Optimal incentives for sequential production processes

I study optimal incentive schemes in organizations where agents perform their tasks sequentially. I consider a model in which agents' effort decisions are mapped into the probability of the project's success. An optimal investment‐inducing mechanism allocates rewards to agents so as to induce all of them to exert effort in equilibrium at minimal cost to the principal. I characterize the unique optimal mechanism in several versions of my benchmark model. I also address the problem of allocating individuals with diverse qualifications to different slots of the production process as well as allocating tasks of different importance across different agents.     

Presidential Address: Antitrust restrictions on single-firm strategies

Abstract This article offers an overview of selected developments in the law and economics of antitrust regulation of single‐firm strategies. The strategy generating the most cases historically is resale price maintenance. Here, the law has moved sharply in both Canada and the U.S. towards more solid economic foundations. Yet a gap between the law and economics remains. The economics of resale price maintenance is reviewed within a framework that is much simpler and more general than the existing literature. The law on a second strategy, predatory pricing, represents in my view a success story for the influence of economic theory in spite of the absence of a single accepted theory of predatory pricing. The remaining single‐firm strategies are concerned largely with the exclusion by a dominant firm of rivals from a market. I review, with application to cases, the two most basic questions concerning exclusionary strategies. Are exclusionary, anticompetitive contracts ever entered into voluntarily by market participants? On the other hand, is complete or substantial foreclosure of a market through exclusionary strategies necessarily anticompetitive?     

Virtual Decoupling for IT/Business Alignment – Conceptual Foundations, Architecture Design and Implementation Example

IT/business alignment is one of the main topics of information systems research. If IT artifacts and business-related artifacts are coupled point-to-point, however, complex architectures become unmanageable over time. In computer science, concepts like the ANSI/SPARC three-level database architecture propose an architecture layer which decouples external views on data and the implementation view of data. In this paper, a similar approach for IT/business alignment is proposed. The proposed alignment architecture is populated by enterprise services as elementary artifacts. Enterprise services link software components and process activities. They are aggregated into applications and subsequently into domains for planning/design and communication purposes. Most design approaches for the construction of enterprise services, applications and domains are top-down, i. e. they decompose complex artifacts on a stepwise basis. As an alternative which takes into account coupling semantics, we propose a bottom-up approach which is demonstrated for the identification of domains. Our approach is evaluated using a telecommunications equipment case study.

Voting in Hiring Committees: Which “Almost” Rule is Optimal?

We determine the scoring rule that is most likely to select a high-ability candidate. A major result is that neither the widely used plurality rule nor the inverse-plurality rule are ever optimal, and that the Borda rule is hardly ever optimal. Furthermore, we show that only the almost-plurality, the almost-inverse-plurality, and the almost-Borda rule can be optimal. Which of the “almost” rules is optimal depends on the likelihood that a candidate has high ability and how likely committee members are to correctly identify the abilities of the different candidates.     

The Role of Private Label Brands in Enhancing Service Satisfaction in the Hotel Industry: Comparing Luxury and Boutique Hotels

ABSTRACT

This research proposes private label branding as a strategy that can have a positive effect on guest satisfaction and loyalty in hotels that cater to travelers seeking a special hotel experience. We test this using a sample of guests in two hotels: a five-star luxury hotel (N = 225) and a boutique hotel (N = 101). Findings show that in the luxury hotel but not the boutique hotel, perception of a private label had a direct impact on loyalty, and an indirect impact on loyalty through its effect on guest satisfaction. The theoretical implications and recommendations for hoteliers based on the findings are discussed.     

Fragility of information cascades: an experimental study using elicited beliefs

This paper examines the occurrence and fragility of information cascades in two laboratory experiments. One group of low informed participants sequentially guess which of two states has been randomly chosen. In a matched pairs design, another group of high informed participants make similar guesses after having observed the guesses of the low informed participants. In the second experiment, participants’ beliefs about the chosen state are elicited. In equilibrium, low informed players who observe an established pattern of identical guesses herd without regard to their private information whereas high informed players always guess according to their private information. Equilibrium behavior implies that information cascades emerge in the group of low informed participants, the belief based solely on cascade guesses is stationary, and information cascades are systematically broken by high informed participants endowed with private information contradicting the cascade guesses. Experimental results show that the behavior of low informed participants is qualitatively in line with the equilibrium prediction. Information cascades often emerge in our experiments. The tendency of low informed participants to engage in cascade behavior increases with the number of identical guesses. Our main finding is that information cascades are not fragile. The behavior of high informed participants differs markedly from the equilibrium prediction. Only one-third of laboratory cascades are broken by high informed participants endowed with private information contradicting the cascade guesses. The relative frequency of cascade breaks is 15% for the situations where five or more identical guesses are observed. Participants’ elicited beliefs are strongly consistent with their own behavior and show that, unlike in equilibrium, the more cascade guesses participants observe the more they believe in the state favored by those guesses.     

