Preferences estimation without approximation

We devise an estimation methodology which allows preferences estimation and comparative statics analysis without a reliance on Taylor’s approximations and the indirect utility function.     

Optimal production and shipment models for a single-vendor–single-buyer integrated system

This paper develops a more general production-inventory model for a single-vendor–single-buyer integrated system. Unlike the hitherto existing production-inventory models for the vendor–buyer system, the present model neither requires the buyer’s unit holding cost greater than the vendor’s nor assumes the structure of shipment policy. Secondly, the model is extended to the situation with shortages permitted, based on shortages being allowed to occur only for the buyer. Thirdly, the paper also presents a corresponding production-inventory model for a deteriorating item for the integrated system. The solution procedures are provided for finding the optimal production and shipment policies and illustrated with numerical examples. Three significant insights are shown: (1) no matter whether the buyer’s unit holding cost is greater than the vendor’s or not, the present model always performs best in reducing the average total cost as compared to the hitherto existing models; (2) if the buyer’s unit holding cost is less than the vendor’s, the optimal shipment policy for the integrated system will only comprise shipments with successive shipment sizes increasing by a fixed factor. It is different from that obtained by Hill [Hill, R.M., 1999. The optimal production and shipment policy for the single-vendor single-buyer integrated production-inventory problem. International Journal of Production Research 37, 2463–2475] for the opposite case; (3) when designing a single-vendor–single-buyer integrated system, making the buyer’s unit holding cost lower than the vendor’s is more beneficial to the system if shortages are not permitted to occur; otherwise it just reverses.     

Comparative statics of changes in risk on monotonically and partially responsive kinked payoffs

This paper derives two sets of necessary and sufficient conditions on the comparative statics of changes in risk under kinked payoff functions that are monotonically responsive and partially responsive to the realization of risk, respectively. The former case includes the newsboy problem with backorder; the latter case includes the newsboy problem without backorder and under some restrictions, also includes the optimal deductible insurance problem. Some relatively non-restrictive conditions derived from the necessary and sufficient conditions reveal that the three problems can be quite different, even though they are often viewed in the literature as being congruous. These conditions lead to simple predictions of the direction of change in any risk-averse agent’s optimal choice upon a change in risk, without assuming specific functional forms for the utility function.     

Economic order quantity model and Taguchi’s cost of poor quality

In this paper we consider defective products and Taguchi’s cost of poor quality in the economic order quantity (EOQ) model. We assume that the product quality performs a normal distribution function, and the Taguchi’s poor quality cost has been involved. From our analysis, it has been found that the annual profit will be decreased if the poor quality of product and Taguchi’s quality cost are involved in the model. It has also been found that economic order quantity in our model is larger than that in a traditional EOQ model.     

Analysis and algorithm for the optimal investment times of new manufacturing technologies in a duopoly

On the basis of a dynamic and non-cooperative game-theoretic model, the optimal timings of investments in new manufacturing technologies (NMT) is analysed under duopolistic competition. Non-identical incumbents with time-proportional demand always wait for some delay to invest in NMT. The existence of silent timing equilibrium is addressed subsequently. We show that cost-reducing NMT diffuse over time within a duopoly. The investments in strategic NMT, however, may be distributed through time or in a “swarm”. Economic interpretations of initial options and the comparative statics presented in this paper help decision makers develop strategies and make decisions under the situation they face. Finally, a computational algorithm of optimal timings could verify this analysis and facilitate the real applications of game-theoretic models.     

A note on “Two-warehouse inventory model with deterioration under FIFO dispatch policy”

