Emerging Markets in Water: A Comparative Institutional Analysis of the Central Valley and Colorado-Big Thompson Projects

Water trading is a potential means to improve the productivity of developed water supplies and reconcile competing uses. Economic theory suggests that markets evolve in response to changes in supply and demand. This prediction is at odds with observed disparities in the pace of market development in regions facing similar pressures on scarce water resources. A dramatic example of this disparity is found in the regions served by the California Central Valley Project and the Colorado-Big Thompson Project.This article argues that the differences in market activity in the two areas can be explained largely by the underlying water allocation institutions. The article identifies key institutional features that affect the transaction costs of water trading and examines the rootsof the institutional diferences. The institutions governing market transactions today are largely a function of pre-existing property rights and political battles to build consensus and obtain federal financing for the projects. The article highlights the path-dependent nature of water allocation institutions and trading, but also suggests that complex inter-regional markets could still develop in California given ever-increasing competition for scarce water resources and advances in information technology that lower market transaction costs

Revenue Sharing, Demand Uncertainty, and Vertical Control of Competing Firms

This paper argues that revenue sharing is a valuable instrument in vertically separated industries when there is intrabrand competition among the downstream firms, demand is stochastic or variable, and downstream inventory is chosen before demand is realized. In these environments, the upstream firm would like to simultaneously soften downstream competition and encourage efficient inventory holding. Traditional two-part tariffs cannot achieve both objectives in the presence of downstream competition. Raising the price of the inputs softens price competition but distorts the downstream firms' inventory decisions. We argue that revenue sharing, combined with a low input price, aligns the incentives in the vertical chain. The use of revenue sharing in video rental retailing is discussed. Blockbuster in particular has used revenue sharing in conjunction with heavy marketing of availability to grow significantly in the video rental retail industry. Many other outlets use revenue sharing as well. Some antitrust concerns have been raised by smaller firms suggesting that revenue sharing might be an anticompetitive vertical restraint. Although our model does not address retailer market power, we show that revenue sharing contracts can be used by upstream firms increase inventory holding and consumer welfare.

Optimal capacity rationing policy for a container leasing system with multiple kinds of customers and substitutable containers

This is the final version. Available from the Institute for Operations Research and Management Sciences via the DOI in this record. In this paper, we consider a container leasing firm that has elementary and premium containers, which are downward substitutable and for use by elementary contract customers (ECCs), premium contract customers (PCCs), as well as walk-in customers (WICs). ECCs can be satisfied by elementary containers or premium ones at discounted prices while PCCs only accept premium containers. WICs can be satisfied by any type of container at different prices. The objective is to maximise the expected total rental revenue by managing its limited capacity. We formulate this problem as a discrete-time Markov Decision Process and show the submodularity and concavity of the value function. Based on this, we show that the optimal policy can be characterised by a series of rationing thresholds, a series of substitution thresholds and a priority threshold, all of which depend on the system states. We further give conditions under which the optimal policy can be simplified. Numerical experiments are conducted to show the impact of the substitution of two items on the revenue, to compare the performance of the optimal policy with those of the commonly used policies and to investigate the influence of arrival rates on the optimal policy. Last, we extend the basic model to consider different rental durations, ECCs’ acceptance behaviour and endogenous prices for WICs.British AcademyNational Natural Science Foundation of China/Research Grants Council of Hong Kong Joint Research SchemeNational Natural Science Foundation of China/Research Grants Council of Hong Kong Joint Research SchemeNational Natural Science Foundation of ChinaNational Natural Science Foundation of ChinaZhejiang Shuren University ResearchBeijing Logistics Informatics Research Bas

Applying Revenue Management to the Reverse Supply Chain

We study the disposition decision for product returns in a closed-loop supply chain. Motivated by the asset recovery process at IBM, we consider two disposition alternatives. Returns may be either refurbished for reselling or dismantled for spare parts. Reselling a refurbished unit typically yields higher unit margins. However, demand is uncertain. A common policy in many firms is to rank disposition alternatives by unit margins. We show that a revenue management approach to the disposition decision which explicitly incorporates demand uncertainty can increase profits significantly. We discuss analogies between the disposition problem and the classical airline revenue management problem. We then develop single period and multi-period stochastic optimization models for the disposition problem. Analyzing these models, we show that the optimal allocation balances expected marginal profits across the disposition alternatives. A detailed numerical study reveals that a revenue management approach to the disposition problem significantly outperforms the current practice of focusing exclusively on high-margin options, and we identify conditions under which this improvement is the highest. We also show that the value recovered from the returned products critically depends on the coordination between forward and reverse supply chain decisions.remanufacturing;revenue management;onderdelen;revenues;spare parts inventory

Nonlinear pricing for stochastic container leasing system

With the substantial upsurge of container traffic, the container leasing company thrives on the financial benefits and operational flexibility of leasing containers requested by shippers. In practice, container lease pricing problem is different from the consumer product pricing in consideration of the fair value of container, limited customer types and monopolistic supply market. In view of the durability of container and the diversified lease time and quantity, the pricing is a challenging task for the leasing company. This paper examines the monopolist’s nonlinear pricing problems in static and dynamic envi- ronments. In particular, the leasing company designs and commits a menu of price and hire quantity/time pairs to maximize the expected profit and in turn customers choose hire quantities/time to maximize their surpluses according to their hire preferences. In a static environment, closed-form solutions are obtained for different groups of customers with multiple types subject to capacity constraint. In a dynamic environment, we address two customer types and derive closed-form solutions for the problem of customers with hire time preference. Further, we show that the effect of the capacity constraint increases with time of the planning horizon when customers have the same hire time preference; while in the case with different hire time preferences, the capacity constraint has opposite effects on the low and high type customers. Last, the case of customers with hire quantity preference is discussed. We focus on the lease with alternative given sets of hire time and use dynamic programming to derive the numerical optimal hire time sequence

