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We present a large-scale static and deterministic mixed-integer linear programming (MILP) model solving a two-echelon capacitated location-routing problem (2E-CLRP) with modal choice in the context of urban logistics services (ULS). This model aims to support the development of profitable ULS by guiding the strategic decision making of postal operators as they design an optimal facility network and vehicle fleet for the centralized consolidation and transportation of inbound and outbound urban freight flows. After comprehensively analyzing operating data from La Poste, we identify the key determinants of an optimal infrastructure and fleet design for the centralized coordination and consolidation of urban freight flows under a global service time constraint. Further, we discuss the optimal design’s sensitivity to changes in the input data and parameters of the 2E-CLRP model. The main theoretical contributions of this work are an optimal routing cost estimation formula and an optimization heuristic. Together these allow us to solve the large-scale MILP problem presented here within a reasonable time and with little loss of precision.

We study the impact of emissions tax and emissions cap-and-trade regulation on a firm's technology choice and capacity decisions. We show that emissions price uncertainty under cap-and-trade results in greater expected profit than a constant emissions price under an emissions tax, which contradicts popular arguments that the greater uncertainty under cap-and-trade will erode value. We further show that two operational drivers underlie this result: (i) the firm's option not to operate, which effectively right-censors the uncertain emissions price; and (ii) dispatch flexibility, which is the firm's ability to first deploy its most profitable capacity given the realized emissions price. In addition to these managerial insights, we also explore policy implications: the effect of emissions price level, and the effect of investment and production subsidies. Through an illustrative example, we show that production subsidies of higher investment and production cost technologies (such as carbon capture and storage technologies) have no effect on the firm's optimal total capacity when firms own a portfolio of both clean and dirty technologies, but that investment subsidies of these technologies increase the firm's total capacity, conditionally increasing expected emissions. A subsidy of a lower production cost technology, on the other hand, has no effect on the firm's optimal total capacity in multi-technology portfolios, regardless of whether the subsidy is a production or investment subsidy.

This paper describes the potential contribution of near-miss management systems to improving company profitability and reducing the frequency and severity of major industrial accidents. The near-miss concept has long been understood in different industries, as examples in this paper illustrate. However, what has been largely missing is the integration of near-miss management into the culture and day to day operations in a manner that underlines the critical connections between near-misses and behavior. Often, near-miss management has played an ex post forensic role in risk management rather than an alerting one, summarizing leading indicators and precursors of hazardous conditions. This paper describes several strands of recent research that aim to correct this and to make near-miss management an organic element of Enterprise Risk Management. In this respect, a new concept, “potential safety profit loss”, is introduced to calculate the potential monetary losses due to unexpected shutdowns and accidents.

Batteries are responsible for the major share of costs of electric vehicles (EVs). However, they are idle most of the time during vehicle use and expected to retain a significant capacity when discarded from vehicle use. As a result, they may provide an additional value during and after their vehicle life, helping to reduce their total costs of ownership. We use a dynamic model to evaluate three competing approaches of using EV batteries for grid applications. These are (1) batteries installed in EVs, also known as vehicle-to-grid (V2G), as well as (2) used and (3) new batteries installed in stationary energy storage systems (ESS), which we refer to as battery-to-grid (B2G). We find that none of the approaches is likely to be implemented on a large scale as the anticipated revenues barely (if at all) offset the additional costs incurred by the corresponding applications.

We provide a decision model for La Poste, the French national postal operator, to address its adoption of electric vehicles (EVs) for mail and parcel distribution. Two competing technologies are available—internal combustion vehicles (ICVs) and EVs. We consider uncertainty about future fuel price and future EV battery costs. Within this framework, we derive the optimal timing of EV adoption and sensitivities to key model parameters. We evaluate the total cost of fleet renewal over a 15-year horizon and the value of flexibility stemming from technology and timing options. This allows us to formulate an optimal strategy for EV adoption for La Poste and to support negotiations with major stakeholders, including energy companies and EV manufacturers.

This paper examines the demand and supply of annual and multi-year insurance contracts with respect to protection against a catastrophic risk in a competitive market. Insurers who offer annual policies can cancel policies at the end of each year and change the premium in the following year. Multi-year insurance has a fixed annual price for each year and no cancellations are permitted at the end of any given year. Homeowners are identical with respect to their exposure to the hazard. Each homeowner determines whether or not to purchase an annual or multi-year contract so as to maximize her expected utility. The competitive equilibrium consists of a set of prices where homeowners who are not very risk averse decide to be uninsured. Other individuals demand either single-year or multi-year policies depending on their degree of risk aversion and the premiums charged by insurers for each type of policy.

