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Yingju Chen - One of the best experts on this subject based on the ideXlab platform.

  • impact of reseller s and Sales Agent s forecasting accuracy in a multilayer supply chain
    Naval Research Logistics, 2014
    Co-Authors: Lingchieh Kung, Yingju Chen
    Abstract:

    We consider a three-layer supply chain with a manufacturer, a reseller, and a Sales Agent. The demand is stochastically determined by the random market condition and the Sales Agent's private effort level. Although the manufacturer is uninformed about the market condition, the reseller and the Sales Agent conduct demand forecasting and generate private demand signals. Under this framework with two levels of adverse selection intertwined with moral hazard, we study the impact of the reseller's and the Sales Agent's forecasting accuracy on the profitability of each member. We show that the manufacturer's profitability is convex on the reseller's forecasting accuracy. From the manufacturer's perspective, typically improving the reseller's accuracy is detrimental when the accuracy is low but is beneficial when it is high. We identify the concrete interrelation among the manufacturer-optimal reseller's accuracy, the volatility of the market condition, and the Sales Agent's accuracy. Finally, the manufacturer's interest may be aligned with the reseller's when only the reseller can choose her accuracy; this alignment is never possible when both downstream players have the discretion to choose their accuracy. © 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 207–222, 2014

  • impact of reseller s and Sales Agent s forecasting accuracy in a multi layer supply chain
    Social Science Research Network, 2014
    Co-Authors: Lingchieh Kung, Yingju Chen
    Abstract:

    We consider a three-layer supply chain with a manufacturer, a reseller, and a Sales Agent. The demand is stochastically determined by the random market condition and the Sales Agent’s private effort level. While the manufacturer is uninformed about the market condition, the reseller and the Sales Agent conduct demand forecasting and generate private demand signals. Under this framework with two levels of adverse selection intertwined with moral hazard, we study the impact of the reseller’s and the Sales Agent’s forecasting accuracy on the profitability of each member.We show that the manufacturer’s profitability is convex on the reseller’s forecasting accuracy. From the manufacturer’s perspective, typically improving the reseller’s accuracy is detrimental when the accuracy is low but is beneficial when it is high. We identify the concrete interrelation among the manufacturer-optimal reseller’s accuracy, the volatility of the market condition, and the Sales Agent’s accuracy. Finally, the manufacturer’s interest may be aligned with the reseller’s when only the reseller can choose her accuracy; this alignment is never possible when both downstream players have the discretion to choose their accuracy.

Guoming Lai - One of the best experts on this subject based on the ideXlab platform.

  • Salesforce contracting under demand censorship
    Manufacturing & Service Operations Management, 2013
    Co-Authors: Leon Yang Chu, Guoming Lai
    Abstract:

    We study Salesforce contracting in an environment where excess demand results in lost Sales and the demand information is censored by the inventory level. In our model, a firm contracts with a risk-neutral Sales Agent with limited liability whose effort increases the demand stochastically. The firm designs the incentive contract and invests in inventory; the Agent decides the Sales effort. We find that the Sales-quota-based bonus contract is optimal in such an environment, and the quota should be set equal to the inventory level when the first-best solution is not attainable. We further reveal that demand censorship can introduce peculiar effects on the optimal Sales effort and service level that the firm implements. From our analysis of the additive and multiplicative effort cases, we find that in the additive effort case, it can be optimal, under demand censorship, for the firm to induce an effort and maintain a service level both greater than those under the first-best solution. Scenarios also exist where the firm should induce zero effort. For the multiplicative effort case, the optimal Sales effort under demand censorship is lower than the first-best effort, whereas the optimal service level is higher than the first-best service level. The Agent earns zero rent in the additive effort case but may earn a positive rent in the multiplicative effort case. Finally, our numerical analysis shows that demand censorship can have a significant negative impact on the value of contracting with the Sales Agent, especially when the Sales margin is low and the market uncertainty is high.

