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We study how social connectedness affected active mutual fund manager trading behavior in the first half of 2020. In the first quarter during which the coronavirus disease 2019 (COVID-19) outbreak occurred, fund managers located in or socially connected to COVID-19 hotspots sold more stock holdings compared with a control group of unconnected managers. The economic impact of social connectedness on stock holdings was comparable with that of COVID-19 hotspots and was elevated among "epicenter" stocks most susceptible to the pandemic shock. In the second quarter, social interaction had an overall negative effect on fund performance, but this effect depended on manager skill; unskilled managers who were connected to the hotspots underperformed, whereas skillful managers suffered no deleterious effect. Our evidence suggests that social connections can intensify salience bias for all but the most skilled institutional investors, and policy makers should be wary of the destabilizing role of social networks during market downturns. This paper was accepted by Gustavo Manso, finance. Funding: This work was supported by the Social Science and Humanities Research Council of Canada. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4814. [ABSTRACT FROM AUTHOR]

This study investigates whether investors can reap economic benefits from analyzing differences in analyst quality. Although high-quality analysts' average forecast is more accurate than the consensus forecast for firms with a large analyst following, the benefits of using high-quality analysts' average forecasts are not economically significant. In contrast, the value of analyst quality differentiation exists in the second moment of forecasts. High-quality analysts' forecast dispersion gives investors an advantage in dealing with uncertainty by predicting return volatility and providing opportunities for economically significant returns using option straddle and post-earnings announcement drift investment strategies. This paper was accepted by Suraj Srinivassan, accounting. Funding: A. Rubin and A. Vedrashko thank the financial support of the Social Sciences and Humanities Research Council of Canada (SSHRC). Supplemental Material: The data are available at https://doi.org/10.1287/mnsc.2023.4699. [ABSTRACT FROM AUTHOR]

Decentralized exchanges (DEXs) are an essential component of the nascent decentralized finance (DeFi) ecosystem. The most common DEXs are so-called automated market makers (AMMs): smart contracts that pool liquidity and process trades as atomic swaps of tokens. AMMs price transactions with a deterministic liquidity invariance rule that only uses the AMM's token deposits as inputs and that has no precedent in traditional finance. Yet, in the context of transparent and open blockchain operations, any liquidity invariance pricing function allows so-called sandwich attacks (akin to front running) that increase the cost of trading and threaten the long-term viability of the DeFi ecosystem. Invariance pricing is also not regret free. Linear pricing rules have similar problems except for uniform pricing, which has regret-free prices and limits sandwich attack profits but which invites excessive order splitting. Comparing trading costs using a model of liquidity provision, constant product pricing is often cheaper except when the variance of the underlying asset is small or when the order is large. This paper was accepted by Will Cong, Special Section of Management Science: Blockchains and Crypto Economics. Funding: A. Park received financial support from the Global Risk Institute and the Social Sciences and Humanities Research Council of Canada [Grant 435-2017-0647]. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2021.02802. [ABSTRACT FROM AUTHOR]

We study the problem when a firm sets prices for products based on the transaction data, that is, which product past customers chose from an assortment and what were the historical prices that they observed. Our approach does not impose a model on the distribution of the customers' valuations and only assumes, instead, that purchase choices satisfy incentive-compatible constraints. The uncertainty set of potential valuations of each past customer can then be encoded as a polyhedral set, and our approach maximizes the worst case revenue, assuming that new customers' valuations are drawn from the empirical distribution implied by the collection of such polyhedra. We study the single-product case analytically and relate it to the traditional model-based approach. Then, we show that the optimal prices in the general case can be approximated at any arbitrary precision by solving a compact mixed-integer linear program. We further design three approximation strategies that are of low computational complexity and interpretable. In particular, the cutoff pricing heuristic has a competent provable performance guarantee. Comprehensive numerical studies based on synthetic and real data suggest that our pricing approach is uniquely beneficial when the historical data has a limited size or is susceptible to model misspecification. This paper was accepted by Omar Besbes, revenue management and market analytics. Funding: This work was supported by the Rotman School of Management (TD-MDAL Research Grant) and the Natural Sciences and Engineering Research Council of Canada [Grants RGPIN-2015-06757, RGPIN-2020-04038, RGPIN-2020-06054, RGPIN-2021-04295]. Supplemental Material: The e-companion and data files are available at https://doi.org/10.1287/mnsc.2022.4651. [ABSTRACT FROM AUTHOR]