Can Co-Owners Agree to Disagree? A Theoretical Examination of Voting Rules in Co-Ownerships

Does there exist a voting rule to be, for example, inserted into the constitution of a newly constructed apartment building, which is likely to attract the greatest number of consumers? We analyze this and other questions within a framework in which co-owners resolve future debates by voting. We examine the conditions under which a co-owner optimally opts for unanimous, special majority, simple majority, and minority voting rules. The main innovation of the analysis is that co-owners with distinct characteristics may yet unanimously agree on the optimal voting rule. Among the other results are that the optimal level of the voting rule is non-decreasing (non-increasing) in one’s level of disutility from opposing (favoring) an accepted (a rejected) proposal. Also, while our results are generally in line with the predictions of Ellickson (1982) and the evidence of Barzel and Sass (1990), according to which heterogeneous (homogeneous) voters require (less than) a super majority voting rule, we show a possible exception to this generalization: heterogeneity, in some circumstances, may optimally lead to a minority voting rule. The results are applicable for groups such as general assemblies in apartment buildings, neighborhood councils, and others.     

Approval voting reconsidered

Summary. The merit of approval voting has been widely discussed in the past 25 years. The distinct property of this rule is the extent of flexibility it allows; any voter can approve as many alternatives/candidates as he wishes. Nevertheless, this advantage is the very reason for two drawbacks of approval voting: its extreme vulnerability to majority decisiveness (Theorem 1) and its extreme vulnerability to erosion of the majority principle (Theorem 2). On the one hand, under some feasible voting strategies any majority of more than 1/2 of the voters can guarantee the selection of its most favorable candidate, regardless of the preferences of the other voters. On the other hand, under alternative voting strategies even the largest majority cannot impose its common most preferred candidate. A simultaneous resolution of the two problems is possible by restricted approval voting (RAV), a voting rule that allows partial voter flexibility by restricting the minimal and maximal number of candidates that can be approved. Our main result (Theorem 3) clarifies how the foregone flexibility in voters sovereignty mitigates the above mentioned drawbacks under sincere and insincere coordinated voting. Our findings suggest a new possible justification of a particular voting rule which is based on the significance assigned to three considerations: the advantages of voters flexibility, immunity to majority decisiveness and immunity to erosion of the majority principle. Such justification can provide a possible explanation to the prevalent use of some special cases of RAV, notably, of the plurality rule and of approval voting.Received: 8 October 2003, Revised: 17 June 2004, JEL Classification Numbers: D71, D72. Correspondence to: Shmuel NitzanWe are indebted to Steve Brams, Remzi Sanver and an anonymous referee for their very useful comments and suggestions.     

Getting it right the second time

Once a business performs a complex activity well, the parent organization often wants to replicate that success. But doing that is surprisingly difficult, and businesses nearly always fail when they try to reproduce a best practice. The reason? People approaching best-practice replication are overly optimistic and overconfident. They try to perfect an operation that's running nearly flawlessly, or they try to piece together different practices to create the perfect hybrid. Getting it right the second time (and all the times after that) involves adjusting for overconfidence in your own abilities and imposing strict discipline on the process and the organization. The authors studied numerous business settings to find out how organizational routines were successfully reproduced, and they identified five steps for successful replication. First, make sure you've got something that can be copied and that's worth copying. Some processes don't lend themselves to duplication; others can be copied but maybe shouldn't be. Second, work from a single template. It provides proof success, performance measurements, a tactical approach, and a reference for when problems arise. Third, copy the example exactly, and fourth, make changes only after you achieve acceptable results. The people who developed the template have probably already encountered many of the problems you want to "fix," so it's best to create a working system before you introduce changes. Fifth, don't throw away the template. If your copy doesn't work, you can use the template to identify and solve problems. Best-practice replication, while less glamorous than pure innovation, contributes enormously to the bottom line of most companies. The article's examples--Banc One, Rank Xerox, Intel, Starbucks, and Re/Max Israel--prove that exact copying is a non-trivial, challenging accomplishment.