Showing papers on "Capacity utilization published in 2002"

Capacity and capacity utilization in common-pool resource industries: definition, measurement, and a comparison of approaches

Abstract: Excess capacity poses one of the most pressingproblems that arise when industries exploitcommon-pool natural resources. It entailsover-investment in the capital stock andexcessive use of variable inputs, and placesadditional exploitation pressures on theresource stocks. Confusion persists over theappropriate definition and measurement ofcapacity and capacity utilization for theseindustries. But understanding capacity and itsmeasurement is necessary to properly design acapacity management program. This paperaddresses these issues by overviewing theconceptual and theoretical bases for capacityand capacity utilization measurement,identifying specific problems for common-poolresources, outlining alternative methodologiesfor their measurement, and illustrating the useof these definitions and measurement methods ina fisheries case study.

Capacity and Capacity Utilization in Common-pool Resource Industries

Abstract: Excess capacity poses one of the most pressingproblems that arise when industries exploitcommon-pool natural resources. It entailsover-investment in the capital stock andexcessive use of variable inputs, and placesadditional exploitation pressures on theresource stocks. Confusion persists over theappropriate definition and measurement ofcapacity and capacity utilization for theseindustries. But understanding capacity and itsmeasurement is necessary to properly design acapacity management program. This paperaddresses these issues by overviewing theconceptual and theoretical bases for capacityand capacity utilization measurement,identifying specific problems for common-poolresources, outlining alternative methodologiesfor their measurement, and illustrating the useof these definitions and measurement methods ina fisheries case study.

Pricing Access Services

Abstract: Many established industries, such as the online service industry, the telecommunication industry, or the fitness club industry, are access service industries. When using services in these industries, consumers pay for the privilege of accessing the firm's facilities but do not acquire any right to the facility itself. A firm's pricing decisions in access industries frequently come down to a simple choice among flat fee pricing, usage pricing, or two-part tariff pricing. However, it is not so simple for firms in those industries to make this choice. Access service firms typically face a mix of consumers who have intrinsically different usage rates. A key characteristic of access service firms, however, is that the cost of providing an additional minute of usage is typically negligible, as long as the firm has the necessary capacity to serve its customers. Service capacity, which corresponds to the total available time on a firm's system, is often limited. In this paper, we show that service capacity and consumer usage heterogeneity are two important factors that determine a firm's optimal choice. We develop a model that incorporates these two salient characteristics shared by access industries and study what determines a firm's choice among the three alternative pricing structures flat fee pricing, usage pricing, or two-part tariff pricing. Our analysis shows that, in the presence of consumer usage heterogeneity, service capacity mediates a firm's optimal choice in a complex, yet predictable way. A firm's choice also hinges on whether heavy or light users are more valuable in terms of their willingness-to-pay on a per-unit-capacity basis. The presence of both consumer usage heterogeneity and capacity constraints prompts a firm to choose its pricing structure to attract a desired customer mix and to price discriminate. As a result, two-part tariff pricing is not always optimal in access industries, and a firm's pricing structure can vary in a complex way with the interaction of those two factors. Specifically, we show that when light users are more valuable, a firm may use a two-part tariff or a flat fee, depending on whether the firm is constrained by its service capacity, but never charge a usage price alone or offer any signing bonus a negative flat fee or a flat payment to customers. When heavy users are more valuable, a firm may choose to set a usage price, a signing bonus plus a usage price, or flat fee. Interestingly, regardless of whether heavy or light users are more valuable in an access service industry, only flat rate pricing is a sustainable pricing structure once the industry has developed sufficient excess capacity. We also show that the optimal pricing strategy in access industries can have some intriguing, nonintuitive implications that have not been explored elsewhere. For instance, when the industry capacity is unevenly distributed between competing firms, the large-capacity firm may well be advised to increase, rather than to decrease, its price to accommodate the small firm. It would be too costly and too tactless for the large firm to do otherwise. In fact, the strategy of accommodation calls on the larger firm to retreat in both light and heavy user markets and leave more of its capacity idle and more of the market demand unmet when the small firm's capacity hence, the industry capacity increases. This implies that incremental policy measures that encourage the growth of smaller companies in the presence of a large company can be welfare-decreasing because the growth of smaller firm can force the retreat of a large company at the expense of market coverage. Today, services account for two-thirds to three-quarters of the GNP, not only in the United States but also in many industrial countries. Access industries are growing rapidly to exert profound impact on today's economy. However, service pricing in general and pricing access services in particular have not received adequate attention in the literature. In this paper, we take the first step in understanding how capacity constraints and consumer usage heterogeneity mediate the choice of pricing structures in both monopolistic and competitive contexts.

