Search

Using a panel of credit default swap (CDS) spreads and supply chain links, we observe that both favorable and unfavorable credit shocks propagate through supply chains in the CDS market. Particularly, the three-day cumulative abnormal CDS spread change (CASC) is 63 basis points for firms whose customers experienced a CDS up-jump event (an adverse credit shock). The value is 74 basis points if their suppliers experienced a CDS up-jump event. The corresponding three-day CASC values are –36 and –38 basis points, respectively, for firms whose customers and suppliers, respectively, experienced an extreme CDS down-jump event (a favorable credit shock). These effects are approximately twice as large for adverse credit shocks originating from natural disasters. Credit shock propagation is absent in inactive supply chains and is amplified if supply chain partners are followed by the same analysts. Industry competition and financial linkages between supply chain partners, such as trade credit and large sales exposure, amplify the shock propagation along supply chains. Strong shock propagation persists through second and third supply chain tiers for adverse shocks but attenuates for favorable shocks. This paper was accepted by Kay Giesecke, finance.

Recently, there has been an increase in the use of reinforced concrete structures withcombined reinforcement in construction, which makes it possible to increase the resistance of suchstructures to deformation and cracking. Dispersed reinforced concrete was used to cover roads, flooring in industrial buildings, the manufacture of curbs and more. For the construction of publicand industrial buildings, the use of combined reinforced structures has not been widely used, as noperfect method of their calculation has been developed.Combined reinforcement structures include concrete structures that are reinforced with steelrods and steel fiber, which is randomly arranged in the mass of concrete. The strength of reinforcedconcrete depends on such factors as: the strength of concrete, reinforcement with rod reinforcement,the type of fiber and its characteristics, the volume of fiber per unit volume of concrete, the size ofthe cross section of the elements. These factors affect the tensile strength of reinforced concrete bothdirectly and by their interaction. Therefore, determining the effective parameters of dispersedconcrete reinforcement is a complex multivariate task, its solution is proposed to be achieved byperforming mathematically planned experiments.When choosing the parameters of dispersed reinforcement of centrally stretched and bendingreinforced concrete elements (lower truss belt, arch tightening, cylindrical tank wall, beams, slabs),it is advisable to choose the strength of concrete fck, fiber length lf and volume dispersion coefficient.The optimal choice of values of these parameters is proposed to be performed using quadraticregression equations, which are based on the results of three-factor three-level mathematicallyplanned experiments, which are based on the matrix of the Box-Behnken plan.The obtained mathematical models make it possible to analyze the influence of dispersereinforcement parameters on crack formation forces in combined reinforced concrete elements andto determine their optimal values. The use of combined reinforcement allows increasing the crackresistance of reinforced concrete elements in two or more times.

Problem definition: Governments have adopted various subsidy policies to promote investment in renewable energy sources such as rooftop solar panels. The German government uses a feed-in-tariff policy that provides a guaranteed stream of payments for each unit of electricity generated by a household. In contrast, the U.S. government uses a tax-rebate policy that reduces the initial investment cost, and the household receives the retail price for the generated electricity. In this paper, we study the key practical factors that favor one policy over the other from the perspective of the government. These factors are the heterogeneity in the generating efficiency, the variability in the electricity price, and the variability in the investment cost. Academic relevance: Unlike the previous literature on the feed-in-tariff and tax-rebate policies, we focus on the effects of variability on a household’s investment timing. We identify the optimal policy for the government to manage the aggregate household investment, accounting for the heterogeneity in efficiency. Methodology: We consider an infinite-horizon, continuous-time model where the government moves first and announces either a feed-in tariff or a tax rebate. Then each household dynamically decides if and when to invest in a unit of solar panels. The objective of the government is to maximize the expected value of a subsidy policy, that is, the difference between the societal benefit of solar panel investments and the subsidy cost over time. Results: We characterize the timing of the investment decision of the households and the optimal subsidy parameters for the government. We identify which practical factors favor the feed-in-tariff or the tax-rebate policy. Policy implications: Our results suggest that a government should prefer the feed-in-tariff policy when the electricity price is highly uncertain. Intuitively, feed-in-tariff policy eliminates the price variability; thus, it removes the strategic delay in the investment. The tax-rebate policy should be adopted if the households are heterogeneous in generating efficiency, if the investment cost is highly variable, or if the price and cost uncertainty are positively correlated.

