Serial Correlation in Demand, Backlogging and Production Volatility

Louis John Maccini () and Edward Zabel

International Economic Review, 1996, vol. 37, issue 2, pages 423-52

Abstract: This paper explores the idea that stockout avoidance motives together with serial correlation in demand and/or the backlogging of excess demand is sufficient to induce firms to behave so that the variance of production exceeds the variance of sales. The authors show that the idea holds under a wide range of circumstances facing firms, including additive as well as multiplicative demand uncertainty, a general form of serial correlation in demand, whether inventory and shortage costs apply, and whether payment occurs at order or delivery. The results greatly enhance the empirical relevance of the idea. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1996
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