Role Of Economic Models Research Articles

Selling and Sales Management

Abstract About 10% of the US labor force is employed in selling related occupations and the expenditures on selling activities total close to 5% of the US GDP. Without question, selling occupies a prominent role in our economy. This chapter offers a discussion on the construct of selling, its role in economic models, and the various aspects of firm decisions that relate to it.

The Renewable Energies in the Digital Era

Energy is a strategic sector in France. The concept of energy transition has favored the development of renewable energies. In the traditional energy model, a few large groups, resulting into an oligopoly situation, control the market. Systems based on renewable energies, on the other hand, can be deployed in a decentralized way. The concept of Renewable Energy Ecosystem (REE) is then relevant in order to think about the transition. This emerging ecosystem relies heavily on innovation, including start-ups. However, the risks posed by innovation and technology are significant; they favor start-up failures and limit the investments of venture capitalists and business angels in the ecosystem. We propose the principles of a risk assessment approach related to innovation, which takes into consideration the characteristics of the ecosystem, the role of economic models, and finally, the role of digital in accelerating the energy transition.

Boundedly rational search with positive search costs

There is substantial evidence that humans make mistakes, and that this deviation from perfect rationality can have profound behavioral consequences. Since search theory plays a central role in economic models, it is imperative that the consequences of bounded rationality for search be studied. In this paper, worker bounded rationality is modeled as probabilistic choice, while employers are assumed to be perfectly rational. We find that worker welfare is non-monotonic in the precision of the workers. Offers are higher, and workers are better off with moderate levels of precision than with very low or with very high levels of precision.

The Theory of International Business: The Role of Economic Models

This paper reviews the scope for economic modelling in international business. It argues for a multi-level theory based on classical internalisation theory. The theory extends the ‘systems approach’ to the multinational enterprise in which modular activities, such as production, marketing and R&D, are linked by flows of semi-processed products and proprietary knowledge. It is shown how this theory can be extended from the firm level to the industry level in order to analyse inter-firm co-operation and rivalry. The theory can be extended to higher levels (e.g., the global economy) and lower levels (e.g., personal relationships within plants and offices).

Informing transparency in the Paris Agreement: the role of economic models

Establishing a credible and effective transparency regime to support the Paris Agreement – broader than its formal ‘transparency framework’ – will be both crucial and challenging. The Agreement provides for review of achievements under national pledges (Nationally Determined Contributions, or NDCs), but much of this information will become available only well after key steps in the launch of this latest attempt to control human influence on the climate. Still, in these early years, information and understanding of individual and collective performance, and of relative national burdens under the NDCs, will play an important role in the success or failure of the Agreement. However, because of the phasing of various steps in the 5-year cycles under the Agreement and the unavoidable delays of two or more years to produce and review government reports, the Climate Convention and other intergovernmental institutions are ill-suited to carry out timely analyses of progress. Consequently, in advance of formal procedures, academic and other non-governmental groups are going to provide analyses based on available data and their own methodologies. The article explores this transparency challenge – using the MIT Economic Projection and Policy Analysis (EPPA) model to construct sample analyses – and considers ways that efforts outside official channels can contribute to the success of the Agreement.Key policy insights:Because key national decisions are faced before full implementation of the transparency framework, being negotiated by the Ad-Hoc Working Group on the Paris Agreement (APA), urgent attention is needed to activities supporting the regime’s system of pledge and review.Outcomes of these APA negotiations, explored here, including features of reported NDCs and guidelines for tracking progress, will influence the effectiveness of the Agreement in encouraging greater mitigation effort.Whatever the outcome of the APA negotiations, studies by academic and other non-governmental analysis groups will in the near term have a particularly great influence on the transparency objectives of the Agreement.Challenges to the provision by these groups of clear, coherent, credible analyses are explored, leading to recommendations for improved documentation of methods and standards of practice in analysis.

