A Periodic Inventory Model for Stocking Modular Components

We study the benefit obtained by exploiting modular product design in fulfilling exogenous demand for both a complete assembly and its components in a service parts inventory system. Our goal is to reduce overall service system costs by allowing assembly and/or disassembly (A/D) to occur at some unit cost per A/D action. In an extensive set of computational experiments, we compare a naïve stocking and operating policy that treats all items independently and ignores the modular product structure and related A/D capability to the optimal base stock policy, and to a policy that allows A/D from the naïve stocking levels. While extensive computational analysis shows that the optimal base stock policy improves the system cost between 3 to 26% over the naïve approach, simply allowing A/D from the naïve stocking levels captures a significant portion (an average of 67%) of the naïve–optimal gap. Our computational results demonstrate that the optimization shifts the component‐assembly mix from the naïve levels and that limiting A/D capacity affects this mix. Limiting A/D capacity can actually increase the expected number of A/D actions (versus the uncapacitated case), since the optimization shifts stocking levels to reduce the probability that “too many” actions will be required.     

Impact of Retailers with Knowledge of Supplier's Inventory on Supply Chain Performance

We model a supply chain consisting of a supplier and multiple retailers facing deterministic demand. We denote some retailers as strategic in the sense that given the supplier inventory information, they will implement the optimal stocking policy by incorporating such information. On the other hand, some retailers are denoted as naïve in the sense that they ignore supply information and resort to a simplistic ordering policy. Naïve retailers learn the optimal policy over time and adjust their orders accordingly. We study the dynamics of this game and investigate the impact of such strategic and naïve retailers on the cost, ordering pattern and stocking policies of all parties. We analyze the supply chain under two scenarios: the centralized supply chain where the objective is to minimize the total supply chain cost, and the decentralized supply chain where each self‐interested player minimizes its own cost in a Stackelberg game setting. We fully characterize the optimal policies under both centralized and decentralized scenarios and show that, surprisingly, the supply chain might be better off by virtue of naïve retailers. The result is driven by the fact that strategic and naïve players’ decisions shift the positioning of inventory in the supply chain with its final impact being determined by the relative costs of different retailer‐types. Our results also offer managerial insights into how access to supply information can improve supply chain performance.     

ON THE STABILITY OF DIFFERENT FINANCIAL SYSTEMS

An economy in which deposit‐taking banks of a Diamond and Dybvig style and a financial market coexist is modeled in a simple framework closely related to Diamond (1997). Solely depending on the fraction of naïve households who cannot efficiently invest directly in the corporate sector, two different types of financial systems emerge. With the fraction comparatively low, the evolving financial system can be interpreted as market‐oriented, whereas a high fraction brings about a bank‐dominated financial system. In market‐oriented systems, banks only provide naïve households with access to efficient investments; in bank‐dominated systems, banks' deposit contracts also offer some degree of liquidity insurance. Consequently, compared to market‐oriented financial systems, the household sector in bank‐dominated financial systems holds a larger portfolio fraction in deposits and a smaller part in direct investments. Analyzing the resilience of the different financial systems to various types of shocks shows that moderately bank‐dominated (or hybrid) financial systems are particularly fragile, because only in these systems do fire sales of assets by distressed banks cause a deterioration in asset prices that also precipitates other banks into crisis. (JEL: D52, E44, G10, G21)     

Competitive Goals and Plant Investment in Environment and Safety Practices: Moderating Effect of National Culture

Operations managers clearly play a critical role in targeting plant‐level investments toward environment and safety practices. In principle, a “rational” response would be to align this investment with senior management's competitive goals for operational performance. However, operations managers also are influenced by contingent factors, such as their national culture, thus creating potential tension that might bias investment away from a simple rational response. Using data from 1,453 plants in 24 countries, we test the moderating influence of seven of the national cultural characteristics on investment at the plant level in environment and safety practices. Four of the seven national cultural characteristics from GLOBE (i.e., uncertainty avoidance, in‐group collectivism, future orientation and performance orientation) shifted investment away from an expected “rational” response. Positive bias was evident when the national culture favored consistency and formalized procedures and rewarded performance improvement. In contrast, managers exhibited negative bias when familial groups and local coalitions were powerful, or future outcomes—rather than current actions—were more important. Overall, this study highlights the critical importance of moving beyond a naïve expectation that plant‐level investment will naturally align with corporate competitive goals for environment and safety. Instead, the national culture where the plant is located will influence these investments, and must be taken into account by senior management.     

