A Theory of Self-Prospection (joint with Polina Borisova)

A present-biased decision maker (DM) faces a two-armed bandit problem whose risky arm generates random payoffs at exponentially distributed times. The DM cannot perfectly observe payoffs but receives informative feedback. Our main finding is that, in the unique stationary Markov perfect equilibrium of the multi-self game, positive feedback supports greater equilibrium welfare than both negative and transparent feedback. It does so by encouraging the DM to self-prospect --- imagine one's future goals and outcomes when evaluating the present. We relate our results to findings in psychology promoting the motivational effects of positive feedback, as well as more recent findings regarding self-prospection theory.

Nudging Investors towards Sustainability: A Field Experiment with a Robo-Advisor (joint with Lars Hornuf and Stefan Zeisberger)

Abstract: In a field experiment with robo-advisor clients, we explore how default investment options shape sustainable investments choices. Setting sustainable investing as the default significantly increases adoption, with 36% of investors selecting it, compared to just 23% when conventional investing is the default. A follow-up survey reveals stark differences in expectations: most conventional investors believe that their choice offers higher returns and a better risk-return trade-off, while sustainable investors are confident that their portfolios will outperform. While sustainability preferences also play a role in decision-making, the strong focus on financial returns suggests that investors remain reluctant to forgo substantial gains for sustainability in real-world scenarios.

In this paper we develop a new rationale for the existence of business groups (BGs) and conglomerates that operate in multiple locations within the same country: They arbitrage local labor markets. We show that BG firms g row l ess i f fi rms of th e same group in other locations can offer more attractive access to employees in their local labor market. On the flip side BG firms grow faster if they offer such access to other firms in the group. Attractiveness is measured as labor costs, labor supply, and labor fit between the firm and the local labor f orce. Local labor conditions are of similar importance for location decisions of business group firms as general agglomeration e conomies. Internal flows of employees b etween BG firms ac count for only a small portion of th e variation in employment growth rates. We conclude that business groups predominantly move jobs, but not employees, between their locations. As such, they arbitrage local labor markets

Racing with a rearview mirror: innovation lag and investment dynamics (with Nicolas Klein and  Lucie Ménager)

We analyze a dynamic investment model in which short-lived agents sequentially decide how much to invest in a project of uncertain feasibility. The outcome of the project (success/failure) is observed after a fixed lag. We characterize the equilibrium and show that, in contrast with the case without lag, the unique equilibrium profile is not in threshold. If the initial belief is relatively high, investment decreases continuously as agents become more pessimistic about the feasibility of the innovation. Otherwise, investment is not monotonic in the public belief: players alternate periods of no investment and periods of positive, decreasing investment. The reason is that the outcome lag creates competition between a player and her immediate predecessors. A player whose predecessors did not invest may find investment attractive even if she is more pessimistic about the technology that her predecessors.

Institutional Investors at the Helm: Navigating Responses to Foreign and Domestic Anti-Money Laundering Violations

Previous studies on corporate misconduct have often concentrated on violations of domestic regulations, and therefore our understanding of market disciplinary effects of foreign regulatory interventions is limited. To fill this void, we analyze situations in which international banks violate foreign and domestic anti-money laundering (AML) rules. We find that domestic and foreign financial-center interventions have similar stock price responses, while foreign non-financial-center interventions do not matter much for stock prices. We also study the role of institutional investors. Having a higher percentage of institutional investors leads to more negative stock price responses. We further find strong support for the conjecture that institutional investors exit their holdings when they learn that a particular bank is involved in a foreign regulatory intervention, but only if the foreign regulator resides in a financial center. Finally, we find that after news about foreign interventions has been released, the likelihood of a forced CEO turnover increases with the percentage of institutional holdings. The size and direction of the disciplinary effects that we find for foreign interventions resemble those for domestic interventions. Based on our study, we suggest that future research into misconduct must consider information on foreign malpractices, as ignoring this information produces biased results.

