Barrie Nault - Academia.edu (original) (raw)
Papers by Barrie Nault
Organization Science, Jun 1, 1996
Recent discussions of management practices among successful high-technology companies suggest tha... more Recent discussions of management practices among successful high-technology companies suggest that one key strategy for success is to “eat your own lunch before someone else does.” The implication is that in intensely competitive, or hypercompetitive, markets, firms with a leading position should aggressively cannibalize their own current advantages with next-generation advantages before competitors step in to steal the market. Given the pace of technological and other types of change, such strategy often requires creating next-generation advantages while the current advantages are still profitable—that is, trading current profits for future market leadership. We capture the tradeoff between a market leader's willingness to reap profits with its current set of advantages and its desire to maintain market leadership by investing in the next generation. Using a competitive model that determines the equilibrium launch time of a next generation advantage, we find that, in absence of lower launch costs for an entrant, the incumbent will be first to launch to maintain its market leadership. That is, regardless of the severity of penalties for being a follower in the next generation, it is optimal for the incumbent to preempt the entrant by launching early—even if the incumbent consequently loses money at the margin. We derive a straightforward condition to determine when an incumbent will make negative incremental profits from its investment in the next-generation advantage. The fact that the condition does not depend on the size of the incumbent's investment costs indicates that the severity of competition, rather than the costs of developing and introducing a next-generation advantage, is what forces firms to cannibalize at a loss. Finally, we find that a preemptive launch can result in an earlier launch of the next generation than is socially optimal, and provide a sufficient condition for that to occur. Although customers are better off as a result of an earlier launch, their gain may be outweighed by the additional costs firms incur from launching prematurely.
Information Systems Research, Sep 1, 2000
T he most difficult challenge facing a market leader is maintaining its leading position. This is... more T he most difficult challenge facing a market leader is maintaining its leading position. This is especially true in information technology and telecommunications industries, where multiple product generations and rapid technological evolution continually test the ability of the incumbent to stay ahead of potential entrants. In these industries, an incumbent often protects its position by launching prematurely to retain its leadership. Entry, however, happens relatively frequently. We identify conditions under which an entrant will launch a next generation product thereby preventing the incumbent from employing a protection strategy. We define a capabilities advantage as the ability to develop and launch a next generation product at a lower cost than a competitor, and a product with a greater market response is one with greater profit flows. Using these definitions, we find that an incumbent with a capabilities advantage in one next generation product can be overtaken by an entrant with a capabilities advantage in another next generation product only if the entrant's capabilities advantage is in a disruptive technology that yields a product with a greater market response. This can occur even though both next generation products are available to both firms. We also show that the competition may require the launching firm to lose money at the margin on the next generation product.
Journal of Money, Credit and Banking, 1993
ABSTRACT
Taking advantage of the opportunities created by the price adjusted performance improvement in IT... more Taking advantage of the opportunities created by the price adjusted performance improvement in IT depends in part on the ability of IT capital to substitute for other inputs in production. Studies in the IS literature as well as most economics training that examine substitution of IT capital for other inputs use the Allen elasticity of substitution (AES). We present a less-well-known measure for the elasticity of substitution, the Morishima Elasticity of Substitution (MES). In contrast to the AES which is misleading when there are three or more inputs – such as non-IT capital, labor and IT capital – the MES provides a substitution measure where the scale is meaningful, and the measure differs depending upon which price is changing. This is particularly important for IT capital as prices have been declining and there is evidence that IT capital can substitute for non-IT capital or labor in a qualitatively different way than non-IT capital and labor substitute for each other. Methodol...
Journal of the Association for Information Systems, 2019
We propose an underrecognized measure to capture changes in firm risk from information technology... more We propose an underrecognized measure to capture changes in firm risk from information technology (IT) announcements: implied volatility (IV) from a firm's exchange-traded options. An IV is obtained from a priced stock option and represents the option market's expectation of the firm's average stock return volatility over the remaining duration of the option. Using the change in IV around IT announcements, we can directly assess changes in IT-induced firm risk. IVs are straightforward to obtain, and are forward-looking based on option market investors' estimates of future stock return volatility. They do not rely on historical volatility that is confounded with other events. In addition, options have different expiration dates-each with an IV-allowing us to distinguish between short-and long-term risk. We show how a change in IV can be employed to assess changes in short-and long-term firm risk from IT announcements and demonstrate this methodological innovation empirically using a set of IT announcements that have been utilized in previous studies.