In the last few years, we have seen the emergence of two new ways in which firms interact with outside stakeholders, namely crowdsourcing and crowdfunding service providers. In this article, we define crowdsourcing and crowdfunding terms, compare new business models with traditional ones, review the operations management research community’s contribution so far, point out useful frameworks for understanding the phenomena, illuminate promising research paths, and highlight open research questions. We also discuss the parallels between these concepts as well the main differences.

We compare a Blockchain-based Supply Chain Finance system with traditional bank-based Supply Chain Finance solutions, using a three-tier supply chain model. Our model features financing frictions due to moral hazard with respect to product quality and dynamic updates of collateral-asset-value forecasts. The key advantage of a Blockchain-based system is its ability to create claims to collateral assets at higher supply chain tiers, while a bank-based system allows only creating claims to the immediate buyer's collateral asset. Interestingly, despite this advantage, a Blockchain-based system does not emerge as the dominant financing choice, even if the higher-tier buyer has the same profit margin and the same parameters of the collateral asset process as the immediate-tier buyer. We identify two causes of this surprising result: risk spillover from the higher-tier to the immediate-tier buyer and accumulation of more noise in the collateral asset when using the higher-tier buyer's collateral asset for financing. We provide conditions for the Blockchain-based system to be equally attractive and conditions for the Blockchain-based system to be preferred.

Managed print service (MPS) is a type of information technology infrastructure service that provides centralized management of companies’ printing device fleets. In this paper, we estimate the provider’s risk preference in MPS using a proprietary data set from Xerox Corporation. We adopt a structural approach in our empirical analysis by modeling the contracting and usage processes of MPS as a two-stage screening game and building econometric models based on the equilibrium contracts and print volumes. Our econometric models have a unique hierarchical structure that allows clustering of printers with the same contracts in the same company, thereby capturing the B2B nature of MPS. We find that Xerox exhibits risk aversion in MPS contracting and provide institutional details of Xerox’s commission holdback policy that may cause the observed risk aversion. In the counterfactual analysis, we demonstrate the significance of the provider’s risk aversion and the implications of the commission holdback policy on equilibrium contracts, the expected earnings of Xerox and customer companies, and their preferences for printer models. The E-companion is available at https://doi.org/10.1287/opre.2017.1673 .

In this work we define the characteristics of the interface of finance, operations, and risk management (iFORM) research and provide examples of iFORM research questions. We illustrate why this is an interesting area and discuss where the two disciplines overlap in a meaningful way. Our goal is to lower the entry cost for new researchers by providing primers on (1) key finance results and papers that OM researchers endeavoring to enter into this field must know; (2) key OM results and papers that finance researchers endeavoring to enter into this field must know. Furthermore, we offer our perspective on resources to help readers to accelerate their iFORM research and on how to write, publish, and referee iFORM papers.

We study joint operational and financing decisions of a cashconstrained manufacturing firm in the presence of bank financing and trade credit, where banks set credit limit based on borrowers repayment histories. Trade credit financing enables the manufacturing firm to build credit history, which affects bank financing availability in the future periods. This can make trade credit valuable, even though it is costly in the current period. We quantify the value of trade credit as a way of securing access to future bank financing and investigate how financing considerations distort the firm’s operational decisions.

International audience; Blockchain is a form of distributed ledger technology (DLT) that has grown in prominence, although its full potential and possible downsides are not yet fully understood, especially with respect to Operations Management (OM). This manuscript contributes to filling in this gap. We identify three research themes in applying Blockchain technology to OM, illustrated through several applications to OM problems. Elsewhere, in a companion article, (Babich and Hilary (2018)), we provide a conceptual framework for the role of Blockchain and other DLT in OM, along with specific examples of research questions, and we demonstrate how research in economics can inform research in OM on Blockchain applications. Finally, we discuss possible future uses for the technology.

We solve a sequential-moves game that involves three players: the franchisor, the entrepreneur, and the banks. The franchisor chooses the contract terms (a one-time franchise fee and a royalty rate for on-going payments). The entrepreneur dynamically decides when to sign this contract, open a store, and apply for debt financing to cover the initial investment. In response to the entrepreneur's application, banks competitively determine loan rates. We find that the franchisor should use royalty cash flows and not the franchise fee to extract value from the entrepreneur. This is a new explanation of empirical evidence that franchise contracts favor royalties over franchise fees. To account for the possibility of the entrepreneur's bankruptcy and bankruptcy costs, the franchisor should decrease the royalty rate. However, despite a lower rate, the threshold for the entrepreneur to open the store is higher in the model with financing than in the model without financing. This threshold is much higher than it would have been for the integrated system, which in turn is higher than the static break-even-NPV threshold. If a franchisor ignores financing considerations, she will suffer from having to wait longer for the store opening and from a higher bankruptcy probability. We predict that the franchisor is the main beneficiary of the entrepreneur's greater initial wealth and that the franchisor will benefit more if she assumes a greater share of the store's operating costs.

