Profit-maximizing Behavior Research Articles

Can information imprecision be valuable? The case of credit ratings

We develop a model in which credit ratings are endogenously coarse relative to the underlying default probabilities, and ratings precision is countercyclical. Ratings coarseness arises from the profit-maximizing behavior of rating agencies, and coarseness may maximize welfare even when greater ratings precision is costlessly available. Because the private outcome may differ from the socially desirable outcome, a social planner can improve welfare by putting a ceiling (floor) on the rating agency’s fee if the desired outcome is coarseness (precision). Strikingly, when information production is costless, ratings coarseness is socially optimal, but it does not arise in the laissez-faire equilibrium, thus inviting regulatory intervention.

Local government land monopoly in China: the influence of residential land price on supply

ABSTRACT China’s current land system allows local governments to monopolize land supply, and such monopolist power induces local governments to distort the residential land supply in line with their own interests. This paper uses an overlapping generation model to depict the profit maximization behavior of local governments. The theoretical model suggests that local governments in cities with strong economic conditions would face a lower magnitude of price elasticity of demand and would choose a higher residential land price corresponding to a lower residential land supply to achieve profit maximization. To empirically evaluate the theoretical model, the paper adopts Instrument Variable (IV) estimates and investigates data collected from 142 prefecture-level cities between 2010 and 2020. It suggests there is a negative causal relationship between residential land prices and per capita residential land, thus validating the theoretical model that local governments prioritize profit maximization over meeting the local population’s housing demands.

The effect of quota portfolio composition on optimal harvest strategy and profitability in a multi-species fishery

Abstract The benefits of individual vessel quota (IVQ) management in terms of improved harvest strategy and profitability are well recognized, but there is less focus on how different components of a quota portfolio can influence decisions underlying the effort allocation and profit-maximizing behaviour of fishers. Variations in the components of the quota portfolio may create economic incentives that alter the optimal harvest strategy and profitability. Thus, we study the potential impact of different components of quota portfolio on the intra-annual harvest strategy and profitability in two segments of the Norwegian bottom trawl fleet. By developing a vessel-based spatio-temporal bioeconomic framework, we demonstrate and compare adopted harvest strategies and accrued profits for small and large trawl vessels under three scenarios regarding restrictive quotas in codfish fishery. Our analysis confirms that alternations in the components of the quota portfolio influence the spatio-temporal dynamics of the fishing effort for small and large trawl vessels in different ways, probably due to the differences in vessel-specific characteristics. We also demonstrate that the differences in profit between small and large vessels in part depend on the overall size of the quota portfolio. The economies of scale in the trawl industry are being eroded as the shares of higher-priced species in the quota portfolio decreases. The benefits of economies of scale cannot be reaped as trawlers respond to the reduction in profit by redirecting effort from offshore areas of the Arctic to nearshore waters or staying ashore. Likewise, having small quotas of high-priced species reduces the effectiveness of the IVQ system in meeting management objectives, and could in some cases undermine sustainability outcomes. Our results also demonstrate that both the intensity with which fishers react to the fluctuations in market price levels and fishers’ perceptions of location attractiveness are influenced by the components of the quota portfolio.

Management , Business Strategies and Organisation of National and International Business

