Learning by a dominant firm

This paper is concerned with the optimal output decisions of a dominant firm in the presence of imperfect information about the rival's reactions. The model is multi-period with the profits in each period being independent of those in other periods. Consequently, if the rival's reaction parameter were known to the dominant firm, a myopic policy would be optimal, In the presence of imperfect information about the rival's unknown reaction parameter, the dominant firm acts in a Bayesian manner by updating its prior distribution based on the observations of the rival's outputs. Because of the multiplicative shape of the rival's reaction function, the Bayesian updating rule is a function of the dominant firm's decision variable, i.e. its output decisions. This creates a dependence of the future value of the dominant firm on the present output decision, and hence a myopic policy is not, in general, optimal. It is shown that through output experimentation the dominant firm will tend to overproduce and, consequently, will increase its expected discounted profits (market value).     

The governance of exchanges: members' cooperatives versus outside ownership

Many securities exchanges are run as members' cooperatives:they are run on behalf of the people who use the exchange. Thisform of governance is unusual. Most businesses have outsideownership: the people who own and run the firm are typicallynot the same people who buy and use the firm's product. Thatis, contrast to a members' cooperative, ownership is not bundledwith the right to consume. We argue that the crucial distinctionbetween a cooperative structure and outside ownership concernswho has residual rights or control over the non-human assets.With outside ownership, control rests with the owners; and sinceoutside owners are typically only interested in maximizing profit,they tend to make inefficient decisions, tailored to the marginaluser. By contrast, in a cooperative the members have collectivecontrol. Collective decision making is typically inefficient,because in a vote the views of the pivotal voter are not necessarilythe same as those of the membership as a whole. Thus both formsof governance, outside ownership and a members' cooperativeare inefficient - but for different reasons, and in differentways. In comparing the two ownership structures, we find thatoutside ownership becomes relatively more efficient than a members'cooperative as: (i) the variation across the membership becomesmore skewed; and (ii) the exchange faces more competition. Formany exchanges, but these changes have occurred in recent years.However, even if outside ownership is now the superior structureof governance for an exchange, a members' cooperative may not,of its volition, vote in favour of making the change; i.e. theymay decide not to sell up. This is because the gainers may beunable to compensate the losers.     

Evaluating employee integrity: Moral and methodological problems

This paper reviews the research on proprietary paper and pencial tests of integrity or honesty, which have effectively supplanted polygraph examinations in evaluating the moral attributes of employees and applicants. Moral integrity is a complex issue that encompasses more than conventional notions of honesty and is difficult to operationalize as a psychological trait or construct. Integrity test questions are largely derived from polygraph interrogations and the tests validated through polygraph results. The field studies reviewed and an exploratory test cast doubt on the ability of these paper and pencil instruments to meet standards of construct validity. Other studies show promise of predictive validity in some situations. Unfortunately, the research designs used to substantiate the predictive powers of integrity tests failed to hold other workplace influences constant. In light of these findings, employers are urged to exercise caution in the use of these tests until further independent research is reported because of potential infringements on privacy and equal opportunity.     

Defining national property rights to a common property resource: The case of the West Bank aquifers

This article introduces a methodology to define Israeli and Palestinian property rights to the three aquifers straddling the Green Line between Israel and the West Bank, i.e. the Yarqon-Tanninim, Northern, and Nablus-Jenin aquifers. A set of procedures for determining a fair division of waters is described for the hypothetical planning year 2000. Following this, the calculated allocation of water rights is evaluated in terms of the projected over-all water consumption and supply balance for Israel and a Palestinian sovereign authority (PSA) for the year 2000. Finally, the article concludes with some thoughts on the relative merits of this methodology.     

The Role of Advertising Educators as Problem Solvers in the Field of Advertising

Abstract

Nationally syndicated product-media data services are very useful for analyzing the nature of target markets. They are not, however, generally considered useful for estimating television reach and frequency. This paper explains how selectivity indices derived from national product-media data can be combined with data from more specialized television-usage data services to yield an estimate of target market ratings. The paper describes a pilot study designed to test the plausibility of this approach.