MIS Quarterly, 2017
The mathematical conditions for Assumption 2 under each of the high-privacy-cost and low-privacy-... more The mathematical conditions for Assumption 2 under each of the high-privacy-cost and low-privacy-cost beliefs are (a) For the high-privacy-cost belief,
The ability to take advantage of the economic opportunities that are created by the price adjuste... more The ability to take advantage of the economic opportunities that are created by the price adjusted performance improvement in IT depends in part on the ability of IT capital to substitute for other inputs in production. To examine substitution of IT capital for other inputs we adopt a less-well-known measure for the elasticity of substitution, the Morishima Elasticity of Substitution (MES), and calibrate our estimates from regression methods by using Bayesian techniques to impose regularity. Using two industry-level datasets for manufacturing, one 1953-00 at the two-digit SIC level and one 1987-99 at the three-digit SIC level, MES results show that IT capital and non-IT capital are Morishima complements when the price of IT capital changes. IT capital and labor are Morishima complements when the price of labor changes, and over the longer period are also Morishima complements when the price of IT capital changes. These result is at odds with our results for the Allen Elasticity of Substitution (AES), and that of most other studies using the AES that indicate IT capital is a substitute for both non-IT capital and labor. Dividing industries into groups based on IT capital intensity, we find that over the longer period the MES and AES for non-IT intensive industries match the pooled results. Our Bayesian analysis showed the pooled results were remarkably stable. However, we find that our production function estimates for IT intensive industries violate regularity conditions at almost all observations in both datasets, suggesting that production in IT intensive industries may be structurally different. In addition, we find that after the Bayesian analysis the AES results converge to unity from below, suggesting the AES may artificially support production function forms like the Cobb-Douglas.
Proceedings of the Thirtieth Hawaii International Conference on System Sciences
In this paper we show that an IT-enabled suitable design of incentives improves the competitivene... more In this paper we show that an IT-enabled suitable design of incentives improves the competitiveness of new marketing and distribution channels like telephone banking. Using and extending a framework developed by Nault and Dexter [8] for franchising, we show that an ITenabled "ownership of customers" increases the effort of telephone consultants to establish ongoing customer relationships, leading to higher income for the consultants and higher profits for the banking firm. Moreover, it can be shown that the bank can optimize incentive parameters in such a way to achieve a first-best solution.
Wirtschaftsinformatik ’97, 1997
Kundenbetreuer im beratungsorientierten Banking können ihre Arbeitszeit in kurzfristige Verkaufsa... more Kundenbetreuer im beratungsorientierten Banking können ihre Arbeitszeit in kurzfristige Verkaufsaktivitäten oder in die langfristige Pflege von Kundenbeziehungen investieren. Indem jeder Kunde einem Betreuer zugeordnet und die Vergütung des Betreuers an alle (auch zukünftigen) Abschlüsse seiner Kunden geknüpft wird, kann die Bank den Anreiz schaffen, langfristige Kundenkontakte zu pflegen. Für das beratungsorientierte Direktbanking ist ein derartiges Konzept zu modifizieren. Durch die 24-Stunden-Verfügbarkeit der Bank und die begrenzte Arbeitszeit des einzelnen Betreuers sind Kundenkontakte mit mehreren Betreuern unvermeidlich. In diesem Beitrag wird gezeigt, daß die zentrale Vorgabe von Anstrengungsniveaus bei steigender Informationsasymmetrie zwischen Bank und Kundenbetreuern zunehmend ineffizient wird. Bei geeigneter Wahl von Anreizen durch die Bank hingegen können First-Best-Anstrengungsniveaus erreicht werden. Ferner können durch die IT-unterstützte Realisierung von "Eigentumsrechten an Kundenbeziehungen" Externalitäten zwischen Kundenbetreuern so internalisiert werden, daß gleichzeitig First-Best-Anstrengungsniveaus erreicht werden und Interessenidentität zwischen Bank und Kundenbetreuern herrscht. Customer consultants in the European Financial Services Industry are facing a conflict between investing time in either establishing profitable ongoing customer relationships or allocating time in