Merck: Pricing Gardasil

Allison Watkins, senior director of Merck's Vaccines Division, needed to decide on the pricing of Gardasil, Merck's newest vaccine and one of the company's most important product launches of the year. The outside consulting firm she had hired to recommend a price for Gardasil had suggested a price of $120 per dose (or $360 per person, as each person required three doses over six months to achieve adequate immunity). The Gardasil marketing team disagreed about this recommended price; some thought it was clearly too high, whereas others said it was too low. The latter group argued that Merck would be missing a major opportunity by setting the price at such a low level. Watkins now needed to decide whether to follow the consulting firm's recommendation or to set a different price.The case highlights the complexity and issues around pricing in the pharmaceutical industry. To decide on the price of Merck's new vaccine, students will work through product economics and be introduced to the role of economic modeling in determining appropriate prices in the biomedical industry. The case is unique because it gives students an opportunity to calculate a cost per quality adjusted life year (cost per QALY), and in the process discover the power and limitations of such an analysis.

The Recent Critique of Theoretical Economics: A Methodologically Informed Investigation

My purpose is to appraise the recent critique of theoretical economics by applying the methodological perspective. Therefore, I start by identifying the main lines of criticism raised against theoretical economics in the aftermath of the post-2008 global economic crisis: namely, the voices criticizing economics for its unrealistic models, excessive mathematization, and overconfidence in its theoretical claims. First, I show that these issues are interconnected and should be jointly analyzed. Next, I investigate these lines of critique from the perspective provided by the latest achievements in the philosophy of economics (e.g., studies on the epistemic role of economic models). Taking this perspective reinforces some allegations against economics (e.g., these voices accusing economists of treating economic laws as universal laws of nature) and makes some criticisms more nuanced (e.g., the issue of unrealistic assumptions). I conclude by stating that such a methodological perspective is necessary in critically apprising the recent critique of economics.

Mitigation Targets, Burden Sharing and the Role of Economic Modeling in Climate Policy

Within Australian climate policy, the dominant framework for determining national emission reduction targets has been ‘burden sharing’. The prevailing view, both within and outside government, has been that there should be a rough equivalence in the costs that countries bear in mitigating greenhouse gas emissions, at least where countries share similar wealth and capacity traits. This article looks at the practical problems with this approach that stem from its reliance on economic modeling. It is contended that any principled approach to target setting should strive for objectivity but that burden sharing based on projected welfare losses cannot provide this. To illustrate the fallibility of the economic projections that are done for these purposes, the article reviews how one of the greenhouse reporting sectors, known as land use, land-use change and forestry, has been dealt with in the modelling exercises that have been done in Australia for climate policy purposes.

In This Issue

In This Issue

Economic Modeling Triggers More Efficient Planning: An Experimental Justification

Consider a firm as an organization that needs to efficiently coordinate several specialized departments in an uncertain environment. Decision making involves collective planning sessions and decentralized operational processes. In this setting this paper explores the role of economic modeling through an experimental game. Results support the idea that economic modeling favors higher performance. Economic modeling facilitates the emergence of common knowledge and the decomposition of a group decision problem into individual decision problems that are meaningfully interrelated.

Economic evaluation of neuro-prostheses: A review of outcome assessment and valuation techniques

The scientific progress in neuro-prostheses during the last ten years has led to a number of clinical applications that are being introduced in the health care system. Whereas the research so far has been carried out in the biomedical research environment it now enters the clinical area. This clinical research leads to new challenges concerned with clinical effectiveness, decisions on prescription to patients and economic value. In relation to the latter it is important to realize that health care budgets are under pressure world wide. For instance, in the Netherlands and the USA health care expenses are estimated to be US$27,8 billion (2000) and US$1149 billion (1998) respectively. It is expected that health care growth in the Netherlands will be about 6% of which approximately 75% will be caused by technological advances. From this point of view it is not surprising that, in addition to clinical evaluation, cost-effectiveness research increasingly receives attention. This paper gives an overview of the principles and methodology of economic evaluation, the role of economic modeling and the challenge of assessing outcomes in economic appraisals. It is concluded that it is worthwhile to include economic evaluations in earlier stages of technology introduction. From a methodological point of view it is concluded that outcome measurement is especially important, since one has to show the relative gain of the neuro-prosthesis while a reduction in costs is not very likely. Outcome assessment and valuation can typically be performed using approaches like multi-attribute utility instruments, direct utility assessment (standard gamble), contingent valuation or choice modeling experiments. Each of the methods will be discussed. Finally, some conclusions will be drawn regarding economic evaluations in general and directions for the future.

