The value of a "free" customer
AbstractWe 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 InfoIf 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.
Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía de la Empresa in its series Business Economics Working Papers with number wb092903.
Date of creation: Mar 2009
Date of revision:
Customer lifetime value; CRM; Dynamic programming; GMM Estimation;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-05 (All new papers)
- NEP-BEC-2009-04-05 (Business Economics)
- NEP-CTA-2009-04-05 (Contract Theory & Applications)
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.:
- Stephen Ryan & Catherine Tucker, 2012.
"Heterogeneity and the dynamics of technology adoption,"
Quantitative Marketing and Economics,
Springer, vol. 10(1), pages 63-109, March.
- Stephen Ryan & Catherine Tucker, 2006. "Heterogeneity and the Dynamics of Technology Adoption," Working Papers 06-26, NET Institute, revised Oct 2006.
- Stephen P. Ryan & Catherine Tucker, 2011. "Heterogeneity and the Dynamics of Technology Adoption," NBER Working Papers 17253, National Bureau of Economic Research, Inc.
- 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.
- 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.
- 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.
- 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.
- Chamberlain, Gary, 1987. "Asymptotic efficiency in estimation with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 34(3), pages 305-334, March.
- Roson Roberto, 2005. "Two-Sided Markets: A Tentative Survey," Review of Network Economics, De Gruyter, vol. 4(2), pages 1-19, June.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Peter Zubcsek & Miklos Sarvary, 2011. "Advertising to a social network," Quantitative Marketing and Economics, Springer, vol. 9(1), pages 71-107, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.