A recently published paper by Lee [C.C. Lee, Two-warehouse inventory model with deterioration under FIFO dispatching policy, European Journal of Operational Research 174 (2006) 861–873] considers different dispatching models for the two-warehouse inventory system with deteriorating items, in which Pakkala and Achary’s LIFO (last-in–first-out) model [T.P.M. Pakkala, K.K. Achary, A deterministic inventory model for deteriorating items with two warehouses and finite replenishment rate, European Journal of Operational Research 57 (1992) 71–76] is first modified, and then the author concludes that the modified LIFO model always has a lower cost than Pakkala and Achary’s LIFO model under a particular condition specified by him. The present note points out that this conclusion is incorrect and misleading. Alternatively, we provide a new sufficient condition such that the modified LIFO model always has a lower cost than Pakkala and Achary’s model. Besides, we also compare Pakkala and Achary’s original LIFO model with Lee’s FIFO (first-in–first-out) model for the special case where the two warehouses have the same deteriorating rates. Finally, numerical examples are provided to investigate and examine the impact of corresponding parameters on policy choice. The results in this note give a much clearer picture than those at Lee’s paper about the relationships between the different dispatching policies for the two-warehouse inventory system with deterioration items.     

Stochastic stability and bifurcation for the chronic state in Marchuk’s model with noise

A stochastic differential equation modelling a Marchuk’s model is investigated. The stochasticity in the model is introduced by parameter perturbation which is a standard technique in stochastic population modelling. Firstly, the stochastic Marchuk’s model has been simplified by applying stochastic center manifold and stochastic average theory. Secondly, by using Lyapunov exponent and singular boundary theory, we analyze the local stochastic stability and global stochastic stability for stochastic Marchuk’s model, respectively. Thirdly, we explore the stochastic bifurcation of the stochastic Marchuk’s model according to invariant measure and stationary probability density. Some new criteria ensuring stochastic pitchfork bifurcation and P-bifurcation for stochastic Marchuk’s model are obtained, respectively.     

Security protection design for deception and real system regimes: A model and analysis

In this paper, we model a possible deception system with the explicit purpose of enticing unauthorized users and restricting their access to the real system. The proposed model represents a system designer’s defensive actions against intruders in a way that maximizes the difference between the intruders’ cost and the system designer’s cost of system protection. Under the assumption of a dual entity system, the proposed model shows that intruders differ in behavior depending on the system’s vulnerability at the time of intrusion as well as depending on their own economic incentives. The optimal results of the proposed model provide the system designer with insights on how to configure the level of protection for the two systems.     

Local search methods for the flowshop scheduling problem with flowtime minimization

Flowshop scheduling is a very active research area. This problem still attracts a considerable amount of interest despite the sheer amount of available results. Total flowtime minimization of a flowshop has been actively studied and many effective algorithms have been proposed in the last few years. New best solutions have been found for common benchmarks at a rapid pace. However, these improvements many times come at the cost of sophisticated algorithms. Complex methods hinder potential applications and are difficult to extend to small problem variations. Replicability of results is also a challenge. In this paper, we examine simple and easy to implement methods that at the same time result in state-of-the-art performance. The first two proposed methods are based on the well known Iterated Local Search (ILS) and Iterated Greedy (IG) frameworks, which have been applied with great success to other flowshop problems. Additionally, we present extensions of these methods that work over populations, something that we refer to as population-based ILS (pILS) and population-based IG (pIGA), respectively. We calibrate the presented algorithms by means of the Design of Experiments (DOE) approach. Extensive comparative evaluations are carried out against the most recent techniques for the considered problem in the literature. The results of a comprehensive computational and statistical analysis show that the presented algorithms are very effective. Furthermore, we show that, despite their simplicity, the presented methods are able to improve 12 out of 120 best known solutions of Taillard’s flowshop benchmark with total flowtime criterion.     

Comparative statics of a signaling game: An experimental study

In this paper a simple and basic signaling game is studied in an experimental environment. First, we check whether we can replicate some of the findings in the literature concerning equilibrium selection and the use and impact of costly signals. Second, and foremost, the comparative statics implications of the game are studied. The experimental results are related to the predictions of two competing behavioral models: a game model, in which subjects are assumed to behave in line with (refined) sequential equilibrium theory, and a decision model, in which subjects are assumed to behave as non-strategic decision makers. The experimental outcomes replicate the finding in the literature that costly messages are sent more frequently by ‘higher’ sender types (whose information is such that persuasion is also profitable to the responder), and that such messages have an impact on the behavior of the responder. These results are consistent with (versions of) both the game model and the decision model. The comparative statics results, however, clearly point in the direction of the decision model. Play is most strongly affected by ‘own’ payoff parameters, as predicted by the decision model, and less so by opponent's payoff parameters, as predicted by the mixed strategies of the refined sequential equilibrium. Particularly, a decision model in which players are assumed to adapt beliefs about opponents' choice probabilities in response to experience in previous play, appears to succeed best in organizing the data.     

