CUMULATIVE ADVERTISING EFFECTS: THE ROLE OF SERIAL CORRELATION; A REPLY

In a recent paper, Houston and Weiss applied a non-linear estimation procedure to a serial correlation model of advertising effect. Although the methodology is interesting, their conclusions, based on the annual Lydia Pinkham data, are in error. This paper locates the source of the error and corrects the conclusions. It also applies the Houston and Weiss methodology to the monthly Lydia Pinkham data with interesting results.     

THE SEU CALCULUS: EFFECTS OF RESPONSE MODE,SEX, AND SEX ROLE ON UNCERTAIN DECISIONS *

Subjects were instructed on how to use simple subjective probability and utility scales, and they were asked to actively role-play a decision maker in seven risk-dilemma situations. Each scenario provided subjects with specific subjective expected utility (SEU) information for both a certain and uncertain decision alternative, but left out one critical SEU component. Subjects supplied either the lowest probability or the lowest utility for success that they found necessary before they would select the uncertain over the certain alternative in each dilemma. Three experiments examined: (a) the degree to which Ss' estimations deviated from a pattern predicted by SEU models; (b) differences in choice patterns induced by response format variations (e.g., probability vs. utility estimation); (c) the effects of sex of S; and (d) the effects of the sex-role framing of the decision problems. Ss generally chose in accord with SEU maximization principles and did so with decreasing deviations from theoretical values as practice over situations increased (Experiments I, II and III). Decisions were initially more conservative on items requesting probability estimates (Experiment I), but this effect washed out over situations. Sex differences were revealed (Experiments I and III), but in limited fashion. Rather, a replicable (Experiments I, II and III) sex-by-sex role appropriateness by response format interaction was found, in which females responded “rationally” under both probability and utility estimation conditions and under both role sets (male and female). Males, however, responded extremely conservatively under female-framed, probability estimate conditions. Ss' choices were stable over a three-week interval (Experiment III).     

THE DEPENDENCE OF THE EFFECTS OF LEARNING MODE ON CONCOMITANT FACTORS*

Despite the number of studies comparing the programmed instruction (PI) and text teaching methods, the results to date have been inconclusive. In this paper it is hypothesized that the effects of these two modes of learning on performance are dependent on differences in people and in the material to be learned. In an experiment on 48 subjects it was found that both mode of learning and sex affected performance, but the effect of sex differed for the two modes of learning. Women performed better in the PI mode and men performed better in the text mode. Also, performance on definitional material was dependent on the aptitude of the learner and on inferential material was dependent on the prior knowledge of the learner.     

THE EFFECTS OF GAME COMPLEXITY ON THE ACQUISITION OF BUSINESS POLICY KNOWLEDGE *

Certain cognitive and affective results obtained by three increasingly complex business games were examined. All simulations taught facts and concepts but the most complex simulation produced the greatest effect. More game complexity also brought about heightened challenge, lesser monotony, and greater decision-making comprehensiveness. Motivational and learning levels, however, were not linearly positive with increasing complexity. The intermediate game was as motivating as the complex one although it was inferior to the simple game as a teaching device. The complex game also experienced higher student mortality.     

IMPLICATIONS OF A MODAL-DELAYED DISTRIBUTED LAG RESPONSE TO ADVERTISING EXPENDITURE*

This paper reviews a generalized optimal theoretic advertising model with the flexibility to account for a modal-delayed (inverted V), distributed lag response to advertising expenditure. Three econometric techniques are used in a general test of this model. Conclusions show that models constrained to a simple exponential lag overspecify the optimal level of advertising.     

ADVERTISING AND VALUE MAXIMIZATION: AN INTEGRATIVE APPROACH *

The model developed in this paper is interdisciplinary in that we incorporate the advertising decision into the capital asset pricing model (CAPM) for valuation of risky income streams. The advertising decision involves the purchase of media services whose effects on sales (profit) are hypothesized to vary with general economic activity. As in any asset expansion, the firm purchases an income distribution with a given expected value and covariance with the economy. By consulting the CAPM, we are able to obtain a value for the income distribution associated with the advertising expenditure. By failing to account for both risk and return, those previous studies which have examined the effect of advertising on profit or valuation are, at best, incomplete. We are able to demonstrate the inappropriateness of ranking alternative advertising strategies solely on the basis of expected income.     

