Structural Estimation of the Newsvendor Model: An Application to Reserving Operating Room Time
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.
Volume (Year): 54 (2008)
Issue (Month): 1 (January)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
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.:
- 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.
- 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.
- 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.
- 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.
- 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.
- Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
- 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.
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)
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.