Incentives for Quality through Endogenous Routing

We study how rework routing together with wage and piece rate compensation can strengthen incentives for quality. Traditionally, rework is assigned back to the agent who generates the defect (in a self routing scheme) or to another agent dedicated to rework (in a dedicated routing scheme). In contrast, a novel cross routing scheme allocates rework to a parallel agent performing both new jobs and rework. The agent who passes quality inspection or completes rework receives the piece rate paid per job. We compare the incentives of these rework allocation schemes in a principal-agent model with embedded quality control and routing in a multi-class queueing network. We show that conventional self routing of rework can never induce first-best effort. Dedicated routing and cross routing, however, strengthen incentives for quality by imposing an implicit punishment for quality failure. In addition, cross routing leads to workload allocation externalities and a prisoner’s dilemma, thereby creating highest incentives for quality. Firm profitability depends on capacity levels, revenues, and quality costs. With ample capacity, dedicated routing and cross routing both achieve first-best profit rate, while self routing does not. With limited capacity, cross routing generates the highest profit rate when appraisal, internal failure, or external failure costs are high, while self routing performs best when gross margins are high. When the number of agents increases, the incentive power of cross routing reduces monotonically and approaches that of dedicated routing.queueing networks; routing; Nash equilibrium; quality control; piece rate; epsilon equilibrium.

Incentives for quality through endogenous routing / Lauren Xiaoyuan Lu; Jan A. Van

We study how rework routing together with wage and piece rate compensation can strengthen incentives for quality. Traditionally, rework is assigned back to the agent who generates the defect (in a self routing scheme) or to another agent dedicated to rework (in a dedicated routing scheme). In contrast, a novel cross routing scheme allocates rework to a parallel agent performing both new jobs and rework. The agent who passes quality inspection or completes rework receives the piece rate paid per job. We compare the incentives of these rework allocation schemes in a principal-agent model with embedded quality control and routing in a multi-class queueing network. We show that conventional self routing of rework can never induce first-best effort. Dedicated routing and cross routing, however, strengthen incentives for quality by imposing an implicit punishment for quality failure. In addition, cross routing leads to workload allocation externalities and a prisoner’s dilemma, thereby creating highest incentives for quality. Firm profitability depends on capacity levels, revenues, and quality costs. With ample capacity, dedicated routing and cross routing both achieve first-best profit rate, while self routing does not. With limited capacity, cross routing generates the highest profit rate when appraisal, internal failure, or external failure costs are high, while self routing performs best when gross margins are high. When the number of agents increases, the incentive power of cross routing reduces monotonically and approaches that of dedicated routing

Lumpy Capacity Investment and Disinvestment Dynamics

Capacity addition and withdrawal decisions are among the most important strategic decisions made by firms in oligopolistic industries. In this paper, we develop and analyze a fully dynamic model of an oligopolistic industry with lumpy capacity and lumpy investment/disinvestment. We use our model to suggest answers to two questions: First, what economic factors facilitate preemption races? Second, what economic factors facilitate capacity coordination? With a series of examples we show that low product differentiation, low investment sunkness, and high depreciation tend to promote preemption races. The same examples also show that low product differentiation and low investment sunkness tend to promote capacity coordination. Although depreciation removes capacity, it might impede capacity coordination. Finally, our examples show that multiple equilibria arise over at least some range of parameter values. The distinct structures of these equilibria suggest that firms’ expectations play a key role in determining whether or not industry dynamics are characterized by preemption races and capacity coordination. Taken together, our results suggest that preemption races and excess capacity in the short run often go hand-in-hand with capacity coordination in the long run

Gpr124 is essential for blood-brain barrier integrity in central nervous system disease

Although blood-brain barrier (BBB) compromise is central to the etiology of diverse central nervous system (CNS) disorders, endothelial receptor proteins that control BBB function are poorly defined. The endothelial G-protein-coupled receptor (GPCR) Gpr124 has been reported to be required for normal forebrain angiogenesis and BBB function in mouse embryos, but the role of this receptor in adult animals is unknown. Here Gpr124 conditional knockout (CKO) in the endothelia of adult mice did not affect homeostatic BBB integrity, but resulted in BBB disruption and microvascular hemorrhage in mouse models of both ischemic stroke and glioblastoma, accompanied by reduced cerebrovascular canonical Wnt-β-catenin signaling. Constitutive activation of Wnt-β-catenin signaling fully corrected the BBB disruption and hemorrhage defects of Gpr124-CKO mice, with rescue of the endothelial gene tight junction, pericyte coverage and extracellular-matrix deficits. We thus identify Gpr124 as an endothelial GPCR specifically required for endothelial Wnt signaling and BBB integrity under pathological conditions in adult mice. This finding implicates Gpr124 as a potential therapeutic target for human CNS disorders characterized by BBB disruption

Multimarket Facility Network Design with Offshoring Applications

Moving production to low-wage countries may reduce manufacturing costs, but it increases logistics costs and is subject to foreign trade barriers, among others. This paper studies a manufacturer's multimarket facility network design problem and investigates the offshoring decision from a network capacity investment perspective. We analyze a firm that manufactures two products to serve two geographically separated markets using a common component and two localized final assemblies. The common part can be transported between the two markets that have different economic and demand characteristics. Two strategic network design questions arise naturally: (1) Should the common part be produced centrally or in two local facilities? (2) If a centralization strategy is adopted, in which market should the facility be located? We present a transportation cost threshold that captures costs, revenues, and demand risks, and below which centralization is optimal. The optimal location of commonality crucially depends on the relative magnitude of price and manufacturing cost differentials but also on demand size and uncertainty. Incorporating scale economies further enlarges the centralization's optimality region.capacity investment, newsvendor network, location, transshipment, commonality