Laurens Debo | Dartmouth College (original) (raw)
Papers by Laurens Debo
Management Science, Apr 1, 2021
Social Science Research Network, 2008
ABSTRACT We study an extension of a two-period inventory management problem with positively corre... more ABSTRACT We study an extension of a two-period inventory management problem with positively correlated demands in which the manager's compensation is partially based on an external, market-based assessment of the firm's value. As typically the "real'' demand is only observed internally in the firm, the manager may ship more than the real demand to downstream customers and report higher than real sales revenues to influence the external firm valuation, which is known as "channel stuffing." As it is costly and does not reflect the real demand, channel stuffing destroys the firm's value. We identify three factors that drive the manager's incentives for channel stuffing: the marginal effect, the boundary effect and the carryover effect. The marginal effect, analogous to those earnings management incentives revealed in the literature (e.g., Stein 1989), is independent of the inventory problem, while the boundary and carryover effects arise from the nature of the inventory problem. The boundary effect occurs when the real demand realization is high, but, still less than the available inventory: reporting a "sold out" situation censors the upper tail of the demand distribution, and hence, leads to an increase in market valuation that the manager would like to cash in with channel stuffing. The carryover effect occurs when the real demand realization is low. In this scenario, channel stuffing would make the firm's future performance look more rosy because of positively correlated future demand and high future sales margin as the firm will be able to satisfy the future demand from the large current inventory. When examining the initial inventory decision, we find that under rational market valuation, both over- and under-investment may arise in presence of channel stuffing incentives. Based on our model analysis, we derive empirically testable hypotheses for channel stuffing.
Social Science Research Network, 2008
Management Science, Oct 1, 2019
Management Science, Aug 1, 2019
Social Science Research Network, 2010
Management Science, Sep 1, 2016
Management Science, Feb 1, 2016
Journal of Systems Science and Systems Engineering, Jan 5, 2021
Discretionary services typically refer to professional work and complex service work by physician... more Discretionary services typically refer to professional work and complex service work by physicians, software developers, web designers, lawyers, or financial analysts, where there are no standard working processes and customer perceived quality of service increases with the time spent on it. Recently, research on these services, especially the corresponding speed-quality tradeoff problem, has gained more and more attention. This paper reviews both the analytical models and the empirical studies in this area, highlighting their contributions and pointing out potential directions for future research.
Successful firms’ demand often exceeds capacity, generating congestion. Given innovative, high-qu... more Successful firms’ demand often exceeds capacity, generating congestion. Given innovative, high-quality products’ ramp-up costs from technological constraints or limited labor supply, a question arises: Why do successful firms not raise prices to increase revenues given excess demand? For new products and experience goods, communicating quality to consumers is challenging, and congestion may serve as a quality indicator. We develop an Erlang-loss model: A firm signals privately observed quality via price to consumers uninformed about its quality. In addition, consumers observe congestion (occupancy level) upon arrival. Separating and pooling equilibria exist in prices: When prices are separating, congestion provides no additional information. When prices are pooling, congestion is informative. We demonstrate an empty-restaurant syndrome with pooling prices: Low congestion makes arriving consumers suspicious about quality; hence, they join less often. The pooling-price range is lower ...
Social Science Research Network, 2004
Operations Research
The Importance of Considering System Congestion When Acquiring Used Items for Remanufacturing The... more The Importance of Considering System Congestion When Acquiring Used Items for Remanufacturing The condition of used items obtained by remanufacturers often varies widely and may only be truly known after an inspection. In “Technical Note–Optimal Procurement in Remanufacturing Systems with Uncertain Used-Item Condition,” Nadar, Akan, Debo, and Scheller-Wolf study the procurement problem by taking into account this pre-inspection uncertainty as well as the quantities of available used items of different quality levels. The authors provide a novel optimal policy structure for a Markov decision process representation of this problem. They prove that the optimal acquisition decision depends on the system congestion level — the total remanufacturing load weighted by the quality levels. Their results show that it becomes less desirable to acquire a used item as the number of available items or the quality level of any available item increases. To prove their results, the authors introduce ...
