88 research outputs found
Measuring Risk from IT Initiatives Using Implied Volatility
We propose an underrecognized measure to capture changes in firm risk from information technology (IT) announcements: implied volatility (IV) from a firmâs exchange-traded options. An IV is obtained from a priced stock option and represents the option marketâs expectation of the firmâs 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 investorsâ 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 datesâeach with an IVâallowing 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
Relative Importance, Specific Investment and Ownership in Interorganizational Systems.
Author's post-print on any open access repository after 12 months after publication. Must link to publisher version http://www.ucalgary.ca.ezproxy.lib.ucalgary.ca/bnault/files/bnault/itm_sep_2008.pdfImplementation and maintenance of interorganizational systems (IOS) require investments by all the participating firms. Compared with intraorganizational sys-
tems, however, there are additional uncertainties and risks. This is because the benefits of IOS investment depend not only on a firmâs own decisions, but also on those of its business partners. Without appropriate levels of investment
by all the firms participating in an IOS, they cannot reap the full benefits. Drawing upon the literature in institutional economics, we examine IOS ownership as a means to induce value-maximizing noncontractible investments. We model the impact of two factors derived from the theory of incomplete contracts and transaction cost economics: relative importance of investments and specificity of
investments. We apply the model to a vendor-managed
inventory system (VMI) in a supply chain setting. We show
that when the specificity of investments is high, this is a more
critical determinant of optimal ownership structure than the
relative importance of investments. As technologies used in
IOS become increasingly redeployable and reusable, and
less specific, the relative importance of investments becomes
a dominant factor. We also show that the bargaining mechanismâor the agreed upon approach to splitting the
incremental payoffsâthat is used affects the relationship
between these factors in determining the optimal ownership
structure of an IOS.Ye
Pricing in C2C Sharing Platforms
Sharing platforms such as zilok.com enable sharing of durable goods among consumers, and seek to maximize proïŹts by charging transaction-based platform fees. We develop a model in which consumers who have heterogeneous needs concerning the use of a durable good decide whether to purchase and share (i.e., be a lender) or borrow (i.e., be a borrower), and a monopoly sharing platform determines the platform fees. We ïŹnd, ïŹrst, that consumers with greater need to use a durable good purchase and share, and that consumers with lesser need borrow. Second, sharing platforms maximize proïŹts only if the supply of a durable good matches demandâthat is, the market must clear in order for platform fees to be proïŹt maximizing. Third, the market-clearing condition requires lender and borrower fees are classic strategic complements. Fourth, to maintain the market-clearing condition, sharing platforms have to increase their lender fee or decrease their borrower fee in response to increases in the sharing price, increases in usage capacity, and decreases in the purchase price of a durable good, and vice versa. These ïŹndings indicate that commonly applied one-sided pricing models in sharing platforms can be improved
Relative Industry Concentration and Customer-Driven IT Spillovers
We examine how one industry's productivity is affected by the IT capital of its customers and how this effect depends on industries' relative concentration. These customer-driven IT spillovers result from customers' IT investments in various information systems that reduce transaction costs through information sharing and coordination and lead to more efficient production and logistics upstream. The magnitude of IT spillovers depends on relative industry concentration because customers in more concentrated industries relative to those of their suppliers are better able to retain the benefits from their IT investments. We model customer-driven effects based on production theory and empirically test the model using two industry-level data sets covering different and overlapping time periods (1987-1999 and 1998-2005), different scopes of the economy (manufacturing only versus all industries), and different levels of industry aggregation. We find that, given an increase in a downstream industry's IT capital, there is a significant increase in downstream industry output as well as significant increases in upstream industry output. Moreover, the magnitude of IT spillovers is related to relative industry concentration: A 1% decrease in a customer's relative industry concentration increases spillovers by roughly 1%. Thus, further increases in IT capital can be justified along the supply chain, and an industry's relative concentration-which can reflect market power-in part determines the distribution of productivity benefits.School of Accounting and Financ
Mitigating Underinvestment Through an IT-Enabled Organization Form
*INFORMS: unless published under the open access option, the publisher will provide a specific copy of the paper that can be posted to a web page is https://www.informs.org/Find-Research-Publications/INFORMS-Journals/Rights-Permissions#work. Publisher's copy deposited according to Publisher's Policy 05/25/2015Information 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 under invests 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 of customers rewards franchises for the beneficial horizontal externalities generated by their investments, the levels of
investment that are chosen by franchises may be increased, although not to the levels that would occur in an integrated firm. As long as IT costs are covered, the franchisor is always more profitable and, if necessary, the franchisor and franchisees
can be jointly more profitable. Consequently, if profits can be redistributed in lump-sum form, then the franchisor and franchisees can be individually more profitable. The analysis applies to all horizontal organizations where
ownership of customers is feasible and where there are sufficient transactions between units for ownership of customers to be worthwhile
Quality differentiation and adoption costs: The case for interorganizational information system pricing
Firms which employ a new technology to increase the quality of goods sold often
require that customers adopt some aspect of the technology, and this adoption is typically costly. This study proposes a model of goods supported by inter organizational information systems (IOS) that captures the effects of increased quality and customer adoption costs. The model is developed for monopoly and duopoly, assuming non-IOS goods continue to be viable. Supporting the hypothesis that adoption costs act as a barrier to customers using IOS, our general results raise the possibility of a subsidy for IOS adoption, particularly when the added value after adoption is indispensable and when IOS adopters purchase similar or greater quantities to those they would purchase without IOS. Consistent with the notion that firms are better off with differentiated goods to reduce direct competition, duopoly
results confirm that if one firm has an IOS then that firm should offer only the IOS supported good and abandon the unsupported good to the competitor. These results also make clear that both firms can be made better off by only one introducing the IOS.
