PUBLIC SAFETY AND THE MORAL DILEMMA IN THE DEFENSE AGAINST TERROR

The economic theory of defense has traditionally described public safety as achieved through investments that deter adversaries. Deterrence is, however, ineffective and pre‐emptive defense is required when a population of intended victims confronts supreme‐value suicide terror. A moral dilemma then arises, since pre‐emption may impose collective punishment, while in the absence of pre‐emption the population of intended victims is exposed to acts of terror. We consider how a population of intended terror victims confronts the moral dilemma, and compare the threatened population's response with the public‐safety recommendations of external judges who are not personally affected by the threat of terror.     

FORECASTING SERIES CONTAINING OFFSETTING BREAKS: OLD SCHOOL AND NEW SCHOOL METHODS OF FORECASTING TRANSNATIONAL TERRORISM

Transnational terrorism data are difficult to forecast because they contain an unknown number of structural breaks of unknown functional form. The rise of religious fundamentalism, the demise of the Soviet Union, and the rise of al Qaeda have changed the nature of transnational terrorism. ‘Old School’ forecasting methods simply smooth or difference the data. ‘New School’ methods use estimated break dates to control for regime shifts when forecasting. We compare the various forecasting methods using a Monte Carlo study with data containing different types of breaks. The study's results are used to forecast various types of transnational terrorist incidents.     

Country Survey XIII: Japan's security posture and defense industry prospects

Defense budgets in Japan have been complicated compromises from numerous inputs ‐ including threat perceptions, domestic industrial/technological base development, support for the bilateral security treaty with the United States and internal bureaucratic politics ‐ but with the fall of the former Soviet Union, the clearest justification for higher spending disappeared. Double‐digit defense spending increases that were common in the 1980s have been replaced by annual increases lower than present inflation rates, resulting in negative real growth in the country's defense budget. Domestic economic problems and consistent government pressures for smaller budgets have further slowed annual growth in total spending and have contributed to lower procurement budgets. As a result, the domestic Japanese defense industry is facing far more constrained conditions from the growth years of a decade before.

Government policymakers are examining Japan's regional security environment as well as its alliance with the United States to determine the appropriate course for the country to take in the coming years. The formal security treaty with the United States is likely to remain a major element of government positions, but other aspects of the country's overall security posture are open to debate. Perceptions of a reduced threat environment are fueling additional pressures for defense budget cuts.

The domestic defense industry seeks means to assure its survival in domestic defense markets in this constrained environment. Expansion into overseas markets to offset declining domestic markets is an option that currently is constrained by policy restrictions on arms exports. Industry is advocating re‐examination of those policies and unlike earlier years, government appears willing to respond positively but cautiously to this lobbying.     

The impact of defense and non‐defense public spending on growth in Asia and Latin America∗

For a three‐sector Feder‐Ram framework, we present time‐series, cross‐sectional estimates for two cohorts, consisting of Asian and Latin American countries. The estimates indicate that private investment, and defense and non‐defense public spending are growth promoting for alternative error components representations. For the best error components representation, greater growth enhancement is associated with the two forms of public spending in Asia than in Latin America, while the opposite comparison characterizes private investment. Although defense is growth promoting, an opportunity cost exists insofar as non‐defense spending, financed by defense spending, appears to give a small net boost to growth in Latin America.     

FIGHTING TERRORISM: ARE MILITARY MEASURES EFFECTIVE? EMPIRICAL EVIDENCE FROM TURKEY

The present article aims at investigating the causal relationship between defense spending and terrorism in Turkey using the Autoregressive Distributed Lag (ARDL) bounds testing procedure and Granger‐causality analysis. The findings reveal that there exists a unidirectional causality running form terrorist attacks to defense spending as expected, but not vice versa. In the light of this finding it can be inferred that military anti‐terrorism measures alone are not sufficient to prevent terrorism.     

Dynamic inventory control with limited capital and short‐term financing

For most firms, especially the small‐ and medium‐sized ones, the operational decisions are affected by their internal capital and ability to obtain external capital. However, the majority of the literature on dynamic inventory control ignores the firm's financial status and financing issues. An important question that arises is: what are the optimal inventory and financing policies for firms with limited internal capital and limited access to external capital? In this article, we study a dynamic inventory control problem where a capital‐constrained firm periodically purchases a product from a supplier and sells it to a market with random demands. In each period, the firm can use its own capital and/or borrow a short‐term loan to purchase the product, with the interest rate being nondecreasing in the loan size. The objective is to maximize the firm's expected terminal wealth at the end of the planning horizon. We show that the optimal inventory policy in each period is an equity‐level‐dependent base‐stock policy, where the equity level is the sum of the firm's capital level and the value of its on‐hand inventory evaluated at the purchasing cost; and the structure of the optimal policy can be characterized by four intervals of the equity level. Our results shed light on the dynamic inventory control for firms with limited capital and short‐term financing capabilities.Copyright © 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 184–201, 2014     

A note on signature‐based expressions for the entropy of mixed r‐out‐of‐ n systems

We provide an expression for the Shannon entropy of mixed r‐out‐of‐ n systems when the lifetimes of the components are independent and identically distributed. The expression gives the system's entropy in terms of the system signature, the distribution and density functions of the lifetime model, and the information measures of the beta distribution. Bounds for the system's entropy are obtained by direct applications of the concavity of the entropy and the information inequality.Copyright © 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 202–206, 2014     

Maintenance scheduling for modular systems: Modeling and algorithms

We study new models of scheduled maintenance management for modular systems, consisting of multiple components with respective cycle limits. The cycle limit of each component specifies the time interval in which this component must be repaired or replaced. The goal is to compute a feasible maintenance schedule that minimizes the cost associated with component maintenance. Applications of these models arise in Air Force aircraft maintenance as well as in other arenas with required preventive maintenance. The typical cost structures that arise in practical settings are submodular, which make the resulting models computationally challenging. We develop two efficient and operationally tenable approximation algorithms. We prove constant factor worst‐case guarantees for both algorithms, and present computational experiments showing that these algorithms perform within a few percent of optimality on operationally relevant instances. © 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 472–488, 2014     

Sequential learning versus no learning in Bayesian regression models

We consider two regression models: linear and logistic. The dependent variable is observed periodically and in each period a Bayesian formulation is used to generate updated forecasts of the dependent variable as new data is observed. One would expect that including new data in the Bayesian updates results in improved forecasts over not including the new data. Our findings indicate that this is not always true. We show there exists a subset of the independent variable space that we call the “region of no learning.” If the independent variable values for a given period in the future are in this region, then the forecast does not change with any new data. Moreover, if the independent variable values are in a neighborhood of the region of no learning, then there may be little benefit to wait for the new data and update the forecast. We propose a statistical approach to characterize this neighborhood which we call the “region of little learning.” Our results provide insights into the trade‐offs that exist in situations when the decision maker has an incentive to make an early decision based on an early forecast versus waiting to make a later decision based on an updated forecast. © 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 532–548, 2014