provision-oriented short-term selling activities. For being more profitable in the long run, European universal banks are pursuing the strategy of "one face to the customer" assigning each customer to a certain consultant. In accordance with that strategy, incentive schemes are based on ongoing customer purchases rather than on short-term selling. In the growing field of telephone banking however, the implementation of this principle is difficult. Due to a 24-hours-availability of the bank and limited working time of a single consultant, customer contacts with several consultants are inevitable. In this paper we show that an IT-enabled redesign of incentives improves the competitiveness of the new marketing and distribution channels. Using and extending a framework developed by Nault/Dexter 1994 for franchising, we show that an IT-enabled "ownership of customers" increases the effort of telephone consultants to establish ongoing customer relationships, leading to higher income for the consultants and higher profits for the banking firm. Moreover, it can be shown that the bank can optimize incentive parameters in such a way to achieve a first-best solution.
Information Systems Research, 2014
We use the under-recognized income accounting identity to provide an important theoretical basis ... more We use the under-recognized income accounting identity to provide an important theoretical basis for using the Cobb-Douglas production function in IT productivity analyses. Within the income accounting identity we partition capital into non-IT and IT capital and analytically derive an accounting identity (AI)-based Cobb-Douglas form that both nests the three-input Cobb-Douglas and provides additional terms based on wage rates and rates of return to non-IT and IT capital. To empirically confirm the theoretical derivation, we use a specially constructed data set from a subset of the U.S. manufacturing industry that involve elaborate calculations of rates of return—a data set that is infeasible to obtain for most productivity studies—to estimate the standard Cobb-Douglas and our AI-based form. We find that estimates from our AI-based form correspond with those of the Cobb-Douglas, and our AI-based form has significantly greater explanatory power. In addition, empirical estimation of bo...
The business,of freight transportation is undergoing a technological revolution at it moves towar... more The business,of freight transportation is undergoing a technological revolution at it moves toward,the 21st century. New technologies,are being developed,and adopted in each mode of freight transportation, such as a.c. power for locomotives. The one technology,that affects all modes,is information technology. Information technology related to the coordination of logistics and supply chain management, has the capability of affecting all the modes,in a similar way. This technology,in the form of electronic data interchange has begun to automate, and reduce the costs of, paper flow required to move goods from shippers, through carriers and transfer points, to consignees. This first step in automation has also enabled,the implementation,of more sophisticated production,systems,designed,to substitute information,about demand,requirements,for inventory, saving the costs of maintaining slack that used to be needed to respond to changes,in demand. The current state of the art is for actors ...
Organization Science, 1997
Information technology (IT) enables a new refinement of the horizontal network organization. We s... more Information technology (IT) enables a new refinement of the horizontal network organization. We show that IT can be applied to a hybrid form of market and hierarchy, franchising, and demonstrate how the resulting horizontal network organization can be an improved organization form. Specifically, we use IT-enabled “ownership of customers” to refine the horizontal network organization and show how that refinement can alleviate the problem of franchise underinvestment in traditional franchising. In traditional franchising each franchise underinvests relative to investments in an integrated firm because the benefits that accrue to other franchises from its investment (horizontal externalities) are not accounted for in its investment decision. Ownership of customers is a combination of identifying individual customers with individual franchises, monitoring customer transactions across franchises, and transferring benefits between franchises based on those transactions. Because ownership ...
