All Articles By Date

A Market for Human Cadavers in All but Name?

Published:	November 5, 2009
Feature:	Research & Ideas

A shortage of cadavers has hampered medical education and training, a market that entrepreneurs are stepping forward to address. HBS professor Michel Anteby argues that scholars must learn more about the market dynamics of this uncomfortable subject in order to inform political debate.

Medium Term Business Cycles in Developing Countries

Authors:	Diego Comin, Norman Loayza, Farooq Pasha, and Luis Serven
Published:	November 5, 2009
Paper Release Date:	October 2009
Feature:	Working Papers

At the end of 2007, the U.S. economy entered a recession that, by the first quarter of 2009, had reduced U.S. GDP by 2.2 percent. The Mexican economy was showing no sign of distress until the U.S. recession began. Despite that, Mexican GDP declined by 7.8 percent during the same period. This and similar episodes from other developing countries motivate several questions: Why do shocks to developed economies affect developing countries to such an extent? Does the response of developing economies to shocks that originate in their developed neighbors account for the larger volatility of developing economies? More broadly, what ingredients do macroeconomic models need to incorporate in order to account for the unique features of economic fluctuations in developing economies? To investigate these questions, the researchers developed a two-country asymmetric model to study the business cycle in developing countries. The mechanisms introduced in the model should provide an accurate account of business cycles in other developing countries.

What is the Role of Government Vis-à-Vis Capitalism?

Published:	November 4, 2009
Feature:	What Do YOU Think?
Forum:	open for comment; 4 Comments posted

Online forum OPEN through November 24. A new monograph by HBS professor emeritus Bruce R. Scott describes the role that government plays in preserving both capitalism and democracy. Professor Jim Heskett asks: How should a government best support or constrain markets? What do you think?

Shareholders Need a Say on Pay

Published:	November 2, 2009
Feature:	Research & Ideas

"Say on pay" legislation now under debate Washington D.C. can be a useful tool for shareholders to strengthen the link between CEO pay and performance when it comes to golden parachutes, says Harvard Business School professor Fabrizio Ferri. Here's a look at how the collective involvement of multiple stakeholders could shape the future of executive compensation.

Estimating the Effects of Large Shareholders Using a Geographic Instrument

Authors:	Bo Becker, Henrik Cronqvist, and Rüdiger Fahlenbrach
Published:	October 29, 2009
Paper Release Date:	October 2009
Feature:	Working Papers

Are large shareholders good monitors of management? A public firm's shareholders have extensive legal control rights in the corporation, but in practice much of this control is delegated to managers. In companies with small, dispersed shareholders, owners may find it costly to coordinate and exercise monitoring and control, leaving management with considerable discretion. Large shareholders, however—by concentrating a block of shares in the hands of a single decision-maker—may play a beneficial role in facilitating effective owner control. Yet large shareholders are not without their costs. HBS professor Bo Becker and coauthors develop and test a framework to quantify the impact of large owners (individual non-managerial blockholders, not mutual funds or other institutions) on several key aspects of firm behavior. They show that such shareholders play an important role for corporate governance in sizable U.S. public firms, and can affect several firm policies.

HBS Begins Teaching Consumer Finance

Q&A with:	Peter Tufano
Published:	October 28, 2009
Feature:	Lessons from the Classroom

Last spring HBS became the first top-ranked U.S. business school to offer a course in consumer finance. Professor Peter Tufano talks about the course and his determination to make consumer finance a broadly accepted academic pursuit. From the HBS Alumni Bulletin.

Stock Price Fragility

Authors:	Robin Greenwood and David Thesmar
Published:	October 27, 2009
Paper Release Date:	October 2009
Feature:	Working Papers

Does the composition of ownership of a financial asset influence future returns and risk? Previous economic research has documented significant price effects of investor demand in numerous settings, including retail demand for options, investor demand for bonds, and mutual funds' flow-driven demand for stocks. This paper provides a methodology to identify assets that are vulnerable to such investor demand shocks. The central idea is that assets are risky if the current owners of the asset face correlated liquidity shocks—i.e., they buy and sell at the same time. We call assets with a high concentration of owners who trade in the same direction "fragile." A related concept is "co-fragility." Two assets are "co-fragile" if their owners have correlated trading needs, even if the holdings of these owners do not directly overlap. The authors build measures of fragility for U.S. stocks between 1990 and 2007. Consistent with their predictions, more fragile stocks are more volatile, and two co-fragile stocks exhibit high correlations among their stock returns.

The New Deal: Negotiauctions

Q&A with:	Guhan Subramanian
Published:	October 26, 2009
Feature:	Executive Education

Whether negotiating to purchase a company or a house, dealmaking is becoming more complex. Harvard Business School professor Guhan Subramanian sees a new form arising, part negotiation, part auction. Call it the negotiauction. Here's how to play the game.

Strategies to Fight Ad-sponsored Rivals

Authors:	Ramon Casadesus-Masanell and Feng Zhu
Published:	October 22, 2009
Paper Release Date:	September 2009
Feature:	Working Papers

Many companies choose to finance themselves using ad revenues and offer their products or services—from newspapers to software applications, television programs, and online search—free to consumers. Yet the emergence of ad-sponsored entrants in various industries poses significant threats to the incumbents in these markets whose business models are often based on subscriptions or fees charged to their customers. Faced with the threat from ad-sponsored entrants, incumbents must choose strategies to respond. HBS professor Ramon Casadesus-Masanell and University of Southern California professor Feng Zhu create an analytical framework to establish guidelines for incumbent firms facing these issues. The researchers consider four alternative business models: pure-subscription-based; pure-ad-sponsored; mixed-single-product; and mixed-product-line-extension. Analysis shows that the optimal strategic and tactical choices change dramatically in the presence of an ad-sponsored rival. This is the first study to provide a comprehensive analysis of the competition between a free ad-sponsored entrant and an incumbent that has the option of choosing different business models.