ON CONSUMER- VERSUS FIRM-LEVEL ANALYSIS OF ADVERTISING EFFECTIVENESS: IMPLICATIONS FOR MODEL BUILDING*

Issues relating to the construction of marketing models are discussed. These include determining the level of aggregation of model construction, specifying the structure of the model, and the aggregation level of data to be employed in estimating model parameters. These issues are addressed through specifying and estimating both consumer-level and firm-level models and comparing the results. An important conclusion is that inferences about consumer behavior should not be drawn from firm-level models since aggregation bias may exist.     

AN EMPIRICAL EXAMINATION OF THE BIASING EFFECTS OF FRAMING ON BUSINESS DECISIONS*

This paper presents results of three studies testing whether decision bias due to framing, found in consumer purchase contexts, also would occur in a business setting. In the first study, business-student subjects displayed framing-induced decision bias just as subjects had in an earlier study by Tversky and Kahneman [12]. When the consumer problem was recast into a business decision in the second study, student subjects trained to handle the problem still revealed bias, although to a lesser extent. In the third study, experienced business managers revealed the same pattern of decision bias as the student subjects. Implications of this bias for business decision makers are discussed.     

A SIMULATION OF THE EFFECTS OF ALTERNATIVE RULE SYSTEMS FOR JAI ALAI*

The inequities of the present system of rules in jai alai are documented on the basis of empirical information and theoretical results from a Monte Carlo simulation model. Some suggestions are made for changing the rules in order to make the game more equitable for both players and bettors. The simulation model is used to compare the effectiveness of the suggested rules with that of the present rules.     

TAX POLICY REFORM: THE ROLE OF EMPIRICAL EVIDENCE

To understand the role of evidence in tax policy design, this paper organizes the empirical analysis of reform under five loosely related headings: (i) key margins of adjustment, (ii) measurement of effective tax rates, (iii) the importance of information and complexity, (iv) evidence on the size of responses, and (v) implications from theory for tax design. The context for the discussion is the recently published Mirrlees Review of tax reform. Although the Review focused on all aspects of tax reform, this paper highlights the taxation of earnings. It also comments on earnings taxation in the context of VAT base‐broadening reforms and the taxation of capital.     

SPECULATIVE ATTACKS AND THE INFORMATION ROLE OF THE INTEREST RATE

This paper models currency attacks as carried out by speculators who condition their actions on private signals about the state and on the market‐clearing interest rate. Besides affecting speculators' payoffs, this interest rate also provides an endogenous public signal. For a plausible type of investment strategies, the dual role of the interest rate allows the model to explain abrupt and intense speculative attacks solely via economic fundamentals, without resorting to sunspot variables. This result underlies a novel policy implication: An official intervention in the foreign exchange market may reinforce a currency peg by influencing the precision of public information. (JEL: D82, D84, F31)     

THE ROLE OF AFFECTIVE EXPERIENCE IN WORK MOTIVATION

Based on psychological and neurobiological theories of core affective experience, we identify a set of direct and indirect paths through which affective feelings at work affect three dimensions of behavioral outcomes: direction, intensity, and persistence. First, affective experience may influence these behavioral outcomes indirectly by affecting goal level and goal commitment, as well as three key judgment components of work motivation: expectancy judgments, utility judgments, and progress judgments. Second, affective experience may also affect these behavioral outcomes directly. We discuss implications of our model.     

THE ROLE OF TRANSACTION COSTS FOR FINANCIAL VOLATILITY: EVIDENCE FROM THE PARIS BOURSE

This paper analyzes the causal linkage between transaction costs and financial volatility under two methodological improvements over the existing literature. First, we use panel data in which exogenous transaction cost differences in the French stock market are induced by price level dependent minimum price variation rules (tick size rules). Unlike in previous studies based on one‐time regulatory tick size changes (like the U.S. decimalization), we can separately identify and control for marketwide volatility changes. Second, we avoid the pitfalls of biased volatility measurement across regimes by using the range as a tick size robust volatility metric. Panel regressions controlling for marketwide volatility effects show at high levels of statistical significance that the hourly range volatility of individual stocks increases by more than 30% for a 20% exogenous increase in transaction costs due to tick size variations in the French trading system. In the light of this evidence, higher transaction costs in general, and security transaction taxes in particular, should be considered as volatility increasing. (JEL: F3, G1, G14)     

