Sugar and Spice and Sparkles are two companies in the high-end cupcake market that have chosen two different competitive and operating strategies. Sugar and Spice has configured its operations to emphasize a high level of customization. Sparkles has a strategy that emphasizes a narrower range of products. Based on data collected by Sugar and Spice, the question is whether its position is at risk. The case focuses on Sugar and Spice and the defensibility of its position using its current operating system. The issue requires students to compare the competitive and operating strategies of both companies and to identify and evaluate the sources of cost differences in their operations.

The New York City Department of Health and Mental Hygiene’s Physical Activity and Nutrition Program needed to come up with an innovative solution to the many health problems, such as obesity, diabetes, and heart disease that plagued residents of poorer areas in the city, while increasing economic opportunity for neighborhood residents. The result was the launching of Green Carts, a new mobile food vending initiative to support the introduction of healthier food options to residents of “food deserts” in New York City boroughs. The challenge was navigating the diverse landscape of players and engaging all of the relevant stakeholders to come up with a solution that was both feasible and sustainable.

This case exemplifies the how partnership and strategic alliances can be used to have significant social impact. The beauty of this example is that it simultaneously addresses two large social issues: 1) access to healthy food options in urban food deserts and 2) creating self-employment opportunities for members of disadvantaged communities. This case also illustrates how the public sector can act as social innovators.

The New York City Department of Health and Mental Hygiene’s Physical Activity and Nutrition Program needed to come up with an innovative solution to the many health problems, such as obesity, diabetes, and heart disease that plagued residents of poorer areas in the city, while increasing economic opportunity for neighborhood residents. The result was the launching of Green Carts, a new mobile food vending initiative to support the introduction of healthier food options to residents of “food deserts” in New York City boroughs. The challenge was navigating the diverse landscape of players and engaging all of the relevant stakeholders to come up with a solution that was both feasible and sustainable.

This case exemplifies the how partnership and strategic alliances can be used to have significant social impact. The beauty of this example is that it simultaneously addresses two large social issues: 1) access to healthy food options in urban food deserts and 2) creating self-employment opportunities for members of disadvantaged communities. This case also illustrates how the public sector can act as social innovators.

The cases describe the demise of Arthur Andersen, a firm that had long set the industry standard for professionalism in accounting and auditing. Once an example of strong corporate culture with a commitment to public service and independent integrity, Andersen saw its culture and standards weaken as it grew explosively and changed its mode of governance.

The (A) case describes a crisis precipitated by the admission of Waste Management, a major Andersen client, that it overstated its pretax earnings by $1.43 billion from 1992 to 1996. The resulting Securities and Exchange Commission (SEC) investigation ended with Andersen paying a $7 million fine, the largest ever levied against an accounting firm, and agreeing to an injunction that effectively placed the accounting giant on probation. Students analyze the causes of Andersen’s problems and advise Andersen leadership.

The (B) case covers Arthur Andersen’s relationship with Enron, one of the great success stories of the “new economy” boom. When Enron’s aggressive use of off-balance sheet partnerships became impossible to hide in autumn 2001, news reports stated that Andersen auditors had engaged in extensive shredding of draft documents and associated communications with Enron. Students are asked to act as crisis management consultants to Andersen CEO Joe Berardino.

The (C) case details Andersen’s collapse following its indictment and conviction on criminal charges of obstructing justice in the Enron case. Its conviction was later overturned by the U.S. Supreme Court on narrow technical grounds, but by then Andersen had ceased to exist, eighty-nine years after Arthur E. Andersen had taken over a small accounting firm in Chicago. Students can focus on the impact of media on a reputational crisis.

The cases describe the demise of Arthur Andersen, a firm that had long set the industry standard for professionalism in accounting and auditing. Once an example of strong corporate culture with a commitment to public service and independent integrity, Andersen saw its culture and standards weaken as it grew explosively and changed its mode of governance.

The (A) case describes a crisis precipitated by the admission of Waste Management, a major Andersen client, that it overstated its pretax earnings by $1.43 billion from 1992 to 1996. The resulting Securities and Exchange Commission (SEC) investigation ended with Andersen paying a $7 million fine, the largest ever levied against an accounting firm, and agreeing to an injunction that effectively placed the accounting giant on probation. Students analyze the causes of Andersen’s problems and advise Andersen leadership.