Modelling residential water demand with fixed volumetric charging in a large urban municipality: The case of Brisbane, Australia

This paper uses household level data to model residential water demand in Brisbane, Australia from 1998 to 2004. In this system, residential consumption is charged using a fixed annual service fee with no free entitlement and a fixed volumetric charge per kilolitre. Water demand is specified as quarterly household water consumption and demand characteristics include the contemporaneous and lagged marginal price of water, household income and size, and the number of rainy (with at least some precipitation) and warm (greater than 19.5°C) days. The findings not only confirm residential water as price and income inelastic, but also that the price and income elasticity of demand in owner-occupied households is higher than in renter households. However, the results also show that weather, especially the number of warm days, is likely to exert a much greater influence on residential water consumption than any factors subject to the usual demand management strategies.Residential water demand, two-part tariffs, fixed volumetric charge, demand management strategies

Dynamic Booking Control for Car Rental Revenue Management : A Decomposition Approach

This paper considers dynamic booking control for a single-station car rental revenue management problem. Different from conventional airline revenue management, car rental revenue management needs to take into account not only the existing bookings but also the lengths of the existing rentals and the capacity flexibility via fleet shuttling, which yields a high-dimensional system state space. In this paper, we formulate the dynamic booking control problem as a discrete-time stochastic dynamic program over an infinite horizon. Such a model is computationally intractable. We propose a decomposition approach and develop two heuristics. The first heuristic is an approximate dynamic program (ADP) which approximates the value function using the value functions of the decomposed problems. The second heuristic is constructed directly from the optimal booking limits computed from the decomposed problems, which is more scalable compared to the ADP heuristic. Our numerical study suggests that the performances of both heuristics are close to optimum and significantly outperform the commonly used probabilistic non-linear programming (PNLP) heuristic in most of the instances. The dominant performance of our second heuristic is evidenced in a case study using sample data from a major car rental company in the UK

Agency costs and asymmetric information in a small open economy: a dynamic general equilibrium model

This paper assesses the effects of agency costs and asymmetric information in credit markets. Asymmetric information and agency costs occur whenever lenders delegate control over resources to borrowers, leading to adverse selection, moral hazard and monitoring costs because of the inability to monitor borrowers costlessly. Financial intermediaries can help overcome this imperfect information, leading to a more efficient allocation of resources. Macroeconomic models currently used by policy makers generally disregard credit market conditions. The basis of the analysis follows Carlstrom and Fuerst (1997). The model is extended to an open economy with a floating exchange rate and slowly adjusting goods prices. Moreover, a government and an inflation targeting monetary authority are introduced. The foreign sector is incorporated following McCallum and Nelson (1999). Firms use imported commodity inputs to produce output. They sell the output to domestic and foreign consumers and exports are a function of the real exchange rate and foreign demand. Incorporating a foreign sector has at least two implications. First, an open economy faces the possibility of shocks that originate from the rest of the world. Second, with a floating exchange rate, movements in the relative price of currencies affect the supply and demand of products and factors of production. The framework of the analysis is a dynamic general equilibrium model with microeconomic foundations, where agents’ decisions are derived from optimising behaviour. The model is calibrated for New Zealand. The steady states with and without agency costs are derived and the effects of these costs on business cycle fluctuations are assessed. A decline in the information asymmetry between borrowers and lenders leads to lower agency costs and an increase in the long-run level of steady state capital, investment and output. The presence of agency costs also affects the business cycle and the monetary authority’s response to shocks in the economy. Moreover, the exchange rate is subject to larger cyclical swings in the presence of agency costs, leading to additional substitution effects as imports are a production input. One of the key results in Carlstrom and Fuerst (1997), a hump shaped response of output and investment to a productivity shock, still prevails in the small open economy set-up. The diffrerences in the adjustment paths of the model with and without agency costs following a shock to the economy provide evidence of quantitatively important effects of agency costs and information asymmetries. The finding suggests that macroeconomic models that do not explicitly account for asymmetric information in credit markets provide an incomplete description of the economy.open economy, agency costs, asymmetric information, dynamic general equlibrium analysis

Drought Management Concepts: Lessons of the 1976-1977 U.S. Drought

Three approaches to drought management are developed as generalized mathematical models. Each model is then applied to particular locations in Utah using the hydrologic/economic data from the 1976-77 drought. The modeling approaches include: (1) A multiple regression approach is used to quantify the changes in water use achieved by three common municipal sector rationing policies: (a) restrictions on time of outdoor use, (b) price increases, and (c) mandatory quantity restrictions (2) A model was presented for determing the optimal long term price schedule for rationing a stochastically variable water supply during summer peak demand season among groups of municipal water users which have different demands. (3) The third model analyzed various management policies in terms of their impact on net benefits to the agricultural and municipal sectors. The model is capable of modifying policies monthly, based upon the chaning hydrologic situation. It can vary constraints in a manner that simulates an institutional environment ranging from total freedom of price changes and water exchanges between sectors to those constraints existing during the 76-77 drought. Conclusions include: 1) Mandatory water use regulations are much more effective than price increases in reducing water use (at least in a short term drought). 2) A theoretical analysis of demand and supply functions showed that Salt Lake City\u27s pricing polity (about $0.25/1000 gallons) is very close to optimal. 3) The third model showed that very substantial losses in consumer surplus in Slat Lake County during the drought were caused by variuos institutional restrictions