  • Salesforce contracting under demand censorship
    Social Science Research Network, 2011
    Co-Authors: Leon Yang Chu, Guoming Lai
    Abstract:

    We study Salesforce contracting in an environment where excess demand results in lost Sales and the demand information is censored by the inventory level. The firm in our model contracts a Sales Agent whose effort increases the demand stochastically. The Sales Agent that has limited wealth is protected to receive only nonnegative payment. The firm designs the incentive contract and invests in inventory, and the Agent decides his selling effort after receiving the contract and observing the inventory level. We show that, without censoring of demand information, the first-best solution can always be achieved in our model; it is however untrue under demand censorship. We then prove based on the classic regularity condition that the threshold contract serves as the optimal contract format under demand censorship. We further analyze the contracting and inventory decisions for the additive and multiplicative effort cases. Our analysis reveals that, in the additive effort case, it could be optimal, under demand censorship, for the firm to induce an effort and maintain a service level both greater than the first-best solution; scenarios also exist where the firm shall induce zero effort. For the multiplicative effort case, the optimal selling effort under demand censorship is lower than the first-best effort while the optimal service level is higher than the first-best service level. The Agent always earns zero rent in the additive effort case but may earn a positive rent in the multiplicative effort case. Our numerical study shows that the impact of demand censorship on the firm’s performance is the most significant when the Sales margin is low and the market uncertainty is high.

Fei Song - One of the best experts on this subject based on the ideXlab platform.

  • the Sales Agent problem effort leisure allocation under performance pay as behavior towards risk
    Economic Inquiry, 2019
    Co-Authors: Bram C Cadsby, Fei Song, Nick Zubanov
    Abstract:

    The choice between safe and risky assets represents behavior towards risk: more risk‐averse investors buy more safe assets. We develop and test a general model that applies this intuition to the time allocation between risky effort and risk‐free leisure under linear incentives. When risk increases with effort, risk‐averse Agents choose less effort, but when risk is independent of effort, effort choice is unaffected by risk preferences. In many incentive contracts, income risk is multiplicative with, rather than additive to effort, Sales commissions being one example. In such cases, lower effort by the risk‐averse is a hitherto undocumented behavior towards risk (JEL C91, M52, J33)

  • the Sales Agent problem effort choice under performance pay as behavior toward risk
    Social Science Research Network, 2017
    Co-Authors: Nick Zubanov, Charles Bram Cadsby, Fei Song
    Abstract:

    We present a model and an experiment that show, in a very general setting, that effort choice under a given linear pay-for-performance contract depends on how the financial risk associated with the scheme interacts with effort. We find that, under a given contract, if risk increases with effort, risk-averse (loving) individuals exert less (more) effort. In contrast, when risk is independent of effort, risk preferences do not affect effort choice. Our findings complement the larger literature on selection into incentive pay by showing that lower effort exerted by the risk-averse under a given incentive contract is another type of behaviour toward risk.

  • the Sales Agent problem effort choice under performance pay as behavior toward risk
    Research Papers in Economics, 2017
    Co-Authors: Nick Zubanov, Charles Bram Cadsby, Fei Song
    Abstract:

    An investor's choice between safe and risky assets has long been seen as a behavior toward risk: more risk-averse investors buy more of the safe asset. Applying this intuition to incentive pay contracts, we develop a model and an experiment that show, in a very general setting, that the choice between work effort and leisure under given linear incentives depends on how the attendant financial risk interacts with effort. We find that if the risk multiplies with effort, risk-averse individuals work less, whereas under additive risk effort choice is little affected by risk preferences. Our findings complement the literature on worker selection into incentive pay contracts by showing that lower effort of the risk-averse is another type of behavior toward risk. Our study is relevant to practice as well, since many jobs, such as commission work, feature multiplicative rather additive risk.

Nick Zubanov - One of the best experts on this subject based on the ideXlab platform.

  • the Sales Agent problem effort leisure allocation under performance pay as behavior towards risk
    Economic Inquiry, 2019
    Co-Authors: Bram C Cadsby, Fei Song, Nick Zubanov
    Abstract:

    The choice between safe and risky assets represents behavior towards risk: more risk‐averse investors buy more safe assets. We develop and test a general model that applies this intuition to the time allocation between risky effort and risk‐free leisure under linear incentives. When risk increases with effort, risk‐averse Agents choose less effort, but when risk is independent of effort, effort choice is unaffected by risk preferences. In many incentive contracts, income risk is multiplicative with, rather than additive to effort, Sales commissions being one example. In such cases, lower effort by the risk‐averse is a hitherto undocumented behavior towards risk (JEL C91, M52, J33)