Blockchain is a form of distributed ledger technology. While it has grown in prominence, its full potential and possible downsides are not fully understood yet, especially with respect to Operations Management (OM). This article fills this gap. After briefly reviewing the technical foundations, we explore multiple business and policy aspects. We identify five key strengths, the corresponding five main weaknesses, and three research themes of applying Blockchain technology to OM. The key strengths are (1) visibility, (2) aggregation, (3) validation, (4) automation, and (5) resiliency. The corresponding weaknesses are (1) lack of privacy, (2) lack of standardization, (3) garbage in, garbage out, (4) black box effect, and (5) inefficiency. The three research themes are (1) information, (2) automation, and (3) tokenization. We illustrate these research themes with multiple promising research problems, ranging from classical inventory management, to new areas of ethical OM, and to questions of Industrial Organization.

The American public raised serious concerns about product safety in 2007, when the number of product recalls broke a new record. Following a temporary drop in 2008, both the number and retail value of recalled units have been increasing, despite various efforts exerted by government agencies and private companies to combat this trend. Currently, many countries—including China itself—are expressing serious concern over adulterated or unsafe food made or sold in China. What are the underlying reasons for some Chinese suppliers to adulterate product? When law enforcement is still weak in China, what can western manufacturers do to reduce the risk of product adulteration? To develop effective deterrence mechanisms, we first identify four underlying factors that create incentives for some Chinese suppliers to produce unsafe products. Then we propose ideas to discourage Chinese suppliers from producing adulterated products based on two underlying strategies: (1) creating economic incentives through contingent payments, and (2) creating a social incentive by threatening public exposure through the power of the Internet and social networking sites.

Problem Definition: We study how a new development in entrepreneurship --- crowdfunding --- interacts with more traditional financing sources, such as venture capital (VC) and bank financing. Academic/Practical Relevance: While extant literature has mainly focused on predicting crowdfunding campaign outcomes and optimal campaign design, the broader questions of how crowdfunding affects entrepreneurs and how crowdfunding platforms fit in with traditional startup financing sources, such as banks and VCs, have received relatively little attention. Methodology: We model a bargaining game, with a moral-hazard problem between an entrepreneur and a bank, and a double-sided moral-hazard problem between the entrepreneur and a VC, with respect to their non-contractible efforts. Results: We decompose the economic value of crowdfunding into cash gains or losses, costs of bad investments avoided, and project-payoff probability update. This economic value is generally shared between entrepreneurs and investors, benefiting both. Moreover, crowdfunding can help to overcome the agency problems. However, crowdfunding can also harm the entrepreneur and the VC. Competition from other investors reduces value to VC investors, who may walk away from the deal entirely. This can hurt entrepreneurs who lose out on valuable VC operational expertise (operational support, access to supplier networks, etc.). Managerial Implications: The model provides a theoretical underpinning for recent empirical observations that some projects lose VC financing after successful crowdfunding campaigns. Our results complement earlier studies in Operations Management by demonstrating that the entrepreneurs' objectives are more complex than simply maximizing the payoffs from crowdfunding campaigns.

