IT Contract Flexibility and Negotiator Incentives

Information Technology outsourcing contracts are plagued by inflexibility. We develop an economic model to explain how the contract negotiator's incentives influence contract flexibility. We show that neither wage nor one‐time commission type pay gives any preference for flexibility. However, a promotion incentive, where the bonus is an ongoing bonus, does give the negotiator a preference for less flexible contracts. The preference for less flexible contracts increases as the discount rate increases. The preference for less flexible contracts increases as the number of competitors for the promotion increases. Copyright © 2015 John Wiley & Sons, Ltd.     

Decision making with imprecise probabilistic information

We develop an axiomatic approach to decision under uncertainty that explicitly takes into account the information available to the decision maker. The information is described by a set of priors and a reference prior. We define a notion of imprecision for this informational setting and show that a decision maker who is averse to information imprecision maximizes the minimum expected utility computed with respect to a subset of the set of initially given priors. The extent to which this set is reduced can be seen as a measure of imprecision aversion. This approach thus allows a lot of flexibility in modelling the decision maker attitude towards imprecision. In contrast, applying Gilboa and Schmeidler [J. Math. Econ. 18 (1989) 141] maxmin criterion to the initial set of priors amounts to assuming extreme pessimism.     

Consistency vs Flexibility: The Impact of Employee Voice in Rule-Based and Discretionary Decision Procedures

Consistency and flexibility are desirable, but incompatible, features of decision-making procedures. A comparison of a rule-based decision procedure (maximizing consistency) with a discretionary decision procedure (maximizing flexibility) was conducted. Employee voice was predicted to interact with decision procedure in impacting fairness perceptions. Student participants (N = 128) in a 2 × 2 laboratory simulation viewed videotaped depictions of a supervisor discussing a positive drug test result with an employee. The employee was given, or not given, an opportunity to explain; the supervisor was permitted discretion in determining the consequence or was completely bound by company policy. The proposed advantages of each decision procedure were obtained under contrasting levels of employee voice. Voice was desirable when the supervisor had discretionary authority; voice was unnecessary or even detrimental when a rule-based procedure was used. No overall preference between these two decision procedures was evident.     

Causality in temporal systems: Characterization and a survey

A time series {Y_t} ‘causes’ another time series {Y_t}, in the sense defined by C.W.J. Granger, if present Y can be predicted better by using past values of X than by not doing so, other relevant information (including the past of Y) being used in either case. In this paper we (1) classify the possible causality relationships between two series X and Y, using an analogy to events in a sample space; (2) review existing work and present some new results on alternative characterizations of the more important causality events; and (3) compare several recent procedures for the empirical detection of causality.     

On time-consistent policy rules for heterogeneous discounting programs

This article considers a new concept of social optimum for an economy populated by agents with heterogeneous discount factors. It is based upon an approach that constrains decision rules to be temporally consistent: these are stationary and unequivocally ruled by the state variable. For agents who differ only in their discount factors and have equal weights in the planner’s objective, the temporally-consistent optimal solution produces identical consumption for the agents at all time periods. In the long run, the capital stock is determined by a modified golden rule that corresponds to an average-like summation of all discount factors. The general argument is illustrated by various two-agent examples that allow for an explicit determination of the temporally consistent decision rules. Interestingly, this temporally consistent solution can be simply recovered from the characterization of a social planner’s problem with variable discounting and can also be decentralized as a competitive equilibrium through the use of various instruments.     

Asset prices in an exchange economy when agents have heterogeneous homothetic recursive preferences and no risk free bond is available

We study a pure exchange economy under incomplete markets where households have heterogeneous homothetic recursive preferences and lending and borrowing are precluded. We fully characterize the properties of the efficient allocations and the equilibrium asset price. The ownership distribution dynamics reveal the emergence of a dominant agent, who after some finite time, remains the only investor that increases asset holdings until asymptotically owning the entire wealth. Investors can be ranked according to a unique parameter that aggregates agents’ preference characteristics and we show how time discount rate, attitude towards risk and intertemporal substitution contribute to capital accumulation.     