Effects of the American Fisheries Act on Capacity, Utilization and Technical Efficiency

Abstract: The American Fisheries Act (AFA) of 1998 significantly altered the Bering Sea and Aleutian Islands pollock fishery by allowing the formation of harvesting and processing cooperatives and defining exclusive fishing rights. This paper uses data envelopment analysis and stochastic production frontier models to examine effects of the AFA on the fishing capacity, technical harvesting efficiency (TE), and capacity utilization (CU) of pollock catcher-processors. Results from multi-input, multi-output models indicate that fishing capacity fell by more than 30% and that harvesting TE and CU measures increased relative to past years. This work provides examples of how existing data, which is currently devoid of operator costs and provides only general indicators of earnings, may be used to analyze changes in elements of fleet and vessel performance in response to management actions.

Entry Dynamics, Capacity Utilisation and Productivity in a Dynamic Open Economy

Abstract: This paper analyses an open economy Ramsey model with an endogenous labour supply without capital. The technology defines an optimal firm size. Changes to the number of firms is subject to adjustment costs, so that the entry dynamics is determined endogenously. We find that there is a short run transitory productivity dynamic introduced when there is imperfect competition due to changes in capacity utilization. We are able to analyze this in different contexts, including demand and technology shocks, both anticipated and unanticipated.

The Impact of Forecast Errors on Early Order Commitment in a Supply Chain

Abstract: Supply chain partnership involves mutual commitments among participating firms. One example is early order commitment, wherein a retailer commits to purchase a fixed-order quantity and delivery time from a supplier before the real need takes place. This paper explores the value of practicing early order commitment in the supply chain. We investigate the complex interactions between early order commitment and forecast errors by simulating a supply chain with one capacitated supplier and multiple retailers under demand uncertainty. We found that practicing early order commitment can generate significant savings in the supply chain, but the benefits are only valid within a range of order commitment periods. Different components of forecast errors have different cost implications to the supplier and the retailers. The presence of trend in the demand increases the total supply chain cost, but makes early order commitment more appealing. The more retailers sharing the same supplier, the more valuable for the supply chain to practice early order commitment. Except in cases where little capacity cushion is available, our findings are relatively consistent in the environments where cost structure, number of retailers, capacity utilization, and capacity policy are varied.

Economic reforms and industrial performance : an analysis of capacity utilisation in Indian manufacturing

Abstract: This paper examines the performance of Indian manufacturing sector in terms of economic capacity utilization (CU), over 1974-1998. An attempt is also made to understand the impact of policy changes, inter alia, on the observed movements of CU. The economic CU, defined as the realization of output at which the short run average total cost is minimized, is estimated using a translog cost function. We observe cyclical movements in CU over the period. Three distinct phases have been identified with regard to the movements in CU. While phase one (1974-1984) is characterized by relatively wide fluctuations, phase two (1985-1990) witnessed a roughly stable level of utilization. In the third phase (1991-1998), a variant of the fluctuations witnessed in the first phase is seen to have resurfaced. Interestingly, there has not been any significant correspondence between the observed phases of CU with the corresponding policy environment. While supply and demand side factors are significant in determining CU in Indian manufacturing, the impact of economic reforms per se is not remarkable.