Naïveté and Cynicism in Negotiations and Other Competitive Contexts

A wealth of literature documents how the common failure to think about the self-interests of others contributes to suboptimal outcomes. Yet sometimes, an excess of cynicism appears to lead us to over-think the actions of others and make negative attributions about their motivations without sufficient cause. In the process, we may miss opportunities that greater trust might capture. We review the research on when people expect too little or too much self-interest in the intentions of others, as contrasted with rational behavior. We also discuss the antecedents and consequences of these naïve and cynical errors, as well as some potential strategies to buffer against their effects and achieve better outcomes in competitive contexts.     

The 2007 Subprime Market Crisis Through the Lens of European Central Bank Auctions for Short‐Term Funds

We study European banks' demand for short‐term funds (liquidity) during the summer 2007 subprime market crisis. We use bidding data from the European Central Bank's auctions for one‐week loans, their main channel of monetary policy implementation. Our analysis provides a high‐frequency, disaggregated perspective on the 2007 crisis, which was previously studied through comparisons of collateralized and uncollateralized interbank money market rates which do not capture the heterogeneous impact of the crisis on individual banks. Through a model of bidding, we show that banks' bids reflect their cost of obtaining short‐term funds elsewhere (e.g., in the interbank market) as well as a strategic response to other bidders. The strategic response is empirically important: while a naïve interpretation of the raw bidding data may suggest that virtually all banks suffered an increase in the cost of short‐term funding, we find that, for about one third of the banks, the change in bidding behavior was simply a strategic response. We also find considerable heterogeneity in the short‐term funding costs among banks: for over one third of the bidders, funding costs increased by more than 20 basis points, and funding costs vary widely with respect to the country‐of‐origin. The funding costs we estimate using bidding data are also predictive of market‐ and accounting‐based measures of bank performance, reinforcing the usefulness of “revealed preference” information contained in bids.     

Approach,Ability, Aftermath: A Psychological Process Framework of Unethical Behavior at Work

Abstract

Many of the scandalous organizational practices to have come to light in the last decade—rigging LIBOR, misselling payment protection insurance, rampant Wall Street insider trading, large-scale bribery of foreign officials, and the packaging and sale of toxic securities to naïve investors—require ethically problematic judgments and behaviors. However, dominant models of workplace unethical behavior fail to account for what we have learned from moral psychology and cognitive neuroscience in the past two decades about how and why people make the moral decisions they do. In this review, we explain how intuition, affect, physiology, and identity support and inform more deliberative reasoning process in the construction and enactment of moral behavior. We then describe how these processes play into how individuals approach a potential moral choice, whether they have the ability in the moment to enact it, and how it is encoded in the action' aftermath, feeding back into future approaches. Throughout, we attend to the role of organizational context in influencing these processes. By reviewing this large body of research and presenting a new framework that attempts to integrate these new findings, our hope is to motivate new research about how to support more moral workplace behavior that starts from what we know now.     

Implicit theories of leadership: Stability and change over two decades

Much has changed in the last 20 years, but have people's naïve conceptions of leaders changed as well? Paralleling Offermann et al.'s (1994) study of the content of implicit leadership theories with new samples, the present study investigates ILT stability and change across a 20-year period. Results indicate that, as in 1994, Sensitivity, Dedication, Tyranny, Charisma, Strength, Masculinity, and Intelligence were confirmed as ILT factors. Analyses revealed a new factor, Creativity, and the rearranging of some characteristics across factors. The nine-factor, 46-item scale was confirmed with an independent sample, yielding superior fit indices to the eight-factor solution. This supports the view of ILTs as having both remarkably stable elements despite organizational and societal changes as well as contextually-sensitive elements. Open-ended characteristics had no references to females despite reference to males, as in 1994; thus, “think leader, think male” appears to persist in terms of naïve conceptions of leadership.     

