Optimizing service failure and damage control

Should a provider deliver a reliable service or should it allow for occasional service failures? This paper derives conditions under which randomizing service quality can benefit the provider and society. In addition to cost considerations, heterogeneity in customer damages from service failures allows the provider to generate profit from selling damage prevention services or offering compensation to high-damage customers. This strategy is viable even when reputation counts and markets are competitive.     

Quantities,qualities and multiple public services in the Tiebout model

This paper introduces a new, more realistic characterization of local public services. This characterization fits education, parks, and streets, none of which are a pure Samuelsonian good. It is shown that Tiebout's hypothesis holds for this new type of services, provided correct user charges are adopted. Introducing several local services considerably affects the results. The paper emphasizes the difference in tastes with regard to quality as opposed to quantity. Earlier literature is shown to apply to the role of quality and ignores the role of quantity. The effect of the latter makes mixed communities more efficient than segregated ones. It is shown that efficient allocation with mixed communities is an equilibrium in a costless mobility, Tiebout-type setting.     

Talk of the Network: A Complex Systems Look at the Underlying Process of Word-of-Mouth

Though word-of-mouth (w-o-m) communications is a pervasive and intriguing phenomenon, little is known on its underlying process of personal communications. Moreover as marketers are getting more interested in harnessing the power of w-o-m, for e-business and other net related activities, the effects of the different communications types on macro level marketing is becoming critical. In particular we are interested in the breakdown of the personal communication between closer and stronger communications that are within an individual's own personal group (strong ties) and weaker and less personal communications that an individual makes with a wide set of other acquaintances and colleagues (weak ties).We use a technique borrowed from Complex Systems Analysis called stochastic cellular automata in order to generate data and analyze the results so that answers to our main research issues could be ascertained. The following summarizes the impact of strong and weak ties on the speed of acceptance of a new product:The influence of weak ties is at least as strong as the influence of strong ties. Despite the relative inferiority of the weak tie parameter in the model's assumptions, their effect approximates or exceeds that of strong ties, in all stages of the product life cycle.External marketing efforts (e.g., advertising) are effective. However, beyond a relatively early stage of the growth cycle of the new product, their efficacy quickly diminishes and strong and weak ties become the main forces propelling growth. The results clearly indicate that information dissemination is dominated by both weak and strong w-o-m, rather than by advertising.The effect of strong ties diminishes as personal network size decreases. Market attributes were also found to mediate the effects of weak and strong ties. When personal networks are small, weak ties were found to have a stronger impact on information dissemination than strong ties.     

Efficient agglomeration of spatial clubs

We investigate here the agglomeration of spatial clubs in an efficient allocation of a club economy. The literature on agglomeration has focused largely on a primary agglomeration caused by direct attraction forces. We concentrate mainly on secondary and tertiary agglomerations caused by a primary agglomeration. Initially, scale economies in the provision of club goods (CGs) lead each CG to agglomerate in facilities of its club. This primary agglomeration causes a secondary concentration of population around these facilities, which in turn brings about a tertiary agglomeration of facilities of different clubs into centers in the midst of population concentration. The agglomeration of facilities occurs only if a secondary concentration of population takes place. We analyze in detail two specific patterns of agglomeration. One is the central location pattern in which the facilities of all clubs agglomerate perfectly in the middle of the complex. The second is a triple-centered complex in which the center in the middle of the complex consists of perfectly agglomerated facilities of different clubs, each with a single facility per complex. The remaining two centers also consist of facilities of different clubs, but clubs in these centers each have two facilities per complex, one in each center. Each of these two centers is located between a boundary and the middle of the complex closer to the middle of the complex than to the boundary. The facilities in these two centers form condensed clusters of facilities that may contain residential land in between the facilities. We then show that these agglomeration patterns also characterize agglomerations in general. The literature maintains that an efficiently behaving municipality increases its tax-base. This implies that it is in the municipality’s interest to achieve efficiency. The best way for a local government to achieve this desired efficiency is by partially intervening in market operations in order to internalize local externalities. Such an intervention should be limited to providing the city’s infrastructure, to taxing only residential land rents and clubs’ profits, to subsidizing the basic industry of the city, and to partially regulating land uses. Consequently, if the local governments of all complexes behave according to the above, the decentralization of the efficient allocation of the club economy would be attained.     

Essential aggregation procedures on restricted domains of preferences

The restricted domains of individuals' preferences that permit the construction of Arrow social welfare functions and nonmanipulable voting procedures in which each of n voters has some power are characterized. In this context a domain is the Cartesian product of n sets of strict preference orderings. Variants of this result are obtained under the additional requirement of neutrality and in the case when alternatives are vectors whose ith components affect only the ith voter. Kalai and Muller's analogous result (J. Econ. Theory16 (1977), 457–469) concerning nondictatorial procedures is discussed and proved as a corollary to the main theorem.     

Delegated Portfolio Management and Rational Prolonged Mispricing

This paper examines how information becomes reflected in prices when investment decisions are delegated to fund managers whose tenure may be shorter than the time it takes for their private information to become public. We consider a sequence of managers, where each subsequent manager inherits the portfolio of their predecessor. We show that the inherited portfolio distorts the subsequent manager's incentive to trade on long-term information. This allows erroneous past information to persist, causing mispricing similar to a bubble. We investigate the magnitude of the mispricing. In addition, we examine endogenous information quality. In some cases, information quality increases when the manager's expected tenure decreases.     

Fairness as a Constraint in the Real Estate Market

Community standards, ethical norms, and perceptions of fairness often serve as constraints on pure profit maximizing behavior. Consider the following examples: Most hardware stores refrain from raising prices on snow shovels after a major snow storm, even where short term profits might be increased. Most employers do not lower wages for existing employees, even as unemployment in the area increases. Automobile dealerships rarely raise sticker prices to cope with the long waiting periods for a popular model. Each of these anomalies is consistent with the proposition that firms increase profits subject to fairness constraints.This paper examines perceptions of fairness in the residential real estate industry and explores how community standards affect economic decision-making. The residential real estate industry is unique. One party to the transaction (the landlord) frames decisions as pure business decisions. The other party to the transaction (the tenant) frames decisions more broadly. While a tenant's choice of apartments is in part viewed as a business decision, tenants consider a broad spectrum of non-business issues, as well.This disjunction between landlord and tenant perceptions can lead to unique ethical quandaries and can explain otherwise anomalous economic behavior in the industry. The hypothetical case examined in this paper is based on a frequently encountered situation in the industry. The paper concludes with practical suggestions for managers.     

Harmonization of commodity taxes: Destination,origin and restricted origin principles

The three tax principles are compared using a multiproduct custom union model. It is shown that if member countries use the destination or origin principles, no distortion or redistribution of income occurs, even if their tax rates differ. However, under the restricted origin principle, different tax rates result in distortion and income redistribution. Equal tax rates still result in a redistribution of real income. An exact measurement of this redistribution is derived. Given these results it seems possible to conclude that the origin principle is superior to the other tax principles.     

Capital accumulation games of infinite duration

Consider a market in which firms accumulate capital according to the Nerlove-Arrow capital accumulation equation. Each player chooses a path of investment and thus an induced path of capital to maximize his total discounted profits which depend on his own capital and the capital stocks of his rivals. Existence is proved for such a nonzero sum, infinite horizon differential game and conditions under which the game converges to a particular stationary point, regardless of the initial conditions are shown. Thus, the game possesses the property of conditional global asymptotic stability.