This research aims to provide guidance to companies seeking to initiate a process of internationalization , discusses possible strategies and methodologies that can be followed to succeed in this process. It is based on a case study focused on Inditex group, although it is a descriptive research , tries to give a clear focus to consider , on proven theories supported in addition to the strategic and operational structure of our case study. Our main results conclude in determining a variant strategy for each company, but can come from the sane schema international diversification, which is crucial part of business development and its main strength should be good management skills. This paper is part of a review of the literature of international business and international management which attempts to highlight the strengths and weaknesses of the two traditions and build conceptual bridges between them. The complementary strengths of the two traditions should enable international business theory to develop greater relevance without losing its rigorous grounding. Today, business is acknowledged to be international and there is a general expectation that this will continue for the foreseeable future. International business may be defined simply as business transactions that take place across national borders. This broad definition includes the very small firm that exports a small quantity to only one country, as well as the very large global firm with integrated operations and strategic alliances around the world . Within this broad array, distinctions are often made among different types of international firms, and these distinctions are helpful in understanding a firm’s strategy , organization , and functional decisions. (for example , its financial, administrative, marketing, human resource, or operations decisions). One distinction that can be helpful is the distinction between multi -domestic operations, with independent subsidiaries which act essentially as domestic firms, and global operations, with integrated subsidiaries which are closely related and interconnected. These may be thought of as the two ends of a continuum , with many possibilities in between . Firms are unlikely to be at one end of the continuum, though, as they often combine aspects of multi-domestic operations with aspects of global operations. European corporations, enmeshed in a symbiotic relationship with national banks and the state, have traditionally disdained the aggressive, profit-maximizing behaviour of their U.S. counterparts. But the pressures of globalization and economic integration are now compelling European corporations to manage with an American accent. The continent’s engagement with the global economy will be mediated in large measure by the capacity of European companies to adapt their strategies and structures to the modern world.

Capitalism and Distributive Justice: Musings of a Mormon Economist

Capitalism and Distributive Justice: Musings of a Mormon Economist

Issue selection, media competition, and polarization of salience

In a political competition, political parties run their campaign communications to attract voters' attention to issues in which the parties have an advantage. Investigating how parties' issue selection strategy affects issue salience is crucial, considering the media outlets' behavior, as most voters receive political communication from parties through media reporting. In this study, I develop an issue selection model that incorporates the profit-maximization behavior of media outlets. First, I find that the issue coverage of media outlets diverges even when they do not have ideological preferences. Second, competition among media outlets and the strategic issue selection of parties lead to polarization in voters' issue salience weights. Finally, I show that this polarization increases the vote share of the party with lower-quality policy proposals. The results could be essential to understanding the relationship between issue salience, media, and their effect on electoral competition.

A Reformulated Version of Marx’s Theory of Ground Rent Shows That There Cannot Be Any Absolute Rent

This article develops a simple theoretical model to analyze Marx’s theory of ground rent. Using the model, I demonstrate two important results. First, if we take capital outlay as exogenously given, then total ground rent can be decomposed into the three components: differential rent of the first variety (DRI), differential rent of the second variety (DRII), and absolute rent (AR). Second, if we let the amount of capital outlay on each plot of land be determined by the profit-maximizing behavior of capitalist farmers, then absolute rent becomes zero. Neither the low organic composition of capital nor the monopoly power of the class of landlords can generate any absolute rent. I conclude that under reasonable behavioral assumptions about landlords and capitalist farmers, there will be no absolute rent in a capitalist economy. JEL Classification: B51

Moving ideas? The news media’s impact on ridehailing regulation in Canadian cities

ABSTRACT Over the last 5 years, regulating ridehailing has risen to the top of the agenda in nearly every major city. There is an established academic literature that speaks to how traditional news media shapes and informs the regulatory agenda for municipalities. Building off this literature, we investigate the role that traditional news media played in shaping the debate about regulating ridehailing in Canadian cities. After searching and analyzing the news media coverage of six major events and four general themes in eight major news media publications in Toronto, Montreal, and Vancouver, we conclude that publications rarely took a consistent political/ideological viewpoint. We offer three non-mutually exclusive contributory factors to explain our results, however, the authors would like to emphasize that consolidation and profit-maximizing behavior in the news industry have led to the relinquishment of news media’s historical role in municipal agenda-setting.