The (B) case covers Arthur Andersen’s relationship with Enron, one of the great success stories of the “new economy” boom. When Enron’s aggressive use of off-balance sheet partnerships became impossible to hide in autumn 2001, news reports stated that Andersen auditors had engaged in extensive shredding of draft documents and associated communications with Enron. Students are asked to act as crisis management consultants to Andersen CEO Joe Berardino.

The (C) case details Andersen’s collapse following its indictment and conviction on criminal charges of obstructing justice in the Enron case. Its conviction was later overturned by the U.S. Supreme Court on narrow technical grounds, but by then Andersen had ceased to exist, eighty-nine years after Arthur E. Andersen had taken over a small accounting firm in Chicago. Students can focus on the impact of media on a reputational crisis.

The cases describe the demise of Arthur Andersen, a firm that had long set the industry standard for professionalism in accounting and auditing. Once an example of strong corporate culture with a commitment to public service and independent integrity, Andersen saw its culture and standards weaken as it grew explosively and changed its mode of governance.

The (A) case describes a crisis precipitated by the admission of Waste Management, a major Andersen client, that it overstated its pretax earnings by $1.43 billion from 1992 to 1996. The resulting Securities and Exchange Commission (SEC) investigation ended with Andersen paying a $7 million fine, the largest ever levied against an accounting firm, and agreeing to an injunction that effectively placed the accounting giant on probation. Students analyze the causes of Andersen’s problems and advise Andersen leadership.

The (B) case covers Arthur Andersen’s relationship with Enron, one of the great success stories of the “new economy” boom. When Enron’s aggressive use of off-balance sheet partnerships became impossible to hide in autumn 2001, news reports stated that Andersen auditors had engaged in extensive shredding of draft documents and associated communications with Enron. Students are asked to act as crisis management consultants to Andersen CEO Joe Berardino.

The (C) case details Andersen’s collapse following its indictment and conviction on criminal charges of obstructing justice in the Enron case. Its conviction was later overturned by the U.S. Supreme Court on narrow technical grounds, but by then Andersen had ceased to exist, eighty-nine years after Arthur E. Andersen had taken over a small accounting firm in Chicago. Students can focus on the impact of media on a reputational crisis.

A midwest hospital purchases new CT Scanners which are much faster than the existing technology. Processes in the radiology department are optimized to the older, existing scanners and technicians are unable to take full advantage of the new scanner speed. The hospital finds itself working to change the processes to suit the new scanners capabilities and take full advantage of their speed.

Provision of real-time information by a firm to its customers has become prevalent in recent years in both the service and retail sectors. In this paper, we study a retail operations model where customers are strategic in both their actions and in the way they interpret information, whereas the retailer is strategic in the way it provides information. This paper focuses on the ability (or the lack thereof) to communicate unverifiable information and influence customers’ actions. We develop a game-theoretic framework to study this type of communication and discuss the equilibrium language emerging between the retailer and its customers. We show that for a single-retailer and homogeneous customer population setting, the equilibrium language that emerges carries no information. In this sense, a single-retailer providing information on its own cannot create any credibility with the customers. We study how the results are impacted due to the heterogeneity of the customers. We provide conditions under which the firm may be able to influence the customer behavior. In particular, we show that the customers’ willingness-to-pay and willingness-to-wait cannot be ranked in an opposite manner. However, even when the firm can influence each customer class separately, the effective demand is not impacted.

In recent years, growth in the demand for emergency medical services along with decline in the number of hospitals with emergency departments (EDs) has led to overcrowding. In periods of overcrowding, an ED can request the Emergency Medical Services (EMS) agency to divert incoming ambulances to neighboring hospitals, a phenomenon known as “ambulance diversion”. The EMS agency will accept this request provided that at least one of the neighboring EDs is not on diversion. From an operations perspective, properly executed ambulance diversion should result in resource pooling and reduce the overcrowding and delays in a network of EDs. Recent evidence indicates, however, that this potential benefit is not always realized. In this paper, we provide one potential explanation for this discrepancy and suggest potential remedies. Using a queueing game between two EDs that aim to minimize their own waiting time, we find that decentralized decisions regarding diversion explain the lack of pooling benefits. Specifically, we find the existence of a defensive equilibrium, wherein each ED does not accept diverted ambulances from the other ED. This defensiveness results in a de-pooling of the network and, in turn, in delays that are significantly higher than when a social planner coordinates diversion. The social optimum is, itself, difficult to characterize analytically and has limited practical appeal as it depends on problem parameters such as arrival rates and length of stay. Instead, we identify an alternative solution that is more amenable to implementation and can be used by the EMS agencies to coordinate diversion decisions even without the exact knowledge of these parameters. We show that this solution is approximately optimal for the social planner’s problem. Moreover, it is Pareto improving over the defensive equilibrium whereas the social optimum, in general, might not be.