Auctions vs. Negotiations: The Role of the Payment Structure (with V. Vladimirov)

We investigate a seller’s strategic choice between negotiating with fewer bidders and running an auction with additional bidders, allowing for general security payments. The key factor favoring negotiations is the seller’s rent-extraction benefit of setting her preferred payment structure; reserve prices are of secondary importance. Negotiations are more valuable if the seller’s asset creates more value at more productive bidders – in which case sellers prefer contingent payments while bidders prefer cash – and if the dispersion and magnitude of bidders’ private valuations are higher. Our results have implications for mergers and acquisitions, patent licensing, and compensation negotiations in tight labor markets.

Peter Grundke, University Osnabrück

Marketplace lending: a viable business model? A transaction cost-based analysis

In a Diamond (1984) model setting extended by ex-ante information asymmetry it is shown that MPL platforms are typically not superior to a financial intermediary solution with banks in terms of reduced transaction costs. Only when simultaneously the default probabilities of the projects carried out by the debtors and the number of creditors per project are small, the MPL platform can dominate the bank. Private diversification of the creditors only slightly shifts the advantageousness in favor of the MPL platform solution. If the MPL platform has skin-in-the-game by taking the first loss tranche, this can have a stronger effect on the advantageousness of the MPL platform solution (depending on the additional services provided by the platform).

Optimal Allocation with Peer Information (Joint with Justus Preusser)

An object must be allocated among a group of agents. The optimal allocation depends on the agents’ private information, but each agent desires the good for themselves. There are no monetary transfers. We relax the standard assumption of independently distributed types in mechanism design, allowing for arbitrary correlation, interpreted as peer information. We study optimal dominant strategy incentive compatible (DIC) mechanisms and provide characterizations using techniques from the theory of perfect graphs. Stochastic mechanisms permit a far more flexible aggregation of peer information than deterministic mechanisms. In rich type spaces, nearly all extreme points of the set of DIC mechanisms are stochastic. Determining an optimal deterministic mechanism is NP-hard. We present simple classes of mechanisms that are approximately optimal when agents are informationally small. Applications include science funding, allocation of targeted aid, and peer selection.

The American Origin of the French Revolution (joint with Lukas Rosenberger)

France sent five thousand men to fight alongside George Washington's army in the American Revolutionary War. We show that the French combatants' exposure to the United States of America increased support for the French Revolution a decade later. French regions (départements) from which more American combatants originated had more revolts against feudal institutions, revolutionary societies, volunteers for the revolutionary army, and emigrants from the Old Regime’s elite. To establish causality, we exploit two historical coincidences: i) originally, a French army of seven and a half thousand was ready to board ships, but one-third did not sail to America because of logistical problems; ii) among the regiments who fought in America against the British, some regiments were stationed for one year in New England before the main battle, and in Virginia afterwards, while others were stationed in the Caribbean colonies. We find that only the combatants who were exposed to the United States affected the French Revolution after their return.

Social image and Social distance

Social image concerns motivate people to behave pro-socially if others are watching—as pro-social behavior leads to an update of the observer’s beliefs about the actor’s intrinsic pro-sociality. Thus, the effect of being observed depends on the magnitude of the shift in the observer’s beliefs. This, in turn, depends on the prior belief distribution. The more prior information available to the observer, the less effect new information has on posterior beliefs. This generates the novel hypothesis that the effect of observation on pro-social behavior increases with the social distance between the observer and the observed. Although people care more about what their friends think, they may be more motivated to impress a stranger who does not know them as well as a friend. We test this hypothesis in a field experiment. Participants were 670 high-school students who walked to generate donations for a public good. Participants were either unobserved, observed by a friend, or observed by another random participant. To identify social image concerns, we also manipulated whether effort up to a certain threshold yielded a personal benefit in addition to the public-good provision. The results provide support for the hypothesis, with age as a moderator.

On the interaction of prospective relative performance information and reference groups’ performance standards: Employee performance and self-selection

This paper presents two experiments on the behavioral effects of prospective relative performance information (RPI) when facing a reference group with either a high or a low implicit performance standard. Our baseline study 1 focuses on a centralized organizational structure where employees are exogenously assigned to one of the two reference groups. We find that the anticipation of RPI boosts the performance of high-performers assigned to the low-standard group, while low-performers assigned to the high-standard group seem to become discouraged. Study 2 shows that prospective RPI affects employees substantially differently under a decentralized organizational structure where employees can self-select their reference group. We demonstrate that the anticipation of RPI especially induces relatively low-performing employees to select the high-standard group as a self-set target, spurring motivation. For relatively high-performing employees, our results suggest they become complacent when self-selecting the low-standard reference group. Hence, the benefits of providing self-selection options depend on how employees use them.