We examine the impact of product market competition on innovation in markets for technology. An innovator makes an investment in quality-improving innovation that can be licensed to one (targeted licensing) or all (market-wide licensing) product market competitors. Our model points to a U-shaped relationship between competition in licensee product markets and innovation in the market for technology: at low levels of competition, market-wide licensing is optimal, and competition reduces innovation, whereas at high levels of competition, targeted licensing is optimal and competition increases innovation. Our empirical analysis using a large panel of U.S. data provides clear support for these predictions linking competition, innovation, and licensing. This paper was accepted by Joshua Gans, business strategy. Funding: J.-E. (de) Bettignies gratefully acknowledges financial support by the Social Sciences and Humanities Research Council of Canada [Grant 435-2013-1863]. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.4574. [ABSTRACT FROM AUTHOR]

We study the maintenance of a machine that deteriorates according to a Markov process until it fails. When failure occurs (which is observable), corrective replacement is made. Otherwise, the machine can be in one of two unobservable working states, and the decision maker can choose production, inspection, or preventive replacement. The state is revealed upon inspection and is reset by corrective or preventive replacement. The objective is to minimize the expected total discounted cost over an infinite horizon. We derive an exact, analytical solution to this problem via a dual framework for partially observable Markov decision processes. The solution can be easily computed without value iteration. We identify six possible structures of the optimal solution, which are represented as graphs. Each graph contains an absorbing, cyclic subgraph that governs the steady-state behavior of the machine. The exact analytical solution facilitates comparative statics analysis, comprehensive numerical studies, and the generation of insights. This paper was accepted by Chung Piaw Teo, optimization. Funding: This work was supported by the Natural Sciences and Engineering Research Council of Canada [Grant RGPIN-2014-04979]. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2022.4547. [ABSTRACT FROM AUTHOR]

A quantum computer exhibits quantum advantage when it can perform a calculation that a classical computer is unable to complete. It follows that a company with a quantum computer would be a monopolist in the market for such a calculation if its only competitor was a company with a classical computer. Conversely, economic outcomes are unclear if quantum computers do not exhibit a quantum advantage, but classical and quantum computers have different cost structures. We model a Cournot duopoly where a quantum computing company competes against a classical computing company. The model features an asymmetric variable cost structure between the two companies and the potential for an asymmetric fixed cost structure, where each firm can invest in scaling its hardware to expand its respective market. We find that even if (1) the companies can complete identical calculations, and thus there is no quantum advantage, and (2) it is more expensive to scale the quantum computer, the quantum computing company may be more profitable and also invest more in market creation due to efficiency gains from using quantum algorithms. Finally, we provide examples of settings where the classical computer can also perform a calculation, but not in a cost-effective enough manner to be commercially viable. In such a setting, the quantum computing company becomes a monopolist despite exhibiting no quantum advantage. Taken together, quantum computers may not need to display a quantum advantage to be able to generate a quantum economic advantage for the companies that deploy them. This paper was accepted by D. J. Wu, information systems. Funding: R. G. Melko is supported by the Natural Sciences and Engineering Research Council of Canada, Canada Research Chair program, and the Perimeter Institute for Theoretical Physics. Research at the Perimeter Institute is supported in part by the Government of Canada through the Department of Innovation, Science and Economic Development Canada and by the Province of Ontario through the Ministry of Colleges and Universities. A. Goldfarb is supported by the Sloan Foundation and the Social Sciences and Humanities Council of Canada. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.4578. [ABSTRACT FROM AUTHOR]