Management Science, 2007
We examine whether cooperative planning and uncertainty affect the magnitude of rework in concurr... more We examine whether cooperative planning and uncertainty affect the magnitude of rework in concurrent engineering projects with upstream and downstream operations, and explore the impact of such rework on project delays. Using survey data from a sample of 120 business process (BP) redesign and related information technology (IT) development projects in healthcare and telecommunications, our results indicate that upstream (BP) rework and downstream (IT) rework is mediated and mitigated by cooperative planning through upstream/downstream strategy coupling and cross-functional involvement. In addition, uncertainty related to a lack of firm or industry experience with such projects increases the magnitude of upstream rework but not downstream rework or the amount of cooperative planning. After accounting for project scope, implementation horizon and whether delays are anticipated, we find that project delay is primarily influenced by the magnitude of downstream rework and downstream dela...
Management Science, 2001
Unprecedented changes in the economics of interaction, mainly as a result of advances in informat... more Unprecedented changes in the economics of interaction, mainly as a result of advances in information and telecommunication technologies such as the Internet, are causing a shift toward more networked forms of organizations such as horizontal alliances—that is, alliances among firms in similar businesses that have positive externalities between them. Because the success of such horizontal alliances depends crucially on aligning individual alliance-member incentives with those of the alliance as a whole, it is important to find coordination mechanisms that achieve this alignment and are simple-to-implement. In this paper, we examine two simple coordination mechanisms for a horizontal alliance characterized by the following features: (i) firms in the alliance can exert effort only in their “local” markets to increase customer demand for the alliance; (ii) customers are mobile and a customer living in a given alliance member's local area may have a need to buy from some other allian...
Management Science, 1996
We are always better off having many policies that can achieve a given objective because it exten... more We are always better off having many policies that can achieve a given objective because it extends the criteria that can be included in policy selection. This paper studies the equivalence between taxes and subsidies in the control of negative production externalities. In our models, under the tax regime, firms that take no treatment action to mitigate the damage caused by their negative externalities are punished, whereas under the subsidy regime, firms are rewarded for externality treatment activities. We employ a formulation where firms differ in the vintage of their production technology and as a result differ in profitability, negative externality generation, and the cost of treatment. We consider three measures as policy objectives: total output, total damage from negative externalities, and social welfare. We find reasonable conditions where, with an appropriate setting of uniform lump-sum and unit subsidies, the policy maker can achieve a pair of policy objectives equivalen...
Management Science, 2001
Please scroll down for article-it is on subsequent pages With 12,500 members from nearly 90 count... more Please scroll down for article-it is on subsequent pages With 12,500 members from nearly 90 countries, INFORMS is the largest international association of operations research (O.R.) and analytics professionals and students. INFORMS provides unique networking and learning opportunities for individual professionals, and organizations of all types and sizes, to better understand and use O.R. and analytics tools and methods to transform strategic visions and achieve better outcomes. For more information on INFORMS, its publications, membership, or meetings visit http://www.informs.org
Journal of Monetary Economics, 2002
This paper finds that approximately one-third of the items in the CPI are governed by price regul... more This paper finds that approximately one-third of the items in the CPI are governed by price regulations that can slow and add noise to the response of prices to changes in cost or demand conditions. Consequently, regulation is a possible partial explanation of sticky prices in the overall rate of inflation, and delayed response to changes in the money supply. A survey is used to decompose the CPI into freely-determined and regulated subcomponents. Evidence is provided that prices in the regulated sector of the economy respond approximately two quarters after prices in the freely-determined sector, thereby contributing a source of stickiness in overall inflation and in the response of inflation to monetary policy.
Information Systems Research, 1997
In distributed operations with positive externalities between branches, local underinvestment occ... more In distributed operations with positive externalities between branches, local underinvestment occurs because one branch does not account for the impact of its actions on other branches. Previous work found that an IT-enabled incentive mechanism called “ownership of customers” (OoC) reduced the problem of local underinvestment by accounting for inter-branch transactions. This report examines the impact of including investment by a central office on the set of previously developed results for local investment by branches. It shows that ownership of customers can reduce the problem of both central and local underinvestment. It also demonstrates how central investment can yield second-best levels of profitability—optimal profits given contracting problems in local investment with branches. It highlights how charging branches a unit fee to fund the needed level of central investment is consistent with that second-best solution.
