spite of substantial improvements in, for example, the efficiency of household appliances, there is still a considerable electricity savings potential to be tapped in this sector. The possible contribution that the German residential sector can make to climate protection is correspondingly large. This paper aims to structure and quantify electricity savings potentials which could be exploited in German households either through investment measures or changed user behaviour. The total theoretical potential which can be tapped through the purchase of efficient household appliances and the replacement of electrical heaters and hot water generators (i.e. by encouraging investment) amounts to approx. 90 TWh/a. This corresponds to more than 60 % of the current electricity demand of all German households. By means of changed user behaviour, approx. 30 TWh of electricity could be saved according to our calculations. These results presented in this article were reached within the scope of the TRANSPOSE interdisciplinary research project (http://www.uni-muenster.de/Transpose/, the complete analysis can be downloaded at http://www.uni-muenster.de/imperia/md/content/transpose/publikationen/buerger_working_paper_3.pdf). This project is funded within the framework of the ‘Social-ecological Research’ programme of the German Federal Ministry for Education and Research.     

Discounting Indices Proposed for Capital Investment Evaluation: A Further Examination

A recent publication [2 Bernhard , Richard H. , “ A Comprehensive Comparison and Critique of Discounting Indices Proposed for Capital Investment Evaluation ,” The Engineering Economist , Volume 16 , Number 3 , Spring 1971 .[Taylor &; Francis Online] , [Google Scholar]] in this journal presented a comprehensive comparison and critique of discounting indices proposed for (i) the examination of whether a proposed independent project should be accepted and (ii) selection of a project from a set of mutually exclusive projects. The present paper examines procedures available in the literature of engineering and managerial economics and in practice for selecting projects from a given number of proposed capital investment projects, if a given capital constraint does not permit the undertaking of all proposed projects. It appears that the present state of the art is subject to much controversy and confusion. The ensuing presentation intends to rectify this situation. In addition, a procedure for the above selection problem is developed. Usage of this procedure is recommended for the many policy makers who are continually faced with the trade-off between elaborate methods on the one hand and cursory /approximations on the other.     

Factors influencing student success on open-ended design problems

Open-ended design problems have become an important component in our educational landscape (Grubbs and Strimel in J STEM Teach Educ 50(1):77–90, 2015; Jonassen et al. in J Eng Educ 95:139–151, 2006; National Research Council in Education for life and work: developing transferable knowledge and skills in the 21st Century, National Academies Press, Washington, 2012; Strimel in Technol Eng Teach 73(7):8–18, 2014a). The ability of students to confront open-ended problem scenarios, think creatively, and produce novel designs have all been lauded as necessary skills for today’s twenty first century learners (Partnership for 21st Century Skills in P21 framework definitions, Author, Washington, 2016). This emphasis on open-ended design problems in problem-based learning scenarios has been tied to workforce and higher education preparation for students (National Academy of Engineering and National Research Council in STEM integration in K–12 education: status, prospects, and an agenda for research, National Academies Press, Washington, 2014; National Research Council in Engineering in K–12 education: understanding the status and improving the prospects, National Academies Press, Washington, 2009; Strimel in Technol Eng Teach 73(5):16–24, 2014b). However, little research has been conducted to identify the impact of potentially-influential factors on student success in such open-ended design scenarios. Therefore, the researchers examined data from 706 middle school students, working in small groups, as they completed an open-ended design challenge to determine the relationships between a variety of potentially-influential factors and student performance, as measured through adaptive comparative judgment. The analysis of the data revealed several relationships, significant and not significant, between identified variables and student success on open-ended design challenges.     

Examining design cognition coding schemes for P-12 engineering/technology education

Cultivating students’ design abilities can be highly beneficial for the learning of science, technology, engineering, and mathematics (STEM) concepts, and development of higher-order thinking capabilities (National Academy of Engineering and National Research Council in STEM integration in k-12 education: status, prospects, and an agenda for research, The National Academies Press, Washington, 2014). Therefore, examining students’ strategies, how they distribute their cognitive effort, and confront STEM concepts during design experiences, can help educators identify effective and developmentally appropriate methods for teaching and scaffolding design activities for students (National Research Council in standards for k-12 engineering education? The National Academies Press, Washington, 2010). Yet, educational researchers have only recently begun examining students’ engineering design cognition at the P-12 level, despite reports such as Standards for K-12 Engineering Education? (National Research Council 2010) designating this area of research as lackluster. Of the recent studies that have investigated engineering design cognition at the P-12 level, the primary method of investigation has been verbal protocol analysis using a think-aloud method (Grubbs in further characterization of high school pre- and non-engineering students’ cognitive activity during engineering design, 2016). This methodology captures participants’ verbalization of their thought process as they solve a design challenge. Analysis is typically conducted by applying a pre-determined coding scheme, or one that emerges, to determine the distribution of a group’s or an individual’s cognition. Consequently, researchers have employed a variety of coding schemes to examine and describe students’ design cognition. Given the steady increase of explorations into connections between P-12 engineering design cognition and development of student cognitive competencies, it becomes increasingly important to understand and choose the most appropriate coding schemes available, as each has its own intent and characteristics. Therefore, this article presents an examination of recent P-12 design cognition coding schemes with the purpose of providing a background for selecting and applying a scheme for a specific outcome, which can better enable the synthesis and comparison of findings across studies. Ultimately, the aim is to aid others in choosing an appropriate coding scheme, with cognizance of research analysis intent and characteristics of research design, while improving the intentional scaffolding and support of design challenges.     

