Simple sequencing problems with interdependent costs

In this paper we analyze simple sequencing problems under incomplete information and interdependent costs. We prove the necessity of concave cost function for implementability of such problems. Implementability means that one can achieve aggregate cost minimization in ex-post equilibrium. We also show that simple sequencing problems are implementable if and only if the mechanism is a ‘generalized VCG mechanism.’ We then consider first best implementability, that is implementability with budget balancing transfer. We prove that for implementable n agent simple sequencing problems, with polynomial cost function of order (n−2) or less, one can achieve first best implementability. Finally, for the class of implementable simple sequencing problems with “sufficiently well behaved” cost function, this is the only first best class.     

Contracting with imperfect commitment and noisy communication

This paper provides new analytical tools for studying principal-agent problems with adverse selection and limited commitment. By allowing the principal to use general communication devices we overcome the literature's common, but overly restrictive focus on one-shot, direct communication. In addition, general communication devices solve two fundamental problems of contracting with imperfect commitment: First, they allow us to identify the ‘local downward’ incentive constraints as the relevant ones if the agent's preferences satisfy a single-crossing property. Second, we show how one may restrict the cardinality of the message spaces of the communication device. An example illustrates our arguments and the suboptimality of one-shot, direct communication.     

Pareto efficiency in the jungle

We revisit the jungle economy of Piccione and Rubinstein (Econ J 117(July):883–896, 2007) in which the allocation of resources is driven by coercion. In this economy the unique equilibrium satisfies lexicographic maximization. We show that relaxing the assumptions on consumption sets and preferences slightly, allocations other than lexicographic maximizers can be jungle equilibria. We attribute this result to single unilateral taking where a stronger agent takes goods from only one weaker agent. Once multiple unilateral takings are introduced, we show that jungle equilibria coincide with lexicographic maximization under weak assumptions. However, we also present examples of equilibria that are Pareto inefficient, where voluntary gift giving by stronger agents is needed to achieve Pareto efficiency and even voluntary trade has a role in the jungle.     

Capital Allocation Effects of Financial Reporting Regulation and Enforcement

This paper analyses the effects of stricter financial reporting enforcement on capital allocation and reporting quality in a game-theoretic model and derives conclusions about optimal enforcement strictness. Analysis of the model shows that reporting quality strictly increases with tighter enforcement. However, the effect of stricter enforcement on capital allocation is non-monotonic. Intermediate enforcement strictness results in overdeterrence of viable projects even without costs of compliance. This effect can be alleviated by means of either less or more stringent enforcement.     

Quality clusters: Dimensions of email responses by luxury hotels

A growing body of research investigates hospitality Internet use, but usually focuses on websites rather than the most popular Internet application, email. This study uses cluster analysis and the SERVQUAL-P service quality (SQ) model to help address gaps in both academic and applied research of email use in the hospitality industry. The cluster analysis of email responses to a mystery guest survey by luxury hotels identified four hotel clusters. The clusters showed significant differences across all 24 email response variables and support four dimensions of email SQ corresponding to SERVQUAL-P's four dimensions.     

Kein Stein der Weisen – Prognosen erfordern eine intelligente Nutzung

Die Prognosen der Wirtschaftsforschungsinstitute werden in jüngster Zeit h?ufig wegen Ungenauigkeit kritisiert. Wodurch wird ihre Aussagef?higkeit eingeschr?nkt? Wie sollten sie interpretiert werden? Wie k?nnten die Prognosetreffsicherheit verbessert werden? Dr. Roland D?hrn, 52, ist Leiter des Kompetenzbereichs „Wachstum und Konjunktur“ und Prof. Dr. Christoph M. Schmidt, 44, ist Pr?sident des Rheinisch-Westf?lischen Instituts für Wirtschaftsforschung in Essen und Inhaber des Lehrstuhls für angewandte ?konometrie an der Ruhr-Universit?t Bochum. * überarbeitete und erweiterte Fassung eines unter dem gleichen Titel als RWI: Positionen #5 am 8.10.2005 erschienen Beitrags.     

Reputation and its risks

Regulators, industry groups, consultants, and individual companies have developed elaborate guidelines over the years for assessing and managing risks in a wide range of areas, from commodity prices to natural disasters. Yet they have all but ignored reputational risk, mostly because they aren't sure how to define or measure it. That's a big problem, say the authors. Because so much market value comes from hard-to-assess intangible assets like brand equity and intellectual capital, organizations are especially vulnerable to anything that damages their reputations. Moreover, companies with strong positive reputations attract better talent and are perceived as providing more value in their products and services, which often allows them to charge a premium. Their customers are more loyal and buy broader ranges of products and services. Since the market believes that such companies will deliver sustained earnings and future growth, they have higher price-earnings multiples and market values and lower costs of capital. Most companies, however, do an inadequate job of managing their reputations in general and the risks to their reputations in particular. They tend to focus their energies on handling the threats to their reputations that have already surfaced. That is not risk management; it is crisis management--a reactive approach aimed at limiting the damage.The authors provide a framework for actively managing reputational risk. They introduce three factors (the reputation-reality gap, changing beliefs and expectations, and weak internal coordination) that affect the level of such risks and then explore several ways to sufficiently quantify and control those factors. The process outlined in this article will help managers do a better job of assessing existing and potential threats to their companies' reputations and deciding whether to accept a particular risk or take actions to avoid or mitigate it.