Best practices for differentiated products demand estimation with PyBLP

Differentiated products demand systems are a workhorse for understanding the price effects of mergers, the value of new goods, and the contribution of products to seller networks. Berry, Levinsohn, and Pakes (1995) provide a flexible random coefficients logit model which accounts for the endogeneity of prices. This article reviews and combines several recent advances related to the estimation of BLP-type problems and implements an extensible generic interface via the PyBLP package. Monte Carlo experiments and replications suggest different conclusions than the prior literature: multiple local optima appear to be rare in well-identified problems; good performance is possible even in small samples, particularly when “optimal instruments” are employed along with supply-side restrictions. If Python is installed on your computer, PyBLP can be installed with the following command: pip install pyblp. Up-to-date documentation for the package is available at https://pyblp.readthedocs.io .     

The demand for stocks: an analysis of IPO auctions

We analyze a unique dataset that includes the full demand schedulesof 27 Israeli IPOs that were conducted as nondiscriminatory(uniform price) auctions. To the best of our knowledge, thisis the first time the whole demand schedule for any asset isdescribed. The demand schedules are relatively flat around theauction clearing price: The average elasticity is 27. The elasticityis low when the return distribution contains a large uniquecomponent. We also find a significant average abnormal returnof 4.5% on the first trading day and a positive correlationbetween the abnormal return and the elasticity of demand.     

Accounting for goodwill: an examination of factors influencing management preferences

This paper investigates factors that influenced the position of managements of UK-listed companies in the heated debate that surrrounded proposals for a new standard on goodwill accounting, i.e. the factors influencing whether managements preferred immediate write-off or capitalisation-based approaches. The factors investigated are derived from contracting cost theory, and include those associated with debt covenant restrictions and profit- based management schemes. They also include non-agency contracting costs. A key feature of the design is that, compared to prior research, we specify more rigorously circumstances where such contracting cost effects are, or are not, likely to be binding. In addition, the paper investigates the effects on management preferences of their beliefs about revisions in market perceptions of their companies resulting from changes in goodwill accounting. Our results support certain contracting cost-based hypotheses, but they also indicate that management beliefs about changes in market perceptions of their companies constitute a strong influence on their preferences.     

Defining next-generation products: an inside look

The continued success of technology-based companies depends on their proficiency in creating next-generation products and their derivatives. So getting such products out the door on schedule must be routine for such companies, right? Not quite. The authors recently engaged in a detailed study--in which they had access to sensitive internal information and to candid interviews with people at every level--of 28 next-generation product-development projects in 14 leading high-tech companies. They found that most of the companies were unable to complete such projects on schedule. And the companies also had difficulty developing the derivative products needed to fill the gaps in the market that their next-generation products would create. The problem in every case, the authors discovered, was rooted in the product definition phase. And not coincidentally, the successful companies in the study had all learned how to handle the technical and marketplace uncertainties in their product definition processes. The authors have discerned from the actions of those companies a set of best practices that can measurably improve the definition phase of any company's product-development process. They have grouped the techniques into three categories and carefully lay out the steps that companies need to take as they work through each stage. The best practices revealed here are not a magic formula for rapid, successful new-product definition. But they can help companies capture new markets without major delays. And that is good news for any manager facing the uncertainty that goes with developing products for a global marketplace.     

Foreign institutional ownership and demand for accounting conservatism: evidence from an emerging market

Review of Quantitative Finance and Accounting - This paper investigates the ‘price–concentration’ relationship in pricing syndicated loans. By measuring bank concentration at a...     

Medical malpractice: an empirical examination of the litigation process

New data on medical malpractice claims against a single hospital in which a direct measure of the quality of medical care is available are used to investigate the roles of the negligence rule and incomplete information in the dispute settlement process in medical malpractice. We find that the quality of medical care (negligence) is an extremely important determinant of defendants' medical malpractice liability. More generally, we find that the data are consistent with a model in which plaintiffs are poorly informed ex ante about whether there has been negligence, file suit to gather information, and either drop the case if they find that negligence was unlikely or settle for a positive payoff if they find that negligence was likely. We also find that the cases are resolved earlier in the litigation process when the parties are more certain, one way or the other, about the likelihood of negligence.     

The flexible coefficient multinomial logit (FC‐MNL) model of demand for differentiated products

We show FC‐MNL is flexible in the sense of Diewert ( 1974 ), thus its parameters can be chosen to match a well‐defined class of possible own‐ and cross‐price elasticities of demand. In contrast to models such as Probit and Random Coefficient‐MNL models, FC‐MNL does not require estimation via simulation; it is fully analytic. Under well‐defined and testable parameter restrictions, FC‐MNL is shown to be an unexplored member of McFadden's class of Multivariate Extreme Value discrete‐choice models. Therefore, FC‐MNL is fully consistent with an underlying structural model of heterogeneous, utility‐maximizing consumers. We provide a Monte‐Carlo study to establish its properties and we illustrate its use by estimating the demand for new automobiles in Italy.     

Price uncertainty and vertical integration: an examination of petrochemical firms

The petrochemical industry employs assets subject to temporal and site specificity. The OPEC oil price shocks of the 1970s made it difficult to write contracts covering business dealings in the industry. I use this production and economic setting as a natural experiment to test transaction cost theory. In support of the theory, I find that input price uncertainty in the 1970s positively affected the extent of vertical integration by firms into input stages. Moreover, the positive reaction of vertical integration to price uncertainty mainly occurs in transactions subject to asset specificity. I also examine price controls and market power as alternative explanations for vertical integration in the industry, but fail to find support for these hypotheses.     