Organization Science, Jun 1, 1996
Recent discussions of management practices among successful high-technology companies suggest tha... more Recent discussions of management practices among successful high-technology companies suggest that one key strategy for success is to “eat your own lunch before someone else does.” The implication is that in intensely competitive, or hypercompetitive, markets, firms with a leading position should aggressively cannibalize their own current advantages with next-generation advantages before competitors step in to steal the market. Given the pace of technological and other types of change, such strategy often requires creating next-generation advantages while the current advantages are still profitable—that is, trading current profits for future market leadership. We capture the tradeoff between a market leader's willingness to reap profits with its current set of advantages and its desire to maintain market leadership by investing in the next generation. Using a competitive model that determines the equilibrium launch time of a next generation advantage, we find that, in absence of lower launch costs for an entrant, the incumbent will be first to launch to maintain its market leadership. That is, regardless of the severity of penalties for being a follower in the next generation, it is optimal for the incumbent to preempt the entrant by launching early—even if the incumbent consequently loses money at the margin. We derive a straightforward condition to determine when an incumbent will make negative incremental profits from its investment in the next-generation advantage. The fact that the condition does not depend on the size of the incumbent's investment costs indicates that the severity of competition, rather than the costs of developing and introducing a next-generation advantage, is what forces firms to cannibalize at a loss. Finally, we find that a preemptive launch can result in an earlier launch of the next generation than is socially optimal, and provide a sufficient condition for that to occur. Although customers are better off as a result of an earlier launch, their gain may be outweighed by the additional costs firms incur from launching prematurely.
Information Systems Research, Sep 1, 2000
T he most difficult challenge facing a market leader is maintaining its leading position. This is... more T he most difficult challenge facing a market leader is maintaining its leading position. This is especially true in information technology and telecommunications industries, where multiple product generations and rapid technological evolution continually test the ability of the incumbent to stay ahead of potential entrants. In these industries, an incumbent often protects its position by launching prematurely to retain its leadership. Entry, however, happens relatively frequently. We identify conditions under which an entrant will launch a next generation product thereby preventing the incumbent from employing a protection strategy. We define a capabilities advantage as the ability to develop and launch a next generation product at a lower cost than a competitor, and a product with a greater market response is one with greater profit flows. Using these definitions, we find that an incumbent with a capabilities advantage in one next generation product can be overtaken by an entrant with a capabilities advantage in another next generation product only if the entrant's capabilities advantage is in a disruptive technology that yields a product with a greater market response. This can occur even though both next generation products are available to both firms. We also show that the competition may require the launching firm to lose money at the margin on the next generation product.
Journal of Money, Credit and Banking, 1993
ABSTRACT
Taking advantage of the opportunities created by the price adjusted performance improvement in IT... more Taking advantage of the opportunities created by the price adjusted performance improvement in IT depends in part on the ability of IT capital to substitute for other inputs in production. Studies in the IS literature as well as most economics training that examine substitution of IT capital for other inputs use the Allen elasticity of substitution (AES). We present a less-well-known measure for the elasticity of substitution, the Morishima Elasticity of Substitution (MES). In contrast to the AES which is misleading when there are three or more inputs – such as non-IT capital, labor and IT capital – the MES provides a substitution measure where the scale is meaningful, and the measure differs depending upon which price is changing. This is particularly important for IT capital as prices have been declining and there is evidence that IT capital can substitute for non-IT capital or labor in a qualitatively different way than non-IT capital and labor substitute for each other. Methodol...
Journal of the Association for Information Systems, 2019
We propose an underrecognized measure to capture changes in firm risk from information technology... more We propose an underrecognized measure to capture changes in firm risk from information technology (IT) announcements: implied volatility (IV) from a firm's exchange-traded options. An IV is obtained from a priced stock option and represents the option market's expectation of the firm's average stock return volatility over the remaining duration of the option. Using the change in IV around IT announcements, we can directly assess changes in IT-induced firm risk. IVs are straightforward to obtain, and are forward-looking based on option market investors' estimates of future stock return volatility. They do not rely on historical volatility that is confounded with other events. In addition, options have different expiration dates-each with an IV-allowing us to distinguish between short-and long-term risk. We show how a change in IV can be employed to assess changes in short-and long-term firm risk from IT announcements and demonstrate this methodological innovation empirically using a set of IT announcements that have been utilized in previous studies.
