Efficient Consumer Altruism and Fair Trade Products

Consumers have shown a willingness to pay a premium for products labeled as “FT” and a preference for retailers that are seen to be more generous to their suppliers/employees. A FT product is essentially a bundle of a base product and a donation to the supplier (e.g., a coffee farmer). An altruistic rational consumer will only choose this bundle if doing so is less expensive than buying the base product and making a direct donation. For FT to be sustainable either in a competitive equilibrium or in a monopolistic environment this bundling must yield an efficiency. This efficiency is generated in the following context. A supplier’s investment reduces the retailer’s cost or boosts the final product’s quality, but this investment is not immediately observable and cannot be enforced, hence there exists a moral hazard problem. In this environment, the altruism of the consumer can facilitate a more efficient contract: by paying the supplier more the retailer can both extract more consumer surplus and increase the level of contracted investment, while preserving the supplier’s incentive compatibility constraint. We assess our model in the context of the coffee industry.     

Simulating the Effects of Railroad Mergers

The purpose of this paper is to add to the empirical literature regarding merger simulation analysis by examining the effect of railroad mergers on railroad market power. This is done by measuring railroad profits and revenue/variable cost ratios corresponding to different degrees of intrarailroad competition for movements of Kansas export wheat to Houston, Texas. Two models are developed to achieve the objectives of the study. A network model of the wheat logistics system is used to identify the least cost transportation routes from the Kansas study area to the market at Houston. A profit improvement algorithm, which identifies Nash equilibrium prices, is developed to measure the amount by which railroads can profitably raise their prices above variable cost. The results of the study have implications for U.S. railroad merger policy. The paper indicates that railroad mergers do not necessarily increase railroad market power or make railroad shippers worse off. Instead, the study demonstrates that the impact of railroad mergers on shippers and railroads depends on factors that vary geographically, such as the degree of intrarailroad and intermodal competition in the area.     

Food Security and Agricultural Protection in South Korea

South Korea has been pursuing food self-sufficiency using high tariffs and high administrative prices in key agricultural and food markets. Using a dual approach to trade and trade restrictiveness indices, we analyze the impact of these market distortions on welfare and trade volume. Then, we compute second-best distortions, which minimize the welfare cost of meeting observed levels of self-sufficiency and production. We rationalize these second-best distortions to what could be claimed as legitimate protection under a "food security" (FS) box in World Trade Organization (WTO) negotiations. FS-box protection is sensitive to changes in the definition and the extent of the FS objectives. We show that FS via production targets and reliance on imports would be more palatable to consumers and trade partners, while preserving income transfer to the farm sector.     

Option pricing: A general equilibrium approach

This article examines option valuation in a general equilibrium framework. We focus on the general equilibrium implications of price dynamics for option valuation. The general equilibrium considerations allow us to derive an alternative option valuation formula that is as simple as the Black and Scholes formula, and that exhibits different behavior with respect to the exercise price and time to expiration. They also help us clarify comparative-statics properties of option valuation formulas in general and of the Black and Scholes model in particular.     

Motivational antecedents of leader-member exchange differentiation: Evidence from South Korea

Researchers have focused on the group-level leader-member exchange (LMX) differentiation in order to develop a more comprehensive view of within-group variability of LMX. Although the group-level LMX differentiation has been thought to have significant impacts on both individual and group outcomes, we know little about what makes leaders have differential relationships with their members. Drawing on both motives theory and interpersonal interaction theory, we examined the antecedents of LMX differentiation in a sample of 94 group leaders and 553 members of design companies in South Korea. Results indicated that whereas leaders high in affiliation motives had less differential relationships, leaders high in power motives had more differential relationships. We also found that the negative relationship between leaders’ affiliation motives and LMX differentiation was stronger when members’ affiliation and power motives were higher. Theoretical and practical implications are discussed.     

Beyond absorptive capacity in open innovation process: the relationships between openness,capacities and firm performance

The literature has shown that open innovation (OI) can be a winning strategy in improving firm performance. However, in order to adopt and implement it, managers need to resolve practical problems, such as understanding the role played by OI capacities and openness on firm performance. In response to these needs, this study aims to investigate the hierarchical relationships between openness, OI capacities and performance using a structural equation model approach. This paper also attempts to compare the levels of openness between firms in different industries to discover similarities and differences in OI phenomena. The analysis of data obtained from a survey of Korean firms shows significant interrelations between openness, OI capacities and firm performance. Our results go further in developing understanding of the building blocks on which successful OI is built and particularly suggest that desorptive capacity which underpins the out-bound OI process, is in turn strongly supported by knowledge management capacity. It is hoped that the results of this study can enrich our understanding of the OI mechanism and provide managerial and policy implications.     

The role of consideration sets in brand choice: The moderating role of product characteristics

This study investigates the role of consideration sets in brand choice. Brand‐level aggregated data are used to capture the responses of consumers who face a number of international and domestic brands in markets rather than two or three brands in experimental designs, as in Chaudhuri and Holbrook (2001). Empirical evidence from path analysis shows that the consideration set for hedonic products includes a smaller number of dominant brands, whereas the consideration set for utilitarian products includes more and diverse brands. The probability of being finally chosen from the consideration set differs according to product characteristics: hedonic vs. utilitarian. The authors discuss managerial implications and suggestions for future research. © 2009 Wiley Periodicals, Inc.     

The effects of tariff increases on supply base complexity: A conceptual framework

Recent protectionist trends around the world have raised interest in newly enforced or increased tariffs and their effects on global supply chains. For firms sourcing globally, tariff introductions or increases significantly affect importing costs, which ultimately affect product costs. Such tariff changes may incentivize firms to adjust their supply base to mitigate these cost increases, thus altering the structure and complexity of firms' supply bases. In this paper, we first characterize the U.S. tariff landscape from 1997 to 2017. We then develop a conceptual model to explain how the severity and timing uncertainty of expected tariff increases influence a firm's speed of adapting to the changing tariff environment. Specifically, we explore firms' propensity to form or delete ties to suppliers, which influences supply base complexity. Moreover, we consider factors that moderate the relationship between severity, timing uncertainty, and supply base complexity, including a tariff's geographical scope, a firm's relative purchase spend, and supply risk. Our conceptual model offers both research and managerial implications.     

A bootstrap theory for weakly integrated processes

This paper develops a bootstrap theory for models including autoregressive time series with roots approaching to unity as the sample size increases. In particular, we consider the processes with roots converging to unity with rates slower than n^-1$n^{-1}$. We call such processes weakly   integrated processes. It is established that the bootstrap relying on the estimated autoregressive model is generally consistent for the weakly integrated processes. Both the sample and bootstrap statistics of the weakly integrated processes are shown to yield the same normal asymptotics. Moreover, for the asymptotically pivotal statistics of the weakly integrated processes, the bootstrap is expected to provide an asymptotic refinement and give better approximations for the finite sample distributions than the first order asymptotic theory. For the weakly integrated processes, the magnitudes of potential refinements by the bootstrap are shown to be proportional to the rate at which the root of the underlying process converges to unity. The order of boostrap refinement can be as large as o(n^-1/2+?)$o(n^{-1/2+?})$ for any ?>0$?>0$. Our theory helps to explain the actual improvements observed by many practitioners, which are made by the use of the bootstrap in analyzing the models with roots close to unity.