Insurance Take-up as Premiums Increase (joint with Benjamin L. Collier, Tobias Huber, Andreas Richter)

The growing costs of severe climate events raise new questions regarding property oweners' willingness to insure their homes against catastrophes. We examine the responses of existing policyholders to an exogenous price increase on their heavily subsidized flood insurance. This high-risk population was informed that despite the price increase, their insurance remained cheaper than the actuarial price. Using a differnece-in-differneces estimation on a panel of over two million policy-year observations, we find that about one fourth of the homeowners stopped insuring due to the reform. The forgone insurance was a large free lunch - the median homeowner paid 20 % of the actuarial value - making this behavior surprising. The most likely mechanisms - adverse selection, liquidity constraints, and the reforms' effects on home values - do not appear to explain homeowners' choices. Instead, consumer non-renewals appear to reflect negative sentiment as they closely correspond to periods of media coverage of the reform. Our findings speak to housholds' difficulties in assessing risk-based contracts and the challenges of increasing climate risk.

Timothy King, University of Vaasa

Deterred or inspired by aspirant customers? Customers’ industry tournament incentives and supplier innovation (joint with Yaoyao Fan and Yichu Huang)

Applying the logic of tournament theory, we explore the effect of customer CEOs’ industry tournament incentives (CITIs), captured by industry pay gap, on supplier innovation. Our main findings demonstrate that customer CITIs can enhance supplier innovation. This is evident in terms of the quantity, quality and efficiency of innovation, and are associated with a valuation premium for supplier firms. Moreover, we uncover a moderating effect for high-tech and large customers, whereby the positive impact of CITIs is more pronounced for high-tech customers but weakened for large customers. Finally, in an online appendix, we demonstrate that our results are robust to alternative models and addressing potential endogeneity concerns. Overall, our study contributes to interdisciplinary research in supply chain management and corporate outcomes by providing insight into the relevance of customers’ aspiration to supplier analysis and valuation

Auctions with Signaling Bidders: Optimal Design and Information Disclosure (with Martin Pollrich)

We study optimal auctions in a symmetric private values setting, where bidders have signaling concerns: they care about winning the object and a receivers inference about their type. Signaling concerns arise in various economic situations such as takeover bidding, charity auctions, procurement and art auctions. We show that auction revenue can be decomposed into the standard revenue from the respective auction without signaling concern, and a signaling component. The latter is the bidders' ex-ante expected signaling value net of an endogenous outside option: the signaling value for the lowest type. The revenue decomposition restores revenue equivalence between different auction designs, provided that the same information about bids is revealed. Revealing information about submitted bids affects revenue via the endogenous outside option. In general, revenue is not monotone in information revelation: revealing more information about submitted bids may reduce revenue. We show that any bid disclosure rule allowing to distinguish whether a bidder submitted a bid or abstained from participation minimizes the outside option, and therefore maximizes revenue.

Excess Volatility in Professional Stock Return Forecasts

Consensus professional forecasts of stock returns are three times more volatile than those of non-professionals and econometricians. This “excess” volatility in professional forecasts is not due to noise. Rather, professional forecasts respond immediately, strongly, and countercyclically to macro shocks. Business cycle, technology, and oil supply shocks each account for 20% to 40% of the total variation in the difference between professional and other forecasts. We also replicate prior work’s finding that professional forecasts of GDP growth are no more responsive to macro shocks than those of non-professionals and econometricians. We argue that professionals’ forecasts of stock returns respond differently from (i) other forecasts of stock returns and (ii) professional forecasts of macro variables, because they are better able to identify discount rate shocks. To this end, we run a two-stage test using standard discount rate proxies. In the first stage, we identify "shock-sensitive'' proxies as those for which macro shocks are strong instruments. In the second stage, the shock-sensitive proxies, and particular the part instrumented using macro shocks, strongly predict professional forecasts. Our survey-based evidence complements standard present-value findings that macro shocks lead to time variation in professionals' expected returns. We conclude that professionals are particularly adept at correctly identifying discount rate fluctuations from macro shocks. In contrast to us, a large literature in macro-finance finds that consensus forecasts of professionals are no better than other forecasts.

