Long‐Term Risk: An Operator Approach

We create an analytical structure that reveals the long‐run risk‐return relationship for nonlinear continuous‐time Markov environments. We do so by studying an eigenvalue problem associated with a positive eigenfunction for a conveniently chosen family of valuation operators. The members of this family are indexed by the elapsed time between payoff and valuation dates, and they are necessarily related via a mathematical structure called a semigroup. We represent the semigroup using a positive process with three components: an exponential term constructed from the eigenvalue, a martingale, and a transient eigenfunction term. The eigenvalue encodes the risk adjustment, the martingale alters the probability measure to capture long‐run approximation, and the eigenfunction gives the long‐run dependence on the Markov state. We discuss sufficient conditions for the existence and uniqueness of the relevant eigenvalue and eigenfunction. By showing how changes in the stochastic growth components of cash flows induce changes in the corresponding eigenvalues and eigenfunctions, we reveal a long‐run risk‐return trade‐off.     

DETERMINANTS OF TECHNOLOGY ADOPTION: PEER EFFECTS IN MENSTRUAL CUP TAKE‐UP

We estimate the role of peer effects in technology adoption using data from a randomized distribution of menstrual cups in Nepal. Using individual randomization, we estimate causal effects of peer exposure on adoption. We find strong evidence of peer effects: two months after distribution, one additional friend with access to the menstrual cup increases usage by 18.6 percentage points. Using the fact that we observe both trial and usage of the product over time, we examine the mechanisms that drive peer effects. We show evidence that peers impact learning how to use the technology, but find less evidence that peers impact an individual desire to use the menstrual cup.     

A GLOBAL VIEW OF CROSS‐BORDER MIGRATION

This paper evaluates the global welfare impact of observed levels of migration using a quantitative multi‐sector model of the world economy calibrated to aggregate and firm‐level data. Our framework features cross‐country labor productivity differences, international trade, remittances, and a heterogeneous workforce. We compare welfare under the observed levels of migration to a no‐migration counterfactual. In the long run, natives in countries that received a lot of migration—such as Canada or Australia—are better off due to greater product variety available in consumption and as intermediate inputs. In the short run, the impact of migration on average welfare in these countries is close to zero, while the skilled and unskilled natives tend to experience welfare changes of opposite signs. The remaining natives in countries with large emigration flows—such as Jamaica or El Salvador—are also better off due to migration, but for a different reason: remittances. The welfare impact of observed levels of migration is substantial, at about 5% to 10% for the main receiving countries and about 10% in countries with large incoming remittances.     

Learning‐by‐Doing,Organizational Forgetting,and Industry Dynamics

Learning‐by‐doing and organizational forgetting are empirically important in a variety of industrial settings. This paper provides a general model of dynamic competition that accounts for these fundamentals and shows how they shape industry structure and dynamics. We show that forgetting does not simply negate learning. Rather, they are distinct economic forces that interact in subtle ways to produce a great variety of pricing behaviors and industry dynamics. In particular, a model with learning and forgetting can give rise to aggressive pricing behavior, varying degrees of long‐run industry concentration ranging from moderate leadership to absolute dominance, and multiple equilibria.     

Unions and Income Inequality: A Heterogeneous Panel Co‐integration and Causality Analysis

Although a large body of research has examined the effects of unions on the wage distribution, surprisingly little attention has been devoted to the effects of unions on the distribution of income. This paper examines the long‐run relationship between unionization and income inequality for a sample of 20 countries. Using heterogeneous panel co‐integration and causality techniques, we find that (i) unions have, on average, a negative long‐run effect on income inequality, (ii) there is considerable heterogeneity in the effects of unionization on income inequality across countries (in 40 per cent of the cases the effect is positive) and (iii) long‐run causality runs in both directions, suggesting that, on average, an increase in unionization reduces income inequality and that, in turn, higher inequality leads to lower unionization rates.     

Is It Always Worth Waiting? The Effect of Autonomy‐supportive Teaching on Short‐term and Long‐term Learning Outcomes

Autonomy is known for its positive effects and its use in management practice. Recently an urgent debate has emerged on its drawbacks on individual outcomes. In this study, we investigate and test a model on the effect on individual learning of an autonomy‐supportive teaching style and its interplay with the learner's previous experience and perceived management support. Specifically, while research has emphasized the positive effect of similar contexts, this study focuses on its differential effect on short‐term and long‐term learning outcomes, challenging the traditional view of autonomy. We also explore how job experience and management support can improve the effects of autonomy on individual learning. We test our model by collecting longitudinal data on a sample of 200 individuals participating in a training programme on managerial skills. Our results show that (1) the extent to which teachers were perceived as autonomy‐supportive presents a linear relationship with short‐term learning outcomes (utility reactions) and a positive curvilinear relationship with training transfer in the long term; (2) learner job experience and perceived management support for learning have a positive moderating effect on the linear relationship between autonomy and learning outcomes.     