Sensitivity analysis with finite changes: An application to modified EOQ models

In this work, we introduce a new method for the sensitivity analysis of model output in the presence of finite changes in one or more of the exogenous variables. We define sensitivity measures that do not rest on differentiability. We relate the sensitivity measures to classical differential and comparative statics indicators. We prove a result that allows us to obtain the sensitivity measures at the same cost of one-variable-at-a-time methods, thus making their estimation feasible also for computationally intensive models. We discuss in detail the derivation of managerial insights formulating a procedure based on the concept of “Settings”. The method is applied to the sensitivity analysis of a discrete change in optimal order quantity following a jump in the exogenous variables of a non-linear programming inventory model.     

A note on risky targets and effort

This note examines the effort choice problem of a decision maker (DM) who has to meet a target. The more the DM spends on effort, the more likely the target is reached. Besides the risk of missing the target despite his effort, the DM faces additional uncertainty in that both the target and the status quo are subject to exogenous shocks that are beyond the DM’s control. We consider two cases: the additive case in which the DM’s effort affects solely the likelihood of achieving the target, and the multiplicative case in which the DM’s effort also has direct effect on the target and the status quo. Using the theory of monotone comparative statics and risk apportionment, we derive sufficient conditions under which the DM spends more on effort when the target experiences an improvement in risk via higher-order stochastic dominance.     

Identification of heat transfer dynamics for non-modal analysis of thermoacoustic stability

A systematic approach for non-modal stability analysis of thermoacoustic systems with a localized heat source is proposed. The response of the heat source to flow perturbations is obtained from unsteady computational fluid dynamics combined with correlation-based linear system identification. A model for the complete thermoacoustic system is formulated with a Galerkin expansion technique, where the heat source is included as an acoustically compact element. The eigenvalues of the resulting system are obtained from discretization of the solution operator, the maximum growth factor is estimated from the pseudospectra using Kreiss’ theorem.The approach is illustrated with a simple Rijke tube configuration. Results obtained with a simple “baseline” model for the heat source dynamics based on King’s law - widely used in hot wire anemometry - are compared against the more advanced treatment developed here. Analysis of pseudospectra diagrams shows that the choice of the heat source model does influence the sensitivity of eigenvalues to perturbations and hence the non-normal behavior. The maximum growth factor for the system with the heat source model based on King’s law is more sensitive to changes in the heat source location than the CFD-based heat source model.     

The impact of disaster on the strategic interaction between company and government

A company allocates a resource between safety effort and production. The government earns taxes on production. The disaster probability is modeled as a contest between the disaster magnitude and the two players’ safety efforts. The model illustrates that safety efforts are strategic substitutes and inverse U shaped in the disaster magnitude. The company’s safety effort increases, and the government’s safety effort decreases, in taxation. Taxation can ameliorate companies’ free riding on governments’ safety efforts. With sufficiently large production, the government prefers, and the company does not prefer, raising taxation above 0%. For the government, an upper limit usually exists above which taxation cannot be profitably increased. The model shows how both or no players exert safety efforts when the disaster magnitude is small and large respectively, and how they free ride on each other’s safety efforts when the disaster magnitude is intermediate. The company free rides when the unit production cost is low so that the large profits outweigh the negative impact of the disaster. With endogenized taxation determined by the government, the tax rate decreases in the disaster magnitude, the unit production cost, the government’s unit cost of safety effort, and how the company is negatively affected by the disaster. The tax rate increases in the company’s resource and how the government is negatively affected by the disaster. The tax rate is weakly U shaped in the company’s unit safety effort. The model is illustrated with numerical examples and with the oil spill disasters by BP in 2010 and by Exxon Valdez in 1989.     

