Dirk Simons

Common due date scheduling with autonomous and induced learning

Abstract Up to now the few existing models, that consider learning effects in scheduling, concentrate on learning-by-doing (autonomous learning). But recent contributions to the literature on learning in manufacturing organizations emphasize the important impact of proactive investments in technological knowledge on the learning rate (induced learning). In the present paper, we focus on a scheduling problem where the processing times decrease according to a learning rate, which can be influenced by an initial cost-inducing investment. Thus we have integrated into our model both aspects of learning––autonomous and induced––thereby highlighting the managements responsibility to invest in technological knowledge enhancement. We have been able to derive some structural properties of the problem and present a polynomially bound solution procedure which optimally solves the problem by using these properties. The optimal solution to the scheduling problem contains––of course–– information on the optimal level of proactive investments in learning.

The effect of capital lockup and customer trade credits on the optimal lot size—a confirmation of the EPQ

Abstract The classical economic production quantity (EPQ) formula, which is obtained by balancing set-up and carrying costs, is reconsidered in this paper. Since the cost of capital tied up in stocked items is the most important part of the carrying costs, a refined approach considering different components of the capital lockup, i.e. direct labour, material, and set-up costs, is presented. Furthermore, in addition to the intensively discussed supplier trade credit, the hitherto neglected customer trade credit is introduced into the analysis. A comparison of the resulting lot-size formula and the classical one indicates that the ongoing discussion about financial refinements of the EPQ might end up at its starting point given by Harris (Oper. Res. 38 (1990) 947–50), as the classical formula can be transformed into the new one by choosing the crucial carrying cost parameter adequately. Consequently, several alternative approximations for the carrying cost parameter in the EPQ are evaluated. Scope and purpose Typically, lot-size planning takes into consideration only data from the production sector. In doing this, the interdependencies between the production and the financial sector of a firm are neglected. Consequently, a recently emerging discussion intends to overcome the separation of these two firm sectors. We extend the approaches presented up to the present date by modelling capital lockup in a more detailed way considering both the supplier and the customer trade credit as well as the time structure of the capital lockup.

Impacts of revenue sharing, profit sharing and transfer pricing on quality-improving investments

We compare revenue sharing with different profit-sharing rules and constant transfer prices in a buyer-seller setting, in which the incompleteness of contracts causes decentralization costs. Our focus is on a situation where a manufacturing department or a supplier of an intermediate product can invest in a quality improvement of the final product and thereby increase customer demand. We analyze the willingness of the supplier to invest under a revenue-sharing rule, three profit-sharing rules and a transfer-pricing scheme. Our analysis shows that the performance of sharing rules is likely to decrease when the sharing basis consists of fewer cost components. Remarkably, this is not true for the revenue-sharing rule. To the contrary, this less prominent scheme can be shown to maximize total profit under a variety of cost combinations.

Coordinating Service-Sensitive Demand and Capacity by Adaptive Decision Making: An Application of Case-Based Decision Theory*

The subject of this article is the simultaneous choice of product price and manufacturing capacity if demand is stochastic and service-level sensitive. In this setting, capacity as well as price have an impact on demand because several aspects of service level depend on capacity. For example, delivery time will be reduced if capacity is increased given a constant demand rate. We illustrate the relationship between service level, capacity, and demand reaction by a stylized application problem from the after-sales services industry. The reaction of customers to variations in service level and price is represented by a kinked price-demand-rate function. We first derive the optimal price-capacity combination for the resulting decision problem under full information. Subsequently, we focus on a decision maker (DM) who lacks complete knowledge of the demand function. Hence the DM is unable to anticipate the service level and consequently cannot identify the optimal solution. However, the DM will acquire additional information during the sales process and use it in subsequent revisions of the price-capacity decision. Thus, this decision making is adaptive and based on experience. In contrast to the literature, which assumes certain repetitive procedures somewhat ad hoc, we develop an adaptive decision process based on case-based decision theory (CBDT) for the price-capacity problem. Finally, we show that a CBDT DM in our setting eventually finds the optimal solution, if the DM sets the price based on absorption costs and adequately adjusts the capacity with respect to the observed demand.

Costs, Benefits, and Tax-induced Distortions of Stock Option Plans

In recent years stock option plans (SOPs) have become an important component of managerial remuneration in most industrialized countries. Commonly accepted corporate as well as individual taxes have a major impact on the costs of an SOP. In contrast, the influence of taxes on the benefits of an SOP remains widely unperceived. This article deals with both cost and benefit aspects simultaneously by integrating taxation into a principal-agent model in which the agent is compensated in options. By deriving the optimal quantity of options to be granted and the optimal exercise price to be set, we can quantify the resulting profits for managers and shareholders. By comparing the results in a tax-free world to results that take into account different levels of taxation, we can identify several tax-induced incentive distortions.