The Current State of the Japanese Economy and Remedies

Abstract: Japan has reached the limits of conventional macroeconomic policies. Lowering interest rates will not stimulate the economy because widespread excess capacity has made private investment insensitive to interest rate changes. Increasing government expenditure in the usual way will have small effects because it will take the form of unproductive investment in the rural areas. Cutting taxes will not increase consumption because workers are concerned about job security and future pension and medical benefits. Expanding the monetary base will not induce banks to increase investment loans because the proportion of nonper-forming loans in their portfolios is growing because of the prolonged economic stagnation. In order for sustained economic recovery to occur in Japan, the government must change the makeup and regional allocation of public investments, resolve the problem of nonperforming loans in the banking system, improve the corporate governance and operations of the banks, and strengthen the international ...

International Trade and the Connection between Excess Demand and Inflation

Abstract: This paper demonstrates that globalization, taking the form of a higher import component of consumption and a larger export component of GDP, is the cause of the apparent breakdown in the relationship between excess demand and inflation. Within a parsimonious empirical framework, we show that increasing openness of the US economy is all that is needed to re-establish the relationship between inflation and capacity utilization. We also show that international trade has a significant separate influence on inflation, and is important for identifying a Phillips curve relationship between unemployment and inflation.

Towards a Theory of Capacity Utilization: Shiftwork and the Workweek of Capital

Abstract: Capacity utilization, that is, the intensity with which the economy's capital stock is used, is an important source of output variations over business cycles. A straightforward measure of capacity utilization is the workweek of capital, or how long capital is operated on average. The workweek of capital differs from the workweek of labor because of variations in the extent to which shiftwork is used in the economy. The standard neoclassical growth model, when extended to include a variable workweek of capital, suggests that recent attempts to improve measures of productivity change in the presence of unobserved input variations fail to provide precise measures of the volatility of productivity change.

"Spackling: Smoothing Make-to-order Production of Custom Products with Make-to-stock Production of Standard Items"

Abstract: Author(s): Cattani, Kyle; Dahan, Ely; Schmidt, Glen | Abstract: Motivated by issues at a manufacturer of customized- and standard messenger bags, we develop an iterative two-stage framework (involving marketing and operations models) to determine the conditions under which a firm benefits from production spackling. With spackling, the firm uses flexible capacity to produce custom products as demanded each period,and then fills in, or spackles, the production schedule with make-to-stock output of standard products to restock inventory. Spackling broadly addresses market preferences, while mitigating the effects of "bumpy" demand for custom products by smoothing production, thereby improving capacity utilization as compared to a focused approach, where standard items are made with efficient capacity and custom products with flexible capacity.The marketing model employs logit-based choice and, given product costs and customer preferences, identifies optimal pricing, expected demand, and demand variability. Interestingly, we find that, under certain assumptions, the firm should price all products to achieve a constant absolute dollar markup. The resultant demand parameters are fed into an operations model, which specifies optimal efficient and flexible capacities (and decides between spackling and focus), thereby determining product costs, which are fed back into the marketing model to solve iteratively. That is, we link operations decisions regarding capacity to marketing decisions regarding price, and vice-versa. We examine conditions under which convergence of the two models is achieved, and illustrate our framework with data from the messenger bag manufacturer.

Capacity optimization for surviving double-link failures in mesh-restorable optical networks

