CONCEPTS,THEORY, AND TECHNIQUES

The beta distribution is becoming more widely used in business applications and in economic model-building. A simple way to estimate the parameters of the univariate distribution and the general multivariate distribution would be useful but there appears to be no simple way of accomplishing this task. For example, the method of maximum likelihood does not yield tractable results. The method of moments presented in this paper is a practical way to obtain parameter estimates for the beta distribution. Explicit estimators are derived for the univariate and bivariate case and estimators are then inferred for the n-variate case. Empirical tests suggest that the method of moments may be used to establish useful estimates for these parameters. Also, estimates obtained by the method of moments may be used to develop bounds on the parameters so that computational techniques can be utilized with other estimation methods possessing more desirable properties.     

RELIABILITY-CONSTRAINED PRICING,CAPACITY, AND QUALITY: AN ILLUSTRATION OF ECONOMIC CONCEPTS TO POSTAL SERVICES

A model is developed from which welfare-optimal prices, capacities, and reliabilities for a service provider are simultaneously determined. Solutions are determined under conditions of stochastic demand subject to a reliability constraint on service quality. Both quality of service provided, as well as price, impact on demand for services rendered. Results indicate that (i) optimal prices are equated to the reliability-constrained marginal costs, (ii) optimal reliabilities require that the marginal benefits of increasing reliability are equated to the marginal costs of doing so, and (iii) optimal capacity allocation involves minimizing the system's expected costs subject to meeting the prespecified reliability constraint for service quality. The model is applied to postal delivery services in light of the growing competition that has emerged in this industry.     

VERTICAL INTEGRATION AND TECHNOLOGY: THEORY AND EVIDENCE

We study the determinants of vertical integration. We first derive a number of predictions regarding the relationship between technology intensity and vertical integration from a simple incomplete contracts model. Then, we investigate these predictions using plant‐level data for the UK manufacturing sector. Most importantly, and consistent with the theoretical predictions, we find that the technology intensity of downstream (producer) industries is positively correlated with the likelihood of integration whereas the intensity of upstream (supplier) industries is negatively correlated with it. Also consistent with theory, both correlations are stronger when the supplying industry accounts for a large fraction of the producer's costs. These results are generally robust and hold with alternative measures of technology intensity, with alternative estimation strategies, and with or without controlling for a number of firm‐ and industry‐level characteristics. (JEL: L22, L23, L24, L60)     

FINANCIAL DEVELOPMENT AND VERTICAL INTEGRATION: THEORY AND EVIDENCE

Existing evidence is mostly inconclusive on the relevance of financial development as a determinant of vertical integration. This paper presents evidence that, once industry heterogeneity in firm size distribution is taken into account, financial development is an important determinant of cross‐country differences in vertical integration. Financial development fosters entry of firms and increases competition in the industry. This reduces vertical integration of larger firms, but also leads smaller, non‐integrated, firms to exit the industry. As a result, higher financial development reduces vertical integration in industries where a high share of output is produced by small firms. The positive effect of financial development on entry also reduces vertical integration by fostering the development of input markets.     

ACROSS-INDIVIDUAL,WITHIN-INDIVIDUAL AND RETURN ON EFFORT VERSIONS OF EXPECTANCY THEORY1

The author reviewed the conceptual, methodological, and empirical problems associated with across-individual tests of expectancy theory predictions of work behavior. Based on the literature it was hypothesized that within-individual expectancy theory predictions would be superior to across-individual predictions. Using a sample of 159 college students, results were generally supportive: mean across-individual and mean within-individual correlations were r=.24 and r=.35, respectively. Also, in light of the widespread use of incremental (marginal) decision algorithms in various disciplines, it was hypothesized that a return on effort (ROE) predictor would yield better correlations than the conventional maximum expected benefits predictor. As hypothesized, correlations using the ROE predictor consistently exceeded correlations using the maximum expected benefits predictor in both the across- and within-individual paradigms r=.27 versus r=.18, and r=.52 versus r=.35, respectively.     

OPERATIONALIZING AND TESTING NORMAL ACCIDENT THEORY IN PETROCHEMICAL PLANTS AND REFINERIES

Since “Normal Accidents: Living With High‐Risk Technologies” was first published in 1984, there have been very few tests of its validity or its application to different classes of technology or organizations. This paper describes a robust, parametric test of Normal Accident Theory applied to a class of high‐risk systems: petrochemical plants and refineries. The theory has important implications for scholars interested in the relationship of organizations to the natural environment and managers responsible for safe, socially responsible, and environmentally appropriate operation of high‐consequence systems.     

ELECTED VERSUS APPOINTED REGULATORS: THEORY AND EVIDENCE

This paper contrasts direct election with political appointment of regulators. When regulators are appointed, regulatory policy becomes bundled with other policy issues the appointing politicians are responsible for. Because voters have only one vote to cast and regulatory issues are not salient for most voters, there are electoral incentives to respond to stakeholder interests. If regulators are elected, their stance on regulation is the only salient issue so that the electoral incentive is to run a pro‐consumer candidate. Using panel data on regulatory outcomes from U.S. states, we find new evidence in favor of the idea that elected states are more pro‐consumer in their regulatory policies. (JEL: H1, K2)     

THE COEFFICIENT OF CONCORDANCE AND THE Q-SORT TECHNIQUE

Under the assumption of random assignment of scores, Kendall's coefficient of concordance and its sampling distribution are applied to rectangular Q-sorts. F, normal, and chi square approximations and their limits of application are described.     