MIS Quarterly, 2017
The mathematical conditions for Assumption 2 under each of the high-privacy-cost and low-privacy-... more The mathematical conditions for Assumption 2 under each of the high-privacy-cost and low-privacy-cost beliefs are (a) For the high-privacy-cost belief,
The ability to take advantage of the economic opportunities that are created by the price adjuste... more The ability to take advantage of the economic opportunities that are created by the price adjusted performance improvement in IT depends in part on the ability of IT capital to substitute for other inputs in production. To examine substitution of IT capital for other inputs we adopt a less-well-known measure for the elasticity of substitution, the Morishima Elasticity of Substitution (MES), and calibrate our estimates from regression methods by using Bayesian techniques to impose regularity. Using two industry-level datasets for manufacturing, one 1953-00 at the two-digit SIC level and one 1987-99 at the three-digit SIC level, MES results show that IT capital and non-IT capital are Morishima complements when the price of IT capital changes. IT capital and labor are Morishima complements when the price of labor changes, and over the longer period are also Morishima complements when the price of IT capital changes. These result is at odds with our results for the Allen Elasticity of Substitution (AES), and that of most other studies using the AES that indicate IT capital is a substitute for both non-IT capital and labor. Dividing industries into groups based on IT capital intensity, we find that over the longer period the MES and AES for non-IT intensive industries match the pooled results. Our Bayesian analysis showed the pooled results were remarkably stable. However, we find that our production function estimates for IT intensive industries violate regularity conditions at almost all observations in both datasets, suggesting that production in IT intensive industries may be structurally different. In addition, we find that after the Bayesian analysis the AES results converge to unity from below, suggesting the AES may artificially support production function forms like the Cobb-Douglas.
Proceedings of the Thirtieth Hawaii International Conference on System Sciences
In this paper we show that an IT-enabled suitable design of incentives improves the competitivene... more In this paper we show that an IT-enabled suitable design of incentives improves the competitiveness of new marketing and distribution channels like telephone banking. Using and extending a framework developed by Nault and Dexter [8] for franchising, we show that an ITenabled "ownership of customers" increases the effort of telephone consultants to establish ongoing customer relationships, leading to higher income for the consultants and higher profits for the banking firm. Moreover, it can be shown that the bank can optimize incentive parameters in such a way to achieve a first-best solution.
Wirtschaftsinformatik ’97, 1997
Kundenbetreuer im beratungsorientierten Banking können ihre Arbeitszeit in kurzfristige Verkaufsa... more Kundenbetreuer im beratungsorientierten Banking können ihre Arbeitszeit in kurzfristige Verkaufsaktivitäten oder in die langfristige Pflege von Kundenbeziehungen investieren. Indem jeder Kunde einem Betreuer zugeordnet und die Vergütung des Betreuers an alle (auch zukünftigen) Abschlüsse seiner Kunden geknüpft wird, kann die Bank den Anreiz schaffen, langfristige Kundenkontakte zu pflegen. Für das beratungsorientierte Direktbanking ist ein derartiges Konzept zu modifizieren. Durch die 24-Stunden-Verfügbarkeit der Bank und die begrenzte Arbeitszeit des einzelnen Betreuers sind Kundenkontakte mit mehreren Betreuern unvermeidlich. In diesem Beitrag wird gezeigt, daß die zentrale Vorgabe von Anstrengungsniveaus bei steigender Informationsasymmetrie zwischen Bank und Kundenbetreuern zunehmend ineffizient wird. Bei geeigneter Wahl von Anreizen durch die Bank hingegen können First-Best-Anstrengungsniveaus erreicht werden. Ferner können durch die IT-unterstützte Realisierung von "Eigentumsrechten an Kundenbeziehungen" Externalitäten zwischen Kundenbetreuern so internalisiert werden, daß gleichzeitig First-Best-Anstrengungsniveaus erreicht werden und Interessenidentität zwischen Bank und Kundenbetreuern herrscht. Customer consultants in the European Financial Services Industry are facing a conflict between investing time in either establishing profitable ongoing customer relationships or allocating time in