Cooperation and the Signaling Value of Incentives: An Experiment in a Company (joint work with Marvin Deversi)

Economists and management scholars have argued that the scope of incentives to increase cooperation in organizations is limited as their use signals the prevalence of free-riding among employees. This paper tests this hypothesis experimentally, using a sample of managers and employees from a large company with a cooperative culture. We exogenously vary whether managers are informed about prevailing cooperation levels among employees before they can set incentives to promote cooperation. Comparing informed versus uninformed incentive choices, the data reveals strong positive effects of incentives that are unaffected by the hypothesized signaling effect. The absence of such an effect seems related to the perception of managers' intentions, a mitigating factor that has not been explored in the literature so far.

Second-best Probability Weighting  (joint work with Nick Netzer)

Non-linear probability weighting is an integral part of descriptive theories of choice under risk such as prospect theory. But why do these objective errors in information processing exist? Should we try to help individuals overcome their mistake of overweighting small and underweighting large probabilities? In this paper, we argue that probability weighting can be seen as a compensation for preexisting biases in evaluating payoffs. In particular, inverse S-shaped probability weighting is a flipside of S-shaped payoff valuation.Probability distortions may thus have survived as a second-best solution to a fitness maximization problem, and it can be counter-productive to correct them while keeping the value function unchanged.

Revenue Maximizing Tariff Zone Planning for Public Transport Companies

This paper presents a new approach to design a counting zones tariff system applicable for urban public transport service providers. The proposed approach is oriented to a counting zones tariff system that maximizes the expected revenue (or demand) for a given price system. We assume (i) that the price per zone stems from a discrete set of values, (ii) the number of public transport trips depend on the price system, and (iii) public transport passengers always choose the time-shortest path. Our approach enables to account for specific spatial patterns of the resulting zones, like rings or stripes, for example. We also propose an approximation of the original problem that grows only linear in the number of public transport stops. In extensive numerical studies with artificial test instances, we evaluate for different network structures and public transportation demand. Finally, we also present a large case study of the San Francisco Bay Area.

On the Benefit of Combining Car Rental and Car Sharing (joint work with Ralph Angeles, Beatriz Brito Oliveira, Claudius Steinhardt)

Increasing fleet utilization is one of the main drivers to improve the operational performance in car rental as well as in car sharing. This is why, most recently, traditional car rental companies have begun to additionally offer car sharing products, and vice versa. Both products, i.e., long-term rentals of the car rental product and short-term rentals of the car sharing product, address different customer segments with different demand patterns and price sensitivities. However, both products use the same resource, namely the same vehicle fleet. We study the tactical problem of a combined car rental car sharing operator to maximize profits by means of availability control and temporal price differentiation. By considering several practice-relevant cases with regard to the specific set-up of the combined system, we aim at deriving managerial insights that allow classical car rental and classical car sharing providers to predict implications of additionally offering the respective other product.

Worker Runs (with V. Vladimirov)

The voluntary departure of hard-to-replace skilled workers worsens firm prospects, thus, increasing remaining workers' incentives to leave. We develop a model of collective turnover in which firms design compensation to limit the risk of such "worker runs." To achieve cost-efficient retention, firms use dilutable pay -- such as stock option/bonus pools - that promises remaining workers more when others leave but gets diluted otherwise. The optimal type of dilutable pay depends on firms' risk exposure and their resource constraints. Firms can further improve overall retention by compensating identical workers differently, not only offering different pay levels but also different compensation structure.