Expected utility with uncertain probabilities theory

This paper introduces a model of decision making under ambiguity by extending the Bayesian approach to uncertain probabilities. In this model, preferences for ambiguity pertain directly to probabilities such that attitude toward ambiguity is defined as attitude toward mean-preserving spreads in probabilities—analogous to the Rothschild–Stiglitz risk attitude toward mean-preserving spreads in outcomes. The model refines the separations between tastes and beliefs, and between risk and ambiguity. These separations are crucial for the measurement of the degree of ambiguity and for the elicitation and characterization of attitudes toward ambiguity, thereby providing an empirically and experimentally applicable framework.     

A reference-dependent representation with subjective tastes

Experimental and empirical evidence documents instances where the presence of an inferior option in a menu increases the attractiveness of the better options from that menu and thus distorts the normative ranking across menus. We analyze the case when in addition to this so called context-effects bias there is also a concern for flexibility, in the spirit of the literature initiated by Kreps (1979) and Dekel et al. (2001). Since the context-effects bias and the desire for flexibility both increase the inclination of a decision maker to choose larger menus, our analysis allows the disentangling of the effect of the behavioral bias from the effect of the rational desire from flexibility. We find a weak condition on the set of ex post preferences under which the two effects are identifiable. We show that our representation is essentially unique. From a methodological viewpoint, our paper provides a novel technique of identifying probabilities on the state space of subjective uncertainty introduced by Dekel et al. (2001) when this state space is infinite. This method renders the infinite state space essentially finite with respect to a certain salient property.     

Diversification discount,information rents,and internal capital markets

While many existing studies report that corporate diversification destroys shareholder value, several recent studies challenge these findings. Schoar [Schoar, A. (2002). Effects of corporate diversification on productivity. The Journal of Finance, 57, 2379?2403] finds that plants in conglomerates are more productive than those in comparable single-segment firms, although conglomerates are traded at discounts. Villalonga [Villalonga, B. (2004a). Diversification discount or premium? New evidence from the business information tracking services. The Journal of Finance, 59, 479–506; Villalonga, B. (2004b). Does diversification cause the “diversification discount”. Financial Management, 33, 5?27] employs a more comprehensive database and statistical techniques than those used in the prior studies, and shows that there is a diversification premium, rather than discount. This paper develops a model that highlights the costs and benefits of corporate diversification. The diversified firm trades off the benefits of more efficient resource allocation through its internal capital market against the costs of information rents to division managers, which are necessary for effective workings of the internal capital market. We provide an argument supporting Schoar's findings, and identify conditions under which there can be a diversification discount or a premium.     

Decision rules for the choice of structural equations

In practical econometric analysis we are faced with the problem of how to specify structural equations. The conventional t-test of coefficients is apparently inappropriate. The smallest root, say λ, of a certain determinantal equation provides us with basis for the test of overidentifying restrictions. The preliminary test, based on λ, may give us a possible decision rule for choosing a structural equation from nested alternatives. However, ambiguity remains in specifying the significance level. We propose a decision method called the unbiased decision rule; unbiased in the sense that we attain a correct decision with probability of more than a half. The critical points are found as the medians of non-central F-distributions. The degrees of freedom and the non-centrality parameter of non-central F-distributions are determined by the properties of contending models. We also discuss the implications of the unbiased decision rule in the context of the conventional pre-test.     