Abstract: Most research to date in survivable optical network design and operation, focused on the failure of a single component such as a link or a node. A double-link failure model in which any two links in the network may fail in an arbitrary order was proposed recently in literature [1]. Three loop-back methods of recovering from double-link failures were also presented. The basic idea behind these methods is to pre-compute two backup paths for each link on the primary paths and reserve resources on these paths. Compared to protection methods for single-link failure model, the protection methods for double-link failure model require much more spare capacity. Reserving dedicated resources on every backup path at the time of establishing primary path itself would consume excessive resources. Moreover, it may not be possible to allocate dedicated resources on each of two backup paths around each link, due to the wavelength continuous constraint. In M. Sridharan et al., [2,3] we captured the various operational phases in survivable WDM networks as a single integer programming based (ILP) optimization problem. In this work, we extend our optimization framework to include double-link failures. We use the double-link failure recovery methods available in literature, employ backup multiplexing schemes to optimize capacity utilization, and provide 100% protection guarantee for double-link failure recovery. We develop rules to identify scenarios when capacity sharing among interacting demand sets is possible. Our results indicate that for the double-link failure recovery methods, the shared-link protection scheme provides 10–15% savings in capacity utilization over the dedicated link protection scheme which reserves dedicated capacity on two backup paths for each link. We provide a way of adapting the heuristic based double-link failure recovery methods into a mathematical framework, and use techniques to improve wavelength utilization for optimal capacity usage.

Allocation of channel capacity in multiservice networks

Abstract: Methods are described which enable the operator of a network such as an Internet protocol (IP) network to allocate ingress and egress channel capacity for the use by different services or for use by different service providers. The methods can prevent a service provider or a service from overusing network capacity. The methods also enable the network operator to temporarily allocate unused capacity if demand for a service exceeds previously allocated capacity. Further a method is described whereby capacity on a Voice over Internet protocol (VoIP) network is sold to service providers with guarantees for the number of available channels, where the channel capacity guarantees could be global, or by any type of subdivision. In addition to having a committed channel capacity, the service provider could be allowed to exceed the committed capacity whenever excess capacity is available on the network.

Investment, capacity, and uncertainty: a putty-clay approach

Abstract: In this paper, we embed the microeconomic decisions associated with investment under uncertainty, capacity utilization, and machine replacement in a general equilibrium model based on putty-clay technology. We show that the combination of log-normally distributed idiosyncratic productivity uncertainty and Leontief utilization choice yields an aggregate production function that is easily characterized in terms of hazard rates for the standard normal distribution. At low levels of idiosyncratic uncertainty, the short-run elasticity of supply is substantially lower than the elasticity of supply obtained from a fully-flexible Cobb-Douglas alternative. In the presence of irreversible factor proportions, an increase in idiosyncratic uncertainty about the productivity of an investment project typically reduces investment at the micro level, but it raises aggregate investment. Increases in uncertainty also have important dynamic implications, causing sustained increases in investment and hours and a medium-term expansion in the growth rate of labor productivity.

Capacity Utilization, Income Distribution, and the Urban Informal Sector: An Open-Economy Model

Abstract: Developing economies worldwide have experienced rapid informal sector expansion in response to formal sector unemployment. However, the macroeconomic e ects of formal-informal sector dualism have been widely overlooked. This paper develops a two-sector, structuralist, macroeconomic model to analyze the impact of urban informal sector activity on export-led growth policy. The model uses stylized facts from the Johannesburg informal sector and is applicable to countries where informal sector production is concentrated in low-wage goods and commercial services. The paper finds that trade-o s between capacity utilization and reduced income inequality could be magnified when the existence of an urban informal sector is incorporated.

