Optimal information revelation in procurement schemes

A buyer procuring a single input possesses private information about each potential supplier's degree of fit with the buyer's needs. She can search among suppliers either sequentially or simultaneously. As long as the distribution of the fit parameter is not overly skewed to the left, sharing information with suppliers yields intensified price competition under simultaneous search. Moreover, the buyer cannot benefit by providing suppliers additional information beyond their own fitness parameter. Information revelation is never optimal with sequential search.     

On Forward Induction and Evolutionary and Strategic Stability

We analyze which normal form solution concepts capture the notion of forward induction, as defined by E. van Damme (1989, J. Econ. Theory48, 476-496) in the class of generic two player normal form games preceded by an outside option. We find that none of the known strategic stability concepts (including Mertens stable sets and hyperstable sets) capture this form of forward induction. On the other hand, we show that the evolutionary concept of EES set (J. Swinkels, 1992, J. Econ. Theory57, 306-332) is always consistent with forward induction. Journal of Economic Literature Classification Number: C72.     

Impact factor as a metric to assess journals where OM research is published

This paper investigates impact factor as a metric for ranking the quality of journal outlets for operations management (OM) research. We review all prior studies that assessed journal outlets for OM research and compare all previous OM journal quality rankings to rankings based on impact factors. We find that rankings based on impact factors that use data from different time periods are highly correlated and provide similar rankings of journals using either two-year or five-year assessment periods, either with or without self-citations. However, some individual journals have large rank changes using different impact factor specifications. We also find that OM journal rankings based on impact factors are only moderately correlated with journal quality rankings previously determined using other methods, and the agreement among these other methods in ranking the quality of OM journals is relatively modest. Thus, impact factor rankings alone are not a replacement for the assessment methods used in previous studies, but rather they evaluate OM journals from another perspective.     

Regulatory regimes in the electric power industry: Implications for capacity

We construct a model of the electric power industry which consists of two utilities faced with uncertain demand and a variety of regulatory regimes. Two technologies are considered, base-load and peaking, and the transfer of bulk electricity among utilities is permitted. The purpose of the paper is not to determine optimal regulatory regimes but to provide a framework for analyzing existing and contemplated regulatory initiatives. The conclusions are that long run survival mandates an authorized rate of return above the cost of capital and that excess investment will result. Furthermore, it is highly unlikely that current regulatory instruments such as Used and Useful, distribution of profits from bulk sales, and pricing of wholesale electricity can lead to a socially optimal capital stock.     

Allocating Ideas: Horizontal Competition in Tournaments

We develop a stylized model of horizontal and vertical competition in tournaments with two competing firms. The sponsor cares not only about the quality of the design but also about the design location. A priori not even the sponsor knows his preferred design location, which is only discovered once he has seen the actual proposals. We show that the more efficient firm is more likely to be conservative when choosing the design location. Also, to get some differentiation in design locations, the cost difference between contestants can be neither too small nor too big. Therefore, if the sponsor mainly cares about the design location, participation in the tournaments by the two lowest-cost contestants cannot be optimal for the sponsor.     

MGARCH models: Trade-off between feasibility and flexibility

Multivariate GARCH (MGARCH) models need to be restricted so that their estimation is feasible in large systems and so that the covariance stationarity and positive definiteness of conditional covariance matrices are guaranteed. This paper analyzes the limitations of some of the popular restricted parametric MGARCH models that are often used to represent the dynamics observed in real systems of financial returns. These limitations are illustrated using simulated data generated by general VECH models of different dimensions in which volatilities and correlations are interrelated. We show that the restrictions imposed by the BEKK model are very unrealistic, generating potentially misleading forecasts of conditional correlations. On the other hand, models based on the DCC specification provide appropriate forecasts. Alternative estimators of the parameters are important in order to simplify the computations, and do not have implications for the estimates of conditional correlations. The implications of the restrictions imposed by the different specifications of MGARCH models considered are illustrated by forecasting the volatilities and correlations of a five-dimensional system of exchange rate returns.     

Minimum Differentiation in Commercial Media Markets

We examine a model of locational choice in commercial media markets. Commercial media (stations) compete for audiences with their choice of programming variety in order to attract advertising revenues from advertisers. These advertisers (producers) compete in a differentiated product market and rely on advertising to inform consumers about their product. We use the model to show that media have incentives to minimize the extent of differentiation between them. This incentive is an implication of the assumed role of advertising as information and as an ultimate nuisance to the audience. When stations minimally differentiate their programming offerings, producers choose lower levels of advertising. Consequently, lower levels of product information are available to consumers, permitting producers to gain higher margins on product sales. As a result, stations can negotiate higher payments for advertising space.     

University spillovers and new business location in high-technology sectors: Spanish evidence

This paper examines the relationship between knowledge spillovers from universities and new business location in high-technology sectors. We focus on the contribution to new business formation through spillovers stemming from three main university outputs: knowledge-based graduates, research activities, and technological knowledge. We construct a new dataset with information on 604 companies and 63 universities in Spain and group the data across 36 geographical areas from 2001 to 2004 (144 observations). After controlling for several traditional cost factors and agglomeration characteristics, we find that university spillovers are relevant in explaining the location of new businesses in high-technology sectors in Spain. Further, our analysis draws attention to the relevance of graduates as the main source of spillovers, while research activities and university technology do not have significant effects.     

Optimal portfolios with minimum capital requirements

We propose a novel approach to active risk management based on the recent Basel II regulations to obtain optimal portfolios with minimum capital requirements. In order to avoid regulatory penalties due to an excessive number of Value-at-Risk (VaR) violations, capital requirements are minimized subject to a given number of violations over the previous trading year. Capital requirements are based on the recent Basel II amendments to account for the ‘stressed’ VaR, that is, the downside risk of the portfolio under extreme adverse market conditions. An empirical application for two portfolios involving different types of assets and alternative stress scenarios demonstrates that the proposed approach delivers an improved balance between capital requirement levels and the number of VaR exceedances. Furthermore, the risk-adjusted performance of the proposed approach is superior to that of minimum-VaR and minimum-stressed VaR portfolios.