Audit Market Segmentation – The Impact of Mid-tier Firms on Competition

This analysis’ goal is to characterize the impact of mid-tier auditors on competition and average supplied audit quality. The major result of our analysis is the following: Auditors’ flexibilities with respect to clients’ complexity determine the offered audit quality levels and thus the average supplied audit quality. Defining a model-endogenous quality measure, we show that for some instances the mid-tier auditor improves average audit quality, but for other instances fails to do so. The result could be of special interest for standard setters, e.g. the European Commission, which is currently revising EU audit regulation. Further, the analysis may serve as an instrument to analyze economic consequences of future changes of regulation.

The Value of Negotiating Cost-Based Transfer Prices

This paper analyzes the potential of one-step transfer prices based on either variable or full costs for coordinating decentralized production and quality-improving investment decisions. Transfer prices based on variable costs fail to induce investments on the upstream stage. In contrast, transfer prices based on full costs provide strong investment incentives for the upstream divisions. However, they fail to coordinate the investment decisions. We show that negotiations prevent such coordination failure. In particular, we find that the firm benefits from a higher degree of decentralization so that total profit increases in the number of parameters being subject to negotiations.

Game theoretic approaches to cost allocation in the dynamic total tardiness problem

We examine a dynamic Total Tardiness Problem (TTP) arising out of a decentralized job acquisition by several agents. Since the underlying static TTP is NP-hard, we first present a heuristic in order to solve the dynamic TTP without regard to the participation constraints of the agents. In the main part of the paper a cost allocation based on the results of the heuristic is developed by applying game theoretic concepts. Introducing the concept of a fair cost allocation according to Nash [1] in a special case, the results are subsequently transformed to suit the general situation. Two cost allocation schemes are discussed.

Management Incentives Under Formula Apportionment - Tax-Induced Distortions of Effort and Compensation in a Principal-Agent Setting

The introduction of a common consolidated corporate tax base (CCCTB) and tax allocation via formula apportionment (FA) is hotly debated in the European Union (EU) since more than a decade. While the literature has thoroughly analyzed the economic effects of FA from a macro-level perspective, the firm view has been added only recently. Within this micro-level framework discussing possible tax-induced distortions of multi-jurisdictional entities’ (MJE) decisions becomes feasible. Anticipating the reactions of MJEs to the introduction of FA requires considering delegation and incentivisation, because management decisions are influenced by principal agent relationships. How FA affects the demand for managerial effort is a hitherto neglected research question. Accordingly, the objective of this paper is to highlight the tax-induced distortions of managerial incentives caused by FA. For this purpose we set up a LEN-type principal-agent model with agents in two different jurisdictions. Compared to the case with separate taxation (ST) the principal demands increased effort and pays an increased compensation to managers in low-tax jurisdictions, if payroll enters the FA formula. Managers in high-tax jurisdictions face the opposite effect. Further, the composition of the compensation packages changes. Overall, net profit increases, because FA offers potential for profit shifting.

Erbschaftsteuerliche Verschonungsregeln Für das Betriebsvermögen — Ein Theoretischer Ansatz zur Steuerplanung

ZusammenfassungUm eine erbschaftsteuerbedingte B etriebsaufgabe zu verhindern und den Erhalt von Arbeitsplätzen zu fördern, haben das Erbschaftsteuerreformgesetz 2008 und das Wachstumsbeschleunigungsgesetz 2009 die Verschonungsregeln für die Vererbung von B etriebsvermögen grundsätzlich überarbeitet. Dem Steuerpflichtigen stehen die R egelbesteuerung (Steuerfreistellung von 85% des Betriebsvermögens; eventuelle Nachversteuerung nach fünf Jahren) sowie das Optionsmodell (vollständige F reistellung; eventuelle Nachversteuerung nach sieben Jahren) zur Wahl. Das Ziel des vorliegenden Beitrags besteht darin, Vorteilhaftigkeitsbedingungen für die R egelbesteuerung beziehungsweise das Optionsmodell zu identifizieren. Dazu wird zunächst ein liquiditätsorientierter, auf Erwartungswerten basierender Vergleich der beiden Alternativen vorgenommen. A nschließend wird die Unsicherheit der zukünftigen Lohnentwicklung explizit in die Analyse einbezogen. Die Modellergebnisse implizieren für viele Fallkonstellationen, dass sich Steuerpflichtige trotz der strengeren Anforderungen für das Optionsmodell entscheiden sollten, um eine niedrigere erwartete Steuerzahlung zu erreichen. Dies gilt selbst in F ällen, in denen die Entwicklung der Lohnsumme im Erwartungswert negativist.AbstractTo avoid closures and dismissals due to excessive inheritance tax payments, recent changes in German law provided for a fundamental reform of inheritance tax credits granted for business property. Specifically, a taxpayer may choose between regular taxation (85% of business property is tax exempt; subsequent taxation is possible after five years) and an alternative treatment which at first leads to a complete tax exemption (subsequent taxation is possible after seven years). The study identifies conditions under which either regular taxation or the alternative treatment are advantageous. Initially, expected tax payments under both methods are compared. Subsequently, uncertainty regarding future changes in corporate wages is considered. For many scenarios, the results suggest that despite stricter requirements taxpayers should choose the alternative treatment to reduce their expected tax payments. This finding is robust to differing assumptions regarding expected future wages.