Integrating Entropy‐Based Naïve Bayes and GIS for Spatial Evaluation of Flood Hazard

Regional flood risk caused by intensive rainfall under extreme climate conditions has increasingly attracted global attention. Mapping and evaluation of flood hazard are vital parts in flood risk assessment. This study develops an integrated framework for estimating spatial likelihood of flood hazard by coupling weighted naïve Bayes (WNB), geographic information system, and remote sensing. The north part of Fitzroy River Basin in Queensland, Australia, was selected as a case study site. The environmental indices, including extreme rainfall, evapotranspiration, net‐water index, soil water retention, elevation, slope, drainage proximity, and density, were generated from spatial data representing climate, soil, vegetation, hydrology, and topography. These indices were weighted using the statistics‐based entropy method. The weighted indices were input into the WNB‐based model to delineate a regional flood risk map that indicates the likelihood of flood occurrence. The resultant map was validated by the maximum inundation extent extracted from moderate resolution imaging spectroradiometer (MODIS) imagery. The evaluation results, including mapping and evaluation of the distribution of flood hazard, are helpful in guiding flood inundation disaster responses for the region. The novel approach presented consists of weighted grid data, image‐based sampling and validation, cell‐by‐cell probability inferring and spatial mapping. It is superior to an existing spatial naive Bayes (NB) method for regional flood hazard assessment. It can also be extended to other likelihood‐related environmental hazard studies.     

UNCERTAIN DEMAND,CONSUMER LOSS AVERSION,AND FLAT‐RATE TARIFFS

We consider a model of firm pricing and consumer choice, where consumers are loss averse and uncertain about their future demand. Possibly, consumers in our model prefer a flat rate to a measured tariff, even though this choice does not minimize their expected billing amount—a behavior in line with ample empirical evidence. We solve for the profit‐maximizing two‐part tariff, which is a flat rate if (a) marginal costs are not too high, (b) loss aversion is intense, and (c) there are strong variations in demand. Moreover, we analyze the optimal nonlinear tariff. This tariff has a large flat part when a flat rate is optimal among the class of two‐part tariffs.     

In the eye of the beholder? An eye-tracking experiment on emergent leadership in team interactions

Integrating evolutionary signaling theory with a social attention approach, we argue that individuals possess a fast, automated mechanism for detecting leadership signals in fellow humans that is reflected in higher visual attention toward emergent leaders compared to non-leaders. To test this notion, we first videotaped meetings of project teams and collected leadership ratings for the team members from three rating sources. Second, we provided 18 naïve observers with 42 brief, muted video clips of the team meetings and analyzed their eye gazing patterns. Observers gazed at emergent leaders more often, and for an average longer duration, than at non-leaders. Gender effects occurred such that male emergent leaders received a higher number of fixations than female emergent leaders. Non-verbal behavior analysis indicated that emergent leaders showed a higher amount of active gestures and less passive facial expressions than non-leaders. We discuss theoretical and methodological directions for emergent leadership research in teams.     

Chief executive officers' appearance predicts company performance,or does it? A replication study and extension focusing on CEO successions

In this article, we aim to replicate and extend a study that has revealed a link between naïve personality and leadership judgments and company profits. Rule and Ambady (2008) found that power- and leadership-related perceptions derived from CEOs' faces were significantly related to company profits. In our follow-up study and extension, we focus on CEO succession events to explore the longitudinal relationship between personality- and leadership-related perception ratings and company performance. We study the context of CEO successions to test whether variations in personality- and leadership-related perceptions from CEO faces are related to company performance and whether variations in company performance are associated with the type of CEO that is chosen. We can replicate the original correlative leadership effect using a temporal extension of the analysis horizon but fail to replicate the link between CEO leadership perceptions and company performance when using a different measure of performance and a different analytical approach to account for the longitudinal nature of our data. Our results have important implications for further theorizing on the relationship between subjective leadership perceptions and objective performance measures.     

