Costs Of Policies Research Articles

Asymptotic optimality of base-stock policies for lost-sales inventory systems with stochastic lead times

We consider the lost-sales inventory systems with stochastic lead times and establish the asymptotic optimality of base-stock policies for such systems. Specifically, we prove that as the per-unit lost-sales penalty cost becomes large compared to the per-unit holding cost, the ratio of the optimal base-stock policy's cost to the optimal cost converges to one. Our paper provides a theoretical guarantee of the widely adopted base-stock policies in lost-sales inventory systems with stochastic lead times for the first time.

What Forms of Redistribution Do Americans Want? Understanding Preferences for Policy Benefit-Cost Tradeoffs

Political scientists agree that most Americans are “operationally liberal.” However, economic preferences have traditionally been measured as opinions on public spending, independent from the “costs” of public policies. In reality, redistributive economic policies often impose costs on some actors while delivering benefits to others. When a policy’s costs and benefits are both apparent, what types of redistribution do Americans prefer? This paper’s novel survey evidence shows that preferences for policy benefits are indeed sensitive to which subgroups would bear the policy’s costs (and vice versa). American majorities do support a wide range of redistributive economic policy packages—as long as the wealthy are footing the bill or the costs are hidden. When the size of the group facing the policy cost (e.g., tax) increases, overall support declines. Preference differences between Republicans of varying economic statuses are large, while divisions within the Democratic coalition are subtler but still clear on certain policies. Overall, this paper shows that measuring preferences for a policy's costs (e.g., taxation) are crucial to truly understanding voters’ holistic economic policy demands. Further, the lack of enactment by political elites of the forms of redistribution consistently supported by the public casts research on democratic representation in new light.

Trade Agreements and Enforcement: Evidence from WTO Dispute Settlement

This paper examines implications of the terms-of-trade theory for the determinants of outcomes arising under the enforcement provisions of international agreements. Like original trade agreement negotiations, formal trade dispute negotiations are modeled as potentially addressing the terms-of-trade externality problem that governments implement import protection above the globally efficient level so as to shift some of the policy's costs onto trading partners. The approach first extends the Bagwell and Staiger (1999, 2011) model from trade agreement accession negotiations to the setting of enforcement negotiations, and the resulting theory guides the empirical assessment on trade volume outcomes from WTO disputes over 1995–2009. (JEL D74, F13, K33)

Review: Foreign Affairs Strategy

FOREIGN AFFAIRS STRATEGY Logic for American Statecraft Terry L. Deibel New York: Cambridge University Press, 2007. 450PP, US$31.99 paper (ISBN 978-0521692779)States operate in a complex international environment. Players are multiple and diverse, change is relentless, uncertainty is great, and risk looms. How do states survive and advance their interests? In Foreign Affairs Strategy, National War College professor Terry Deibel describes how states should craft foreign policy to weather the tumult of international relations.First and foremost, Deibel argues that foreign policy planning must start with a sober assessment of the international strategic environment. Policymakers must be aware of international structure, key actors, the balance of power, norms, and degrees of interdependence. This assessment should be coupled with an understanding ofthe domestic context. In a democracy, public opinion may be poorly informed of international affairs, but it is also fairly constant in its preferences and ultimately sets the parameters of foreign policy.Given the international and domestic environments, states can deduce the range of threats, opportunities, and interests, and the potential for power and influence. While the concept of a national interest can be ambiguous, Deibel carefully parses the term's subtleties and pitfalls. All too often, policymakers confuse objectives and interests. Deibel also enumerates the dimensions of state power, noting that it can be latent or potential, actual or mobilized, absolute or relative, and is generally contingent on perceptions. Policymakers must ensure that they exercise their state's power sustainably. In weighing their options, states need to estimate a given policy's costs, risk, coherence, and likelihood of success. As Deibel points out, policymakers must continuously reevaluate their assumptions and update their plans in light of new information.Based on these criteria, Deibel argues, the administration of George W. Bush was overwhelmingly idealistic in its foreign policy. It failed to understand the international environment and did not align its ends and means. Deibel recommends that the US pursue a realistic and moderate foreign policy, which would address serious threats such as climate change, illegal immigration, and budget and trade deficits, while simultaneously abandoning the goal of military supremacy and the export of the American socioeconomic model. In this sense, he joins a chorus of realist scholars who have criticized the Bush administration's foreign policy.There is much to commend in this book. Deibel's methodical overview of foreign policy planning offers a structured way to think about policy instead of policy recommendations per se. At a time when it appears that external crises and internal ideology drive American policy, Deibel reminds us that there is no substitute for pragmatic planning. …

A probabilistic analysis of a fixed partition policy for the inventory‐routing problem