Involuntary Unemployment Under Ongoing Nominal Wage Rate Decline in Overlapping Generations Model

Abstract We analyze involuntary unemployment based on consumers’ utility maximization and firms’ profit maximization behavior with ongoing nominal wage rate decline. We consider a three-periods overlapping generations (OLG) model with a childhood period as well as younger and older periods under monopolistic competition with increasing, decreasing or constant returns to scale technology. When there exists involuntary unemploymnet, the nominal wage rate may decline. We examine the existenbce of involuntary unemployment in that model with ongoing mominal wage rate decline (or deflation). Even if the nominal wage rate declines, we have a steady state with involuntary unemployment and constant output and employment. We need budget deficit or budget surplus to maintain the steady state depending on whether real balance effect is positive or negative. Also we examine the possibility to achieve full-employment by fiscal policy.

Fiscal Policy as a Solution to Involuntary Unemployment

We show the existence of involuntary unemployment based on consumers’ utility maximization and firms’ profit maximization behavior under monopolistic competition with increasing, decreasing or constant returns to scale technology using a three-periods overlapping generations (OLG) model with a childhood period as well as younger and older periods, and pay-as-you-go pension for the older generation, and we analyze the effects of fiscal policy financed by tax and budget deficit (or seigniorage) to achieve full-employment under a situation with involuntary unemployment. Under constant prices we show the following results. 1) If the realization of full employment will increase consumers’ disposable income, in order to achieve full-employment from a state with involuntary unemployment, we need budget deficit (Proposition 1). 2) If the full-employment state has been achieved, we need balanced budget to maintain full-employment (Proposition 2). We also consider fiscal policy under inflation or deflation. Additionally, we present a game-theoretic interpretation of involuntary unemployment and full-employment. We also argue that if full employment should be achieved in equilibrium, the instability of equilibrium can be considered to be the cause of involuntary unemployment.

Asymmetric Exchange Rate Pass-Through in Southeast Asian Rice Trade

AbstractAsian countries consume approximately 90% of the world’s rice supply. Between 2007 and 2014, Thailand, Vietnam, and India accounted for 60% of the world’s exports of rice. A nonlinear autoregressive distributed lag (NARDL) econometric model is utilized to estimate the impact of exchange rate fluctuations on rice trade in Southeast Asia. Focusing on the largest importing countries and exporting country by volume, the analysis considers Malaysian, Indonesian, the Philippines, and Chinese rice imports from Thailand. Results show that importing countries’ state trading enterprises (STEs) generally do not follow profit-maximizing behavior in reacting to exchange rate volatility.

Weather Shocks and Planting Stage Investments: Evidence from Niger

The dependence of rainfed agriculture on weather shocks means that managing risk is an important preoccupation of smallholders in Niger. In the absence of objective probabilities that can be attached to rainfall conditions, farmers formulate their own beliefs about uncertain outcomes. The role that these beliefs play in household decision making, and thus the potential gains associated with more skilled forecasts, is not yet well understood. In the current paper, we aim to fill this gap in the literature. In what follows we lay out an inter-temporal model of farm household decision making and apply this to recent survey data of rural households in Niger to shed light on whether and to what extent household behavior regarding investments in risky inputs is affected by expected rainfall conditions. We find that a farmer’s belief that rainfall conditions are favorable is associated with more spending on risky inputs and that returns to input use are higher when we control for the bias induced by omitting household decision-making on input use from the production process. Our results suggest that there is potential for weather information to induce profit-maximizing behavior of risk-averse farmers.

Balancing Large-Scale Wildlife Protection and Forest Management Goals with a Game-Theoretic Approach

When adopted, wildlife protection policies in Canadian forests typically cover large areas and affect multiple economic agents working in these landscapes. Such measures are likely to increase the costs of timber for forestry companies operating in the area, which may hinder their acceptance of the policies unless harvesting remains profitable. We propose a bi-level wildlife protection problem that accounts for the profit-maximizing behavior of forestry companies operating in an area subject to protection. We consider the regulator with a wildlife protection mandate and forestry companies licensed to harvest public forest lands. We depict the relationship between the regulator and forestry companies as a leader-follower Stackelberg game. The leader sets the protected area target for each license area and the followers adjust their strategies to maximize payoffs while meeting the protection target set by the leader. The leader’s objective is to maximize the area-wide protection of spatially contiguous habitat while accounting for the followers’ profit-maximizing behavior. We apply the approach to investigate habitat protection policies for woodland caribou in the Churchill range, Ontario, Canada. We compare the game-theoretic solutions with solutions that do not consider the forest companies’ objectives and also with solutions equalizing the revenue losses among the companies.

