Profit implications of estimation methods for the allocation of marketing resources

We deal with the question whether estimating heterogeneous multiplicative sales response models without carry over effects by either ordinary least squares or Gibbs sampling makes a difference if resources (like advertising budgets, sales budgets, sales force sizes, sales calls) have to be allocated to sales units (like sales districts, customer groups, individual costumers or prospects) in a profit maximizing way and only short time series are available. To this end we generate artificial series on sales and allocations by stochastic simulation. These series are used to estimate multiplicative models whose coefficients are either specific to individual sales units or follow a hierarchical Bayesian framework. Ordinary least squares and Gibbs sampling serve as appropriate estimation methods. Performance of the two estimation methods is measured by recovery of optimal profits which are computed on the basis of the known true parameter values. We start to determine optimal allocations based on the plug-in method which uses average coefficients to determine expected profits. Gibbs sampling always leads to profits nearer to the true optima. This advantage of Gibbs sampling is especially pronounced for combinations with high average elasticity, high variation of elasticity and high number of sales units. On the other hand, differences between Gibbs sampling and OLS become smaller the more observations are available. Optimization with expected profits taking parameter uncertainty (i.e., the distribution of parameters) into account leads to higher profits than the plug-in method, but relative increases turn out to be rather small.     

DEALER INTERMEDIATION BETWEEN MARKETS

We develop a dynamic model of dealer intermediation between a monopolistic customer–dealer market and a competitive interdealer limit order market. Dealers face inventory constraints and adverse selection. We characterize the optimal quote setting and inventory management behavior for both markets in closed form and reveal how price setting in one market segment influences quote behavior in the other. The framework is used to explore market stability issues of the two‐tier market structure and delivers testable predictions about how the dispersion of retail prices is related to the state of the interdealer limit order book. Data from the European sovereign bond market is used to test for inventory related retail price dispersion.     

Sickness Absence,Sick Leave Pay,and Pay Schemes

Utilizing Norwegian linked register and survey data, while exploiting a discontinuity in public sick pay legislation, I show that the public sick pay compensation level causally affects male performance pay workers' sick leave days. Both male and female performance pay workers experience longer sick leaves when provided private supplementary sick pay compared with those being eligible for public sick pay only. This differential impact of the replacement rate on workers' sick leave rates reveals heterogeneous behavioural changes following public sick pay cuts, and this heterogeneity will be reinforced by the provision of employer‐provided sick pay to attractive worker groups.     

Long-Term Effects of a Plant Closure: a Multistate Duration Analysis of Event History Data in a Ten-Year Follow-Up Study

This paper discusses the possible effects on future prospects in the labour market of those who suffer a plant closure. A multistate duration model is estimated on monthly event data comprising 172 individuals over ten years, with the occurrence of the plant closure among the regressors. An individual can escape to one of several destinations when exiting one of three origin states (unemployed, sick leave, outside the labour force). Our prime concern has been transitions leading to a new job or to destination states outside the labour force (disability pension and at home, without any social security benefit). We find indications of severe negative long-term effects on employment from a plant closure: long durations in unemployment when searching for new jobs, higher incidence of leaving the labour force, longer periods of sick leave and higher incidence of disability pension. Thus, an adverse shock reducing employment may have negative long-term effects on the labour market through long spells of unemployment and a shrinking labour force. Our findings thus support the hypothesis of hysteresis dynamics in the labour market.