Department of Information Systems & Operations Management
Research Seminar Series
The Research Seminar Series in ISOM is organized to disseminate the latest research in Information Systems and Operations Management.
Alton M. Costley Chair and Professor of Information Technology Management
Scheller College of Business, Georgia Institute of Technology
"Are Software Contracts Effective? The Impacts of Contract Type and Repeated Contracting on Software Development Outsourcing Outcomes"
Stuzin 101, 10:30-12:00 Noon
Departing from prior research that focuses on the ex ante conditions predicting contract type, we investigate the consequences of contract type on a wide array of performance outcomes associated with software development outsourcing. Drawing on agency theory and institutional economics, we hypothesize that contract type (fixed price-FP, Hybrid, time and materials-T&M) with its varying inherent incentive properties will engender differential software development performance outcomes in terms of technical design verification quality, cost and schedule performance, and client validation quality. We further posit that repeated contracting should improve software development performance outcomes as repeated contractual experiences serve to mitigate issues of adverse selection and moral hazard. We tested our hypotheses using feasible generalized least squares and spline regression to analyze longitudinal archival data on software development contracts and performance outcomes drawn from a large software vendor for a major client. Results show that, consistent with our contract type hypotheses, FP contracts produce the best - and Hybrid contracts produce the worst - technical outcomes of design verification quality, cost performance and schedule performance. Further both T&M and Hybrid contracts yield higher client validation quality than FP contracts. Contrary to our repeated contracting hypotheses, we found that repeated contracting does not always improve performance outcomes. Instead, repeated contracting serves more to ‘reinforce’ the incentives associated with a particular contract type. These results have important implications for research on software development contracts and for managerial practice.
Professor and Robert H. Smith Dean’s Chair of Information Systems
University of Maryland
"Vocal Minority and Silent Majority: How do Online Ratings Reflect Population Perceptions of Quality?"
Stuzin 101, 10:30-12:00 Noon
Recently, the Internet has fostered a rapid rise in consumer-generated ratings. However, limited research has examined how these ratings reflect the opinions of the population at large, notably in the domain of professional services, where quality is often opaque to consumers. Building on the word-of-mouth research literature, we examine the relationship between online ratings and the offline population’s perception of physician quality. A distinctive feature that differentiates this study from prior work is a unique dataset that includes direct measures of both the offline population’s perception of physician quality, and consumer generated online reviews. These data allow us to examine how closely the online ratings reflect patients’ opinion about physician quality at large. We find, in sharp contrast to the widely voiced concerns by medical practitioners, that physicians who are rated lower in quality by the patient population are less likely to be rated online. Additionally, although ratings provided online are correlated with patient population opinions, the online ratings tend to be exaggerated at the ends of the quality spectrum. This study is one of the first to provide empirical evidence of the relationship between online ratings and the underlying consumer perceived quality. It also extends prior research on online word-of-mouth to the domain of professional services.
04.11.2013Paul A. Pavlou
Professor of Management Information Systems, Marketing, and Strategic Management
Stauffer Senior Research Fellow
Fox School of Business at Temple University
"Are Global Labor Markets Truly “Flat”? Global Frictions, Labor Arbitrage, and Reputation Signals in Online Markets"
Bryan 101 A, 10:30- 12:00 Noon
Visionaries conjecture that the world is becoming a level (“flat”) playing field due to the Internet that connects professional workers with employers anywhere around the world. To examine this “flat world” conjecture for global online labor markets for software development services, we analytically model and empirically examine the key factors that affect the dual aspects - pricing of professional service providers and their selection by clients (employers): (1) global frictions, (2) labor arbitrage and (3) reputation signals. We first model and derive the equilibrium pricing strategy of service providers via backward induction of a two-stage game (which includes the client’s selection of a service provider given the provider’s bid price), and we propose a set of hypotheses about the key factors that affect both the providers’ pricing and also their selection by clients. We empirically test our hypotheses with an integrated dataset formed by a random sample (473,970 price bids for 27,450 service projects) from the transaction data from an global online labor marketplace for software development services matched with multiple archival sources (e.g., purchasing power parity (PPP) across countries, language, time-zone, and cultural differences). The results from our econometric analyses show that when submitting their price bids, service providers take into account global frictions (particularly language differences), try to exploit labor arbitrage opportunities with labor low PPP countries, and take advantage of their own reputation signals. In turn, clients avoid global frictions (language, time zone, and cultural differences) and favor providers with strong reputation signals from high PPP countries. Interestingly, online labor markets are not truly level (“flat”) playing fields due to the proposed global frictions that are detrimental to both the service providers’ and clients’ surplus. We discuss theoretical and managerial implications for designing “flatter” global online labor markets.
