IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v54y2008i1p41-55.html
   My bibliography  Save this article

Structural Estimation of the Newsvendor Model: An Application to Reserving Operating Room Time

Author

Listed:
  • Marcelo Olivares

    () (Columbia Business School, New York, New York 10027)

  • Christian Terwiesch

    () (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Lydia Cassorla

    () (Department of Anesthesia and Perioperative Care, University of California, San Francisco, California 94143)

Abstract

The newsvendor model captures the trade-off faced by a decision maker that needs to place a firm bet prior to the occurrence of a random event. Previous research in operations management has mostly focused on deriving the decision that minimizes the expected mismatch costs. In contrast, we present two methods that estimate the unobservable cost parameters characterizing the mismatch cost function. We present a structural estimation framework that accounts for heterogeneity in the uncertainty faced by the newsvendor as well as in the cost parameters. We develop statistical methods that give consistent estimates of the model primitives, and derive their asymptotic distribution, which is useful to do hypothesis testing. We apply our econometric model to a hospital that balances the costs of reserving too much versus too little operating room capacity to cardiac surgery cases. Our results reveal that the hospital places more emphasis on the tangible costs of having idle capacity than on the costs of schedule overrun and long working hours for the staff. We also extend our structural models to incorporate external information on forecasting biases and mismatch costs reported by the medical literature. Our analysis suggests that overconfidence and incentive conflicts are important drivers of the frequency of schedule overruns observed in our sample.

Suggested Citation

  • Marcelo Olivares & Christian Terwiesch & Lydia Cassorla, 2008. "Structural Estimation of the Newsvendor Model: An Application to Reserving Operating Room Time," Management Science, INFORMS, vol. 54(1), pages 41-55, January.
  • Handle: RePEc:inm:ormnsc:v:54:y:2008:i:1:p:41-55
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1070.0756
    Download Restriction: no

    References listed on IDEAS

    as
    1. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    2. Marvin B. Lieberman & Lieven Demeester, 1999. "Inventory Reduction and Productivity Growth: Linkages in the Japanese Automotive Industry," Management Science, INFORMS, vol. 45(4), pages 466-485, April.
    3. Morris A. Cohen & Teck H. Ho & Z. Justin Ren & Christian Terwiesch, 2003. "Measuring Imputed Cost in the Semiconductor Equipment Supply Chain," Management Science, INFORMS, vol. 49(12), pages 1653-1670, December.
    4. R. W. Chorba, 1976. "Potential Avoidability: A Statistic for Controlling In-Patient Utilization in Acute Care Hospitals," Management Science, INFORMS, vol. 22(6), pages 694-700, February.
    5. Thomas Brush & Aneel Karnani, 1996. "Impact of Plant Size and Focus on Productivity: An Empirical Study," Management Science, INFORMS, vol. 42(7), pages 1065-1081, July.
    6. Maurice E. Schweitzer & Gérard P. Cachon, 2000. "Decision Bias in the Newsvendor Problem with a Known Demand Distribution: Experimental Evidence," Management Science, INFORMS, vol. 46(3), pages 404-420, March.
    7. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    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


    Cited by:

    1. Elahi, Ehsan & Lamba, Narasimha & Ramaswamy, Chinthana, 2013. "How can we improve the performance of supply chain contracts? An experimental study," International Journal of Production Economics, Elsevier, vol. 142(1), pages 146-157.
    2. repec:spr:compst:v:76:y:2012:i:2:p:189-221 is not listed on IDEAS
    3. Michael Samudra & Carla Van Riet & Erik Demeulemeester & Brecht Cardoen & Nancy Vansteenkiste & Frank E. Rademakers, 2016. "Scheduling operating rooms: achievements, challenges and pitfalls," Journal of Scheduling, Springer, vol. 19(5), pages 493-525, October.
    4. Biyu He & Franklin Dexter & Alex Macario & Stefanos Zenios, 2012. "The Timing of Staffing Decisions in Hospital Operating Rooms: Incorporating Workload Heterogeneity into the Newsvendor Problem," Manufacturing & Service Operations Management, INFORMS, pages 99-114.
    5. Jan A. Van Mieghem, 2013. "OM Forum--Three Rs of Operations Management: Research, Relevance, and Rewards," Manufacturing & Service Operations Management, INFORMS, pages 2-5.
    6. Choi, Sangdo & Wilhelm, Wilbert E., 2014. "An approach to optimize block surgical schedules," European Journal of Operational Research, Elsevier, vol. 235(1), pages 138-148.
    7. Gad Allon & Awi Federgruen & Margaret Pierson, 2011. "How Much Is a Reduction of Your Customers' Wait Worth? An Empirical Study of the Fast-Food Drive-Thru Industry Based on Structural Estimation Methods," Manufacturing & Service Operations Management, INFORMS, pages 489-507.
    8. Soonhui Lee & Tito Homem-de-Mello & Anton Kleywegt, 2012. "Newsvendor-type models with decision-dependent uncertainty," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 76(2), pages 189-221, October.
    9. Kamalini Ramdas & Khaled Saleh & Steven Stern & Haiyan Liu, 2016. "Variety and Experience: Learning and Forgetting in the Use of Surgical Devices," Working Papers 0316, University of South Florida, Department of Economics.
    10. Vinayak Deshpande & Mazhar Arıkan, 2012. "The Impact of Airline Flight Schedules on Flight Delays," Manufacturing & Service Operations Management, INFORMS, pages 423-440.
    11. Halkos, George & Kevork, Ilias, 2012. "Unbiased estimation of maximum expected profits in the Newsvendor Model: a case study analysis," MPRA Paper 40724, University Library of Munich, Germany.
    12. Shanshan Qiu & Ratna Chinnam & Alper Murat & Bassam Batarse & Hakimuddin Neemuchwala & Will Jordan, 2015. "A cost sensitive inpatient bed reservation approach to reduce emergency department boarding times," Health Care Management Science, Springer, vol. 18(1), pages 67-85, March.
    13. Sameer Hasija & Edieal Pinker & Robert A. Shumsky, 2010. "OM Practice--Work Expands to Fill the Time Available: Capacity Estimation and Staffing Under Parkinson's Law," Manufacturing & Service Operations Management, INFORMS, pages 1-18.
    14. Andreas Fügener & Sebastian Schiffels & Rainer Kolisch, 2017. "Overutilization and underutilization of operating rooms - insights from behavioral health care operations management," Health Care Management Science, Springer, vol. 20(1), pages 115-128, March.
    15. Halkos, George & Kevork, Ilias, 2012. "Validity and precision of estimates in the classical newsvendor model with exponential and rayleigh demand," MPRA Paper 36460, University Library of Munich, Germany.
    16. Halkos, George & Kevork, Ilias, 2012. "Evaluating alternative estimators for optimal order quantities in the newsvendor model with skewed demand," MPRA Paper 36205, University Library of Munich, Germany.
    17. Schiffels, Sebastian & Fügener, Andreas & Kolisch, Rainer & Jens Brunner, O., 2014. "On the assessment of costs in a newsvendor environment: Insights from an experimental study," Omega, Elsevier, vol. 43(C), pages 1-8.
    18. repec:pal:jorsoc:v:68:y:2017:i:5:d:10.1057_s41274-016-0103-5 is not listed on IDEAS
    19. Li Chen & A. Gürhan Kök & Jordan D. Tong, 2013. "The Effect of Payment Schemes on Inventory Decisions: The Role of Mental Accounting," Management Science, INFORMS, pages 436-451.
    20. Francesca Guerriero & Rosita Guido, 2011. "Operational research in the management of the operating theatre: a survey," Health Care Management Science, Springer, vol. 14(1), pages 89-114, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:54:y:2008:i:1:p:41-55. 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: (Mirko Janc). General contact details of provider: http://edirc.repec.org/data/inforea.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.