An experimental approach to valuing new differentiated products

An experimental store was created to evaluate initial demand for locally produced and guaranteed tender steak products as a more realistic alternative to contingent valuation (CV) and dichotomous-choice experimental methods. Strengths of the approach are incentive compatibility, a realistic consumption set, and a familiar choice environment. Consumers selected among USDA Choice, premium quality, lean, guaranteed tender and locaily produced strip steaks. A double-hurdle count data model indicated initial willingness-to-pay (WTP) for locally produced steak comparable to prior CV results, but demand was highly elastic. Demand for premium quality steak crowded out demand for the guaranteed tender product, contrasting with prior dichotomous-choice experimental results.     

A look into the factor model black box: Publication lags and the role of hard and soft data in forecasting GDP

We derive forecast weights and uncertainty measures for assessing the roles of individual series in a dynamic factor model (DFM) for forecasting the euro area GDP from monthly indicators. The use of the Kalman smoother allows us to deal with publication lags when calculating the above measures. We find that surveys and financial data contain important information for the GDP forecasts beyond the monthly real activity measures. However, this is discovered only if their more timely publication is taken into account properly. Differences in publication lags play a very important role and should be considered in forecast evaluation.     

Interbank market frictions, international banks and growth

In developing countries and countries in transition, a lack of finance is regarded as a major reason for the underperformance of the SME sector. The financial sector does not channel funds efficiently from savers to the most efficient investment. In a general equilibrium endogenous growth model, we explain the underperformance of the SME sector by interbank market frictions. High information costs in the interbank market lead to a high loan/deposit spread and hence to a low growth equilibrium. The solution to this problem is twofold. First, central bank policy could reduce interbank information problems by providing effective bank supervision. Second, if the central bank is expected not to have sufficient monitoring capabilities, reputation and reserves, opening up the interbank market to international banks can substitute for insufficient central bank activities.The sources of this advantage in efficiency are stronger incentives for workers and managers (direct connection between effort and return), easier monitoring and greater flexibility (McIntyre 2001).     

Karl-Erik Wärneryd: Stock-market psychology: How people value and trade stocks

Journal of Consumer Policy -     

Managing platform architectures and manufacturing processes for nonassembled products

The article presents methods for defining product platforms and measuring business performance in process intensive industries. We first show how process intensive product platforms can be defined using the products and processes of a film manufacturer. We then present an empirical method for understanding the dynamics of process intensive platform innovation, allocating engineering and sales data to specific platform and product development efforts within a product family. We applied this method to a major product line of a materials manufacturer. We gathered ten years of engineering and manufacturing cost data and allocated these to successive platforms and products, and then generated R&D performance measures. These data show the dynamic of heavy capital spending relative to product engineering as one might expect in a process intensive industries. The data also show how derivative products can be leveraged from underlying product platforms and processes for nonassembled products. Embedded within these data are strategies for creating reusable subsystems (comprising components, materials, etc.) and common production processes. Hard data on the degree to which subsystems and processes are shared across different products frequently are typically not maintained by corporations for the duration needed to understand the dynamics of evolving product families. For this reason, we developed and applied a second method to assess the degree of reuse of subsystems and processes. This method asks engineering managers to provide subjective ratings on an ordinal scale regarding the use of technology and processes from one product to the next in a cumulative manner. We find that high levels of reuse generally indicate that a product family was developed with a platform discipline. We applied this measure of platform intensity to two product lines of integrated circuits from another large manufacturer. We used this method to gather approximately ten years of information for each product family. Upon analysis, one product family showed substantial platform discipline, emphasizing a common architecture and processes across specific products within the product line. The other product family was developed with significantly less sharing and reuse of architecture, components, and processes. We then found that the platform centric product family outperformed the latter along a number of performance dimensions over the course of the decade under examination.     

Recursive Nash bargaining over a productive asset

We propose an equilibrium concept (the recursive Nash bargaining solution) that describes the outcome of repeated negotiations between two rational agents under the assumptions that the state of the economic system under consideration changes according to the actions of the players and that neither party can make binding commitments to future behavior. This equilibrium is dynamically consistent but typically not Pareto-efficient. As an application, we compute the recursive Nash bargaining solution in a model of two heterogeneous agents bargaining over the use of a productive asset with constant gross rate of return and study how the time-preference rates and the elasticities of substitution affect the solution.