DISTANCE TO FRONTIER,SELECTION, AND ECONOMIC GROWTH

We analyze an economy where firms undertake both innovation and adoption of technologies from the world technology frontier. The selection of high‐skill managers and firms is more important for innovation than for adoption. As the economy approaches the frontier, selection becomes more important. Countries at early stages of development pursue an investment‐based strategy, which relies on existing firms and managers to maximize investment but sacrifices selection. Closer to the world technology frontier, economies switch to an innovation‐based strategy with short‐term relationships, younger firms, less investment, and better selection of firms and managers. We show that relatively backward economies may switch out of the investment‐based strategy too soon, so certain policies such as limits on product market competition or investment subsidies, which encourage the investment‐based strategy, may be beneficial. However, these policies may have significant long‐run costs because they make it more likely that a society will be trapped in the investment‐based strategy and fail to converge to the world technology frontier. (JEL: O31, O33, O38, O40, L16)     

Performance of Cellular Bucket Brigades with Hand‐Off Times

A cellular bucket brigade is a way to coordinate workers along an aisle with work content on both sides. Each worker in a cellular bucket brigade works on one side of the aisle when he proceeds in one direction, and he works on the other side when he proceeds in the reverse direction. Although the cellular bucket brigade eliminates the unproductive walk‐back, it requires more hand‐offs to assemble a product than a traditional (serial) bucket brigade. These hand‐offs may waste significant production capacity as each of them requires an exchange of work, which can be complicated and time‐consuming in practice. This motivates us to investigate the impact of hand‐off times on the cellular bucket brigade's performance. We identify sufficient conditions to ensure no workers are idle in the long run and for the system to self‐balance in a model with hand‐off times. Our results suggest that even with significant hand‐off times, the cellular bucket brigade can remain substantially (about 50%) more productive than the traditional bucket brigade especially if the team size is small and the workers’ work velocities are close to their walk velocity.     

RETHINKING THE EFFECT OF IMMIGRATION ON WAGES

This paper calculates the effects of immigration on the wages of native US workers of various skill levels in two steps. In the first step we use labor demand functions to estimate the elasticity of substitution across different groups of workers. Second, we use the underlying production structure and the estimated elasticities to calculate the total wage effects of immigration in the long run. We emphasize that a production function framework is needed to combine own‐group effects with cross‐group effects in order to obtain the total wage effects for each native group. In order to obtain a parsimonious representation of elasticities that can be estimated with available data, we adopt alternative nested‐CES models and let the data select the preferred specification. New to this paper is the estimate of the substitutability between natives and immigrants of similar education and experience levels. In the data‐preferred model, there is a small but significant degree of imperfect substitutability between natives and immigrants which, when combined with the other estimated elasticities, implies that in the period from 1990 to 2006 immigration had a small effect on the wages of native workers with no high school degree (between 0.6% and +1.7%). It also had a small positive effect on average native wages (+0.6%) and a substantial negative effect (−6.7%) on wages of previous immigrants in the long run.     

Dynamic Pricing in e‐Services under Demand Uncertainty

High volatility of the e‐services market, due to increasing competition, low life cycle of products, and easy availability of information about competing service offerings to customers, makes the demand for service offerings quite uncertain. Revenue management in such markets calls for real‐time techniques to learn the demand and its dependence on both the price and the service level associated with the service offering. We assume firms reply on exploratory approaches for demand estimation, in which firms experiment with different service offerings in order to simultaneously learn the demand while doing business. Such exploration and learning process can be costly without supervision. As reported by Rothschild (Journal of Economic Theory, 9 185‐202, 1974), traditional Bayesian dynamic control approaches may conclude with suboptimal offerings. We propose a novel demand learning approach that is guaranteed to converge to the optimal offering. The approach combines simulated annealing algorithm with Bayesian learning. We further present intelligent techniques that adaptively reduce the effort of exploration on suboptimal service offerings so as to improve the long‐run average profit.     