Aggregate and Firm-Specific Information in Expectations

This paper develops a novel method to estimate the importance of aggregate and firm-specific information for firms' expectation formation. Based on a representative sample of German manufacturing firms, we document several new facts: First, firms are equally well informed about the aggregate and firm-specific components of their businesses, even though the firm-specific fluctuations are far more important for firms' businesses. Second, at times of crises firms expect a weakly higher share of the variation in firm-level outcomes, but uncertainty increases due to the overall increase in the dispersion. Third, firms heavily rely on information contained in observables, in particular regarding demand and production; information about prices are less important for forming expectations regarding business fluctuations in the short run. Fourth, the data provides evidence in favor of the law of iterated expectations. Fifth, firm-specific and overall information about future shocks quickly decays with longer forecast horizon.

The value of flexible flight-to-route assignments in pre-tactical air traffic management

To inform current discussions on the future role of the network manager in air traffic management, we illustrate the value of flexible flight-to-route assignments by dynamically influencing airspace users’ choices by pricing decisions to make flexible options more attractive when needed; the overall aim is to reduce costs arising from re-routings, tactical delays, and penalties (for violating fairness and revenue neutrality conditions). This problem is structurally related to the last mile next day delivery problem but poses some special challenges.

A Choice-Based Optimization Approach for Contracting in Supply Chains

We consider a supplier-buyer supply chain. The buyer holds private forecast information (high/low), and the supplier offers a menu of capacity reservation contracts to align incentives. We analyze how the menu of contracts should be adapted when lifting the assumptions that buyers act rationally and/or that buyers' utility is deterministic. We employ a novel choice-based optimization approach that integrates a multinomial logit model (capturing the buyer's contract choice behavior) with a mixed-integer nonlinear program. The choice-based optimization model can be solved with off-the-shelf solvers and is therefore ready to use by management. We further derive qualitative insights on how to adapt existing contracts in a numerical study. We show that cutting off low-demand buyers, reducing reservation fees in a specific manner and introducing more contract options may increase suppliers' and supply chains' performance.

Effects of Introducing Prospective Payment on Length of Stay in Mental Health Care (Franziska Valder, Harald Tauchmann, Simon Reif)

While there is a large literature on the design of hospital reimbursement schemes for somatic health care, little is known on the effects of reimbursement for inpatient mental health care. In this paper, we study the introduction of a partly prospective payment scheme for inpatient mental health care in Germany. The new system - PEPP - features diagnosis-related reimbursement rates for each day a patient spends in the hospital that decrease over length of stay. Build and a simple model of provider behavior, we use data on the universe of hospital cases in Germany to examine two questions: first, we analyze which hospitals decide to voluntarily opt into prospective payment. Second, we examine the effect of prospective payment on length of stay. We find that more specialized hospitals with high average length of stay and higher occupancy rates select into the prospective scheme.  We then show that there are large reductions in length of stay due to PEPP. These reductions are mainly driven by changes in length of stay within diagnoses and not by the diagnosis distribution. We cannot find evidence for harmfulness of these reductions given that there are no effects on patient transfers or mortality.

Sequencing Bilateral Negotiations with Externalities (joint with Johannes Münster)

In most bargaining situations with multiple parties, the negotiation sequence is crucial for the efficiency of outcomes and the parties' success. However, the driving forces behind the socially and privately optimal sequences are poorly understood. To study these issues, we consider a general framework of bilateral negotiations between a principal and two agents with bargaining externalities. We show that the agents' bargaining strengths are essential for the determination of the sequence. The surplus is highest if the principal negotiates with the stronger agent first, regardless of externalities being positive or negative. The principal always chooses the efficient sequence if externalities are negative. Instead, if externalities are positive, the principal often prefers to negotiate with the weaker agent first. We show that our results extend to a general number of agents, demonstrate that the sequence can be non-monotonic in the externalities, and provide conditions for simultaneous negotiations to be optimal.

Closing the gender STEM gap -  A large-scale randomized-controlled trial in elementary schools

We examine individual-level determinants of interest in STEM and analyze if a digital web application for elementary-school children can increase children's STEM interest with a specific focus on narrowing the gender gap in STEM. Coupling a randomized-controlled trial with experimental lab and survey data, we can analyze the effect of the digital intervention and shed light on the mechanisms. We confirm the hypothesis that girls demonstrate a lower overall interest in STEM than boys. Moreover, girls are less competitive and exhibit less pronounced math confidence than boys at the baseline. Our treatment increases girls' interest in STEM and decreases the gender gap via an increase in STEM confidence and competitiveness. Our findings suggest that an easy-to-implement digital intervention has the potential to foster gender equality for young children and can contribute to a reduction of gender inequalities in the labor market such as occupational sorting and the gender wage gap later in life.  