Non-stationary additive utility and time consistency

Within a continuous time life cycle model of consumption and savings, I study the properties of the most general class of additive intertemporal utility functionals. They are not necessarily stationary, and do not necessarily multiplicatively separate a discount factor from “per-period utility”. I prove rigorously that time consistency holds if and only if the per-period felicity function is multiplicatively separable in $t$, the date of decision and in $s$, the date of consumption, or equivalently, if the Fisherian instantaneous subjective discount rate does not depend on $t$. The model allows to explain “anomalies in intertemporal choice” even when the agents are time consistent and various empirical regularities. On the other hand, the model allows to characterize mathematically the “effective consumption profile” of naive, time-inconsistent agents.     

Comparative study on the relationship between just-in-time production practices and operational performance in manufacturing plants

This study analyzes the differences in approaching JIT production across countries in order to identify alternative paths to high manufacturing performance. We applied ANOVA and regression techniques to the database of High Performance Manufacturing Project to examine the similarities and differences across countries in JIT implementation and the effect of JIT production practices on operational performance. The results indicated that JIT production practices were implemented in different ways across the countries. We found that the relationship between JIT production practices and plant performance is contingent on the national context and infrastructure practices in quality and workforce management. JIT delivery by suppliers, JIT layout, and setup time reduction were found to be the most effective approaches to improve cost, delivery, and flexibility. This study highlights the important role of shop-floor communication and information sharing, which should be focused for maximizing the benefits of JIT implementation.     

The temporal becoming self—towards a Ricoeurian conceptualization of identity

To enrich conceptually the study of identity work, the paper directs attention to how identity-self constitutes in individuals’ interactions and relationships. By using a narrative approach that includes Ricoeur’s notions of idem and ipse, it elevates temporal dynamics of identity work with reference to the becoming aspect of the individual self in relation to the other. Idem identity denotes sameness and permanence through time and space, and ipse identity concerns selfhood in the sense of change and interrupted continuity. As pointed out, a Ricoeurian conceptualization of identity helps to extend our understanding of practical actions beyond individual character and traits. In consideration of both concordance and discordance in narrative structure, this conceptualization suggests a middle way between stability and variability, refraining us from relying on a narrative that presupposes a linear plot based on a causal-type model of occurrences to construct and maintain a stable and coherent personal identity.     

Estimation of a social discount rate for Turkey

Cost-benefit analysis is probably the most comprehensive method of economic evaluation for public projects. Social discount rate, which makes it possible to compare the social benefits and costs extended over a period of time, has a key role in the allocation of public resources between alternative ends via cost-benefit analysis. Public sector needs to use the correct social discount rate in order to achieve a fair allocation of the fiscal burden between generations. While a high social discount rate may place a heavy fiscal burden on future generations, a low social discount rate may cause unfeasible projects to be approved. However, although social discount rate is a crucial parameter for public project appraisals, there is a lack of updated social discount rate for Turkey. In this study, the social rate of time preference approach is used to estimate this social discount rate. To this aim, both the personal taxation and the food demand methods are employed in order to estimate the elasticity of the marginal utility of consumption, which is a critical determinant of the social rate of time preference based on the Ramsey formula. The overall results show that the social discount rate estimated using the personal tax method is 4.88%, whereas it is 4.41% using the food demand method. Since the level of tax evasion is very high in Turkey, we recommend that the value indicated by the food demand method should be used employing the autoregressive distributed lag cointegration procedure.     

Similarity-based mistakes in choice

We characterize the following choice procedure. The decision maker is endowed with two binary relations over alternatives, a preference and a similarity. In every choice problem she includes in her choice set all alternatives which are similar to the best feasible alternative. Hence she can, by mistake, choose an inferior option because it is similar to the best. We characterize this boundedly rational behavior by suitably weakening the rationalizability axiom of Arrow (1959). We also characterize a variation where the decision maker chooses alternatives on the basis of their similarities to attractive yet infeasible options. We show that similarity-based mistakes of either kind lead to cyclical behavior. Finally, we reinterpret our procedure as a method for choosing a bundle given a set of individual items, in which the decision maker combines the best feasible item with those that complement it.     