Over the 30 year history of the Rutgers University CRRI Eastern Conference the regulatory scene has changed dramatically. In 1989 the first Issue of the Journal of Regulatory Economics appeared. This paper builds on Crew and Kleindorfer (J Regul Econ 21(1):5–22, 2002), which reviewed 20 years in the development of regulatory economics. In addition, this aricle outlines the history and assesses the significance of the JRE in the literature of regulatory economics.

This paper analyzes the optimal procurement, processing, and production decisions of a meat-processing company (hereafter, a “packer”) in a beef supply chain. The packer processes fed cattle to produce two beef products, program (premium) boxed beef and commodity boxed beef, in fixed proportions, but with downward substitution of the premium product for the commodity product. The packer can source input (fed cattle) from a contract market, where long-term contracts are signed in advance of the required delivery time, and from a spot market on the spot day. Contract prices are taken to be of a general window form, linear in the spot price but capped by upper and lower limits on realized contract price. Our analysis provides managerial insights on the interaction of window contract terms with processing options. We show that the packer benefits from a low correlation between the spot price and product market uncertainties, and this is independent of the form of the window contract. Although the expected revenues from processing increase in spot price variability, the overall impact on profitability depends on the parameters of the window contract. Using a calibration based on the report by the GIPSA (Grain Inspection, Packers and Stockyards Administration. 2007. GIPSA livestock and meat marketing study, vol. 3: Fed cattle and beef industries. Report, U.S. Department of Agriculture, Washington, DC), this paper elucidates for the first time the value of long-term contracting as a complement to spot sourcing in the beef supply chain. Our comparative statics results provide some rules of thumb for the packer for the strategic management of the procurement portfolio. In particular, we show that higher variability (higher spot price variability, product market variability, and correlation) increases the profits of the packer, but decreases the reliance on the contract market relative to the spot market. This paper was accepted by Yossi Aviv, operations management.

The context is an electric power company with regulated load obligations and a spot market for energy sales and purchases, as well as liabilities incurred by carbon emissions from generation units or power contracts controlled by the company. Against the backdrop of the existing carbon cap and trade system in the European Union, this paper develops a framework for integrating energy portfolio risk management with liabilities associated with the company’s carbon emissions. The multi-period VaR-constrained portfolio approach of Kleindorfer and Li (Energy J 26(1): 1–26, 2005) is first extended to cover the implied liabilities arising from carbon emissions. This entails some changes to account for the fact that dispatch/bidding/execution decisions will be affected by carbon liabilities for some generation units and contracts. The paper then develops a dynamic programming framework for optimizing the timing of carbon trades (i.e., the timing of the acquisition of the required carbon certificates to cover carbon emissions liabilities of the company), given banked credits or allocations of carbon credits at the start of the planning period and the emissions liabilities resulting from the company’s joint energy and carbon portfolio optimization problem.

Operations management researchers and practitioners face new challenges in integrating issues of sustainability with their traditional areas of interest. During the past 20 years, there has been growing pressure on businesses to pay more attention to the environmental and resource consequences of the products and services they offer and the processes they deploy. One symptom of this pressure is the movement towards triple bottom line reporting (3BL) concerning the relationship of profit, people, and the planet. The resulting challenges include integrating environmental, health, and safety concerns with green-product design, lean and green operations, and closed-loop supply chains. We review these and other “sustainability” themes covered in the first 50 issues of Production and Operations Management and conclude with some thoughts on future research challenges in sustainable operations management.

There are two broad categories of risk affecting supply chain design and management: (1) risks arising from the problems of coordinating supply and demand, and (2) risks arising from disruptions to normal activities. This paper is concerned with the second category of risks, which may arise from natural disasters, from strikes and economic disruptions, and from acts of purposeful agents, including terrorists. The paper provides a conceptual framework that reflects the joint activities of risk assessment and risk mitigation that are fundamental to disruption risk management in supply chains. We then consider empirical results from a rich data set covering the period 1995–2000 on accidents in the U. S. Chemical Industry. Based on these results and other literature, we discuss the implications for the design of management systems intended to cope with supply chain disruption risks.

