Competition among mechanism designers in a common value environment

A competitive economy is studied in which sellers offer alternative direct mechanisms to buyers who have private information about their own private use value for the commodity being traded. In addition the commodity has a common value to all buyers, perhaps represented by the future resale value of the commodity. A competitive equilibrium in mechanisms is described. In every such equilibrium it is shown that sellers must offer mechanisms that are allocationally equivalent to English ascending price auctions. The reservation prices that sellers set are shown to be below their ex post cost of trading the commodity. Received: 24 April 1998 / Accepted: 8 March 1999     

Capacity constraints and the winner's curse in multi-unit common value auctions

We explore the role of capacity constraints in establishing efficient pricing in multi-unit common value auctions in a setting relevant to auction-based equity IPOs. The method of inquiry is experimental economics. We find that sufficiently large capacity constraints mitigate the overbidding that plagues single-unit auctions and is one of the most robust laboratory findings. We also uncover a puzzling propensity for most bidders to place a portion of their bids at prices above their signals. This disequilibrium behavior persists with experience and in cases with substantial losses in previous auctions. Our results suggest caution is warranted in promoting auction based IPOs that allow unrestricted access by the non-professional investing public.     

Information value and efficiency measurement for risk-averse firms

This paper has three goals. First, we demonstrate that standard arguments and methods from production and duality analysis can be used to provide a comprehensive and general treatment of the value of information for a risk-averse firm with expected-utility (linear-in-probabilities) preferences and a general stochastic technology. Second, we place bounds on the value of information for a risk-averse firm and relate these bounds to characteristics of the technology and the producer’s preferences. The third and final goal is to derive the implications that information differences can have for measured efficiency differences and to relate the bounds on the value of information to those measured differences.      

Information effects of loan portfolio quality on bank value

In this paper, the authors test whether loan-loss reserve announcements by individual commercial banks can have contagion effects on the banking industry. It is found that increased loan-loss reserves related to LDC debt do not have an effect on other banks. However, increased loan-loss reserves related to bad real estate loans elicited a negative share price response at other banks. The signal from a loss reserve adjustment is dependent on the reason for the adjustment. While LDC debt problems were restricted to money center banks and were well publicized, real estate loan problems can be contagious throughout the industry. Consequently, signals of real estate loan problems at some banks can cause a reduced valuation of other banks.     

Linear learning in changing environments

The decision maker receives signals imperfectly correlated with an unobservable state variable and must take actions whose payoffs depend on the state. The state randomly changes over time. In this environment, we examine the performance of simple linear updating rules relative to Bayesian learning. We show that a range of parameters exists for which linear learning results in exactly the same decisions as Bayesian learning, although not in the same beliefs. Outside this parameter range, we use simulations to demonstrate that the consumption level attainable under the optimal linear rule is virtually indistinguishable from the one attainable under Bayes’ rule, although the respective decisions will not always be identical. These results suggest that simple rules of thumb can have an advantage over Bayesian updating when more complex calculations are more costly to perform than less complex ones. We demonstrate the implications of such an advantage in an evolutionary model where agents “learn to learn.”     

Nash bargaining in ordinal environments

We analyze the implications of Nash’s (Econometrica 18:155–162, 1950) axioms in ordinal bargaining environments; there, the scale invariance axiom needs to be strenghtened to take into account all order-preserving transformations of the agents’ utilities. This axiom, called ordinal invariance, is a very demanding one. For two-agents, it is violated by every strongly individually rational bargaining rule. In general, no ordinally invariant bargaining rule satisfies the other three axioms of Nash. Parallel to Roth (J Econ Theory 16:247–251, 1977), we introduce a weaker independence of irrelevant alternatives (IIA) axiom that we argue is better suited for ordinally invariant bargaining rules. We show that the three-agent Shapley–Shubik bargaining rule uniquely satisfies ordinal invariance, Pareto optimality, symmetry, and this weaker IIA axiom. We also analyze the implications of other independence axioms.     

Multiple banking relationships,managerial ownership concentration and firm value: A simultaneous equations approach

This paper examines how the number of banking relationships affects the interaction between managerial ownership and firm performance, and sheds light on the conditions under which banking relationships play a role in alleviating shareholder–manager conflicts. Our results provide several interesting insights. We document that bank monitoring has substantial value when managers are improperly incentivized, but that it becomes less important when managers are properly incentivized. There is a substitution effect between the value-increasing benefits of managerial ownership and bank monitoring. We also find that any existing free-riding concerns from having too many banking relationships are problematical only when Tobin's Q is high and managerial ownership is high.     

Information systems and technology sourcing strategies of e-Retailers for value chain enablement

In the e-Retail industry, a well-designed IT infrastructure is essential in creating a tightly integrated value chain and delivering high quality service. With intense competition for market share and profits, information systems and technology (IST) sourcing decisions are becoming increasingly important to e-Retail firms to support continued growth and market responsiveness. Drawing on the contingency theory, we examine organizational and environmental factors that influence an e-Retailer's IST sourcing strategy of make versus buy in enabling its value chain activities, and we also look at firm-level performance impacts of IST sourcing decisions that involve bundling across value chain activities. We test the proposed model and hypotheses using a panel data set of 307 firms over the period of 2006–2010. The results show that firms that make transformative IT investments tend to source a smaller portion of IST for their e-Retail value chain activities than firms that pursue automate or informate as their strategic role for IT investment. Capabilities are positively associated with IST sourcing. Firms experienced in e-Retail are more likely to build rather than buy their IST. In addition, we find mimicking behavior for IST sourcing among firms in the same merchandizer category. We find that IT strategic role is strongly associated with growth metric, whereas sourcing decisions predominantly impact operational performance measures. There is partial evidence that alignment between IT strategic role and IST sourcing decisions results in better performance effects. Moreover, complementary IST sourcing of synergistic marketing and sales activities positively impacts Web sales and conversion rate, but the sourcing combination of logistics, operations, and sales activities is associated with lower Web sales and conversion rate.     