Involuntary Unemployment Under Ongoing Nominal Wage Rate Decline in Overlapping Generations Model

We analyze involuntary unemployment based on consumers’ utility maximization and firms’ profit maximization behavior with ongoing nominal wage rate decline. We consider a three-periods overlapping generations (OLG) model with a childhood period as well as younger and older periods under monopolistic competition with increasing, decreasing or constant returns to scale technology. We examine the existenbce of involuntary unemployment in that model with ongoing mominal wage rate decline (or deflation). Even if the nominal wage rate declines, we have a steady state with involuntary unemployment and constant output and employment. We need budget deficit or budget surplus to maintain the steady state depending on whether real balance effect is positive or negative. Also we examine the possibility to achieve full-employment by fiscal policy

Governing cooperatives in the context of individual motives

PurposeThis study aims to examine the relationships between the rules that a cooperative membership decides upon and members' motives for action. It considers individual self-interest in relation with motives that are consistent with the values of cooperation.Design/methodology/approachThis paper comprises two parts. The first is theoretical and discusses cooperative governance's features in the context of individual motives. The second part is empirical and based on survey data from Italian multistakeholder, worker-run social cooperatives. It uses cross-sectional data gathered from 4,134 workers and 310 managers in 310 cooperatives in Italy to provide evidence of rules and individual motives. Regression analysis confirms the existence of a linkage between individual self-interest and motives.FindingsRules mainly, but not exclusively, play an enabling function, which implies responding to both nonmonetary and monetary individual motives. With greater articulation within institutions – through the definition of multiple rights for accessing decision-making – the authors expect increases in individual capabilities to match motives with specific organizational rules in pursuit of consistent ends. This is confirmed by the association that the authors found between individual motives and commitment.Research limitations/implicationsThe authors’ illustration is limited to one specific type of cooperative, the social cooperative, in which prosocial motives are expected to be stronger than in other cooperative forms, although one could say that all cooperative models emphasize procommunity and prosocial aims. Data are cross-sectional and do not allow for the identification of causality, only of statistical relations' strength.Practical implicationsThe continuous scrutiny and adaptation of motives and means imply that cooperators communicate and engage in a learning process.Originality/valueWhile the institutional spheres that support investor-owned organizations and self-interested profit-maximizing behavior have been analyzed, a framework that accommodates personal control rights and a richer view of individual motives is lacking. The value added from the paper is to suggest one.

Joint Auction-Coalition Formation Framework for Communication-Efficient Federated Learning in UAV-Enabled Internet of Vehicles

Due to the advanced capabilities of the Internet of Vehicles (IoV) components such as vehicles, Roadside Units (RSUs) and smart devices as well as the increasing amount of data generated, Federated Learning (FL) becomes a promising tool given that it enables privacy-preserving machine learning that can be implemented in the IoV. However, the performance of the FL suffers from the failure of communication links and missing nodes, especially when continuous exchanges of model parameters are required. Therefore, we propose the use of Unmanned Aerial Vehicles (UAVs) as wireless relays to facilitate the communications between the IoV components and the FL server and thus improving the accuracy of the FL. However, a single UAV may not have sufficient resources to provide services for all iterations of the FL process. In this paper, we present a joint auction-coalition formation framework to solve the allocation of UAV coalitions to groups of IoV components. Specifically, the coalition formation game is formulated to maximize the sum of individual profits of the UAVs. The joint auction-coalition formation algorithm is proposed to achieve a stable partition of UAV coalitions in which an auction scheme is applied to solve the allocation of UAV coalitions. The auction scheme is designed to take into account the preferences of IoV components over heterogeneous UAVs. The simulation results show that the grand coalition, where all UAVs join a single coalition, is not always stable due to the profit-maximizing behavior of the UAVs. In addition, we show that as the cooperation cost of the UAVs increases, the UAVs prefer to support the IoV components independently and not to form any coalition.