This article addresses the role of a facility's process safety management system (PSMS) in preventing low probability–high consequence (LP–HC) accidents. We review the rationale for the hypothesis that a facility's PSMS is the central driver of accident prevention, and we discuss how this rationale has been incorporated implicitly into the OSHA Process Safety Management standard (PSM) in 1992 and explicitly into both the EU Seveso II Directive and the USA EPA Risk Management Program regulation (RMP) in 1996. We then note that the limited process accident incidence data available to date have not resolved the issue of determining or predicting characteristics of a facility's PSMS that are likely to be effective in reducing LP–HC accidents. Based on a variety of considerations, the authors propose retrospective and prospective case-control studies on facilities with and without RMP reported process accidents using candidate survey instruments to test which survey factors appear to have the greatest predictive power for the likelihood of future LP–HC accidents. © 2006 American Institute of Chemical Engineers Process Saf Prog, 2006

This paper provides an overview of recent results derived from the accident history data collected under 112(r) of the Clean Air Act Amendments (the Risk Management Program (RMP) Rule) covering the period 1994-2000, together with a preliminary assessment of the effectiveness of the RMP Rule as a form of Management System Regulation. These were undertaken at the University of Pennsylvania by a multi-disciplinary team of economists, statisticians and epidemiologists with the support of the US Environmental Protection Agency and its Office of Emergency Prevention, Preparedness and Response (OEPPR, formerly CEPPO). Section 112(r) of the Clean Air Act Amendments of 1990 requires that chemical facilities in the US that had on premises more than specified quantities of toxic or flammable chemicals file a 5-year history of accidents. The initial data reported under the RMP Rule covered roughly the period from mid-1994 through mid-2000, and provided details on economic, environmental and acute health affects resulting from accidents at some 15,000 US chemical facilities for this period. This paper reviews research based on this data. The research is in the form of a retrospective cohort study that considers the statistical associations between accident frequency and accident severity at covered facilities (the outcome variables of interest) and a number of facility characteristics (the available predictor variables provided by the RMP Rule), the latter including such facility characteristics as size, hazardousness, financial characteristics of parent company-owners of the facility, regulatory programs in force at the facility, and host community characteristics for the surrounding county in which the facility was located, as captured in the 1990 Census. Among the findings reviewed are: (1) positive associations with (a measure of) facility hazardousness and accident, injury and economic costs of accidents; (2) positive (resp., negative) associations between accident propensity and debt-equity ratios (resp., sales) of parent companies; (3) several interrelated associations between accident propensity and regulatory programs in force; and (4) strong associations between facility hazardousness, facility locations decisions, observed accident frequencies and community demographics.

We estimate the demand for homeowners insurance in Florida and New York with indicated loss costs as our proxy for the quantity of real insurance services demanded. We decompose the demand into the demand for coverage of catastrophe perils and the demand for noncatastrophe coverage and estimate these demand functions separately. Our results are relatively consistent in New York and Florida, including evidence that catastrophe demand is more price elastic than noncatastrophe demand. We also find evidence that consumers value options that expand coverage, buy more insurance when it is subsidized through regulatory price constraints, and consider state guaranty fund provisions when purchasing insurance.

This paper surveys the underlying theory and practice in the use of options in support of emerging business-to-business (B2B) markets. Such options, on both capacity and output, play an important role in integrating long- and short-term contracting between multiple buyers and sellers in such markets. This trend is especially important in capital-intensive industries, where improvements in fine tuning the coordination of supply and demand carry large economic benefits. Typically, such options are benchmarked (or defined) on the basis of spot market information conveyed through near real-time B2B transactions. This paper notes broad set of goods and services currently being traded in both B2B short-run markets and long-term contract markets, and reviews economic and managerial frameworks that have been proposed to explain the structure of contracting in these markets. We provide a general framework based on transactions cost economics, and we use this framework to provide review and synthesis of existing literature to explain various types of contracting linked to B2B exchanges in capital-intensive industries. The paper concludes with a discussion of implementation challenges and open research questions.