In this paper the authors present an interpretive discussion of the scope for management scientists to make a more effective contribution to improving the performance of the Canadian economy, by active involvement in management and decision making in Canadian institutions, both private and public. Initially the paper surveys the evidence on the differences in economic performance between Canada and the United States, outlining the methods used, and the results. Some factors turn out to be relatively unimportant in the differences, while others are quite crucial. In the broad area of manufacturing, the gap in economic performance is particularly wide. Tariffs in Canada and other countries have become important contributions to the existing product diversity, short production runs, high cost and low productivity in relation to performance in other countries. A further important area is the pattern of decision making in Canada which has led to a survival strategy and resistance to change rather than innovation, creativity and risk taking. This tends to perpetuate the lower levels of productivity found to exist. In the light of this analysis of economic factors and decision making, the paper makes some broad recommendations on the role of management scientists, the need for change in management style, and changes in tariffs that would accelerate change and would recognize the importance of interdependence for more efficient performance. The paper concludes on the theme "The Time is Now!". [ABSTRACT FROM AUTHOR]

Since 2016, Canada's federal government has pledged to factor in upstream emissions during the environmental impact assessment of fossil fuel energy projects. The upstream emissions attributable to a proposed project could be compared against a rejection threshold—a maximum permissible level of emissions—or the firm could be mandated to offset the attributed emissions. We adopt a cooperative game-theoretic model and propose the nucleolus mechanism to apportion upstream emission responsibilities in a fossil fuel supply chain, represented by a directed tree, wherein the nodes correspond to various entities in the supply chain such as extractors, distributors, refineries, and end consumers. The nucleolus allocation avoids the distortionary effects of double counting and exhibits a certain consistency property that is especially important in a regulatory context wherein fossil fuel supply chains span multiple legal jurisdictions. We develop a polynomial-time algorithm to compute the nucleolus and further prove that it arises as the unique subgame perfect equilibrium allocation of a noncooperative game induced by two easily stated and verifiable policies, thereby providing an implementation framework. We then demonstrate the strong Nash stability of the nucleolus mechanism subject to the two policies, study its sensitivity to parameter changes, and characterize it on the basis of fairness considerations. Furthermore, under the common assumption that the emissions allocated to a firm and the resulting financial penalties do not impact the revenues from the firm's core operations, we also provide lower-bound guarantees on the welfare gains it delivers to firms in the fossil fuel supply chain and on the incentives it offers such firms to adopt emission abatement technologies. Finally, we contextualize our discussion with a case study on a proposed expansion of the Trans Mountain pipeline in Western Canada. This paper was accepted by Chung Piaw Teo, optimization. [ABSTRACT FROM AUTHOR]

This paper analyzes a waiting line system that is motivated by the operations of border-crossing stations between the United States and Canada. There are two main conflicting goals in such a system: high security level, which often leads to a longer line; and good customer service, which requires a shorter line. Thus, unlike other queueing systems, maintaining the average queue length within a certain range is the primary objective. This is achieved using a staffing policy, called "congestion-based staffing," or CBS, where the number of servers (inspection booths) is adjusted according to the queue length during a planning period. We first present an exact benchmark model of Markovian type based on the matrix-geometric solution. For practical CBS policies, we develop a set of closed-form formulas for the major performance measures based on regenerative cycle analysis and fluid limit approximation. Numerical examples show that these approximation formulas are simple, accurate, and robust for practitioners to use in designing CBS policies. [ABSTRACT FROM AUTHOR]

