Strategy

In this chapter, I'll lay out the principal facts and controversies surrounding international flows of capital and their attendant risks. I'll review the perspectives of economic historians and economists on the implications of capital mobility, both during the first wave of globalization (prior to World War I) and during the recent wave (since 1980). I'll emphasize changes over time - especially political changes - that have weakened the case for unfettered capital mobility and have made capital flows more controversial among economists today than in the past.

CASE SETTING: $250 million to $499 million in revenues; luxury goods; Netherlands, France At three o'clock in the morning of September 10, 2001, Thierry Hautillac, a risk arbitrageur, learns of the final agreement between Pinault-Printemps-Redoute SA (PPR) and LVMH Moet Hennessy Louis Vuitton SA (LVMH). After a contest for control of Gucci lasting more than two years, PPR has emerged as the winner.

We develop an equilibrium model to understand how the efficiency of capital allocation depends on outside investor protection and the external financing needs of firms. We show that when capital allocation is constrained by poor investor protection, an increase in firms' external financing needs may improve allocative efficiency by fostering the reallocation of capital from low to high productivity projects. We also find novel empirical support for this prediction.

Lynne Sagalyn's chapter from Contentious City reviews the emotionally charged planning for the redevelopment of the WTC site between September 2001 and the end of 2004. Though we do not yet know how these plans will be realized, we can nonetheless examine how the initial plans emerged—or were extracted—from competing ambitions, contentious turf battles, intense architectural fights, and seemingly unresolvable design conflicts.

In this paper, we investigate the equilibrium behavior of decentralized supply chains with competing retailers under demand uncertainty. We also design contractual arrangements between the parties that allow the decentralized chain to perform as well as a centralized one.

This article considers the problem of testing curvature (e.g., linearity, concavity, convexity) in a multivariate nonparametric regression model. A measure of curvature, called the simplex statistic, that does not require bandwidth choice and is easy to compute, is introduced. A global test of curvature based on the simplex statistic is also introduced. Localized versions of the test, which require smoothing parameters, are shown to be consistent against more general alternatives than the global test.

This paper conducts a probabilistic analysis of an important class of heuristics for multi-item capacitated lot sizing problems.

In this paper, we analyze the optimal policy for a risk averse agent who wants to sell a large block of shares of a risky security in the presence of price impact and transactions costs. Our framework reduces to the standard Merton portfolio problem in the absence of any market frictions. Optimal liquidation results in revenue distributions which are substantially different from those generated by a naive strategy. The main tradeoff involves choosing between revenue distributions which have high means versus those which have low variances.

We study a model of imperfect competition and limited production capacity, in which a choice of low product quality enables firms to increase total production. We find that in the presence of limited capacity, such reduced quality often results in increased social welfare. We also explore the relation between the extent of competition and the choice of quality. We find that, in some cases, reduced competition leads to increased production, decreased average quality, increases total welfare, and makes consumers better off.