A laboratory experiment on fairness preferences for sharing losses in insolvency

In insolvency proceedings claimants are to receive awards from a shrunken pie. Arguably, organizing this distributional conflict is the most important task of insolvency law. We study in a computerized experiment the distributional preferences of insolvency claimants about how to allocate a liquidation value smaller than the sum of pre-insolvency claims. In particular, under the veil of ignorance we elicit preferences for four different distribution mechanisms: (1) the proportionality rule, (2) the constrained equal awards rule, (3) the constrained equal losses rule, and (4) the Talmud rule. While all four mechanisms capture egalitarian intuitions and may be subsumed under the pari passu principle, they do so in quite different ways. This raises the question of how these rules interact with peoples' fairness considerations. We find that under the veil of ignorance participants have the highest willingness-to-pay for the proportionality rule, followed by the constrained equal awards and the Talmud rule. Participants have the lowest willingness-to-pay for the constrained equal losses rule. If the veil is lifted, however, claimants tend to invest their endowment into risky projects that are governed by the rule that is most beneficial for them: small claimants tend to favor constrained equal losses and dislike constrained equal awards; large claimants exhibit the opposite pattern. Moreover, our evidence suggests that, especially for larger claimants and higher liquidation values, rank order preferences shift once the veil of ignorance is lifted. To the extent that preferences differ from the proportionality rule commonly employed in practice, our results raise questions about regulatory reform of insolvency law and similar institutional frameworks governing conflicting claims problems.

Dynamic Screening with Verifiable Bankruptcy

t.b.a.

The Rocky Road to Gender Equality - Immediate Effects of Quotas on Performance, Sabotage, and Representation

We study the immediate effect of a quota on performance, sabotage, and representation of the different groups affected. In an experimental study, we vary whether a quota is implemented and whether it is justified or not. We find that unjustified quotas result in a decrease in the performance of affirmed types, an increase in sabotage activity targeted at affirmed types, and a reduction in help received by affirmed types. We do not find such negative effects when the implemented quota is justified. Our findings suggest that information about the justification of a quota crucially determines the success of this intervention.

Stepgrandparent-Stepgrandchild Relationships. Emotional Closeness and Frequency of Contact in Childhood and Adulthood

The many years shared by family members of three generations today have in general a positive impact on grandparents’ relations with their grandchildren. However, high divorce and remarriage rates, which lead to nontraditional family forms such as stepfamilies, challenge these relations, as some family members leave and others join during the process of repartnering. This paper focuses on emotional closeness and frequency of contact between stepgrandparents and their stepgrandchildren in childhood and adulthood. Based on the German Ageing Survey (DEAS) from 2014, 7,710 grandparent-grandchild and 465 stepgrandparent-stepgrandchild dyads nested within 4,992 families are analyzed. Hierarchical linear regression results provide support for the assumption that stepgrandparents feel significantly less close to their stepgrandchildren than biological grandparents to their biological grandchildren independent of family members’ characteristics. In contrast, the differences between stepgrandparents and grandparents in the frequency of contact with their (step-)grandchildren disappear when family members’ characteristics are controlled.

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Browsing versus Studying Offers
 
We introduce a simple model of a market in which consumers must make tradeoffs between "browsing" more products superficially, and "studying" fewer products in detail. Each firm chooses two price components, a headline price and an additional price, and specifies conditions under which a consumer can avoid the additional price. Each consumer can either fully understand the offer of one firm (studying), or look at only the headline prices of two firms (browsing). In equilibrium, high-value consumers browse and pay the additional price, but low-value consumers study to avoid the additional price. Although high-value consumers pay higher total prices, the average price consumers pay is decreasing in the share of high-value consumers. This result is consistent with evidence that a number of essential products are more expensive in lower-income neighborhoods, and our model also helps explain why entry into such neighborhoods does not solve the problem. More importantly, our framework generates a novel and powerful competition-policy-based argument for regulating the additional price or other secondary product features. In contrast to existing arguments that such regulations may be ineffective or even distortionary, we show that they have a multiplier effect: because consumers do not need to worry about the regulated feature, they do more browsing, enhancing competition. In many situations, the increase in competition also increases efficiency, but we identify a class of situations in which there is a tradeoff between competition and efficiency.