Remarks on the role of economic modeling.

Despite the growing scholarly acceptance of quantitative evaluation methods, modelers still struggle to define an appropriate role for their work at the decision-making level. To make observations about the policy relevance of mathematical and economic policy modeling in HIV and sexually transmitted disease prevention and treatment. The debate is framed within the context of the inevitability of decision making. Viewed in this light, models can inform choices between competing alternatives by leveraging existing information, integrating data from multiple sources, addressing "what if" questions, evaluating future scenarios, and providing a uniform metric for evaluation. The goal of model-based evaluation should not be to supplant the decision maker, but rather to redefine the terms of the debate using quantitative methods that make the beliefs and values that lie at the heart of all difficult choices explicit.

Role of economic models in randomized clinical trials

Cost-effectiveness analysis (CEA) has a relatively short history in health and medical care, reflecting the fact that costs have only recently been considered an important factor in medical decisions. Not long ago, the only relevant question was whether a particular therapy worked (that is, whether it was effective); now, once a therapy has been shown to be effective, the next question is whether it provides sufficient value to be worthwhile (that is, whether it is cost-effective). It is this second question that CEA attempts to address, quantitatively and objectively, by measuring all the relevant financial costs and all the relevant health effects of a therapy, then weighing these results explicitly in a cost-effectiveness ratio. The pioneering studies that introduced CEA into the medical field applied mathematical models to data about the costs and outcomes of various therapies, data drawn from the literature; the models and data were combined to calculate the cost-effectiveness of the therapies.1-4 These early studies were limited by several factors.The synthesis of information from a wide array of data sources necessarily injected a degree of investigator judgment into the assessment of cost-effectiveness. Then, too, data on costs and data on outcomes were usually drawn from different sources, thus raising questions about the comparability and consistency of that data. Also, the reporting of data in the literature was often sketchy and incomplete, especially when compared with the very specific requirements of the economic model being applied; the investigator was therefore forced to exercise his or her judgment to fill in the gaps left by the literature.The models used to calculate costeffectiveness were often complicated and therefore difficult to describe completely in a journal article, which raised concerns that investigator bias might have crept into the evaluation process before the results were published. Cost-effectiveness models were thus regarded as less objective and less reliable than other sources of information.5 In the meantime, randomized clinical trials began to measure the costs of therapies in addition to determining standard clinical outcomes.6-8 Investigators could now evaluate both cost and effectiveness outcomes in the same population of patients, with the protection provided by randomization that treatment allocation bias had been controlled.As a result of the meticulous planning needed for randomized trials, all data relevant to the CEA could be collected prospectively and in sufficient detail to provide the basis for a complete analysis. The strengths of randomization, prospective data collection, and objective measurement of outcomes represented a major advance in CEA.These factors also seemed to provide an answer to critics concerned about the issue of investigator subjectivity that was associated with the use of economic models.With the advent of real data, it was surmised, perhaps the need for models in CEA would no longer exist. Including cost measurement in randomized trials has indeed brought about a major advance in the field of CEA in medicine.The data that have resulted, however, have limitations that suggest that mathematical models will continue to be important in medical cost-effectiveness studies. Some of these limitations relate specifically to the techniques of cost-effectiveness studies.They involve such methodological issues as the projecting of study results beyond the end of observed follow-up, the placing of confidence intervals on cost-effectiveness ratios, and the manner by which cost-effectiveness studies may fail to account sufficiently for the effects on the cost-effectiveness ratio of variations in practice patterns and patient responses to therapy. Other potential limitations of cost-effectiveness studies in randomized trials relate to both clinical and economic outcomes.They involve questions about the generalizability of trial results to broader patient populations, about the distinction between the efficacy of a therapy in ideal settings and its effectiveness when applied in routine clinical practice, and about accounting for the variable of the “moving target”of changing medical technology. Each of these limitations can be addressed by the use of costeffectiveness models based on the observations from randomized trials.The remainder of this article will discuss each of these issues in turn, then return to the larger question about the future of models for CEA.