AbstractWe consider the Inventory‐Routing Problem (IRP) where n geographically dispersed retailers must be supplied by a central facility. The retailers experience demand for the product at a deterministic rate, and incur holding costs for keeping inventory. Distribution is performed by a fleet of capacitated vehicles. The objective is to minimize the average transportation and inventory costs per unit time over the infinite horizon. We focus on the set of Fixed Partition Policies (FPP). In an FPP, the retailers are partitioned into disjoint and collectively exhaustive sets. Each set of retailers is served independently of the others and at its optimal replenishment rate. Previous research has measured the effectiveness of an FPP solution relative to a lower bound over all policies. We propose an additional measure that is relative to the optimal FPP. In this paper we construct a polynomial‐time partitioning scheme that is shown to yield an FPP whose cost is asymptotically within 1.5% + ϵ of the cost of an optimal FPP, for arbitrary ϵ > 0. In addition, in some cases, our polynomial‐time scheme yields an FPP whose cost is asymptotically within 1.5% + ϵ of the minimal policy's cost (over all feasible policies). © 2004 Wiley Periodicals, Inc. Naval Research Logistics, 2004

Partnership and negotiation support by joint optimal ordering/setup policies for JIT

Several studies have focused on the qualitative aspects of establishing and negotiating buyer–supplier partnerships, including Just-In-Time (JIT) supply, but few quantitative models and investigations are available in this area. We explore the two typical cases: supplier's dominance, with large production lot sizes and shipment sizes and buyer's dominance with small, frequent shipments. In each case, we compare the optimal shipment policy of the dominant party to the joint optimal policy. The savings or loss for each party and the total system cost improvements are computed which provide the quantitative support for negotiation, compromise, and compensation. We extend the quantitative results for different JIT scenarios. We assume that the buyer's order is delivered in n shipments of size q. The supplier's production lot size can also be an integer multiple of the shipment size, Q S= mq, and m can be different from n. Only the cases of m=1 and m= n were examined before. This extension can result in substantial savings. We analyze under which circumstances does the saving warrant the more complex setup policy and in which cases is a simpler policy's cost close to optimum.

The impact of formal finance on the rural economy of India

India has systematically pursued a supply-led approach to increasing agricultural credit. Its objectives have been to replace moneylenders, to relieve farmers of indebtedness, and to achieve higher levels of agricultural credit, investment, and output. India's success in replacing moneylenders has been outstanding. Between 1951 and 1971 their share of rural credit appears to have dropped from more than 80 percent to 36 percent. (It may have dropped to as low as 16 percent by 1981, but that estimate is disputed). Still, institutional credit is far from reaching all farmers. Only about a quarter of cultivators borrow, and no more than 2 percent take out long-term loans. Most small farmers have little access to credit, and long-term credit goes mostly to large farmers. Overall, farm debt has probably not increased sharply in real terms, as formal credit has primarily substituted for credit from other sources. Moreover, with the rapid growth of commercial banks in the 1970s, the system mobilized more deposits than it lent in rural areas in 1981. Of course, enhanced deposit services are a useful service of the rural population, but one must ask what has been the impact of heavy rural credit and better financial services on agricultural investment, production, and rural incomes. The authors' econometric results suggest that the rapid expansion of commercial banks in rural areas has had a substantially positive effect on rural nonfarm employment and output. The availability of better banking facilities appears to have overcome one of the obstacles to locating nonfarm activities in rural areas. Expanded rural finance has had less of an effect on output and employment in agriculture than in the nonfarm sector. The effect on crop output has not been great, despite the fact that credit to agricluture has greatly increased the use of fertilizer and private investment in machines and livestock. There has been more impact on inputs than on output, so the additional capital investment has been more important in substituting for agriclutural labor than in increasing crop output. But overall, rural credit and expansion of the rural financial system have had a positive effect on rural wages. Creating nonfarm jobs has apparently added more to total employment than the substitution of capital for labor has subtracted it in agriculture. So, wages have risen even for agricultural workers, albeit modestly. The supply-led approach to agricultural credit that has been pursued for three decades has clearly benefited current borrowers and farm households formerly indebted to moneylenders. It has also spurred fertilizer use and investment in agriculture. It has been less successful in generating viable institutions - and has failed to generate agricultural employment. The policy's costs to India's government have been high as portfolio losses associated with poor repayment ultimately have to be borne by the government or one of its institutions under optimistic assumptions. The benefits of the agricultural income are at best no more than 13 percent higher than the cost to the government of the extra agricultural credit. If assumptions about the cost of supplying the credit and about repayment rates are less optimistic, the social costs - and the costs to the government of providing the credit - would have exceeded the benefits in agricultural income. The expansion of commercial banks to rural areas paid off in nonfarm growth, employment, and rural wages. The question is: Could these benefits have been achieved without imposing agricultural credit targets on the commercial banks and credit cooperatives? Or did the commercial banks expand only because they were forced to lend to agriculture? The authors could not answer these questions with the data at hand.

Public Choice Theory Applied to National Energy Policy: The Case of France

ABSTRACTPublic choice theory offers a conceptually important means of examining policy decisions and their social and economic consequences in the field of natural resources. Through a public choice analysis of France's ambitious program to nuclearize its electrical industry by the year 2000, I examine the origins, merits and deficiencies of French nuclear policy. Public choice theory's major assumptions – that a policy's costs and benefits are a function of resource abundance and level of development and that a resource's management is shaped by its character and availability – are largely valid. However, the need to reconcile competing social values and to distribute policy benefits fairly may be insufficiently accounted for by current public choice approaches, a fact exemplified by French experience with nuclear power.