Moreover, not only can the IOS result in benefits to both firms, but in aggregate customers may also be better off. In designing an IOS, any reduction in the cost of information technology inputs, or in the cost of increasing attributes such as timeliness, accuracy and fineness, results in a superior IOS offering, increasing the quality of the IOS-supported good. Prices for goods sold, however, do not necessarily increase with the quality of IOS support.Ye
Equivalence of Taxes and Subsidies in the Control of Production Externalities
*INFORMS: unless published under the open access option, the publisher will provide a specific copy of the paper that can be posted to a web page is https://www.informs.org/Find-Research-Publications/INFORMS-Journals/Rights-Permissions#work. Publisher's copy deposited according to publisher's policy 05/25/2015We 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 objecÂtives: total output, total damage from negative externalities, and social welfare. We find reason able conditions where, with an appropriate setting of uniform lump-sum and unit subsidies, the policy maker can achieve a pair of policy objectives equivalent to those obtained using unit taxes. Thus, either tax or subsidy
regimes can be used to achieve desired levels of one or two policy objectives, allowing other factors such as fairness, equity, or international trade issues to
be considered in policy selection
Information Technology and Investment Incentives in Distributed Operations
*INFORMS: unless published under the open access option, the publisher will provide a specific copy of the paper that can be posted to a web page https://www.informs.org/Find-Research-Publications/INFORMS-Journals/Rights-Permissions#work. Publisher's copy deposited according to publisher's policy. 05/25/2015In 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 âownership of customersâ (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 profitabilityâoptimal 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
Membership and Incentives in Network Alliances
We propose a general and precise model of a network alliance that addresses both the role of membership and the role of incentives in the coordination of actions and interactions of network alliance members. Using examples in such disparate industries as professional engi- neering, accounting services and commercial fueling as the basis of our model, we show that a commission fee chosen by the network provider can be combined with a classical exclusiv- ity agreement - which does not restrict where members recruit customers while at the same time protecting the membersâ locations where customers are served - to motivate increases in member investment and, consequently, in network profits. We also show that the most profitable network size emerges naturally. That is, the most profitable network size restricts membership, and emerges as a consequence of the exclusivity agreement and the setting of the commission fee. Our results require that membersâ investments are more valuable with increases in other membersâ investments, that prospective members are sufficiently different that there is an adequate range in the business potential of members, and that the effect of other membersâ investments on a given memberâs business potential is moderately low.Ye
Information Technology and Organizational Design: Locating Decisions and Information
*INFORMS: unless published under the open access option, the publisher will provide a specific copy of the paper that can be posted to a web page https://www.informs.org/Find-Research-Publications/INFORMS-Journals/Rights-Permissions#work. Publisher provided copy of the article posted according to publisher's policy 0522/2015We study the impact of information technology (IT) on the profitability of individual organization designs and on the relative profitability of different organization designs. We develop models where organization design is defined by the location of investment decision authority. We consider global and local investment when there is an information asymmetry between a central authority and decentralized nodesâdecentralized nodes make better local investment decisions because of their local knowledge. We define three separate organization designs: a hierarchy where all investments are made by a central authority, a market where all investments are made by the decentralized nodes, and a mixed mode where global investments
are made by a central authority and local investments are made by decentralized nodes. Because of complementarities between global and local investment, we show that there is underinvestment relative to first-best in all three organization designs. We also find that IT can be used to mitigate that underinvestment, either by bringing information to the decision maker or by redesigning the monitoring and incentive structure. We demonstrate that IT does not necessarily favor decentralized organization designs, and we show how the costs of coordination may result
in the mixed mode being dominated by one or both of the alternative organization designs. Thus, collocation of investment decision rights and information that results in decisions that require coordination might not be optimal when the costs of not synchronizing global and local investment are high
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