Is family planning an economic decision?

In most Western countries couples can decide for themselves how many children they want to have and when they want to have them. This means that family size is a choice variable. In this paper we argue that this choice variable plays an important role in economic models. A couple may rationally determine the optimal number of children it wishes to have, but this choice can only be based on expectations. Since children are usually born one by one, the optimal number may be adjusted during the process of total family formation, as a result of the experiences that the parents have with their first children. The timing of the births can result from a rational decision process. However, deviations from this optimal pattern may be caused by a high subjective time preference.

Is Child Schooling A Poor Proxy for Child Quality?

Child quality plays a critical role in economic models of fertility and child investment. But child quality is difficult to observe empirically. Therefore in empirical studies child quality is frequently represented by child schooling. However economic models of household investment in children suggest that child schooling may be a very poor or even inverse proxy for child quality. (EXCERPT)

Dissent from Value, Preference and Choice Theory in Economics

In this essay, I intend to consider the way in which some economists treat the values and preferences of decision‐makers, components which play an important role in economic models of choice and welfare and the dissent of some economists from the conventional treatment.

The Role of Economic Models in Evaluating Commercial Fishery Resources

Estimates of the value or changes in value of fish resources are necessary to address various issues related to the utilization, development, and management of these resources. Examples of issues for which such estimates are required are federal fishery research and development project planning, consideration of commercial/recreation or fish/petroleum conflicts, analysis of alternative management strategies for domestic fleets, and domestic/ foreign resource allocation decisions. The Fisheries Conservation and Management Act (FCMA) of 19761 set out the decision process for management of fish resources in the U.S. economic zone. The FCMA forms the legal basis for the establishment of quasigovernment Regional Fisheries Management Councils. Although the councils are required to develop management plans for all fish stocks within their jurisdiction, final authority for approving and implementing the plan rests with the Secretary of Commerce. This division of responsibility and authority along with the National Standards included in the FCMA almost assure that there will be conflicts and confusion with regard to consideration of national versus regional benefits. The Water Resources Council Principles and Standards (Water Resources Council) for evaluating waterand land-related resources will merely exacerbate these conflicts and confusion. In the absence of measures of utility, economists have used indirect approaches to estimate resource values. Two commonly used approaches are measures of consumer's willingness-to-pay and measures of market values of economic activity. The typical methods of measuring willingness-to-pay are through producer and consumer surpluses derived from estimated supply and market or compensated demand curves; and surveys where consumers are asked directly what they are willing to pay to gain or prevent an action. Typical measures of market values have been the value of output, value added, and employment. The willingness-to-pay approach has received a great deal of attention in the economic literature. Conceptual and empirical applications and problems have been extensively addressed and we do not intend to review these discussions here. Rather, because the market-value approach has received little attention as related to fishery questions, and because the market-value approach may be uniquely suited to address certain important issues, we concentrate on the market-value approach in this paper. We discuss inputoutput models and dynamic econometric models but do not address the associated data and estimating problems. We assume that goods and bads in the economy can be dentified and an appropriate measure of net benefits can be derived from value-added data.2 In fisheries questions we assume excess labor and capital and nonproductive transactions costs resulting from the lack of resource property rights can be identified (McConnell and Norton).