The ongoing shortage of pharmaceutical drugs critically threatens public health. With increasing industry consolidation, operational disruptions at a firm can lead to a nationwide shortage of life-saving drugs. In 2012, the U.S. Food and Drug Administration mandated all manufacturers to report any manufacturing interruption that can potentially cause shortages. The goal of the mandate was to mitigate drug shortages by enhancing operational transparency in the pharmaceutical industry. Subsequently, other countries such as Canada have also begun mandating reporting of interruptions to alleviate drug shortages. We leverage the policy changes in the United States and Canada to understand the impact of mandated reporting induced operational transparency on alleviating the extent of drug shortages. Using the data on time-to-recovery for individual drug-shortage incident and annual-days-of-shortage for each drug, we find that the new policy alleviates drug shortages, but its effectiveness is contingent upon the prevailing level of competition in the product category. Although the intervention is not as impactful under a monopoly, the mandate is most effective under a duopoly, and its impact wanes as competition intensifies. In the absence of the mandate-induced transparency, competition does not necessarily alleviate shortages, but with the regulation, competition can relieve drug shortages. Our results potentially offer healthcare providers and policymakers the impetus to alleviate drug shortages by mandating interruption reporting and improving operational transparency. This paper was accepted by Charles Corbett, operations management. [ABSTRACT FROM AUTHOR]

The conditions under which interdisciplinary research helps improve research performance are explored in a heterogeneous sample of 67 ongoing academic interdisciplinary teams from the United States and Canada. We conclude that interdisciplinary research is more appropriate for very difficult research questions and at early stages of the research process. Interdisciplinary research was found to inhibit the outputs of articles, books, papers, and technical reports when the research had a clearly identified client prior to the start of the project. Interdisciplinary research was not found to be more helpful for either applied or pure research. It was not found to be helpful either at the concluding stage of research or when used throughout the research process. [ABSTRACT FROM AUTHOR]

A preface is presented for the December 1973 Canadian issue of "Management Science."

We propose a structural model of correlated learning with indirect inference to explain late-mover advantages. Our model focuses on a class of products with the following two features: (i) products that build on a common fundamental technology (e.g., computer processor, car, smartphone, etc.) and (ii) that consumers can observe some product attributes of a product (e.g., CPU clock speed, horsepower of a car engine, screen size of a smartphone, etc.), but when making their purchase decisions, consumers are not sure how efficiently the product can translate its observed attributes to performing tasks that they care about. For products that base on a similar technology, it is plausible that consumers use the information signals of one product's technological efficiency to help them update their belief about another product's technological efficiency within the same product category. As a result, a late entrant could benefit from the information spillover generated by an early entrant. We apply our framework to the statin market in Canada, where drugs rely on a similar mechanism to reduce the cholesterol level. In our model, patients/doctors can observe a statin's efficacy in reducing the cholesterol level, but they are uncertain about how effectively it can convert its cholesterol-reducing ability to reducing heart disease risks. Our estimation results show that the combination of correlated learning and informative and persuasive detailing explain the success of the two late entrants in the statin market: Lipitor and Crestor. This paper was accepted by Matthew Shum, marketing. [ABSTRACT FROM AUTHOR]

We study how misaligned language between the investor and the firm contributes to the underweighting of foreign securities in an international portfolio. In particular, we document a significant U.S. institutional investor bias against firms located in Quebec relative to firms located in the rest of Canada (ROC). The differential bias is surprising given that (i) Quebec and the other Canadian provinces share the same nationality, federal law, stock exchange, and accounting standards; (ii) their regulatory filings are prepared in English and French; and (iii) U.S. institutional investors are sophisticated and located close to Quebec and the ROC. We also examine Quebec firms with different levels of French versus English online presences as well as those with CEOs who have U.S. work experience or board members or financial analysts who reside in the United States. We find that each factor affects the relative underweighting of investment in Quebec versus the ROC. Finally, we contrast the holdings of institutional investors located in the United Kingdom and France to bolster our conclusion that incongruent languages contribute to the underweighting of Quebec firms relative to firms in the ROC. This paper was accepted by Suraj Srinivasan, accounting. [ABSTRACT FROM AUTHOR]