Neal and Jan Dempsey Professor of Information Systems
Michael G. Foster School of Business, University of Washington
"Feel Blue so Go Online: An Empirical Study of Online Supports among Patients"
Stuzin 101, 10:30-12:00 Noon
This paper investigates whether an online healthcare community benefits patients’ mental health. We propose an inhomogeneous Partially Observed Markov Decision Process (POMDP) model to examine the latent health outcomes of online health community members. The transition between different health states is modeled as a probability function that incorporates different forms of social support that patients receive via online communication, and other factors that impact patients’ online behaviors. We find that patients gain benefits from learning from others, and their participation in the online community helps them to improve their health condition and better engage in their disease self-management processes. Our results also reveal the effectiveness of various forms of social support on the dynamic evolution of patients’ health conditions. We find measurable evidence that informational support is the most-sought support in the online healthcare community. However, emotional support plays the most significant role in helping patients move to a healthier state. The helpfulness of social supports is found to vary with patients’ health conditions. Finally, we demonstrate that our proposed POMDP model can provide accurate predictions for patients’ health states, and it can be used to recover missing or unavailable information on patients’ health conditions.
Assistant Professor of Information Systems Management
Warrington College of Business Administration, University of Florida
email (akumar1 at ufl.edu) | bio
"An Information Stock Model of Customer Behavior in Multichannel Customer Support Services"
Stuzin 102, 11:00 to 12:00 Noon
We propose a novel information stock-based framework to understand customer behavior in a multichannel customer support services scenario. We assume that a customer’s observed usage behavior is a stochastic function of her latent “information stock,” which is determined dynamically by the queries that arise as she uses the product and the assistance she obtains on contacting the firm’s support channels. We estimate our model on individual-customer-level data obtained from a US-based health insurance firm. Among many interesting results, we quantify the efficacy of different support channels in terms of resolving customers’ queries, and find that, in our setting, the telephone channel offers significantly greater value than the web channel. Our model can also be used to aid in call center management and staffing decisions as it provides accurate predictions for future query volumes, and can identify customers who are expected to have high telephone call volumes in the near future.
10.26.2012Prof Shantanu Bhattacharya
Associate Professor of Operations Management
"The Role of Milestone-Based Contracts for Coordinating R&D Partnerships"
Bryan 101A, 10:30-12:00 Noon
We analyze optimal contractual arrangements in a bilateral R&D partnership between a risk-averse provider that conducts early-stage research, followed by a regulatory verification stage, and a risk-neutral client that performs late-stage development activities, including production, distribution, and marketing. The problem is formulated as a sequential investment game with the client as the principal, where the investments are observable but not verifiable. The model captures the inherent incentive alignment problems of double-sided moral hazard, risk aversion and holdup. We compare the efficacy of milestone-based options contracts and buyout options contracts from the client's perspective, and identify conditions under which they attain the first-best outcome for the client. We find that milestone options contracts always attain the first-best outcome for the client when the provider has some bargaining power in renegotiation, and identify their applicability to different R&D partnerships.
Ph.D. Job Candidate, ISOM Department
Warrington College of Business Administration, University of Florida
"Cloud Computing Spot Pricing Dynamics: Latency and Limits to Arbitrage"
Bryan 101 A, 10:30-12:00 Noon
In this paper, we examine cloud computing pricing dynamics across east and west Amazon EC2 markets and test for the influence of latency as a pricing wedge in the observed pricing dynamics. Without limits to arbitrage, theory predicts that there should not be any persistent pricing differentials for the same good across markets. We hypothesize that latency differentials create pricing wedges across cloud computing markets. In our analysis, we use various econometric modeling approaches and intra-day Amazon EC2 spot instance pricing data as well as intra-day latency data over the April 9, 2010 to May 22, 2011 sample period. We find that there is considerable time variation in spot instance prices and that prices in the west are often persistently greater than prices in the east over our sample period. Results from using a bivariate VAR model of east and west spot instance prices suggest that there are significant dynamic pricing relations both within and across the east and west markets. The within market autoregressive pricing effect is larger than the across market effect, but there are also significantly pronounced across market pricing effects. We also find that a large portion of the relative price discovery (over 70%) occurs in the east market relative to the west market. To explain the observed time varying pricing differentials across the east and west markets, we use both regression procedures and an Error Correction model (ECM). We find that both east and west latency differentials have a significantly positive effect on the pricing differentials. These results suggest that larger (smaller) latency effects result in larger (smaller) pricing differentials; in effect, latency creates a dynamic pricing wedge that widens or narrows conditional on the latency differentials. From the ECM results, we also find that the speed of adjustment from long run pricing convergence errors causes the short run price differential to narrow, but the adjustment is only partial. From a broader perspective, this paper provides some further evidence and insights into market-based pricing dynamics and market efficiency issues in a burgeoning new market with unique characteristics, including latency effects.
Assistant Professor of Information Systems and Management
Singapore Management University
bio | cv
"Dynamic Two-Sided Pricing Under Sequential Innovation"
Stuzin 102, 10:30-12:00 Noon
Technology innovation engenders products of higher qualities and reduces production costs. This paper focuses on a two-sided platform tied with quality-improving hardware devices that are introduced sequentially. We analyze a monopolist's dynamic pricing strategies facing decreasing future production cost and strategic buyers. Findings in both the traditional (buyer-side only) and two-sided business models show that future cost reductions raise the optimal price of the present product, which shifts the buyer-side demand forward and mitigates inter-temporal cannibalization. Furthermore, future cost reductions may also lead to a higher optimal price for the future product, given a substantial quality improvement. Thus, the monopolist may leverage future cost reductions to position its product line to the high-end market. By comparing the traditional and two-sided business models, we find that the impact of future cost reductions is more pronounced for a two-sided platform.