Economic order quantity under advance payment

Though advance payment is widely used in practice, its influences on buyer’s inventory policy are rarely discussed. This paper investigates the buyer’s inventory policy under advance payment, including all payment in advance and partial-advanced–partial-delayed payment. The buyer’s ordering policy is derived by minimizing his total inventory costs including inventory holding cost, ordering cost, and interest cost caused by advance payment or delayed payment. The conclusions show that when all the payment is paid in advance, the buyer’s optimal replenishment cycle is influenced only by the price discount associated with advance payment, and the length of advance payment has no effect. For the partial-advanced–partial-delayed payment case, the buyer’s replenishment cycle is also not influenced by the length of advance period. However, in this situation, the delayed period and the price discount may have impacts on the inventory policy. We also use discounted cash flow (DCF) model to derive the buyer’s replenishment cycle and show that the replenishment cycle is negatively related to the length of advance period. Numerical examples are presented to illustrate the results.     

Packing items to feed assembly lines

We treat a practical application of packing problems in feeding assembly lines. This study was motivated by a real situation encountered in the shop floor of a major automobile industry plant in Brazil. The assembly line feed problem (LFP) consists in how pack the items in the available containers to meet the line work centers’ requirements with a minimum total cost over the planning horizon. LFP is a variable-sized bin packing problem that has two special features: (i) a cardinality constraint on each bin’s size; and, (ii) a cost structure such that each bin’s cost varies according to the items that are packed in it. We propose an integer programming model and a GRASP heuristic for LFP. Numerical results on real-life test instances are reported.     

Supply chain coordination with controllable lead time and asymmetric information

This paper considers coordinated decisions in a decentralized supply chain consisting of a vendor and a buyer with controllable lead time. We analyze two supply chain inventory models. In the first model we assume the vendor has complete information about the buyer’s cost structure. By taking both the vendor and the buyer’s individual rationalities into consideration, a side payment coordination mechanism is designed to realize supply chain Pareto dominance. In the second model we consider a setting where the buyer possesses private cost information. We design the coordination mechanism by using principal-agent model to induce the buyer to report his true cost structure. The solution procedures are also developed to get the optimal solutions of these two models. The results of numerical examples show that shortening lead time to certain extent can reduce inventory cost and the coordination mechanisms designed for both symmetric and asymmetric information situations are effective.     

Monotone Comparative Statics: Geometric Approach

We consider the comparative statics of solutions to parameterized optimization problems. A geometric method is developed for finding a vector field that, at each point in the parameter space, indicates a direction in which monotone comparative statics obtains. Given such a vector field, we provide sufficient conditions under which the problem can be reparameterized on the parameter space (or a subset thereof) in a way that guarantees monotone comparative statics. A key feature of our method is that it does not require the feasible set to be a lattice and works in the absence of the standard quasi-supermodularity and single-crossing assumptions on the objective function. We illustrate our approach with a variety of applications. We are grateful to Kenneth Arrow, Darrell Duffie, David Luenberger, Paul Milgrom, John Quah, and Pete Veinott for helpful comments. Research in part supported by a David Morgenthaler II Faculty Scholar Award.     

Optimal enlistment age: A cost–benefit analysis and some simulations

Enlistment at the earliest viable age maximizes the country’s wartime army size and thereby the country’s attack-deterrence capacity. Injuries and death generate a loss of quantity and quality of life that reduces the benefit from early-age enlistment. The benefit from any age of recruitment is also affected by the rise and decline of the individual’s military performance and civilian productivity and by the changes in the individual’s adjustment costs over his lifecycle. The simulations of an optimization model incorporating these cost and benefit elements suggest that if the intensity of the rise and decline of the individual’s military performance is sufficiently larger than the intensity of the rise and decline of his civilian productivity, there exists an interior optimal enlistment age that is greater than the commonly practiced 18. In such a case, most of the simulation results are closely scattered around 21 despite large parameter changes.     

Dynamics in Art of War

This paper examines basic principles in Sun Tzu’s classic treatise Art of War. In a dynamic decision-theoretic model, there is a potential conflict between two sides. The comparative statics results show precise conditions under which the principles of strategic fighting in Art of War hold.