Earning While Learning: When and How Student Employment is Beneficial

Although studies of student employment (‘earning while learning’) mostly find positive wage effects, they do not adequately consider the relation of the employment to the field of study. We investigate how different types of student employment during tertiary education affect short‐ and long‐term labour market returns. Beyond examining differences between non‐working and part‐time working students, we distinguish between student employment related and unrelated to the field of study. Our results show significant positive labour market returns of ‘earning while learning’ only for student employment related to the field of study. These returns consist of a lower unemployment risk, shorter job‐search duration, higher wage effects, and greater job responsibility.     

Optimal Temporal Customer Purchasing Decisions Under Trade‐In Programs with Up‐Front Fees

To entice customers to purchase both current and new generation products over time, many firms offer different trade‐in programs including programs that require customers to pay an up‐front fee. To examine the effectiveness of the trade‐in programs, we develop a two‐period model in which a firm sells the first generation product in the first period and the second generation product in the second period; however, the firm offers a trade‐in program that customers can participate in when purchasing the first generation product in the first period. To participate, each customer has to pay a nonrefundable fee in the first period so that she has the option to trade‐in her first generation product and receive a prespecified trade‐in value to be used for the purchase of the second generation product in the second period. To capture market heterogeneity and market uncertainty, we examine the case when the valuation of the first generation product varies among customers and the valuation of the second generation product is uncertain a priori. By analyzing a two‐period game, we determine the optimal purchasing behavior of each rational customer, and we show that the firm is always better off by offering its own trade‐in programs. Also, our numerical analysis reveals that trade‐in programs can benefit the firm significantly especially when (i) the residual value of the first generation product is high; (ii) the expected incremental value of the second generation product is high; or (iii) the valuation of the second generation product is highly uncertain.     

Pricing of Full‐Service Repair Contracts with Learning,Optimized Maintenance,and Information Asymmetry

This article considers the optimal pricing of full‐service (FS) repair contracts by taking into account learning and maintenance efficiency effects, competition from service , and asymmetric information. We analyze on‐call service (OS) and FS contracts in a market where customers exhibit heterogeneous risk aversion. While the customers minimize their disutility over the equipment lifetime, the service provider maximizes expected profits arising from the portfolio of OS and FS contracts. We show that the optimal FS price depends inter alia on the customer's prior cost experience and on OS repair and maintenance costs. The optimal FS price is shown to increase as fewer OS customers are lost to competition, whereas improved repair learning enabled by FS reduces the optimal price. A numerical study based on data from a manufacturer of forklifts highlights the importance of learning in maintenance operations, which constitutes the key benefit of FS contracts; 81% of the customers select the FS option and are willing to pay an insurance premium of around 1.5% of total OS cost against volatility of repair costs.     

THE EFFECT OF LEARNING ON THE MAKE/BUY DECISION

By including the effects of learning over time on both the production of components and their integration into complete products, we develop an engineering‐based model of outsourcing. This model provides an alternative explanation for much of what other outsourcing theories predict, as well as making several new predictions. In particular, we show that outsourcing decisions can create a path‐dependent outsourcing trap in which a firm experiences higher long‐run costs after an immediate cost benefit. We also describe conditions under which outsourcing a small fraction of component production may dominate either complete insourcing or complete outsourcing. Finally, we show that, with discounting, there is a convex, curvilinear relationship between the optimal outsourcing fraction and the rate of technological change.     

Unionization and Labour‐market Discrimination: A Closer Look at Non‐unionized Workers

This paper introduces a model that examines the effects of unions on pay and hiring gaps between non‐unionized men and women in the context of imperfect competition. Although the model does not question the advantages unions obtain for their members, it does show that (1) unions increase wage and occupational discrimination for non‐unionized workers; (2) the non‐unionized sector does not constitute a good comparison group for use in analysing the impact of unions on gender discrimination; and (3) public policies targeting gender differences in occupational sorting can also have a positive impact on gender wage differentials.     

Controversial Role of GPOs in Healthcare‐Product Supply Chains

This paper examines the controversial role that Group Purchasing Organizations (GPOs) play in the supply chains for healthcare products. Among the controversies, perhaps the most fundamental one is whether or not GPOs reduce purchasing costs for their members. However, the fiercest controversy is around the “contract administration fees (CAFs)” that GPOs charge to manufacturers. We examine these and other controversies using a Hotelling duopoly model. Among our conclusions: GPOs increase competition between manufacturers and lower prices for healthcare providers. However, GPOs reduce manufacturers' incentives to introduce innovations to existing products. We also demonstrate that the existence of lower off‐contract prices is not, per se, evidence of anticompetitive behavior on the part of GPOs. Indeed, we demonstrate that, under certain circumstances, the presence of a GPO lowers off‐contract prices. We also examine the consequences of eliminating the “safe harbor” provisions that permit healthcare GPOs to charge CAFs to manufacturers, and conclude that it would not affect any party's profits or costs.     