  • the Sales Agent problem effort choice under performance pay as behavior toward risk
    Social Science Research Network, 2017
    Co-Authors: Nick Zubanov, Charles Bram Cadsby, Fei Song
    Abstract:

    We present a model and an experiment that show, in a very general setting, that effort choice under a given linear pay-for-performance contract depends on how the financial risk associated with the scheme interacts with effort. We find that, under a given contract, if risk increases with effort, risk-averse (loving) individuals exert less (more) effort. In contrast, when risk is independent of effort, risk preferences do not affect effort choice. Our findings complement the larger literature on selection into incentive pay by showing that lower effort exerted by the risk-averse under a given incentive contract is another type of behaviour toward risk.

  • the Sales Agent problem effort choice under performance pay as behavior toward risk
    Research Papers in Economics, 2017
    Co-Authors: Nick Zubanov, Charles Bram Cadsby, Fei Song
    Abstract:

    An investor's choice between safe and risky assets has long been seen as a behavior toward risk: more risk-averse investors buy more of the safe asset. Applying this intuition to incentive pay contracts, we develop a model and an experiment that show, in a very general setting, that the choice between work effort and leisure under given linear incentives depends on how the attendant financial risk interacts with effort. We find that if the risk multiplies with effort, risk-averse individuals work less, whereas under additive risk effort choice is little affected by risk preferences. Our findings complement the literature on worker selection into incentive pay contracts by showing that lower effort of the risk-averse is another type of behavior toward risk. Our study is relevant to practice as well, since many jobs, such as commission work, feature multiplicative rather additive risk.

Richard Sweeney - One of the best experts on this subject based on the ideXlab platform.

  • the role of Sales Agents in information disclosure evidence from a field experiment
    Management Science, 2017
    Co-Authors: Hunt Allcott, Richard Sweeney
    Abstract:

    With a large nationwide retailer, we run a natural field experiment to measure the effects of energy use information disclosure, customer rebates, and Sales Agent incentives on demand for energy-efficient durable goods. Although a combination of large rebates plus Sales incentives substantially increases market share, information and Sales incentives alone each have zero statistical effect and explain at most a small fraction of the low baseline market share. Sales Agents strategically comply only partially with the experiment, targeting information to more interested consumers but not discussing energy efficiency with the disinterested majority. These results suggest that seller-provided information is not a major barrier to energy-efficiency investments at current prices in this context. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2015.2327. This paper was accepted by John List, behavioral economics.

  • the role of Sales Agents in information disclosure evidence from a field experiment
    National Bureau of Economic Research, 2014
    Co-Authors: Hunt Allcott, Richard Sweeney
    Abstract:

    With a large nationwide retailer, we run a natural field experiment to measure the effects of energy use information disclosure, customer rebates, and Sales Agent incentives on demand for energy efficient durable goods. While a combination of large rebates plus Sales incentives substantially increases market share, information and Sales incentives alone each have zero statistical effect and explain at most a small fraction of the low baseline market share. Sales Agents strategically comply only partially with the experiment, targeting information at more interested consumers but not discussing energy efficiency with the disinterested majority. These results suggest that at current prices in this context, seller-provided information is not a major barrier to energy efficiency investments. We theoretically and empirically explore the novel policy option of combining customer subsidies with government-provided Sales incentives.

  • the role of Sales Agents in information disclosure evidence from a field experiment
    2014
    Co-Authors: Hunt Allcott, Richard Sweeney
    Abstract:

    With a large nationwide retailer, we run a natural field experiment to measure the effects of energy use information disclosure, customer rebates, and Sales Agent incentives on demand for energy efficient durable goods. While a combination of large rebates plus Sales incentives substantially increases market share, information and Sales incentives alone each have zero statistical effect and explain at most a small fraction of the low baseline market share. Sales Agents strategically comply only partially with the experiment, targeting information at more interested consumers but not discussing energy efficiency with the disinterested majority. These results suggest that at current prices in this context, seller-provided information is not a major barrier to energy efficiency investments. We theoretically and empirically explore the novel policy option of combining customer subsidies with government-provided Sales incentives. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.