Encounter Satisfaction in E‐tailing: Are the Relationships of Order Fulfillment Service Quality with its Antecedents and Consequences Moderated by Historical Satisfaction?

This study focuses on whether historical satisfaction with an e‐tailer (HSat) moderates baseline relationships in order fulfillment service quality models. HSat is defined as satisfaction with the e‐tailer spanning all transactions except the current encounter. Encounter satisfaction (ESat) is defined as the consumer's satisfaction with the current transaction. In the baseline model, four order fulfillment service quality (OFSQ) dimensions managerially relevant to consumer e‐tailing are examined: timeliness, availability, condition, and billing accuracy. The baseline structural model results support that OFSQ dimensions impact ESat, which in turn predicts two key consequences—repurchase intention and word‐of‐mouth. Adaptation theory is used to model the role of HSat, while controlling for transaction recency, vendor familiarity, and competitive pricing. HSat is shown to have pervasive main and interaction effects upon all baseline model relationships. These moderation effects have great managerial relevance. For example, the results illustrate a phenomenon similar to the service recovery paradox, wherein when a negative service encounter is followed by a highly positive service recovery event, previously dissatisfied consumers, as compared to previously satisfied consumers, respond with higher levels of current satisfaction. For managers, this finding is encouraging because policies that create highly positive events for consumers can thus supersede past negative experiences. Our results show however that HSat cannot be completely superseded by current OFSQ or current ESat.     

FAIR PRICING

This paper explores the consequences of supposing that consumers see a firm as fair if they cannot reject the hypothesis that the firm is somewhat benevolent towards them. When consumers can reject this hypothesis, some become angry, which is costly to the firm. The desire to appear benevolent can lead firms to adopt third‐degree price discrimination based on the income of different consumer classes while foreswearing third‐degree price discrimination based on differences in the elasticity of demand. It can also explain why prices seem to be more responsive to changes in factor costs than to changes in demand that have the same effect on marginal cost. Lastly, if consumers experience regret or disappointment when faced by increased prices, the model can explain why prices can be more rigid in response to disasters that increase demand dramatically than they are when there is a less substantial increase in demand.     

REDISTRIBUTION,PORK, AND ELECTIONS

Why might citizens vote against redistributive policies from which they would seem to benefit? Many scholars focus on ‘wedge’ issues such as religion or race, but another explanation might be geographically‐based patronage—or pork. We examine the tension between redistribution and patronage with a model that combines partisan elections across multiple districts with legislation in spatial and divide‐the‐dollar environments. The model yields a unique equilibrium that describes the circumstances under which poor voters support right‐wing parties that favor low taxes and redistribution, and under which rich voters support left‐wing parties that favor high taxes and redistribution. The model suggests that one reason standard tax and transfer models of redistribution often do not capture empirical reality is that redistributive transfers are a less efficient tool for attracting votes than are more targeted policy programs. The model also underlines the central importance of party discipline during legislative bargaining in shaping the importance of redistribution in voter behavior, and it describes why right‐wing parties should have an advantage over left‐wing ones in majoritarian systems.     

A DIRECT TEST OF THE BUFFER‐STOCK MODEL OF SAVING

Recent models with liquidity constraints and impatience emphasize that consumers use savings to buffer income fluctuations. When wealth is below anoptimal target, consumers try to increase their buffer stock of wealth by saving more. When it is above target, they increase consumption. This important implication of the buffer stock model of saving has not been subject to direct empirical testing. We derive from the model an appropriate theoretical restriction and test it using data on working‐age individuals drawn from the 2002 and 2004 Italian Surveys of Household Income and Wealth. One of the most appealing features of the survey is that it has data on the amount of wealth held for precautionary purposes, which we interpret as target wealth in a buffer stock model. The test results do not support buffer stock behavior, even among population groups that are more likely, a priori, to display such behavior. The saving behavior of young households is instead consistent with models in which impatience, relative to prudence, is not as high as in buffer stock models. (JEL: D91)     

