Endogenous timing when a vertically integrated producer supplies a rival

This paper derives the timing equilibrium when a vertically integrated producer (VIP) supplies essential inputs to its retail rival. Such circumstances arise in a variety of industries, often characterized by regulated input prices. The distinguishing feature of markets with an influential VIP is that the VIP is not only a retail competitor but is also concerned about wholesale profits–profits it gleans from its retail rival(s). The VIP’s desire to balance profits across wholesale and retail markets leads to results that challenge conventional thinking about timing equilibria. Notably, under quantity competition, rather than the familiar cut-throat race to be a leader, the timing equilibrium prescribes a natural leader–follower sequencing, with each party in a “win–win” situation relative to simultaneous early play.     

Mena Stock Markets Integration: Pre and Post Global Financial Crisis

This paper examines the short‐ and long‐run linkages in pre and post global financial crisis among Middle East and North Africa (MENA) stock markets, between MENA and Chinese stock markets and also between MENA and developed (United States and United Kingdom) stock markets. Results indicate that both long‐run co‐integration relationships and short‐run causal linkages among MENA stock markets increased in post‐crisis than that in pre‐crisis sub‐period. The degree of integration between MENA and Chinese stock markets increased in post‐crisis than pre‐crisis. We also find that the degree of integration between MENA and developed (United States and United Kingdom) stock markets increased in post‐crisis than that in pre‐crisis. The presence of increased linkages among MENA markets, and between MENA and Chinese stock markets and also between MENA and developed (United States and United Kingdom) markets has important implications for portfolio investors and policy makers.     

Maximum entropy autoregressive conditional heteroskedasticity model

In many applications, it has been found that the autoregressive conditional heteroskedasticity (ARCH) model under the conditional normal or Student’s t distributions are not general enough to account for the excess kurtosis in the data. Moreover, asymmetry in the financial data is rarely modeled in a systematic way. In this paper, we suggest a general density function based on the maximum entropy (ME) approach that takes account of asymmetry, excess kurtosis and also of high peakedness. The ME principle is based on the efficient use of available information, and as is well known, many of the standard family of distributions can be derived from the ME approach. We demonstrate how we can extract information functional from the data in the form of moment functions. We also propose a test procedure for selecting appropriate moment functions. Our procedure is illustrated with an application to the NYSE stock returns. The empirical results reveal that the ME approach with a fewer moment functions leads to a model that captures the stylized facts quite effectively.     

The cost-effectiveness of disease-modifying therapies for the treatment of relapsing-remitting multiple sclerosis

Background: The safety and efficacy of disease-modifying therapies (DMTs) for relapsing-remitting multiple sclerosis (RRMS) has been established; however, it is not clear which provides optimal value, given benefit-risk profiles and costs.

Aims: To compare the cost-effectiveness of current DMTs for patients with RRMS in the US.

Materials and methods: A Markov model predicting RRMS course following initiation of a DMT was created comparing outcomes (e.g. relapses, disease progression) and costs of natalizumab (NTZ), dimethyl fumarate (DMF), and peginterferon beta-1a (PEG) with fingolimod (FIN), glatiramer acetate (GA, 20?mg daily), and subcutaneous interferon beta-1a (IFN, 44?mcg), respectively, over 10 years. RRMS and secondary-progressive MS (SPMS) EDSS state transitions were predicted in 3-month cycles in which patients were at risk of death, relapse, or discontinuation. Upon DMT discontinuation, natural history progression and relapse rates were applied. Incremental cost-effectiveness ratios (ICERs) were estimated for the cost per relapse avoided, relapse-free years gained, progression avoided, and progression-free years gained. The impact of model parameters on outcomes was evaluated via one-way sensitivity analyses.

Results: Costs ranged from $561,177 (NTZ) to $616,251 (GA). NTZ, DMF, and PEG were dominant (less costly and more effective) compared to FIN, GA, and IFN, respectively, for all ICERs. Variability in drug costs and parameters that affected drug cost accrual (e.g. discontinuation rates and the decision to drop out after SPMS conversion) had a considerable impact on ICERs.

Limitations: Several simplifying assumptions were made that may represent potential limitations of this analysis (e.g. a constant treatment effect over time was assumed).