provision-oriented short-term selling activities. For being more profitable in the long run, European universal banks are pursuing the strategy of "one face to the customer" assigning each customer to a certain consultant. In accordance with that strategy, incentive schemes are based on ongoing customer purchases rather than on short-term selling. In the growing field of telephone banking however, the implementation of this principle is difficult. Due to a 24-hours-availability of the bank and limited working time of a single consultant, customer contacts with several consultants are inevitable. In this paper we show that an IT-enabled redesign of incentives improves the competitiveness of the new marketing and distribution channels. Using and extending a framework developed by Nault/Dexter 1994 for franchising, we show that an IT-enabled "ownership of customers" increases the effort of telephone consultants to establish ongoing customer relationships, leading to higher income for the consultants and higher profits for the banking firm. Moreover, it can be shown that the bank can optimize incentive parameters in such a way to achieve a first-best solution.
Information Systems Research, 2014
We use the under-recognized income accounting identity to provide an important theoretical basis ... more We use the under-recognized income accounting identity to provide an important theoretical basis for using the Cobb-Douglas production function in IT productivity analyses. Within the income accounting identity we partition capital into non-IT and IT capital and analytically derive an accounting identity (AI)-based Cobb-Douglas form that both nests the three-input Cobb-Douglas and provides additional terms based on wage rates and rates of return to non-IT and IT capital. To empirically confirm the theoretical derivation, we use a specially constructed data set from a subset of the U.S. manufacturing industry that involve elaborate calculations of rates of return—a data set that is infeasible to obtain for most productivity studies—to estimate the standard Cobb-Douglas and our AI-based form. We find that estimates from our AI-based form correspond with those of the Cobb-Douglas, and our AI-based form has significantly greater explanatory power. In addition, empirical estimation of bo...
The business,of freight transportation is undergoing a technological revolution at it moves towar... more The business,of freight transportation is undergoing a technological revolution at it moves toward,the 21st century. New technologies,are being developed,and adopted in each mode of freight transportation, such as a.c. power for locomotives. The one technology,that affects all modes,is information technology. Information technology related to the coordination of logistics and supply chain management, has the capability of affecting all the modes,in a similar way. This technology,in the form of electronic data interchange has begun to automate, and reduce the costs of, paper flow required to move goods from shippers, through carriers and transfer points, to consignees. This first step in automation has also enabled,the implementation,of more sophisticated production,systems,designed,to substitute information,about demand,requirements,for inventory, saving the costs of maintaining slack that used to be needed to respond to changes,in demand. The current state of the art is for actors ...
Organization Science, 1997
Information technology (IT) enables a new refinement of the horizontal network organization. We s... more Information technology (IT) enables a new refinement of the horizontal network organization. We show that IT can be applied to a hybrid form of market and hierarchy, franchising, and demonstrate how the resulting horizontal network organization can be an improved organization form. Specifically, we use IT-enabled “ownership of customers” to refine the horizontal network organization and show how that refinement can alleviate the problem of franchise underinvestment in traditional franchising. In traditional franchising each franchise underinvests relative to investments in an integrated firm because the benefits that accrue to other franchises from its investment (horizontal externalities) are not accounted for in its investment decision. Ownership of customers is a combination of identifying individual customers with individual franchises, monitoring customer transactions across franchises, and transferring benefits between franchises based on those transactions. Because ownership ...