Utilizing cool posing narrative and technique as leadership strategies among underrepresented individuals

“Cool posing” narrative and technique—or story and style—has implications for changes in how schools and organizations think about leadership. Cool posing is showing restrained emotion to gain advantages through the use of counterpoint to puzzle and baffle rivals. The intention to be paradoxical and confusing aids the narration of appropriate techniques that offset unfavorable situations and images. Cool posing is as much a part of some underrepresented groups' performance as their sense of self, and as valuable. This strategy is frequently exhibited orally through metaphor, which transforms facts into novel accounts of reality. It is as though the ability to comprehend their experience through cool posing provides many with “the only ways to perceive and experience much of the world” (Lakoff & Johnson, 1980, p. 239). Leaders in schools and organizations could benefit by implementing the strategies suggested here that seek stability and flexibility for those underrepresented individuals traditionally studying, working, and living in less than adequate conditions. Findings suggest the consideration of additional intellectual dimensions aside from the traditional logical and mathematical ones as indicators of valid and reliable aptitude. These further dimensions include the interrelated elements of cool posing, which are spirituality (a vitalistic approach to life), verve (high levels of stimulation), movement (the interweaving of rhythm and dance), harmony (one's fate interrelates with others'), emotion (an emphasis on feelings), orality (a preference for both speaking and listening performances), expressive individualism (the cultivation of spontaneous expression), personal time (the belief that time is passing through a social space), and communalism (a commitment to social connectedness) (Boykins, as cited in Majors, 1987/2003a). Leaders need to broaden their ideas of standard leadership and become transformational and transformed to respond to less heard voices that scream as loudly as those that benefit through full representation. Innovative leaders can emerge from underrepresented groups and thrive in industries that become skilled at converting deficit orientations to resource orientations through “patience, a certain flexibility in world view, and a generous tolerance” (Lakoff & Johnson, p. 231). Knowledge from this study may equip teachers and leaders in multiethnic schools and organizations to respond empathetically across racial and ethnic boundaries of difference.     

Conditional implicit mean and the law of iterated integrals

This paper presents a new framework which generalizes the concept of conditional expectation to mean values which are implicitly defined as unique solutions to some functional equation. We call such a mean value an implicit mean. The implicit mean and its very special example, the quasi-linear mean, have been extensively applied to economics and decision theory. This paper provides a procedure of defining the conditional implicit mean and then analyzes its properties. In particular, we show that the conditional implicit mean is in general “biased” in the sense that an analogue of the law of iterated expectations does not hold and we characterize the quasi-linear mean as the only implicit mean which is “unbiased”.     

Weighted majoritarian rules for the location of multiple public facilities

We consider collective decision problems given by a profile of single-peaked preferences defined over the real line and a set of pure public facilities to be located on the line. In this context, Bochet and Gordon (2012) provide a large class of priority rules based on efficiency, object-population monotonicity and sovereignty. Each such rule is described by a fixed priority ordering among interest groups. We show that any priority rule which treats agents symmetrically — anonymity — respects some form of coherence across collective decision problems — reinforcement — and only depends on peak information — peak-only — is a weighted majoritarian rule. Each such rule defines priorities based on the relative size of the interest groups and specific weights attached to locations. We give an explicit account of the richness of this class of rules.     

Existence of smooth utilities on Banach lattices

In this paper, we focus our attention on the representability of a preference relation by differentiable utility functions when the consumption sets belong to an infinite dimensional commodity space. We obtain sufficient conditions for the existence of a C^r function representing a preference relation defined on an open subset of a Banach lattice.     

Coupled projects,core imputations,and the CAPM

Projects, private or public, that share input factors or output requirements had better be construed as members of a portfolio. Present risk, the capital asset pricing model may facilitate valuation of each member. Chief results of that model are derived and generalized here as core solutions to a transferable-utility production game. Shadow prices define stochastic discount factors that determine values of individual projects. Variance aversion largely affects such prices whence optimal allocations.