Problem Definition: Governments have adopted various subsidy policies to promote investment in renewable energy sources, such as rooftop solar panels. The German government uses a feed-in-tariff policy that provides a guaranteed stream of payments for each unit of electricity generated by a household. In contrast, the U.S. government uses a tax-rebate policy that reduces the initial investment cost and the household receives the retail price for the generated electricity. In this paper, we study the key practical factors that favor one policy over the other from the perspective of the government. These factors are the heterogeneity in the generating efficiency, the variability in the electricity price, and the variability in the investment cost. Academic Relevance: Unlike the previous literature on the feed-in-tariff and tax-rebate policies, we focus on the effects of variability on a household's investment timing. We identify the optimal policy for the government to manage the aggregate household investment, accounting for the heterogeneity in efficiency. Methodology: We consider an infinite-horizon, continuous-time model where the government moves first and announces either a feed-in tariff or tax rebate. Then, each household dynamically decides if and when to invest in a unit of solar panel. The objective of the government is to maximize the expected value of a subsidy policy, i.e., the difference between the societal benefit of solar panel investments and the subsidy cost over time. Results: We characterize the timing of the investment decision of the households and the optimal subsidy parameters for the government. We identify which practical factors favor the feed-in-tariff or the tax-rebate policy. Policy Implications: Our results suggest that a government should prefer the feed-in-tariff policy when the electricity price is highly uncertain. Intuitively, feed-in-tariff policy eliminates the price variability; thus, it removes the strategic delay in the investment. The tax-rebate policy should be adopted if the households are heterogeneous in generating efficiency, if the investment cost is highly variable, or if the price and cost uncertainty are positively correlated.

Interface of Finance, Operations and Risk Management (iFORM) is a relatively new research area dealing with timely, complex and boundary-spanning issues in a variety of settings from start-ups to global enterprises. iFORM research addresses ways to better integrate physical, financial, and informational flows by combining the operational choices of the firm with its financial decisions, and merging information flows between the firm and its customers and suppliers with informational flows between the firm and its investors. We report on the main research themes of the recent iFORM research, based on, and going beyond, papers that appeared in the MS agency problems, such as risk-shifting and managerial short-termism and their influence on operational decisions; contracting between the firm and its investors and how it alters contracting with supply chain partners; and supply risk management in the form of dealing with commodity prices fluctuations and supplier performance issues. We suggest four promising directions of future iFORM research: supply chain finance, integrated risk management, start-up and entrepreneurial financing, and asset pricing with supply chains.

Using a panel of Credit Default Swap (CDS) spreads and supply chain links, we observe that both favorable and unfavorable credit shocks propagate through supply chains in the CDS market. Particularly, the three-day cumulative abnormal CDS spread change (CASC) is 63 basis points for firms whose customers experienced a CDS up-jump event (an adverse credit shock). The value is 74 basis points if their suppliers experienced a CDS up-jump event. The corresponding three-day CASC values are −36 and −38 basis points, respectively, for firms whose customers and suppliers, respectively, experienced an extreme CDS down-jump event (a favorable credit shock). These effects are approximately twice as large for adverse credit shocks originating from natural disasters. Credit shock propagation is absent in inactive supply chains, and is amplified if supply-chain partners are followed by the same analysts. Industry competition and financial linkages between supply chain partners, such as trade credit and large sales exposure, amplify the shock propagation along supply chains. Strong shock propagation persists through second and third supply-chain tiers for adverse shocks but attenuates for favorable shocks.

We discuss challenges that arise in practice of procurement contracting from supply disruptions and suggest how the theory should be adjusted to address these challenges. The challenges range from the loss of contract power when unexpected shocks occur to the need for contracts to govern joint risk management efforts of buyers and sellers. We highlight which traditional contracting modeling assumptions need to be reexamined and how our intuition based on the classical results might change. We point out a new direction of impactful research—coordination of supply risk management efforts among firms.

Recent cases of product adulteration by foreign suppliers have compelled many manufacturers to rethink approaches to deterring suppliers from cutting corners, especially when manufacturers cannot fully monitor and control the suppliers' actions. In this paper, we study three mechanisms for dealing with product adulteration problems: (a) the deferred payment mechanism—the buyer pays the supplier after the deferred payment period only if no adulteration has been discovered by the customers; (b) the inspection mechanism—the buyer pays the supplier immediately, contingent on product passing the inspection; and (c) the combined mechanism—a combination of the deferred payment and inspection mechanisms. We show that the inspection mechanism cannot completely deter the suppliers from product adulteration, whereas the deferred payment mechanism can. Surprisingly, the combined mechanism is redundant: either the inspection or the deferred payment mechanisms perform just as well. Finally, we identify four factors that determine the dominance of deferred payment mechanism over the inspection mechanism: (a) the inspection cost relative to inspection accuracy, (b) the buyer's liability for adulterated products, (c) the difference in financing rates for the buyer and the supplier relative to the defects discovery rate by customers, and (d) the difference in production costs for adulterated and unadulterated product. We find that the deferred payment mechanism is preferable to inspection if the threats of adulteration (either incentive to adulterate or the consequences) are low.