Advanced Search
MyIDEAS: Login to save this paper or follow this series

The value of a "free" customer

Contents:

Author Info

  • Sunil Gupta

    ()

  • Carl F. Mela

    ()

  • Jose M. Vidal-Sanz

    ()

Abstract

We study the problem of a firm that faces asymmetric information about the productivity of its potential workers. In our framework, a worker’s productivity is either assigned by nature at birth, or determined by an unobservable initial action of the worker that has persistent effects over time. We provide a characterization of the optimal dynamic compensation scheme that attracts only high productivity workers: consumption –regardless of time period– is ranked according to likelihood ratios of output histories, and the inverse of the marginal utility of consumption satisfies the martingale property derived in Rogerson (1985). However, in the case of i.i.d. output and square root utility we show that, contrary to the features of the optimal contract for a repeated moral hazard problem, the level and the variance of consumption are negatively correlated, due to the influence of early luck into future compensation. Moreover, in this example long-term inequality is lower under persistent private information

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://e-archivo.uc3m.es/bitstream/10016/3883/1/wb092903.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía de la Empresa in its series Business Economics Working Papers with number wb092903.

as in new window
Length:
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:cte:wbrepe:wb092903

Contact details of provider:
Postal: Calle Madrid 126, 28903 Getafe (Madrid)
Phone: +34 91 624-9630
Fax: +34 91 624-9608
Web page: http://www.emp.uc3m.es
More information through EDIRC

Related research

Keywords: Customer lifetime value; CRM; Dynamic programming; GMM Estimation;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Stephen Ryan & Catherine Tucker, 2012. "Heterogeneity and the dynamics of technology adoption," Quantitative Marketing and Economics, Springer, vol. 10(1), pages 63-109, March.
  2. Pradeep K. Chintagunta & Naufel J. Vilcassim, 1992. "An Empirical Investigation of Advertising Strategies in a Dynamic Duopoly," Management Science, INFORMS, vol. 38(9), pages 1230-1244, September.
  3. Kenneth C. Wilbur, 2008. "A Two-Sided, Empirical Model of Television Advertising and Viewing Markets," Marketing Science, INFORMS, vol. 27(3), pages 356-378, 05-06.
  4. Pradeep Chintagunta & Tülin Erdem & Peter E. Rossi & Michel Wedel, 2006. "Structural Modeling in Marketing: Review and Assessment," Marketing Science, INFORMS, vol. 25(6), pages 604-616, 11-12.
  5. Gustav Feichtinger & Richard F. Hartl & Suresh P. Sethi, 1994. "Dynamic Optimal Control Models in Advertising: Recent Developments," Management Science, INFORMS, vol. 40(2), pages 195-226, February.
  6. Chamberlain, Gary, 1987. "Asymptotic efficiency in estimation with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 34(3), pages 305-334, March.
  7. Roson Roberto, 2005. "Two-Sided Markets: A Tentative Survey," Review of Network Economics, De Gruyter, vol. 4(2), pages 1-19, June.
  8. Pradeep K. Chintagunta & Vithala R. Rao, 1996. "Pricing Strategies in a Dynamic Duopoly: A Differential Game Model," Management Science, INFORMS, vol. 42(11), pages 1501-1514, November.
  9. Desiraju, Ramarao & Nair, Harikesh S. & Chintagunta, Pradeep, 2004. "Diffusion of New Pharmaceutical Drugs in Developing and Developed Nations," Research Papers 1950, Stanford University, Graduate School of Business.
  10. Vrinda Kadiyali & Pradeep Chintagunta & Naufel Vilcassim, 2000. "Manufacturer-Retailer Channel Interactions and Implications for Channel Power: An Empirical Investigation of Pricing in a Local Market," Marketing Science, INFORMS, vol. 19(2), pages 127-148, September.
  11. Wagner Kamakura & Carl Mela & Asim Ansari & Anand Bodapati & Pete Fader & Raghuram Iyengar & Prasad Naik & Scott Neslin & Baohong Sun & Peter Verhoef & Michel Wedel & Ron Wilcox, 2005. "Choice Models and Customer Relationship Management," Marketing Letters, Springer, vol. 16(3), pages 279-291, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Mercedes Esteban Bravo & José M. Vidal-Sanz & Gökhan Yildirim, 2012. "Valuing customer portfolios with endogenous mass-and-direct-marketing interventions using a stochastic dynamic programming decomposition," Business Economics Working Papers wb121304, Universidad Carlos III, Departamento de Economía de la Empresa.
  2. Vardan Avagyan & Mercedes Esteban Bravo & Jose Vidal-Sanz, 2011. "Licensing radical product innovations to speed up the diffusion," Business Economics Working Papers wb113609, Universidad Carlos III, Departamento de Economía de la Empresa.
  3. Peter Zubcsek & Miklos Sarvary, 2011. "Advertising to a social network," Quantitative Marketing and Economics, Springer, vol. 9(1), pages 71-107, March.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cte:wbrepe:wb092903. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.