Management Science
Hospitals throughout the developed world are reimbursed based on diagnosis-related groups (DRGs).... more Hospitals throughout the developed world are reimbursed based on diagnosis-related groups (DRGs). Under this scheme, patients are divided into clinically meaningful groups, and hospitals receive a fixed fee per patient episode tied to the patient DRG. The fee is based on the average cost of providing care to patients who belong to the same DRG across all hospitals. This scheme, sometimes referred to as “yardstick competition,” provides incentives for cost reduction, as no hospital wants to operate at a higher cost than average, and can be implemented using accounting data alone. Nevertheless, if costs within a DRG are heterogeneous, this scheme may give rise to cherry-picking incentives, where providers “drop” patients who are more expensive to treat than average. To address this problem, regulators have tried to reduce within-DRG cost heterogeneity by expanding the number of DRG classes. In this paper, we show that even if cost heterogeneity is eliminated, such expansion will fail ...
The procurement of commodities, such as basic raw materials and energy sources, is an important o... more The procurement of commodities, such as basic raw materials and energy sources, is an important operations management activity that can significantly impact the value of a firm. Managing commodities may also include trading of commodities' contracts on the financial markets. The finance and economics literature suggests that financial hedging is a valuable risk management strategy because it can reduce the agency cost. We elaborate on this idea by studying the interaction between financial trading and physical trading decisions within a firm from the principal-agent perspective. This interaction creates tension between the compensation that the firm provides to the procurement manager responsible for physical trading and the financial hedging decision of the firm: a higher bonus rate makes the procurement manager exert more effort, which reduces the variability of the commodity price and reduces the need for hedging. As a result of this tension, we find that the bonus rate is no...
The referral priority program—an emerging business practice adopted by a growing number of techno... more The referral priority program—an emerging business practice adopted by a growing number of technology companies that manage a waitlist of customers—enables existing customers on the waitlist to gain priority access if they successfully refer new customers to the waitlist. Unlike more commonly used referral reward programs, this novel mechanism does not offer monetary compensation to referring customers, but leverages customers’ own disutility of delays to create referral incentives. Despite this appealing feature, our queueinggame-theoretic analysis finds the effectiveness of such a scheme as a marketing tool for customer acquisition and an operational approach for waitlist management depends crucially on the underlying market conditions, particularly the base market size of spontaneous customers. The referral priority program might not generate referrals when the base market size is either too large or too small. When customers do refer, the program could actually backfire, namely,...
SSRN Electronic Journal, 2021
Management Science, Apr 1, 2021
Social Science Research Network, 2008
ABSTRACT We study an extension of a two-period inventory management problem with positively corre... more ABSTRACT We study an extension of a two-period inventory management problem with positively correlated demands in which the manager's compensation is partially based on an external, market-based assessment of the firm's value. As typically the "real'' demand is only observed internally in the firm, the manager may ship more than the real demand to downstream customers and report higher than real sales revenues to influence the external firm valuation, which is known as "channel stuffing." As it is costly and does not reflect the real demand, channel stuffing destroys the firm's value. We identify three factors that drive the manager's incentives for channel stuffing: the marginal effect, the boundary effect and the carryover effect. The marginal effect, analogous to those earnings management incentives revealed in the literature (e.g., Stein 1989), is independent of the inventory problem, while the boundary and carryover effects arise from the nature of the inventory problem. The boundary effect occurs when the real demand realization is high, but, still less than the available inventory: reporting a "sold out" situation censors the upper tail of the demand distribution, and hence, leads to an increase in market valuation that the manager would like to cash in with channel stuffing. The carryover effect occurs when the real demand realization is low. In this scenario, channel stuffing would make the firm's future performance look more rosy because of positively correlated future demand and high future sales margin as the firm will be able to satisfy the future demand from the large current inventory. When examining the initial inventory decision, we find that under rational market valuation, both over- and under-investment may arise in presence of channel stuffing incentives. Based on our model analysis, we derive empirically testable hypotheses for channel stuffing.
Social Science Research Network, 2008
Management Science, Oct 1, 2019
Management Science, Aug 1, 2019
Social Science Research Network, 2010
Management Science, Sep 1, 2016
Management Science, Feb 1, 2016
Journal of Systems Science and Systems Engineering, Jan 5, 2021
Discretionary services typically refer to professional work and complex service work by physician... more Discretionary services typically refer to professional work and complex service work by physicians, software developers, web designers, lawyers, or financial analysts, where there are no standard working processes and customer perceived quality of service increases with the time spent on it. Recently, research on these services, especially the corresponding speed-quality tradeoff problem, has gained more and more attention. This paper reviews both the analytical models and the empirical studies in this area, highlighting their contributions and pointing out potential directions for future research.