Regional differences in environments for enterprises

Over the past decade there has been a strong emphasis on the analysis of local economic development. Current research on local development has strongly promoted endogenous growth mechanisms, stressing factors such as local entrepreneurship, social networks, synergy, innovativity, dynamic learning processes and factor flexibility. Accordingly, there has been an increasing interest in the role of innovations and their diffusion in regional development and growth. However, few studies have focused on lagging regions and the problems that they are faced with. This paper attempts to chart the existing regional differences in environments for enterprises in Finland following the concept of innovative milieu.     

On the existence of an increasing symmetric equilibrium in (k + 1)-st price common value auctions

In a classical result, Milgrom (1981a) established that the Monotone Likelihood Ratio Property (MLRP) is a sufficient condition for the existence of an increasing symmetric equilibrium in (k + 1)-st price common value auctions. We show: (1) If MLRP is violated, then for any number of bidders and objects there exists a distribution of the common value such that no increasing symmetric equilibrium exists; (2) If MLRP is violated, then for any distribution of the common value there exist infinitely many pairs of the number of bidders and the number of objects such that an increasing symmetric equilibrium does not exist; (3) There are examples where an increasing symmetric equilibrium exists even when the signal distribution violates MLRP.     

Inventory control in environments with seasonal demand

In the traditional reorder point model no consideration is taken to variations in demand. The purpose of this paper is to present an extended reorder point model based on an assumption of stationary demand suitable for ERP systems and capable of taking such considerations. The purpose is also to assess potential benefits of using the model by means of simulation and to provide some rough heuristic guidelines for the practitioner regarding when to use this model rather than the traditional one. The result from the assessment indicates that even in cases with a low degree of seasonality it is of significant importance to consider seasonal variations when calculating the demand during the lead time part of the reorder point to be able to achieve targeted service levels. Considering seasonal demand when calculating safety stocks and order quantities is basically only of significant importance in cases when the degree of seasonality is high.     

Existence of optimal auctions in general environments

We provide a unified approach to the problem of existence of optimal auctions for a wide variety of auction environments. We accomplish this by first establishing a general existence result for a particular Stackelberg revelation game. By systematically specializing our revelation game to cover various types of auctions, we are able to deduce the existence of optimal Bayesian auction mechanisms for single and multiple unit auctions, as well as for contract auctions with moral hazard and adverse selection. In all cases, we allow for risk aversion and multidimensional, stochastically dependent types.     

Organizations undertaking complex projects in uncertain environments

Recent evidence suggests that firms’ environments are becoming more complex and uncertain. This paper investigates the relationship between the complexity of a firm’s activities, environmental uncertainty and organizational structure. We assume agents are arranged hierarchically, but decisions can be made at different levels. We model a firm’s activity set as a modified NK landscape. Via simulations, we find that centralized decision making generates a higher payoff in more complex and uncertain environments, and that a flatter structure is better for the organization with centralized decision making, provided the cost of information processing is low enough. Financial Support from Zengin Foundation for Studies on Economics and Finance is gratefully acknowledged.     

Nash and dominant strategy implementation in economic environments

When environments are ‘rich’, single-valued social choice functions which are implementable in Nash strategies are implementable in dominant strategies. Moreover the Gibbard–Satterthwaite impossibility theorem of implementation in dominant strategies has been extended to differential economic environments. Therefore it is important to study implementation for non-rich environments. We characterize for quasi-linear utility functions mechanisms which are implementable in dominant strategies (providing a generalization of the Groves–Clarke mechanisms) and in Nash strategies. This second type of mechanisms differ from the first only by the types of transfers they allow. Properties of these mechanisms such as balancedness, individual rationality and robustness with respect to coalitions are then studied.     

very common currencies

How far will European harmonisation go? Christie Davies of Reading University peers round the corner and discovers that a little harmonisation is not nearly as bad as a lot.     

In search of relevance: Project management in drifting environments

It can be assumed that projects are designed to produce relevant outcomes. However, it cannot be assumed that originally intended outcomes will necessarily remain relevant over time. This article explores the challenges to project management that stem from the possibility of relevance becoming eroded in the course of implementation. Relevance can become eroded when the environment of a project starts drifting. This may happen if, for example, customers change their preferences, competitors their strategies or corporate management their commitments. Alternative strategies for coping with drifting environments are discussed.     

Efficiency and concentration

Baumol, Panzar, and Willig [1982] introduced the idea that there may be efficiency gain from merger of two or more firms. This paper shows that the Debreu [1951]-Farrell [1957] type index suggested by Färe [1986] to calculate the gain in efficiency from merger of firms can be related to a concentration formula. We then introduce a dominance relation consistent with the ordering generated by the Färe gain function. Next, it is shown that a normalized form of the gain function satisfying a homogeneity condition becomes a subclass of the Hannah-Kay [1977] concentration indices. A limiting case of this subclass becomes the entropy-based index of concentration.The editor of this paper was Rolf Färe.I wish to express sincere gratitude to Shmuel Nitzan for bringing my attention to this problem. Comments and suggestions from Rolf Färe, Alexis Jacquemin, and two anonymous referees are acknowledged with thanks.     

Forty common goal-setting errors

This is a helpful list, whether the goal setting process is new in your organization or has been working reasonably well for some time.