The past few years have seen an explosion in the number of e-marketplaces, including a variety of electronic exchanges in the B2B arena, but many of these have also collapsed (e.g., Chemdex/Ventro). The question addressed in this paper is what are the underlying factors that affect which transactions are likely to be supportable by B2B exchanges. In particular, we identify and study three factors: supplier management, idiosyncratic investments in information systems, and codifiability (i.e., digitalizability) of product and order-fulfillment specifications underlying transactions. We show that transaction codifiability plays a fundamental role in influencing the nature of sustainable contracting and IT investments in e-markets. Hypotheses are derived from an analytical model of codifiability in e-marketplaces; these hypotheses are supported by several case studies by the authors and others on the key success factors underlying B2B exchanges.

This article reports on the data collected on one of the most ambitious government-sponsored environmental data acquisition projects of all time, the Risk Management Plan (RMP) data collected under section 112(r) of the Clean Air Act Amendments of 1990. This RMP Rule 112(r) was triggered by the Bhopal accident in 1984 and led to the requirement that each qualifying facility develop and file with the U.S. Environmental Protection Agency a Risk Management Plan (RMP) as well as accident history data for the five-year period preceding the filing of the RMP. These data were collected in 1999-2001 on more than 15,000 facilities in the United States that store or use listed toxic or flammable chemicals believed to be a hazard to the environment or to human health of facility employees or off-site residents of host communities. The resulting database, RMP*Info, has become a key resource for regulators and researchers concerned with the frequency and severity of accidents, and the underlying facility-specific factors that are statistically associated with accident and injury rates. This article analyzes which facilities actually filed under the Rule and presents results on accident frequencies and severities available from the RMP*Info database. This article also presents summaries of related results from RMP*Info on Offsite Consequence Analysis (OCA), an analytical estimate of the potential consequences of hypothetical worst-case and alternative accidental releases on the public and environment around the facility. The OCA data have become a key input in the evaluation of site security assessment and mitigation policies for both government planners as well as facility managers and their insurers. Following the survey of the RMP*Info data, we discuss the rich set of policy decisions that may be informed by research based on these data.

This paper models contracting arrangements between one Seller and one or more Buyers when the “deliverable” or output under the contract is produced in a non-scalable capital-intensive production facility. The basic model proposed allows the Seller and Buyers to negotiate bilateral contracts for the good in advance. On the day, the Seller and Buyers can also sell excess capacity or buy additional non-contract output in an associated backup market, which is being referred to as the spot market for the good. The type of bilateral contract studied has a two-part contract fee structure, and it is at the foundation of practical contracts used by many capital-intensive industries, where capacity can only be expanded well in advance of output requirements. The first part is a reservation cost per unit of capacity, and the second, an execution cost per unit of output when this capacity is actually used. This paper derives the Seller's optimal bidding and Buyers' optimal contracting strategies in a von Stackelberg game with the Seller as the leader. We show that Buyers' optimal reservation level follows an index that combines the Seller's reservation and execution cost. The Seller's optimal strategy is to reveal its variable cost of producing output while extracting its margin from the Buyers using the capacity reservation charge. This structure allows for the Seller to assure in advance its ability to pay the capital costs of capacity while providing Buyers appropriate incentives to take advantage of better terms on the day if alternative, cheaper sources should arise after contracts have been set.

In the 20 years since the Center for Research in Regulated Industries' Eastern Conference has been in existence there have been numerous changes in regulatory economics and regulation. This paper provides a review of the major changes seen from our own perspective. We review some of the major developments in theory as well as key developments in the theory and practice of incentive regulation. We are critical of some of the theory as well as the effectiveness of deregulation.

This paper examines the impact that insurance coupled with specific risk mitigation measures (RMMs) could have on reducing losses from hurricanes and earthquakes as well as improving the solvency position of insurers who provide coverage against these hazards. We first explore why relatively few individuals adopt cost-effective RMMs by reporting on the results of empirical studies and controlled laboratory studies. We then investigate the impact that an RMM has on both the expected losses and those from a worst case scenario in two model cities—Oakland (an earthquake-prone area) and Miami/Dade County (a hurricane-prone area) which were constructed respectively with the assistance of two modeling firms. The paper then explores three programs for forging a meaningful public-private sector partnership: well-enforced building codes, insurance premium reductions linked with long-term loans, and lower deductibles on insurance policies tied to mitigation. We conclude by briefly examining four issues for future research on linking mitigation with insurance.