Co-production (simultaneous production of multiple outputs) occurs in some emission-intensive basic material and agricultural industries. This paper is motivated by ones in which a supplier sells its primary product to a buyer that incurs an emissions cost (voluntarily, or due to government-imposed climate policy) and sells co-products into markets without emissions costs. Emission-accounting standards provide three candidate rules for allocating the supplier’s emissions among its products. This paper shows that under the value-based allocation, imposing an emissions tax on the primary product can increase emissions, by motivating the supplier to lower the price and sell a larger quantity. In contrast, with the socially optimal choice of allocation rule characterized in this paper, imposing the emissions tax on the primary product can greatly reduce emissions and increase welfare. In the absence of climate policy, under value-based allocation, a buyer might achieve greater profit by paying to offset its supply chain emissions. That can motivate supplier innovation to reduce its production cost. In numerical examples, considering the rare earth cerium oxide (co-produced with iron) and palm oil (co-produced with palm meal), the choice of allocation rule has a large impact on emissions, a buyer’s profit, and social welfare.
We consider a day-ahead electricity market that consists of multiple competing renewable firms (e.g., wind generators) and conventional firms (e.g., coal-fired power plants) in a discrete-time setting. The market is run in every period, and all firms submit their price-contingent production schedules in every day-ahead market. Following the clearance of a day-ahead market, in the next period, each (respectively, renewable) firm chooses its associated production quantity (respectively, after observing its available supply). If a firm produces less than its cleared day-ahead commitment, the firm pays an undersupply penalty in proportion to its underproduction. Using differential equations theory, we explicitly characterize equilibrium strategies of firms. The purpose of an undersupply penalty is to improve reliability by motivating each firm to commit to quantities it can produce in the following day. We prove that in equilibrium, imposing or increasing a marketbased undersupply penalty rate in a period can result in a strictly larger renewable energy commitment at all prices in the associated day-ahead market, leading to lower equilibrium reliability in all periods with probability 1. We also show in an extension that firms with diversified technologies result in lower equilibrium reliability than single-technology firms in all periods with probability 1.
We consider a firm that can use one of several costly learning modes to dynamically reduce uncertainty about the unknown value of a project. Each learning mode incurs cost at a particular rate and provides information of a particular quality. In addition to dynamic decisions about its learning mode, the firm must decide when to stop learning and either invest or abandon the project. Using a continuous-time Bayesian framework, and assuming a binary prior distribution for the project's unknown value, we solve both the discounted and undiscounted versions of this problem. In the undiscounted case, the optimal learning policy is to choose the mode that has the smallest cost per signal quality. When the discount rate is strictly positive, we prove that an optimal learning and investment policy can be summarized by a small number of critical values, and the firm only uses learning modes that lie on a certain convex envelope in cost-rate-versus-signalquality space. We extend our analysis to consider a firm that can choose multiple learning modes simultaneously, which requires the analysis of both investment timing and dynamic subset selection decisions. We solve both the discounted and undiscounted versions of this problem and explicitly identify sets of learning modes that are used under the optimal policy.
Many parts of the world are experiencing extreme weather events, energy poverty, food insecurity, and lack of access to basic healthcare. Moreover, concerns over socioeconomic, gender, and racial inequalities are growing. These socially relevant issues are ripe for analysis and improvement using an operations management lens. In this paper, we review some of the relevant research advancements made in the last decade, and identify future research directions on these important topics. In particular, we focus on papers related to sustainable planet (renewable energy, environmentally and socially responsible operations, regulation‐driven operations), agriculture, and public health. For future research directions, we discuss the role of innovative business models and disruptive technologies, such as artificial intelligence (AI) and blockchain, in addressing these pressing issues.
Network products such as mobile apps and computer games are of paramount importance, as these products constitute a large value in today’s economy. Motivated by this observation, the paper “Optimal Dynamic Product Development and Launch for a Network of Customers” considers a firm that dynamically chooses its effort to develop a product for a network of customers represented by a connected graph. The technology of the product evolves as a stochastic process that depends on the firm’s dynamic efforts over time. In addition to dynamically choosing its development effort, the firm chooses when to launch or abandon the product. If the firm launches the product, the firm also chooses a selling price, a promotional price, and a target customer to offer the promotion to. Once the target customer adopts the product, the product diffuses over the customer network based on the topology of the graph and the selling price. The paper provides the explicit solution of the firm’s jointly optimal development, launch, and post-launch strategies for any connected network, and introduces metrics that allow ordering customer networks with respect to the firm’s optimal expected discounted profit, launch technology, and consumer surplus.
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