THE ROLE OF INFORMATION IN INNOVATION AND COMPETITION

Innovation is typically a trial‐and‐error process. While some research paths lead to the innovation sought, others result in dead ends. Because firms benefit from their competitors working in the wrong direction, they do not reveal their dead‐end findings. Time and resources are wasted on projects that other firms have already found to be fruitless. We offer a simple model with two firms and two research lines to study this prevalent problem. We characterize the equilibrium in a decentralized environment that necessarily entails significant efficiency losses due to wasteful dead‐end replication and an information externality that leads to an early abandonment of the risky project. We show that different types of firms follow different innovation strategies and create different kinds of welfare losses. In an extension of the core model, we also study a centralized mechanism whereby firms are incentivized to disclose their actions and share their private information in a timely manner. (JEL: O31, D92)     

GRAPHICAL REPRESENTATION OF THE EFFECTS OF MULTICOLLINEARITY

This paper considers the effects of multicollinearity on the multiple coefficient of determination and on the standard errors of the estimated regression coefficients. Limiting results are well known for these problems, and some particular cases have been investigated. However, the limiting cases do not explain the nonmonotonic relationships that have been observed in practice. This paper explores these relationships and attempts to provide a unifying graphical explanation that includes the previous results as special cases. Implications for stepwise regression and for the interpretation of any multiple regression involving multicollinear independent variables are discussed.     

THE EFFECTS OF INTERDISCIPLINARY EDUCATIONAL FORMATS ON CONCEPT RETENTION AND PROBLEM–SOLVING ABILITY*

The purpose of this study was to examine the effects of different interdisciplinary problem-oriented formats on a student's knowledge of and retention of disciplinary concepts and principles, his application of these concepts and principles to disciplinary problems, and his use of a discipline in his analysis of a complex problem. Performances of students enrolled in the experimental sections were compared to those of students enrolled in standard lecture-discussion sections. Regression analysis was used to analyze students' performance in order to control the effects of differences in student backgrounds. It was found that altering the pedagogical format and reward system within the experimental sections had no significant effect upon student performances in the experimental, problem-oriented program. In general, this study indicates that students taught in the standard lecture-discussion format in which grades are determined by examination over course material retain concepts and principles, apply these concepts and principles to disciplinary problems, and integrate disciplinary concepts into their analysis of complex problems as well as, if not better than, students taught in an interdisciplinary, problem-solving format.     

EFFECTS OF BUDGETARY CONTROL DESIGN ON MANAGEMENT DECISIONS: SOME EMPIRICAL EVIDENCE*

An examination of budgetary slack behavior reveals that managerial characteristics and the economic environment may contribute to the failure of budgetary control systems. Large management-controlled firms that operate in industries with high barriers to entry behave as if they allocate more slack resources when compared with owner-controlled firms of similar size and market power. The results confirm that accounting operating-income numbers reflect manifestations of slack behavior in the budgetary process. Management-controlled firms in particular seem to act as if they fail to release and redistribute slack resources. It is concluded that budgetary slack behavior points to failures in the organization design that may lead to inefficient allocation of resources and to inferior profit performance.     

THE ROLE OF SUPPLY MANAGEMENT CAPABILITIES IN GREEN SUPPLY

Managers realize that they should avoid complex green supply initiatives when they do not have the capabilities to implement them. However, they have little guidance on how these capabilities can be developed. This paper provides an initial analysis of the role of supply management capabilities in green supply. We argue that the implementation of green supply is better explained by focusing on the development and deployment of an organization's specialized internal resources, rather than by the more usual focus on external environmental pressures on a firm. Further, we argue that capabilities appropriate for green supply are developed by a proactive corporate environmental stance and by a more strategic purchasing and supply management approach. We test our model using data from a two‐phase survey of 70 operating units within UK public limited companies. Our results indicate support for our conjecture that supply management capabilities are jointly developed by a proactive corporate environmental approach and a strategic purchasing and supply process. Our study results should be useful to business strategists, regulators, and researchers interested in the predictors of corporate green behavior. They should also assist future researchers in many branches of environmental management who are seeking to explore the role of the internal capabilities of firms in supporting environmental management.