We examine a variety of preference-based definitions of ambiguous events in the context of the smooth ambiguity model. We first consider the definition proposed in Klibanoff, Marinacci, and Mukerji (2005) based on the classic Ellsberg two-urn paradox (Ellsberg (1961)), and show that it satisfies several desirable properties. We then compare this definition with those of Nehring (1999), Epstein and Zhang (2001), Zhang (2002) and Ghirardato and Marinacci (2002). Within the smooth ambiguity model, we show that Ghirardato and Marinacci (2002) would identify the same set of ambiguous and unambiguous events as our definition while Epstein and Zhang (2001) and Zhang (2002) would yield a different classification. Moreover, we discuss and formally identify two key sources of the differences compared to Epstein and Zhang (2001) and Zhang (2002). The more interesting source is that these two definitions can confound non-constant ambiguity attitude and the ambiguity of an event.

The possibility of treason by a close associate has been a nightmare of most autocrats throughout history. More competent viziers are better able to discriminate among potential plotters, and this makes them more risky subordinates for the ruler. To avoid this, rulers, especially those which are weak and vulnerable, sacrifice the competence of their agents, hiring mediocre but loyal subordinates. Furthermore, any use of incentive schemes by a personalistic dictator is limited by the fact that all punishments are conditional on the dictator's own survival. We endogenize loyalty and competence in a principal-agent game between a dictator and his viziers in both static and dynamic settings. The dynamic model allows us to focus on the succession problem that insecure dictators face.

We build a game-theoretic model where aggression can be triggered by domestic political concernsas well as the fear of being attacked. In the model, leaders of full and limited democracies risk losing power if they do not stand up to threats from abroad. In addition, the leader of a fully democratic country loses the support of the median voter if he attacks a non-hostile country. The result is a non-monotonic relationship between democracy and peace. Using Polity data, we classify countries as full democracies, limited democracies, and dictatorships. For the period 1816–2000, Correlates of War data suggest that limited democracies are more aggressive than other regime types, including dictatorships, and not only during periods when the political regime is changing. In particular, a dyad of limited democracies is more likely to be involved in a militarized dispute than any other dyad (including “mixed” dyads, where the two countries have different regime types). Thus, while full democratization might advance the cause of peace, limited democratization might advance the cause of war. We also find that as the environment becomes more hostile, fully democratic countries become more aggressive faster than other regime types.

This paper develops algorithms for dynamically consistent updating of ambiguous beliefs in the maxmin expected utility model of decision making under ambiguity. Dynamic consistency is the requirement that ex-ante contingent choices are respected by updated preferences. Such updating, in this context, implies dependence on the feasible set of payoff vectors available in the problem and/or on an ex-ante optimal act for the problem. Despite this complication, the algorithms are formulated concisely and are easy to implement, thus making dynamically consistent updating operational in the presence of ambiguity.

This paper presents a new model of political competition in which candidates belong to factions. Before elections, factions compete to direct local public goods to their local constituencies. The model of factional competition delivers a rich set of implications relating the internal organization of the party to the allocation of resources. In doing so, the model provides a unified explanation of two prominent features of public resource allocations: the persistence of (possibly inefficient) policies and the tendency of public spending to favor incumbent party strongholds over swing constituencies.

I further pursue the proposal of Mankiw to consider fairness or “Just Deserts” as the main guide to tax policy. I suggest very different policy conclusions. In particular, I point out some key assumptions that were left implicit in Mankiw’s analysis, and question whether these hold in practice. I then suggest a different formal approach to determining a fair policy.