This paper presents two models which allow long run demand for a new product to be estimated prior to any significant sales history. The specific product studied is residential solar heating in Canada. Both models are based on the concept that consumers react in their purchasing decisions to the inherent package of characteristics in a commodity. The use of survey information to enable specific numerical estimates to be made is exemplified. Directions for future research to improve the usefulness of such models are suggested. [ABSTRACT FROM AUTHOR]

This paper describes a benefit-cost analysis of a proposed $1.4 million runway extension at Kelowna Airport, in Kelowna, British Columbia (Canada's westernmost province). Lengthening the runway as proposed would allow Pacific Western Airlines to operate their Boeing 737 aircraft out of Kelowna with heavier payloads, thereby reducing the occurrence of situations where the combined passenger and cargo demand exceeds the available weight capacity of the aircraft. The problem is complicated by the fact that the maximum payload weight permitted on take-off varies considerably with the air temperature and wind speed and direction at the time of departure. On hot summer days, when the problem is most severe, it is sometimes necessary to remove all of the cargo from the aircraft, and at times, to limit the number of passengers taking the flight to less than the number of seats. An alternative means of achieving the objectives of the runway extension was also considered: lowering the average demand per flight by simply increasing the number of flights out of Kelowna. The "Runway Extension" and "Additional Flights" options were evaluated in terms of their net economic benefits, as compared with the "Do Nothing" option. Net economic benefit is the present value of economic benefits less the present value of economic costa. The economic benefits depend upon the extent to which unsatisfied passenger and cargo demand would be reduced, and on the unit economic cost of unsatisfied passenger and cargo demand, Estimates of the reductions in unsatisfied demand were obtained by means of a probability model that is similar to ones used to solve single-period, stochastic inventory planning problems. The unit economic costs were not estimated; rather, the economic benefits were expressed as linear functions of the unit economic costs of unsatisfied passenger and cargo demand. The economic cost of the "Runway Extension" option was the cost of constructing and maintaining the runway extension; the cost of the "Additional Flights" options was the cost to Pacific Western Airlines of providing additional flights out of Kelowna. The numbers of such additional flights were chosen to produce the same amount of unsatisfied passenger and cargo demand, thus determining which of the three options was preferred on economic grounds. Prior to the study, Transport Canada had formally recommended the proposed runway extension to the Treasury Board (the Cabinet Committee of the Canadian Government that controls government expenditures). The Treasury Board requested the Department to reconsider the project, and as a result, a benefit-cost analysis was undertaken. Because of the conclusions of the study, Transport Canada decided to postpone indefinitely the lengthening of the runway. The runway may be lengthened sometime in the future to accommodate aircraft that require a longer runway than does the Boeing 737, but only if a subsequent analysis shows that the resulting benefits would exceed the costs. Having been successfully applied at Kelowna Airport, the methodology developed in this study has now been adopted by Transport Canada for evaluating proposed runway extensions at other Canadian airports. [ABSTRACT FROM AUTHOR]

In this paper a probabilistic branch and bound procedure is developed for the ambulance location problem. Information on system characteristics under various ambulance assignments and dispatch rules was provided by a digital simulation. The output of the simulation was also used to construct the objective function for the optimal location problem. The procedure was used to determine ambulance locations in Vancouver, Canada. Solutions obtained from the branch and bound procedure were verified by simulation runs. [ABSTRACT FROM AUTHOR]

The Government of Alberta has undertaken a study to determine the feasibility of supplying natural gas to rural areas of the Province not currently served. The study covers various aspects relevant to the development of an overall plan for rural gasification, but the emphasis is on major factors affecting the economic viability of the venture. We discuss in this paper one segment of the study -- the problem of determining the demand for natural gas in rural areas. Three separate demand schedules, each based on a different methodology but using common data obtained from a survey of rural residents, are estimated. The three demand schedules are analysed and compared in an attempt to establish an overall demand curve for natural gas in rural Alberta. The price elasticity of demand for natural gas is determined from the demand function obtained. [ABSTRACT FROM AUTHOR]