Towards a Theory of Capacity Utilization: Shiftwork and the Workweek of Capital

Abstract: Among the large number of economic indicators that provide information on the current or future state of the economy, the index of capacity utilization (CU) published by the Federal Reserve Board is one of the more prominent. Low levels of the CU index number tend to be associated with below-average aggregate activity, and high levels are supposed to indicate inflationary pressures (Corrado and Mattey 1997).1 For the most part, CU is an empirical concept that is only loosely related to economic theory, and until recently it has not played an important role in models of the business cycle. There are various interpretations of what CU means, but in this article I address one particular aspect of CU from the point of view of standard production theory. I first review some empirical evidence on the workweek of capital, a measure that makes the concept of CU operational. I then extend standard production theory to incorporate the workweek of capital into the neoclassical growth model. Finally, I argue that recent attempts to use variations in the workweek of labor in order to get CU-adjusted measures of short-term productivity growth are potentially misguided, since the workweek of labor is not an unbiased measure of the workweek of capital. The Board's CU index is defined as the ratio of actual output to potential output. Potential output reflects "sustainable practical capacity, defined as the greatest level of output each plant in a given industry can maintain within the framework of a realistic work schedule, taking account of normal downtime and assuming sufficient availability of inputs to operate machinery and equipment in place" (Corr[do and Mattey 1997, 152). The capacity measures are limited to the manufacturing industries, mining, and electric and gas utilities, and they are based on the Survey on Plant Capacity, which is produced by the U.S. Census Bureau in the fourth quarter of each year. Capacity measures for quarters are obtained by smooth interpolation of the fourth-quarter numbers. Given the smooth interpolation of capacity and the volatility of output, movements in the,CU index are mainly due to movements in actual output. The standard theory of production views the quantity of output produced as a function of the quantities of inputs used. How does the concept of CU fit into this theory? I focus on the "utilization" aspect of CU and disregard the "capacity" aspect.2 When we measure inputs to production we usually consider the capital stock, total hours worked by production workers/employees, and the quantities of intermediate inputs (materials and energy) used. We implicitly assume that the input services provided by capital are proportional to its accumulated stock. Looking at the production of a plant, we can see that its output obviously depends on the extent to which it uses its existing capital stock: how many machines are running and for how long? That is, the plant can vary the service flow per unit of capital, and this input variation is not covered in the usual input measures. This opportunity to vary the flow of services from capital creates a problem for productivity measurement when we want to attribute movements in output to movements in inputs and changes in productivity. The workweek of capital is supposed to capture the service flow of the capital stock, which is proportional to the average duration of time for which a unit of capital is operated. The workweek of capital is different from the workweek of labor, which is the average duration of time a unit of labor (worker) is employed. To the extent that labor and capital are complementary inputs (for example, a certain number of workers are needed to operate a machine), the workweek of capital and the workweek of labor are related, but they need not be the same. For instance, if a plant is operating multiple shifts, then the workweek of capital will be a multiple of the workweek of labor. Furthermore, if the extent to which a plant uses shiftwork changes over the cycle, the cyclical behavior of the workweeks of capital and labor will be different. …

Reserve capacity for accident in power market environment

Abstract: In power market environment, the first goal of grid company is to maximize its profits, which is different from the traditional power system. The security and reliability of power system should be subordinate to this goal. This paper proposes that, in power market environment, the power interruption acceptable to both supply and demand sides should be regarded not as damage to secure and reliable operation, but as continuity of power supply. In this point of view, the paper proposes that the optimal accident reserve capacity (in economic sense) in power market environment should be determined in light of cost of accident reserve capacity and load-shedding. The simulated results of a reliability test system shows that the method is feasible and economic.

The effect of competition on reserve capacity: The case of California hospitals in the late 1990s.

Abstract: This paper empirically investigates how competitive forces have affected bed capacity in the California hospital services industry using a data set for the late 1990s. The empirical results offer several conclusions about the effect of different types of competition on bed capacity during a period characterized by heightened price consciousness. In contrast to earlier periods, hospitals are found to continuously react to increased inter-hospital competition by reducing the supply of beds relative to patient demand. Similar to earlier periods, the empirical results suggest that increased physician/supplier competition leads to a reduction in bed capacity. Finally and in contrast to earlier studies, findings indicate that increased payer competition, as measured by the percentage of managed care patients in the market area, causes less bed capacity up to a point.

Financial Restructuring in European Banking and Foreign Expansion

Abstract: This paper examines the main structural and performance features of European banking. It demonstrates that while banking markets have become increasingly concentrated and bank numbers have fallen, competition appears to have intensified. Given the large number of banks and branches in many countries, there still remain indicators of possible excess capacity in the system and that the consolidation trend, especially with the advent of the EMU, will continue. The paper considers ways in which banks have diversified to add to their revenues, and also discusses market power and competition issues relating to increased market concentration. Finally, we briefly discuss the foreign expansion strategies of European banks, particularly the Spanish banks in South America. The strategic emphasis of the top Spanish banks has primarily been based on building market power and a name presence in a region that has massive market potential. RESUMEN. Este documento examina las principales caracteristicas estructur...