 

Decentralized Energy Management: New Challenges for Operations Research

Our energy systems undergo a fundamental change. Where in the past the energy mainly was generated in large power plants using fossil fuels, in the future a large part of the generation will result from small plants in decentralized locations using uncontrollable renewable sources. This leads to a loss of control over a larger fraction of the generation. To be able to compensate for this loss in flexibility on the generation side, we have to create and use flexibility on the consumption side.
This has led to the concept of ‘Smart Grids’ and ‘Decentralized Energy Management’ is seen as a key element for these Smart Grids.
In this talk we first give an overview of the relevant developments in the Energy Supply Chain. Based on the changes we sketch possible concepts and methods for future control of these supply chains. Hereby Decentralized Energy Management is seen as one of the key elements. In a second part, we argue that new upcoming devices with inherent storage (like e.g. batteries or electric vehicles) offer large portions of flexibility and discus a range of scheduling problems that come up for these devices. For a few of these problems we sketch possible solution approaches.

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Continuous assortment optimization

Assortment optimization is the problem of determining which products a seller should make available for sale to potential customers, in order to maximize her expected profit. This problem is found in many practical applications, e.g. hotel and airline revenue management, price and assortment optimization for online retailers, online advertisements optimization, optimal product design, and various facility location problems. In the recent operations research and management science literature, much attention goes to discrete assortment problems, where the decision maker can select from a finite number of products. This usually gives rise to computationally complex combinatorial problems, which can only be solved heuristically. In contrast, we turn our attention to continuous assortment problems, where the decision maker selects from a continuum of products. This is motivated from certain practical applications, but also as an alternative approach to large-scale discrete problems.
 
To give a flavor of the richness of this problem class, we consider two problems in detail.  In the first, the seller selects as assortment a subset of the unit interval, and customers make a purchase from this set according to a continuous multinomial-logit model. We discuss optimization and estimation aspects of this problem, and its relation to the well-studied discrete version. The second problem we discuss is assortment optimization for vertically differentiated products, where customers have minimum quality requirements and (therefore) non-continuous utility functions. We discuss the structure of the optimal assortment, computational aspects, and its relation to the product-design question in which pre-packed quantities a  product should be made available for sale.

 

The Myopic Stable Set for Social Environments (with T. Demuynck, J.-J. Herings, R. D. Saulle)

We introduce a new solution concept for models of coalition formation, called the myopic stable set. The myopic stable set is defined for a very general class of social environments and allows for an infinite state space. We show that the myopic stable set exists and is non-empty. Under minor continuity conditions, we also demonstrate uniqueness. Furthermore, the myopic stable set is a superset of the core and of the set of pure strategy Nash equilibria in noncooperative games. Additionally, the myopic stable set generalizes and unifies various results from more specific environments. In particular, the myopic stable set coincides with the coalition structure core in coalition function form games if the coalition structure core is non-empty; with the set of stable matchings in the standard one-to-one matching model; with the set of pairwise stable networks and closed cycles in models of network formation; and with the set of pure strategy Nash equilibria in finite supermodular games, finite potential game , and aggregative games. We illustrate the versatility of our concept by characterizing the myopic stable set in a model of Bertrand competition with asymmetric costs, for which the literature so far has not been able to fully characterize the set of all (mixed) Nash equilibria.

How to Boost revenues in First-Price Auctions? The Magic of Disclosing Only Winning Bids from Past Auctions

We present an experiment to evaluate revenue implications of two disclosure policies available to a long-run auctioneer: disclosure of all bids from past auctions and disclosure of winning bids only. Using a first-price auction with two bidders, we find that disclosing the winning bids leads to higher bids and revenues in the long run. We propose to explain this finding by allowing a share of bidders to be naive in that, when presented with historical winning bids, they mistakenly best-respond to that distribution, failing to realize that winning bids are not representative of all bids. We also develop a method to estimate the fraction of naive bidders in a between-subject design and to relate it to the degree of bidders' risk aversion. Our findings challenge the predictive power of the Bayesian Nash equilibrium based on full bidder rationality, and they underline the selection of historical price information as a key market design choice.