Dire predictions that without the threat of an injunction patentees will be unable to license their inventions absent a lawsuit are simply unsupportable. In the wireless telecommunications industry, for example, products and services often implicate hundreds of patents . . . . The likelihood is far greater that technology companies will license questionable patents in order to avoid litigation . . . .1

The Amici, like other patent owners, have relied on the long-settled expectation that the patent grant is presumptively enforceable via a permanent injunction. They have guided their investments in research and development, and their decisions to obtain, acquire and maintain their patent portfolios, on this understanding. The Court should not undermine the value of those investments, and the incentives to continue those investments, based on Petitioners’ errant historical and policy arguments.2

“The building is gone but the Church is still here” was the immediate thought of Pastor Jim Wilson as he watched his church structure burn to the ground in 1998. Pastor Wilson realized that as the leader of the congregation, he needed to take action to manage the crisis and to lead his congregation to a new vision of the future that might be quite different than the past. His choice of leadership style, his gathering a team of leaders around him and his creation of a strong vision for the future are lessons that nonprofit and for-profit leaders can learn from through this case. The case chronicles the story of leadership and change management that led BUMC from the ashes to a new building and a strong, growing congregation.

The case brings to light several critical issues in nonprofit management: change management, leadership and vision, changing demographics and environment, and crisis management.

“The building is gone but the Church is still here” was the immediate thought of Pastor Jim Wilson as he watched his church structure burn to the ground in 1998. Pastor Wilson realized that as the leader of the congregation, he needed to take action to manage the crisis and to lead his congregation to a new vision of the future that might be quite different than the past. His choice of leadership style, his gathering a team of leaders around him and his creation of a strong vision for the future are lessons that nonprofit and for-profit leaders can learn from through this case. The case chronicles the story of leadership and change management that led BUMC from the ashes to a new building and a strong, growing congregation.

The case brings to light several critical issues in nonprofit management: change management, leadership and vision, changing demographics and environment, and crisis management.

We offer a theory of the sunk cost fallacy as an optimal response to limited memory. As new information arrives, a decision-maker may not remember all the reasons he began a project. The sunk cost gives additional information about future profits and informs subsequent decisions. The Concorde effect makes the investor more eager to complete projects when sunk costs are high and the pro-rata effect makes the investor less eager. In a controlled experiment we had subjects play a simple version of the model. In a baseline treatment subjects exhibit the pro-rata bias. When we induce memory constraints the effect reverses and the subjects exhibit the Concorde bias.

We find that Epstein (2010)'s Ellsberg-style thought experiments pose, contrary to his claims, no paradox or difficulty for the smooth ambiguity model of decision making under uncertainty developed by Klibanoff, Marinacci and Mukerji (2005). Not only are the thought experiments naturally handled by the smooth ambiguity model, but our reanalysis shows that they highlight some of its strengths compared to models such as the maxmin expected utility model (Gilboa and Schmeidler, 1989). In particular, these examples pose no challenge to the model's foundations, interpretation of the model as affording a separation of ambiguity and ambiguity attitude or the potential for calibrating ambiguity attitude in the model.

Almost all democratic societies evolved socially and politically out of authoritarian and nondemocratic regimes. These changes not only altered the allocation of economic resources in society but also the structure of political power. In this paper, we develop a framework for studying the dynamics of political and social change. The society consists of agents that care about current and future social arrangements and economic allocations; allocation of political power determines who has the capacity to implement changes in economic allocations and future allocations of power. The set of available social rules and allocations at any point in time is stochastic. We show that political and social change may happen without any stochastic shocks or as a result of a shock destabilizing an otherwise stable social arrangement. Crucially, the process of social change is contingent (and history dependent): the timing and sequence of stochastic events determine the long run equilibrium social arrangements. For example, the extent of democratization may depend on how early uncertainty about the set of feasible reforms in the future is resolved.

I study how limited abilities to process information affect choice behavior. I model the decision making process by an automaton, and measure the complexity of a specific choice rule by the minimal number of states an automaton implementing the rule uses to process information. I establish that any choice rule that is less complicated than utility maximization displays framing effects. I then prove that choice rules that result from an optimal tradeoff between maximizing utility and minimizing complexity are history-dependent satisficing procedures that display primacy and recency effects.