Redistribution Through Education and Other Mechanisms Under Capital‐Market Imperfections and Uncertainty: A Welfare Effect Analysis

Abstract. This paper considers a two‐period model of endogenous human capital formation under the credits‐market imperfection and uncertainty assumptions. We compare in the first part of the paper ex‐ante and ex‐post general‐equilibrium effects of the education subsidy policy to those of the negative income tax and the unskilled wage subsidy regimes. We show that the education subsidy policy raises an efficiency‐inequality trade‐off issue, and therefore it is optimal unless the degree of inequality aversion is relatively high and financing the subsidy is not too distorsive. Public loans are generally claimed to provide a solution for such issue. We explore the implications of implementing the public loan under several schemes in the second part of the paper. We show that combining between a pure public loan and education subsidies provides higher levels of welfare than these two policies taken separately provided that the inequality aversion degree is high. For low degrees of inequality aversion, the pure public loan is the optimal policy.     

Time‐Varying Risk Premium in Large Cross‐Sectional Equity Data Sets

We develop an econometric methodology to infer the path of risk premia from a large unbalanced panel of individual stock returns. We estimate the time‐varying risk premia implied by conditional linear asset pricing models where the conditioning includes both instruments common to all assets and asset‐specific instruments. The estimator uses simple weighted two‐pass cross‐sectional regressions, and we show its consistency and asymptotic normality under increasing cross‐sectional and time series dimensions. We address consistent estimation of the asymptotic variance by hard thresholding, and testing for asset pricing restrictions induced by the no‐arbitrage assumption. We derive the restrictions given by a continuum of assets in a multi‐period economy under an approximate factor structure robust to asset repackaging. The empirical analysis on returns for about ten thousand U.S. stocks from July 1964 to December 2009 shows that risk premia are large and volatile in crisis periods. They exhibit large positive and negative strays from time‐invariant estimates, follow the macroeconomic cycles, and do not match risk premia estimates on standard sets of portfolios. The asset pricing restrictions are rejected for a conditional four‐factor model capturing market, size, value, and momentum effects.     

Examining the Impact of Pre‐Implementation Expectations on Post‐Implementation Use of Enterprise Systems: A Longitudinal Study

This article builds upon the technology acceptance model and theories of technology sensemaking to explore pre‐enterprise system adoption expectations and post‐enterprise system adoption outcomes in a longitudinal setting. Building on the exploitation and exploration paradigm, we propose that task productivity and task innovation expectations are the key drivers of users’ pre‐adoption enterprise system usage intention. Further, we argue that the enterprise system facilitates generation of a common knowledge base that may encourage a more integrated organizational culture and promote shared understanding among employees. Considering the distinction between mandatory and voluntary contexts, we propose that user acceptance of the enterprise system at the pre‐ and post‐adoption stages will mediate these relationships in a mandatory context. The results show that the influence of pre‐adoption expectations regarding task productivity and task innovation on intention to use an enterprise system is mediated by user acceptance of the enterprise system. Intention to use an enterprise system is positively related to actual use. At the post‐adoption stage, the influence of actual use on shared understanding is mediated by user acceptance of an enterprise system and enterprise system use has a direct negative impact on task efficiency in the initial period after implementation. Overall, the results highlight that user acceptance at both pre‐ and post‐adoption stages are critical factors when usage is mandatory. These findings suggest a number of important implications for research and for managerial action.     

Pay‐Back‐Revenue‐Sharing Contract in Coordinating Supply Chains with Random Yield

We consider coordination issues in supply chains where supplier's production process is subject to random yield losses. For a simple supply chain with a single supplier and retailer facing deterministic demand, a pay back contract which has the retailer paying a discount price for the supplier's excess units can provide the right incentive for the supplier to increase his production size and achieve coordination. Building upon this result, we consider coordination issues for two other supply chains: one with competing retailers, the other with stochastic demand. When retailers compete for both demand and supply, they tend to over‐order. We show that a combination of a pay back and revenue sharing mechanism can coordinate the supply chain, with the pay back mechanism correcting the supplier's under‐producing problem and the revenue sharing mechanism correcting the retailers' over‐ordering problem. When demand is stochastic, we consider a modified pay‐back‐revenue‐sharing contract under which the retailer agrees to not only purchase the supplier's excess output (beyond the retailer's order), but also share with the supplier a portion of the revenue made from the sales of the excess output. We show that this contract, by giving the supplier additional incentives in the form of revenue share, can achieve coordination.