A COMPARISON OF UNIT,SUBJECTIVE, AND REGRESSION MEASURES OF SECOND-LEVEL VALENCES IN EXPECTANCY THEORY

Two different decision-making exercises are compared with unit weights and with traditional Likert scales as measures of second-level valences in expectancy theory. Second-level valences are measured across different levels of outcomes in each exercise and compared to the traditional subjective- and unit-weight measures. In the first experiment, the job-preference decisions of 21 undergraduates are examined using a decision-making exercise involving 24 hypothetical jobs described in terms of three intrinsic instrumentalities at two levels. In the second experiment, a different 21 undergraduates make job-preference decisions in a decision-making exercise involving 27 hypothetical jobs described in terms of three extrinsic instrumentalities at three levels. The β-weight (standardized regression coefficient) measures of the second-level valences are found to be more powerful predictors of job-preference decisions than either subjective-weight or unit-weight measures, both before and after shrinkage. They also had higher cross validations, exhibited higher test-retest reliability, and allowed testing of a quadratic motivational effect in the three-level exercise.     

UNEMPLOYMENT INSURANCE AND CULTURAL TRANSMISSION: THEORY AND APPLICATION TO EUROPEAN UNEMPLOYMENT

This paper emphasizes the two‐way causality between the provision of unemployment insurance and the cultural transmission of civicness. The returns to being uncivic are increasing in the generosity of unemployment insurance; but this generosity is decreasing in the number of uncivic individuals. In this context, I determine the evolution of preferences across generations and show that cultural heterogeneity is sustained over the long‐run. The dynamics of cultural transmission can generate a long lag between the introduction of unemployment insurance and an increase in people's willingness to live off government‐provided benefits. Hence, it offers an explanation to the ‘European unemployment puzzle’ due to the coexistence of generous unemployment insurance and low unemployment in the 1950s and 1960s.     

THE SYNTHESIS OF HIERARCHICAL STRUCTURES: TECHNIQUE AND APPLICATIONS

Hierarchical structures are an important property of all complex systems and play an important role in the decision and policy sciences. The methodology described in this paper provides a systematic and efficient approach to the synthesis of hierarchies, regardless of their size or intricacy. Two applications are briefly discussed, and other applications are suggested.     

A POLITICAL ECONOMY THEORY OF FISCAL POLICY AND UNEMPLOYMENT

This paper presents a political economy theory of fiscal policy and unemployment. The underlying economy is one in which unemployment can arise but can be mitigated by tax cuts and increases in public production. Such policies are fiscally costly, but can be financed by issuing government debt. Policy decisions are made by a legislature consisting of representatives from different political districts. With the available policies, it is possible for the government to completely eliminate unemployment in the long run. However, with political decision making, the economy always has unemployment. Unemployment is higher when the private sector experiences negative shocks. When these shocks occur, the government employs debt‐financed fiscal stimulus plans which involve both tax cuts and public production increases. When the private sector is healthy, the government contracts debt until it reaches a floor level. Unemployment levels are weakly increasing in the economy's debt level, strictly so when the private sector experiences negative shocks. Conditional on the level of workers employed, the mix of public and private output is distorted.     

REDUCING OVERREACTION TO CENTRAL BANKS' DISCLOSURES: THEORY AND EXPERIMENT

Financial markets are known for overreacting to public information. Central banks can reduce this overreaction either by disclosing information to only a fraction of market participants (partial publicity) or by disclosing information to all participants but with ambiguity (partial transparency). In theory, overreaction can be similarly reduced by either communication strategy. A laboratory experiment shows that both communication strategies succeed in reducing overreaction, though not as much as theory predicts. The opportunity in our information age for central banks to choose between partial publicity and partial transparency to control the market reaction is then discussed.     

RISK AVERSION AND EXPECTED UTILITY THEORY: AN EXPERIMENT WITH LARGE AND SMALL STAKES

We employ a novel data set to estimate a structural econometric model of the decisions under risk of players in a game show where lotteries present payoffs in excess of half a million dollars. The decisions under risk of players in the presence of large payoffs allow us to estimate the parameters of the curvature of the von Neumann–Morgenstern utility function—not only locally, as in previous studies in the literature, but also globally. Our estimates of relative risk aversion indicate that a constant relative risk aversion parameter of about 1 captures the average of the sample population. We also find that individuals are practically risk neutral at small stakes and risk averse at large stakes—a necessary condition, according to Rabin’s calibration theorem, for expected utility to provide a unified account of individuals’ attitudes toward risk. Finally, we show that for lotteries characterized by substantial stakes, nonexpected utility theories fit the data equally as well as expected utility theory.     

SOCIAL LEARNING THEORY AND THE IMPLEMENTATION OF PRODUCTION INNOVATION*

In a study of the implementation of production innovation using a social learning theory focus, four organizations were monitored with a real-time study design. The following propositions were strongly supported: (1) During the initial implementation period (3–4 months), the stress felt by personnel in new user organizations was significantly higher (p < .01) than for organizations previously experienced with technology; (2) Firms experienced with the new technology obtain early success when compared with inexperienced firms (p < .01). Moderate support was found for the proposition that new users rely heavily on original equipment manufacturers for demonstration to acquire new skills, but gradually models within the user organization emerge as the dominant influence. The proposition that new users have significantly higher imitation scores than users experienced with the technology was only weakly supported. No substantive or significant changes in the attitudes of users toward the innovation were found during the first three to four months of the implementation period. These and other results suggest that longitudinal studies of this type ought to be carried out over periods in excess of 2 1/2 years. Implications for the management of change are presented.