Applying Target Costing in the Development of Marketable and Environmentally Friendly Products from Swine Waste

Management of swine waste generated in the United States is a challenging problem facing engineers, farmers, scientists, regulators, and policy-makers. Technologies for processing and storing swine waste have not been fully developed and refined in a manner acceptable to the public and environmental regulators. The primary concerns with improperly disposed swine waste are the effects on human and livestock health, surface and groundwater quality, air quality, and conservation of nitrogen fertilizers (Hagenstein 2003 Hagenstein, P. R. 2003. Air Emissions from Animal Feeding Operations: Current Knowledge, Future Needs, Washington, D. C.: National Research Council, National Academy Press.  [Google Scholar]).

The purpose of this study is to demonstrate the concept of target costing by applying it to a very specific example: the production of biomethanol from swine manure. This study summarizes the analyses that outline a design and calculate a preliminary cost estimate for a proposed system for producing biomethanol from swine manure (initial process). In this study the target costing process is demonstrated with calculation of a target cost. This article also demonstrates an application of value engineering as a systematic, interdisciplinary examination of factors affecting the cost of a product so as to find means to fulfill the product's specified purpose at the required standards of quality and reliability and at an acceptable cost.

The article is organized as follows. First, the purpose of applying target costing methodology to the development of marketable by-products from swine manure is outlined. Next, target cost is calculated for biomethanol made from swine manure based on current methanol prices and currently available subsidies for biomethanol made from swine manure. A system for producing biomethanol from swine manure is described. The current cost is calculated for producing biomethanol. Concepts of value engineering are employed to reduce a significant cost component of the initial process resulting in Process II. Finally, value engineering is employed the second time to further reduce the cost of Process II yielding Process III.     

Resale Price Maintenance Post Leegin: A Model of RPM Incentives

The prominent Babies R Us decision (McDonough et al. v. Toys R Us, Inc., 2009) was the first to explore the economic consequences of resale price maintenance after the Supreme Court’s Leegin decision. Previously, litigation concerned the presence or absence of an agreement; but that changed with the new jurisprudence which instead emphasized the restraint’s direct anti-competitive effects. While the district court’s decision in the Babies R Us case rested on the factual circumstances of the case, it did not have before it an economic model through which those facts could be integrated. This paper offers such a model, the predicates of which are drawn from the case. The conclusions derived from the model are entirely consistent with the court’s decision     

Sketching by design: teaching sketching to young learners

Recent science educational reforms in the United States have prompted increased efforts to teach engineering design as an approach to improve STEM (Science, Technology, Engineering, and Mathematics) learning in K-12 classrooms. Teaching design in early grades is a new endeavor for teachers in the United States. Much can be learned from design teaching and research on K-12 design education outside of the US. The purpose of this study was to explore how students learn and use design sketching to support their learning of science and design practices. Researchers provided a treatment of design sketching instruction based on best practices of prior research finding (Hope in Des Technol Educ Int J 10: 43–53, 2005; Gustafson et al. J Technol Educ 19(1):19–34, 2007). A delayed treatment model was used to provide a two-group counterbalanced quasi-experimental design to compare an experimental group and comparison (delayed treatment) group results from (6) grade 3 classrooms. Researchers employed Hope’s Des Technol Educ Int J 10: 43–53, (2005) frame to organize sketching data for analysis. Findings from this study indicated that design instruction treatment did improve student’s design and communication practices, moving from using sketching as a container of ideas to the use of sketching as a form of design communication and to refine design ideas. Both the treatment and comparison groups improved sketching skills after treatment was provided to both groups. Sketching is a design practice that can also help student learn science concepts through the generation of mental models of conceptual understanding.     

Build an Industry Hot Rod: The Nuts and Bolts of Leaving Competitors in the Dust by Marvin L. Patterson

Books reviewed in this issue:

• ? Build an Industry Hot Rod: The Nuts and Bolts of Leaving Competitors in the Dust
• ? Innovating at the Top: How Global CEOs Drive Innovation for Growth and Profit
• ? Determinants of Innovative Behaviour: A Firm's Internal Practices and Its External Environment

     

How constraints and knowledge impact open innovation

Laursen and Salter (2006) examined the impact of a firm's search strategy for external knowledge on innovative performance. Based on organizational learning and open innovation literature, we extend the model hypothesizing that the search strategy itself is impacted by firm context. That is, both ‘constraints on the application of firm resources’ and the ‘abundance of external knowledge’ have a direct impact on innovative performance and a firm's search strategy in terms of breadth and depth. Based on a survey of Swiss‐based firms, we find that constraints decrease and external knowledge increases innovative performance. Although constraints lead to a broader but shallower search, external knowledge is associated with the breadth and the depth of the search in a U‐shaped relationship. Copyright © 2013 John Wiley & Sons, Ltd.