The whole concept of modelling has caught on, aided immeasurably by the considerable progress in computer technology. Mini-computers, timesharing systems, remote terminals, and graphical displays have placed computer power directly into the hands of the decision maker. This paper presents a corporate decision-aiding system, a family of timeshared models, developed for Xerox of Canada Limited (XCL) in an effort to link the functional areas for communication, planning, and control purposes. Using the approaches of statistical forecasting, heuristics, and simulation, the XCL Decision System assists and guides management all the way from deriving product demand forecasts to simulating the day-to-day operations of the firm to formulating divisional financial statements to preparing corporate operating and medium-range plans. Developed in a short time span and at low cost, the system is used extensively in Canada and has been adopted, in part, by U.S. corporate and regional offices. [ABSTRACT FROM AUTHOR]

Entrepreneurs that were employed by successful industry incumbents prior to founding tend to confer advantages on their new organizations. We propose and then demonstrate a similar "network progeny" effect rooted in the social relationships that form among entrepreneurs. Our analysis of new entrants into the Ontario wine industry shows that prefounding friendship ties of the founders of one especially prominent entrepreneurial firm led to significantly higher ice wine prices. This attests to the promise of a network progeny extension of the parent-progeny account of new firm success. Follow-on analysis indicates that this effect is not attributable to an entrant's ability to make ice wines of superior quality or to it having access to better distribution knowledge. We therefore conclude that having a social tie to this prominent entrepreneurial firm generated reflected prominence that enhanced the valuations and therefore prices of wines made by connected market entrants. [ABSTRACT FROM AUTHOR]

We investigate whether cultural differences between professional decision makers affect financial contracts in a large data set of international syndicated bank loans. We find that more culturally distant lead banks offer borrowers smaller loans at a higher interest rate and are more likely to require third-party guarantees.These effects do not disappear following repeated interaction between borrower and lender and are economically sizable: A one-standard-deviation increase in cultural distance, approximately the distance between Canada and the United States or between Japan and South Korea, is associated with a 6.5 basis point higher loan spread; the loan spread increases by about 23 basis points if the bank-firm match involves culturally more distant parties,for example, from Japan and the United States. We also find that cultural differences not only affect the relation between borrower and lender, but also hamper risk sharing between participant banks and culturally distant lead banks. [ABSTRACT FROM AUTHOR]

Motivated by the waiting lines between the U.S.-Canadian border crossings, we investigate a security-check system with both security and customer service goals. In such a system, every customer has to be inspected by the first-stage inspector, but only a proportion of customers need to go through the second-stage for further inspection. This "further inspection proportion," affecting both security screening and the system congestion, becomes a key decision variable for the security-check system. Using a stylized two-stage queueing model, we established the convexity of the expected waiting cost function. With such a property, the optimal further inspection proportion can be determined to achieve the balance of the two goals and the service capacities can be classified into "security-favorable," "security-unfavorable," or "security-infeasible" categories.A specific capacity category implies if the security and customer service goals are consistent or in conflict. In addition, we have verified that the properties discovered in the stylized model also hold approximately in a more general multi server setting. Numerical results are presented to demonstrate the accuracy and robustness of the approximations and the practical value of the model. [ABSTRACT FROM AUTHOR]

The article outlines a study that interviewed 65 senior executives in Canadian organizations, as to their use of computers in decision making. The author notes that of the 42 organizations included in the study, none had a functioning system that integrated computers into the corporate decision making process. Also noted was the fact that at the time of the study, little use was being made of computers in Canada for strategic planning purposes. The study also shows that computers are used mainly by the lower and middle management levels.

Commentary is presented on the first Canadian issue of the periodical "Management Science." According to the author, though Canada is physically situated very close to the United States, where the field of management science was developed, it faces its own unique societal questions. The author explores the question of national differences in the field of management science. Also discussed are various aspects of theory development in the field. The author extends commendation to the editors of the first Canadian installment of "Management Science."