A Model of Growth and Conflict Inflation for a Small Open Economy

Abstract: Several models of conflict inflation have been developed within the structuralist tradition. This paper differs from such works by assuming full capacity utilization in a small open economy. We introduce the exchange rate as a participant in the theory of inflation and distribution, and analyze two closures: the trade deficit as a market clearing mechanism, and a foreign exchange constrained economy. It is found that wage rigidity and exchange rate flexibility can lead to instability. The main conclusions do not change when we allow for continuous substitution between capital and labor.

O.R. Applications Optimal bidding and contracting strategies for capital-intensive goods

Abstract: This paper models contracting arrangements between one Seller and one or more Buyers when the ‘‘deliverable’’ or output under the contract is produced in a non-scalable capital-intensive production facility. The basic model proposed allows the Seller and Buyers to negotiate bilateral contracts for the good in advance. On the day, the Seller and Buyers can also sell excess capacity or buy additional non-contract output in an associated backup market, which is being referred to as the spot market for the good. The type of bilateral contract studied has a two-part contract fee structure, and it is at the foundation of practical contracts used by many capital-intensive industries, where capacity can only be expanded well in advance of output requirements. The first part is a reservation cost per unit of capacity, and the second, an execution cost per unit of output when this capacity is actually used. This paper derives the Seller’s optimal bidding and Buyers’ optimal contracting strategies in a von Stackelberg game with the Seller as the leader. We show that Buyers’ optimal reservation level follows an index that combines the Seller’s reservation and execution cost. The Seller’s optimal strategy is to reveal its variable cost of producing output while extracting its margin from the Buyers using the capacity reservation charge. This structure allows for the Seller to assure in advance its ability to pay the capital costs of capacity while providing Buyers appropriate incentives to take advantage of better terms on the day if alternative, cheaper sources should arise after contracts have been set. 2002 Elsevier Science B.V. All rights reserved.

Nonparametric Measures of Capacity Utilization: A Dual Approach

Abstract: This paper develops a nonparametric method of obtaining the minimum of the long run average cost curve of a firm to define its capacity output. This provides a benchmark for measuring of capacity utilization at the observed output level of the firm. In the case of long run constant returns to scale, the minimum of the short run average cost curve is determined to measure short run capacity utilization. An empirical application measures yearly rates of capacity utilization in U.S. manufacturing over the period 1968-1998. Nonparametric determination of the short run average cost curve under variable returns to scale using an iterative search procedure is described in an appendix to this paper.

Neutrality and Non‐Neutrality of Money In A Classical‐Type Model

Abstract: . This paper modifies the simple classical model by introducing capacity utilization that varies across the course of the business cycle. By making the capacity usage a choice variable that turns out to be sensitive to changes in the price level, we show that the classical model loses its fundamental feature, namely the neutrality of money. In our generalized framework, a rise in money supply improves upon all the real variables if the economy suffers from excess capacity, as in recessions and depressions. We demonstrate that our model describes the various economic cross-currents during the Great Depression extremely well. Thus, monetary policy emerges with an activist role even in a generally classical setting.

Macroeconomic Policies and the Manufacturing Sector

Abstract: Zimbabwe constitutes a good case for evaluating the impact on productivity of a change from import substitution to market-oriented policies. It has a very well-developed manufacturing sector, which at the end of the 1980s contributed over 25 per cent to GDP and produced about 7000 different products. Before the implementation of the structural adjustment program (ESAP) in 1991, controls were widespread. The overwhelming majority of firms produced under conditions where there was no foreign or domestic competition. Moreover, foreign exchange rationing severely constrained access to imports of machinery, spare parts and raw materials, resulting in chronic breakdowns and low capacity utilization (Riddell, 1988). Hence liberalization in general, and trade reform in particular, should have had a strong impact on productivity.