Management Science, 2007
We examine whether cooperative planning and uncertainty affect the magnitude of rework in concurr... more We examine whether cooperative planning and uncertainty affect the magnitude of rework in concurrent engineering projects with upstream and downstream operations, and explore the impact of such rework on project delays. Using survey data from a sample of 120 business process (BP) redesign and related information technology (IT) development projects in healthcare and telecommunications, our results indicate that upstream (BP) rework and downstream (IT) rework is mediated and mitigated by cooperative planning through upstream/downstream strategy coupling and cross-functional involvement. In addition, uncertainty related to a lack of firm or industry experience with such projects increases the magnitude of upstream rework but not downstream rework or the amount of cooperative planning. After accounting for project scope, implementation horizon and whether delays are anticipated, we find that project delay is primarily influenced by the magnitude of downstream rework and downstream dela...
Management Science, 2001
Unprecedented changes in the economics of interaction, mainly as a result of advances in informat... more Unprecedented changes in the economics of interaction, mainly as a result of advances in information and telecommunication technologies such as the Internet, are causing a shift toward more networked forms of organizations such as horizontal alliances—that is, alliances among firms in similar businesses that have positive externalities between them. Because the success of such horizontal alliances depends crucially on aligning individual alliance-member incentives with those of the alliance as a whole, it is important to find coordination mechanisms that achieve this alignment and are simple-to-implement. In this paper, we examine two simple coordination mechanisms for a horizontal alliance characterized by the following features: (i) firms in the alliance can exert effort only in their “local” markets to increase customer demand for the alliance; (ii) customers are mobile and a customer living in a given alliance member's local area may have a need to buy from some other allian...
Management Science, 1996
We are always better off having many policies that can achieve a given objective because it exten... more We are always better off having many policies that can achieve a given objective because it extends the criteria that can be included in policy selection. This paper studies the equivalence between taxes and subsidies in the control of negative production externalities. In our models, under the tax regime, firms that take no treatment action to mitigate the damage caused by their negative externalities are punished, whereas under the subsidy regime, firms are rewarded for externality treatment activities. We employ a formulation where firms differ in the vintage of their production technology and as a result differ in profitability, negative externality generation, and the cost of treatment. We consider three measures as policy objectives: total output, total damage from negative externalities, and social welfare. We find reasonable conditions where, with an appropriate setting of uniform lump-sum and unit subsidies, the policy maker can achieve a pair of policy objectives equivalen...
Management Science, 2001
Please scroll down for article-it is on subsequent pages With 12,500 members from nearly 90 count... more Please scroll down for article-it is on subsequent pages With 12,500 members from nearly 90 countries, INFORMS is the largest international association of operations research (O.R.) and analytics professionals and students. INFORMS provides unique networking and learning opportunities for individual professionals, and organizations of all types and sizes, to better understand and use O.R. and analytics tools and methods to transform strategic visions and achieve better outcomes. For more information on INFORMS, its publications, membership, or meetings visit http://www.informs.org
Journal of Monetary Economics, 2002
This paper finds that approximately one-third of the items in the CPI are governed by price regul... more This paper finds that approximately one-third of the items in the CPI are governed by price regulations that can slow and add noise to the response of prices to changes in cost or demand conditions. Consequently, regulation is a possible partial explanation of sticky prices in the overall rate of inflation, and delayed response to changes in the money supply. A survey is used to decompose the CPI into freely-determined and regulated subcomponents. Evidence is provided that prices in the regulated sector of the economy respond approximately two quarters after prices in the freely-determined sector, thereby contributing a source of stickiness in overall inflation and in the response of inflation to monetary policy.
Information Systems Research, 1997
In distributed operations with positive externalities between branches, local underinvestment occ... more In distributed operations with positive externalities between branches, local underinvestment occurs because one branch does not account for the impact of its actions on other branches. Previous work found that an IT-enabled incentive mechanism called “ownership of customers” (OoC) reduced the problem of local underinvestment by accounting for inter-branch transactions. This report examines the impact of including investment by a central office on the set of previously developed results for local investment by branches. It shows that ownership of customers can reduce the problem of both central and local underinvestment. It also demonstrates how central investment can yield second-best levels of profitability—optimal profits given contracting problems in local investment with branches. It highlights how charging branches a unit fee to fund the needed level of central investment is consistent with that second-best solution.