Professional Identity and the Gender Gap in Risk-Taking. Evidence from a Field Experiment with Scientists (with Moritz A. Drupp, Marie-Catherine Riekhof and Rudi Voss)

The gender gap in risk-taking is often used to explain differences in labor market outcomes. Some studies, however, suggest that this gender gap does not extend to professional contexts. This paper examines potential drivers of the gender gap in risk-taking, comparing the professional context of academia to a private setting. We draw on identity economics, which posits that individuals form multiple identities that moderate behavior across contexts. In an online field experiment with 474 scientists we vary the salience of the professional or private identity. We find that the gender gap in risk-taking is mediated when the professional identity is salient. We identify the switching of identities by females as an explanation. Our results suggest that if the gender gap in risk-taking is driven by selection, the selection is not (only) along risk-aversion, but (also) along the ability to switch between identities and to adapt to prevailing norms. This provides new insights for the discussion on gender, risk-taking and labor market policies, and suggests an important role for mentoring programs.

Energy-oriented scheduling of identical parallel machines considering a two-part tariff system
 
We propose a mathematical model (MILP) for the energy-oriented scheduling problem with identical parallel machines. The model considers time-dependent labor costs and costs for electric energy while simultaneously determining optimal job assignments, job sequences and machine operation modes. A two-part energy contract is assumed, consisting of time-varying energy rates as well as a rate that is charged depending on the peak load. We present results of an application-oriented numerical example comparing the performance of the model with a conventional scheduling approach minimizing labor costs. The results indicate that under a wide range of conditions significant cost reductions can be achieved. The potential is especially pronounced, if the degree of capacity utilization is low to medium and job durations are short.

The Association between Internal Audit Consulting Services and Firm Performance

In this paper, we examine whether operations-relevant consulting services (OCS) provided by the internal audit function (IAF) bring economic benefits to firms. Using a sample constructed by matching a global internal auditor survey with public firms’ data in Compustat, we find that the extent of OCS provided by the IAF has a significant positive association with operating performance. This result is robust to multiple sensitivity tests. In addition, a DuPont Analysis reveals that OCS provided by the IAF are associated with a higher asset turnover ratio and greater operating profit margin but not related to the equity multiplier. Moreover, the positive relation between OCS and operating performance is only achieved for companies that follow a defender (as opposed to a prospector) business strategy. Finally, we find that extensively outsourcing internal audit activities reduces the positive effect of OCS on operating performance. Our findings shed light on the current debate about the value added by the IAF.

Returns to ICT Skills (with Alexandra Heimisch and Simon Wiederhold)

How important is mastering information and communication technology (ICT) in modern labor markets? We answer this question with unique data on ICT skills tested in 19 countries. Our two instrumental-variable models exploit technologically induced variation in broadband Internet availability that gives rise to variation in ICT skills across countries and German municipalities. We find that a one-standard-deviation increase in ICT skills raises earnings by about 25 percent. Exogenous broadband availability cannot explain numeracy or literacy skills, suggesting that estimated returns are unaffected by general ability. One mechanism driving positive returns is selection into occupations with high abstract task content.

Uncertainty and Investment Incentives in Matching Contests

Agents in a finite two-sided market make costly investments and are then matched assortatively on the basis of these investments. Investments serve to signal complementary, privately known types, but they also generate inalienable benefits for partners. We provide a quantitative characterization of how the numbers of ex-ante symmetric agents on both sides of this matching contest affect agents' uncertainty regarding the return to increasing their investment, and hence the investments made in Bayes-Nash equilibrium. For cases where investments are productive, we show how the numbers of agents affect the extent of hold-up problems. We also characterize the asymptotic behavior of equilibrium payoffs in large matching contests, for situations where investments are partially wasteful or correspond to monetary transfers.