Extended performance reporting: an examination of the Australian mining industry

Recent accounting scandals and a greater focus on sustainable development have highlighted the insufficiency of traditional financial statements in providing information about company value and performance. This study argues for the importance of reporting both IC information and non-economic performance. Based on an Extended Performance Reporting Framework, content analysis was conducted to examine the voluntary reporting practices within the annual reports of selected Australian mining companies. Results show that the sample companies tended to place greater emphases on IC information than non-economic performance information. The study provides a research opportunity, examining why the samples chose to report or not report various reporting elements.     

Firm's demand for insurance: An explorative approach

This paper addresses the question, what influences the insurance demand of companies and examines the influence of managerial risk aversion in this decision process. An explorative research approach based on qualitative data analysis is applied to explore the factors influencing the insurance related decision behavior in organizations. Using interviews and observations of firm's insurance managers, the results identify interdependencies between factors of insurance demand, such as ownership structure, managerial discretion, volatility of earning, size, services of the insurer, and business diversification which allows to propose a framework of contextual factors affecting company's insurance demand. Within this framework, the data imply managerial risk attitudes as decisive factor in the decision process about insurance demand in companies. This explorative study enriches the existing theories of firms’ insurance demand and addresses feedback from practice into theory.     

Where babies come from: supply and demand in an infant marketplace

Persistent demand from people who have been denied the blessings of parenthood has created an assisted-reproduction market that stretches around the globe and encompasses hundreds of thousands of people. In the United States alone, nearly 41,000 children were born via in vitro fertilization (IVF) in 2001. Roughly 6,000 came from donated eggs, and almost 600 were carried by surrogate mothers. U.S. legislators have been reluctant to regulate this market. As a result, there are no national policies for IVF, which requires creating--and often discarding--embryos, or for many other technologies. State laws vary widely, and many states have no legislation on these subjects whatsoever. Although fertility specialists generally seem delighted to practice in an unregulated gray area, a modicum of regulation and the establishment of agreed-upon norms could lead to substantially lower prices, wider access, and an expansion of the market to the millions who have not yet sought out assisted reproduction. Among those millions are fertile individuals seeking to ensure that they'll be able to produce offspring in the future. For example, the technology already permits young women to freeze their eggs, thus preserving their fertility (in case, for instance, they marry late in life). The fertility trade is in some ways analogous to the markets for personal computers and DVD players, which were initially considered luxury items but migrated to the mass market, earning manufacturers the revenues to finance further innovation. A widening of availability and the introduction of property rights, rules, and institutional policies would make the marketplace more sensitive to the social, medical, and ethical issues that are emerging from the science. For example: Should there be age limits on infertility treatment? Should new procedures be subject to rigorous testing? It is time for U.S. society to begin discussion of these complex questions.     

Irish voluntary hospitals: an examination of a theory of voluntary failure

This paper examines the success and failure of voluntary hospital organisations in Ireland during the twentieth and twenty-first centuries. The study draws on (and extends) Salamon's theory of voluntary failure by examining the activities of religious organisations responsible for the ownership, management and delivery of acute hospital care. This theoretical perspective identifies a number of dimensions of organisational life for voluntary organisations, which precipitated the demise of organisations as voluntary sector entities, particularly issues of resource-dependency. This study shows that in the Irish hospital context many religiously owned voluntary hospitals have followed the predictable route to failure - culminating either in closure or transfer to public sector ownership, although some others have withstood the difficulties commonly encountered by voluntary organisations (VOs) as outlined by Salamon.     

“The first mile problem”: Deriving an endogenous demand for auditing in blockchain-based business processes

In this paper, we model the business process within which blockchain applications operate in order to extract an endogenous demand for auditing in that environment. We begin by undertaking a case study of the pharmaceutical drug industry supply chain, exploring both the proposed blockchain initiatives in it initiated by the FDA and startup companies, and the problems in the supply chain that blockchain cannot address. Drawing on this analysis, we derive an endogenous demand for auditing to overcome what we label the “first mile problem” (FMP) with blockchains: ensuring that the data stored on the blockchain distributed ledger is isomorphic with the real life data that it purports to represent. The first mile problem arises only when the blockchain is used to store data about physical items, especially ones involving a service component, rather than being native digital, as is the case with the genesis blockchain application, bitcoin. We show that unless it is feasible to store a “digital twin” of the item (Roberts, 2017), there is a role for auditors, with the training in professional skepticism, to help alleviate the first mile problem. There is no guarantee, however, that this new demand for auditing will be met by the traditional financial statement auditors.     

我想 我能——CPA考试全科一次通过者的一些心得

我认为没有什么你不能的,关键的问题是你不想!女友每次对我表现不满的时候总是在我耳边响起这句话。此时我总是哭笑不得地回一句:你太高抬我了。话虽如此,但是每次我都会在脑子中再次给自己一个估价:我到底值多少?我到底需要做什么?然后她     

The Equity Index Annuity: an examination of performance and regulatory concerns

The Equity Index Annuity (EIA) is a recent product development in the insurance industry. This paper details EIA design and interest crediting techniques, examines expected performance, and discusses possible regulatory concerns. Results indicate that the EIA is generally expected to perform better than a traditional fixed annuity for contract periods of at least five years, but is substantially below that of a similar direct equity purchase. EIA contracts are not appropriate for shorter-term investors when factors of risk and efficient markets are considered. The SEC is not currently regulating the EIA product, which should raise industry concern.     

Influences on departmental budgeting: an empirical examination of a contingency model

This paper reports the results of a study designed to test whether or not differences in approaches to budgeting at the departmental level are systematically related to differences in production technologies, market factors and organizational characteristics. The results suggest that budgeting is related to departmental size, functional differentiation and degree of automation of production processes, but not the products' stage in the product life cycle or the company's strength of market position.