Successful firms’ demand often exceeds capacity, generating congestion. Given innovative, high-qu... more Successful firms’ demand often exceeds capacity, generating congestion. Given innovative, high-quality products’ ramp-up costs from technological constraints or limited labor supply, a question arises: Why do successful firms not raise prices to increase revenues given excess demand? For new products and experience goods, communicating quality to consumers is challenging, and congestion may serve as a quality indicator. We develop an Erlang-loss model: A firm signals privately observed quality via price to consumers uninformed about its quality. In addition, consumers observe congestion (occupancy level) upon arrival. Separating and pooling equilibria exist in prices: When prices are separating, congestion provides no additional information. When prices are pooling, congestion is informative. We demonstrate an empty-restaurant syndrome with pooling prices: Low congestion makes arriving consumers suspicious about quality; hence, they join less often. The pooling-price range is lower ...
Social Science Research Network, 2004
Operations Research
The Importance of Considering System Congestion When Acquiring Used Items for Remanufacturing The... more The Importance of Considering System Congestion When Acquiring Used Items for Remanufacturing The condition of used items obtained by remanufacturers often varies widely and may only be truly known after an inspection. In “Technical Note–Optimal Procurement in Remanufacturing Systems with Uncertain Used-Item Condition,” Nadar, Akan, Debo, and Scheller-Wolf study the procurement problem by taking into account this pre-inspection uncertainty as well as the quantities of available used items of different quality levels. The authors provide a novel optimal policy structure for a Markov decision process representation of this problem. They prove that the optimal acquisition decision depends on the system congestion level — the total remanufacturing load weighted by the quality levels. Their results show that it becomes less desirable to acquire a used item as the number of available items or the quality level of any available item increases. To prove their results, the authors introduce ...
Management Science
Hospitals throughout the developed world are reimbursed based on diagnosis-related groups (DRGs).... more Hospitals throughout the developed world are reimbursed based on diagnosis-related groups (DRGs). Under this scheme, patients are divided into clinically meaningful groups, and hospitals receive a fixed fee per patient episode tied to the patient DRG. The fee is based on the average cost of providing care to patients who belong to the same DRG across all hospitals. This scheme, sometimes referred to as “yardstick competition,” provides incentives for cost reduction, as no hospital wants to operate at a higher cost than average, and can be implemented using accounting data alone. Nevertheless, if costs within a DRG are heterogeneous, this scheme may give rise to cherry-picking incentives, where providers “drop” patients who are more expensive to treat than average. To address this problem, regulators have tried to reduce within-DRG cost heterogeneity by expanding the number of DRG classes. In this paper, we show that even if cost heterogeneity is eliminated, such expansion will fail ...
The procurement of commodities, such as basic raw materials and energy sources, is an important o... more The procurement of commodities, such as basic raw materials and energy sources, is an important operations management activity that can significantly impact the value of a firm. Managing commodities may also include trading of commodities' contracts on the financial markets. The finance and economics literature suggests that financial hedging is a valuable risk management strategy because it can reduce the agency cost. We elaborate on this idea by studying the interaction between financial trading and physical trading decisions within a firm from the principal-agent perspective. This interaction creates tension between the compensation that the firm provides to the procurement manager responsible for physical trading and the financial hedging decision of the firm: a higher bonus rate makes the procurement manager exert more effort, which reduces the variability of the commodity price and reduces the need for hedging. As a result of this tension, we find that the bonus rate is no...
The referral priority program—an emerging business practice adopted by a growing number of techno... more The referral priority program—an emerging business practice adopted by a growing number of technology companies that manage a waitlist of customers—enables existing customers on the waitlist to gain priority access if they successfully refer new customers to the waitlist. Unlike more commonly used referral reward programs, this novel mechanism does not offer monetary compensation to referring customers, but leverages customers’ own disutility of delays to create referral incentives. Despite this appealing feature, our queueinggame-theoretic analysis finds the effectiveness of such a scheme as a marketing tool for customer acquisition and an operational approach for waitlist management depends crucially on the underlying market conditions, particularly the base market size of spontaneous customers. The referral priority program might not generate referrals when the base market size is either too large or too small. When customers do refer, the program could actually backfire, namely,...
SSRN Electronic Journal, 2021