Strategic Product/Service Innovations of an Online Firm

We study the incentives that drive an online firm to make various types of innovations in a competitive environment. We develop and use a simplified price competition model between two retailers, one online and one offline. A given fraction of consumers, called the Internet penetration, comparison shop online, independent of their customer type, thereby creating two markets for the offline retailer, a captive market and a competitive market. The online product has the steeper of the two linear utility functions, which means that the customers who buy online in our model are high end. We focus on the competitive region in which both retailers are (strictly) profitable in the competitive market and consider innovations that increase high‐end appeal, low‐end appeal, and/or reduce unit cost. We find that the online firm has a strong incentive to invest in innovations that either reduce unit cost and/or, equivalently, increase the appeal to all consumers equally. Investments of this type are strategic complements: implementing one increases the value of another, so the value of two innovations of this type is more than the sum of the values of each individually. We identify a relative strength measure of the online firm such that, as its high‐end appeal increases and/or its unit cost decreases, we say that the online firm is stronger. This strength measure facilitates drawing an explicit dividing line between strong and weak online firms. If Internet penetration increases, the online firm's profits increase if and only if it is strong. If penetration increases over time, it is possible for a strong firm to turn weak and see its profits decrease and possibly disappear completely. A strong online firm has more opportunity to profit from low‐end innovations than does a weak one, while the opposite is true for high‐end innovations. Interestingly, some innovations may actually decrease the online firm's profits. We discuss the implications of our results for existing and future online innovations.     

The competitive advantage potential of vertical integration

There is a widely held belief that backward vertical integration provides firms with the potential for a low-cost competitive advantage, and forward vertical integration provides them with the potential for a differentiation advantage. This study builds theory that underpins that belief, and then tests the theory using a sample of large firms. While our findings do not support the relationship between backward vertical integration and low cost, they do provide strong support for arguments linking forward vertical integration with differentiation-based competitive advantage.     

Quadratic Concavity and Determinacy of Equilibrium

One of the central features of classical models of competitive markets is the generic determinacy of competitive equilibria. For smooth economies with a finite number of commodities and a finite number of consumers, almost all initial endowments admit only a finite number of competitive equilibria, and these equilibria vary (locally) smoothly with endowments; thus equilibrium comparative statics are locally determinate. This paper establishes parallel results for economies with finitely many consumers and infinitely many commodities. The most important new condition we introduce, quadratic concavity, rules out preferences in which goods are perfect substitutes globally, locally, or asymptotically. Our framework is sufficiently general to encompass many of the models that have proved important in the study of continuous‐time trading in financial markets, trading over an infinite time horizon, and trading of finely differentiated commodities.     

An Analysis of Monopolistic and Competitive Take‐Back Schemes for WEEE Recycling

We study two prevailing types of take‐back schemes for electrical and electronic equipment waste recycling: monopolistic and competitive. We address key market and operating factors that make one scheme preferable to the other from the viewpoints of recyclers, manufacturers, and consumers. To this end, we model competitive decision making in both take‐back schemes as two‐stage sequential games between competing manufacturers and recyclers. Deriving and computing equilibria, we find that the competitive take‐back scheme often accomplishes a win–win situation, that is, lower product prices, and higher recycler and manufacturer profits. Exceptionally, recyclers prefer the monopolistic scheme when the substitutability level between the manufacturers' original products is high or economies of scale in recycling are very strong. We show that consolidation of the recycling industry could benefit all stakeholders when the economies of scale in recycling are strong, provided that manufacturer's products are not highly substitutable. Higher collection rates also render recycler consolidation desirable for all stakeholders. We also identify a potential free rider problem in the monopolistic scheme when recyclers differ in operational efficiency, and propose mechanisms to eliminate the discrepancy. We show that our results and insights are robust to the degree of competition within the recycling industry.