We analyze “nice” games (where action spaces are compact intervals, utilities continuous and strictly concave in own action), which are used frequently in classical economic models. Without making any “richness” assumption, we characterize the sensitivity of any given Bayesian Nash equilibrium to higher-order beliefs. That is, for each type, we characterize the set of actions that can be played in equilibrium by some type whose lower-order beliefs are all as in the original type. We show that this set is given by a local version of interim correlated rationalizability. This allows us to characterize the robust predictions of a given model under arbitrary common knowledge restrictions. We apply our framework to a Cournot game with many players. There we show that we can never robustly rule out any production level below the monopoly production of each firm.

Much of the literature on rational cryptography focuses on analyzing the strategic properties of cryptographic protocols. However, due to the presence of computationally-bounded players and the asymptotic nature of cryptographic security, a definition of sequential rationality for this setting has thus far eluded researchers.

We propose a new framework for overcoming these obstacles, and provide the first definitions of computational solution concepts that guarantee sequential rationality. We argue that natural computational variants of subgame perfection are too strong for cryptographic protocols. As an alternative, we introduce a weakening called threat-free Nash equilibrium that is more permissive but still eliminates the undesirable "empty threats" of non-sequential solution concepts.

To demonstrate the applicability of our framework, we revisit the problem of implementing a mediator for correlated equilibria (DodisHalevi-Rabin, Crypto'00), and propose a variant of their protocol that is sequentially rational for a non-trivial class of correlated equilibria. Our treatment provides a better understanding of the conditions under which mediators in a correlated equilibrium can be replaced by a stable protocol.

I analyze a game between an uninformed decision maker and a possibly biased expert. The expert receives a set of arguments, and each argument favors one of two alternatives. He can disclose each argument credibly, but cannot prove whether he has disclosed everything. In all equilibria, the biased expert sends messages containing arguments both for and against his preferred alternative. However, the decision maker is not influenced by the unfavorable arguments revealed by the biased expert. The latter is able to convince the decision maker to choose the biased expertʼs preferred alternative only if he reveals sufficiently many favorable arguments.

In late 2009 Toyota became the subject of media and U.S. government scrutiny after multiple deaths and injuries were attributed to accidents resulting from the unintended and uncontrolled acceleration of its cars. Despite Toyota’s voluntary recall of 4.2 million vehicles for floor mats that could jam the accelerator pedal and a later recall to increase the space between the gas pedal and the floor, the company insisted there was no underlying defect and defended itself against media reports and regulatory statements that said otherwise. As the crisis escalated, Toyota was further criticized for its unwillingness to share information from its data recorders about possible problems with electronic throttle controls and sticky accelerator pedals, as well as braking problems with the Prius. By the time Toyota Motor Company president Akio Toyoda apologized in his testimony to the U.S. Congress, Toyota’s stock price had declined, in just over a month, by 20 percent—a $35 billion loss of market value.

After Hurricane Katrina hit the coast of Louisiana on August 29, 2005, Wal-Mart initiated emergency operations that not only protected and reopened its stores, but also helped its employees and others in the community cope with the disaster’s personal impact. This response was part of a wider effort by the company under CEO Lee Scott to improve its public image. Wal-Mart’s efforts were widely regarded as the most successful of all corporations in the aftermath of the disaster and set the standard for future corporate disaster relief programs.

In early 2004, residents of Inglewood, California, a working-class community just outside Los Angeles composed primarily of African- and Hispanic-Americans, were preparing to vote on a referendum that would change the city charter to allow Wal-Mart to build a supercenter on a huge, undeveloped lot in the city. Walmart had put forward the measure after the city council refused to change the zoning of a sixty-acre plot on which it held an option to build.
Numerous community and religious groups opposed Wal-Mart’s entry and campaigned against the referendum. Walmart promised low-priced merchandise and jobs, but these groups were skeptical about the kinds of jobs and compensation that would be offered, the healthcare that would be provided to employees, and the broader impact Walmart would have on the community. Inglewood was a pro-union community, so there was also opposition based on Walmart’s anti-union position.
On April 6 Inglewood residents voted to reject the referendum by a margin of 60.6 percent to 39.9 percent. Though smaller, less organized, and with fewer resources than Walmart, this coalition of community and religious leaders had defeated the global retailing behemoth.