A stochastic prediction of minibus taxi driver behaviour in South Africa

For many emerging and developing countries, urbanization and demographic changes require a remodelling of transportation systems and networks. Paratransit, with its demand responsive characteristics of being fully flexible, often represents the backbone of the transport sector while being an informal and, therefore, fairly unorganised system with little knowledge about working routines of its workers. As an example, this paper analyses the minibus taxi industry in South Africa based on data from Rustenburg, a mid-sized city, to gain valuable insights into the working behaviour of minibus taxi drivers by taking an evidence-based and data-based approach. Therefore, the principle of reference-dependent preferences is applied to the data to investigate the labour supply choice of taxi drivers, since sheer profit maximization has proven inadequate for the analysis here. Results indicate, that working hours for South African minibus taxi drivers are likely to be in the 10–12 h bracket with a revenue-dependent additional hour accounting for the revenue performance of that day. As a main finding however, South African minibus taxi drivers cannot clearly be attributed to either reference dependence or profit-maximization behaviour.

Product availability in discrete choice experiments with private goods

The proneness of stated preference methods to different biases has increased the popularity of incentivized choice experiments (ICE). ICEs, however, are not free from challenges. One such challenge when using ICEs in market valuation is that some product alternatives may not be available to incentivize experiments. In this context, withholding information about product availability could be considered deception while disclosing information raises questions regarding influences on participants’ choice behavior. The present study explores this issue by changing the number of available product alternatives in an induced value choice experiment. Participant engagement is captured using an eye-tracking and measurement scales. The results suggest, while incentives matter, engagement matters more. A random-effects logit estimation reveals that engagement is positively correlated with profit-maximizing behavior, while the number of available alternatives is not. A similar result of engagement holds after accounting for differences in payouts between alternatives. In contrast, the same thing cannot be said for number of available alternatives. When the difference between potential payouts is small, no number of available alternatives has a significant effect on profit-maximizing behavior. When the difference between payouts is larger, any number of available alternatives increases the likelihood of choosing the profit-maximizing choice. The findings suggest that researchers could successfully conduct ICE with trustworthy results without having all the product alternatives being available as long as participants are engaged in the choice task.

A superlative indicator for the Luenberger-Hicks-Moorsteen productivity indicator: Theory and application

Consisting of the difference between an output indicator and an input indicator, the Luenberger-Hicks-Moorsteen (LHM) productivity indicator allows straightforward interpretation. However, its computation requires estimating distance functions that are inherently unknown. This paper shows that a computationally simple Bennet indicator is a superlative indicator for the LHM indicator when one can assume profit-maximizing behavior and the input and output directional distance functions can be represented up to the second order by a quadratic functional form. We also show that the Luenberger- and LHM-approximating Bennet indicators coincide for an appropriate choice of directional vectors. Focusing on a large sample of Italian food and beverages companies for the years 1995−2007, we empirically investigate the extent to which this theoretical equivalence translates into similar estimates. We find that the Bennet indicator is a close empirical alternative to the LHM indicator for the sample.

Involuntary Unemployment and Fiscal Policy for Full-Employment

In this paper we show the existence of involuntary unemployment based on consumers’ utility maximization and firms’ profit maximization behavior under perfect competition with decreasing or constant returns to scale technology using a three-period overlapping generations (OLG) model with a childhood period as well as younger and older periods, and analyze the effects of fiscal policy financed by tax and budget deficit (or seigniorage) to realize full-employment under a situation with involuntary unemployment. We show the following results. 1) In order to maintain the steady state where employment increases at some positive rate, we need a budget deficit (Proposition 1). 2) If the full-employment state is realized, we do not need budget deficit to maintain full-employment (Proposition 2).