Conclusions: The results from this analysis suggest that the NTZ, DMF, and PEG are cost-effective DMT choices compared to FIN, GA, and IFN, respectively. The actual impact on a particular plan will vary based on drug pricing and other factors affecting drug cost accrual.     

Strategy and environment as determinants of performance: Evidence from the Japanese machine tool industry

This study examines the roles played by the environment and realized strategies on firm-level performance in the Japanese machine tool industry. We examine the effect of environment and strategy on performance using longitudinal data on a sample of 25 Japanese machine tool firms over the period 1979-92. Our results indicate that both firm strategies and the environment play significant roles in influencing profitability and growth. More specifically, whereas both strategy and environmental variables are significantly related to firm profitability, only environmental variables are associated with firm growth. Additionally, in contrast to U.S. based studies, we find that capital expenditures and technological change are not negatively associated with profitability. Rather technological change has a positive impact on firm growth. We discuss the implications of these results for strategic management and provide suggestions for future research.     

Does group membership matter? Evidence from the Japanese steel industry

In this study we address criticism that performance differences among strategic groups found in past research may be spurious and attributable to firm effects. The Japanese steel industry provides the setting for the study. Our analysis is based on data from the carbon steel sector of the Japanese steel industry for the periods 1980–87 and 1988–93. A one-way ANOVA indicated that the average performance of firms in the two technology-based groups in this industry—the integrated mills and the minimills—were significantly different during the two periods. Subsequently, we performed a regression analysis to examine the residual group effect after controlling for both environment and firm-specific effects. We found that even after controlling for both environment and firm-specific effects group membership was significantly associated with firm performance. Copyright © 2001 John Wiley & Sons, Ltd.     

Option Value to Waiting Created by a Control Problem

We study a principal-agent model in which there is an option to defer a capital project approval decision. A control (incentive) problem makes the option to wait valuable when it would not have been valuable otherwise. Deferring the project approval decision has both a cost and a benefit. The cost of waiting is that the agent's uncertainty regarding future project cost realizations cannot be exploited. However, by delaying the first project's approval decision, the principal can condition its approval on the agent's cost report of the second project. Such conditioning can be valuable in the provision of incentives because of a diversification effect.     

Volatility of stock prices and market efficiency

Recently, historical price series along with the dividend series have been used to severely question the Efficient Markets Hypothesis. The literature suggests that the stock prices vary too much to be explained by subsequent changes in dividends. It is argued in this paper that these results require the assumption of stationarity of the price process and that this assumption is not compatible with the random walk model of Efficient Markets. A non-stationary dividend process, which is compatible with the random walk model of Efficient Markets, results in a reversal of earlier results. The new results are shown to be consistent with the empirical findings. Simulations are run to verify the results.     

Employer matching and 401(k) saving: Evidence from the health and retirement study

Employer matching of employee 401(k) contributions is often touted as a powerful incentive to save for retirement and is a key component in pension-plan design in the United States. Using detailed administrative contribution, earnings, and pension-plan data from the Health and Retirement Study, this analysis formulates a life-cycle-consistent econometric specification of 401(k) saving and estimates the determinants of saving accounting for non-linearities in the household budget set induced by matching. The participation estimates indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) participation by 5 percentage points. The parametric and semi-parametric estimates for saving indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) saving by $365 (in 1991 dollars). Overall, the analysis reveals that the 401(k) saving response to matching is quite inelastic, and, hence, matching is a rather poor policy instrument with which to raise retirement saving.     

Mechanism Design under Alternative Information Structures and Constrained Capacity

In applied models, the choice of a particular incomplete information structure appears to have been motivated primarily by technical convenience. The information structures used can be classified as either probabilistic or partitional. Information is probabilistic if no agent can rule out any type profile of the remaining agents and, for at least one type of one agent, the conditional and marginal probability distributions over the remaining agents' types are not equal. Information is partitional if the only information the agents have is that one or more agents (individually) can rule out type profiles of the remaining agents and, for at least one type of one agent, that agent has information about the remaining agents. Partitional information includes complete information as a special case. Existing results on complete information environments suggest that partitional information might simplify implementation problems. Within the context of an applied agency model in which capacity is constrained, we provide results that seem to challenge this intuition.Journal of Economic LiteratureClassification Numbers: C72, D82.