Transforming Giants

Published:	October 21, 2009
Feature:	HBS Business Summit

A new type of 21st century company is emerging that is transforming how business is conducted. These are values-driven companies that define a core set of values and rely on these values in making all strategic decisions.

Why Are Web Sites So Confusing?

Published:	October 19, 2009
Feature:	Research & Ideas

Just as bread and milk are often found at far-away ends of the supermarket, Web sites that match consumers with certain products have an incentive to steer users to products that yield the highest margins. The result: a compromise between what users want and what produces the most revenues, say HBS professor Andrei Hagiu and Toulouse School of Economics researcher Bruno Jullien. A look inside the world of search.

Mixed Source

Authors:	Ramon Casadesus-Masanell and Gastón Llanes
Published:	October 15, 2009
Paper Release Date:	September 2009
Feature:	Working Papers

As most managers know, commercial firms may benefit from participating in open source software development by selling complementary goods or services. Open source has the potential to improve value creation because it benefits from the efforts of a large community of developers. Proprietary software, on the other hand, results in superior value capture because the intellectual property remains under the control of the original developer. While the straightforward rationale for "mixed source" (a combination of the two) is appealing, what does it mean for a business model? Under what circumstances should a profit-maximizing firm adopt a mixed source business model? How should firms respond to competitors' adoption of mixed source business models? And what are the right pricing structures under mixed source compared with the proprietary business model? In this paper the researchers analyze a model where firms with modular software must decide which modules to open and which to keep proprietary. Findings can be directly applied to the design of optimal business strategies.

7 Lessons for Navigating the Storm

Q&A with:	William W. George
Published:	October 13, 2009
Feature:	Research & Ideas

Leading in crisis requires a combination of skills and behaviors—personal and professional—that can be mastered, says HBS professor Bill George. A crisis, difficult as it is, also presents an opportunity to develop and grow. Q&A and excerpt from 7 Lessons for Leading in Crisis.

Clusters of Entrepreneurship

Authors:	Edward L. Glaeser, William R. Kerr, and Giacomo A. M. Ponzetto
Published:	October 8, 2009
Paper Release Date:	September 2009
Feature:	Working Papers

Economic growth is highly correlated with an abundance of small, entrepreneurial firms. This relationship is even stronger looking across industries within cities, and has been taken as evidence for competition spurring technological progress, product cycles where growth is faster at earlier stages, and the importance of entrepreneurship for area success. Any of these interpretations is possible, however, and the only thing that we can be sure of is that entrepreneurial clusters exist in some areas but not in others. This paper first documents systematically some basic facts about average establishment size and new employment growth through entrepreneurship, then analyzes entry and industrial structures at the region and the city levels using the Longitudinal Business Database.

Specific Knowledge and Divisional Performance Measurement

Authors:	Michael C. Jensen and William H. Meckling
Published:	October 7, 2009
Paper Release Date:	September 2009
Feature:	Working Papers

Performance measurement is one of the critical factors that determine how individuals in an organization behave. It includes subjective as well as objective assessments of the performance of both individuals and subunits of an organization such as divisions or departments. Besides the choice of the performance measures themselves, performance evaluation involves the process of attaching value weights to the different measures to represent the importance of achievement on each dimension. This paper examines five common divisional performance measurement methods: cost centers, revenue centers, profit centers, investment centers, and expense centers. The authors furnish the outlines of a theory that attempts to explain when each of these five methods is likely to be the most efficient.

HBS Past and Present

Published:	October 7, 2009
Feature:	HBS Business Summit

Eight enduring themes have characterized Harvard Business School from its earliest years, and remain as integral as ever to the way the School thinks and operates.

The Vanguard Corporation

Q&A with:	Rosabeth Moss Kanter
Published:	October 5, 2009
Feature:	Research & Ideas

In the book SuperCorp, Rosabeth Moss Kanter lays out a model for 21st-century companies that care as much about creating value for society as they do value for shareholders and employees. The best part: It pays to be good.

Can the "Masks of Command" Coexist with Authentic Leadership?

Published:	October 1, 2009
Feature:	What Do YOU Think?
Forum:	closed \| 79 Comments posted

Summing up. "Instructors seek case studies that provoke discussion on both sides of an issue and raise many questions. We seem to have found such an issue this month," says Professor Jim Heskett, reviewing nearly 80 insightful comments. (Online forum now closed; next forum begins November 4.)

Systemic Risk and the Refinancing Ratchet Effect

Authors:	Amir E. Khandani, Andrew W. Lo, and Robert C. Merton
Published:	October 1, 2009
Paper Release Date:	September 2009
Feature:	Working Papers

During periods of rising house prices, falling interest rates, and increasingly competitive and efficient refinancing markets, cash-out refinancing is like a ratchet, incrementally increasing homeowner debt as real-estate values appreciate without the ability to symmetrically decrease debt by increments as real-estate values decline. This paper suggests that systemic risk in the housing and mortgage markets can arise quite naturally from the confluence of these three apparently salutary economic trends. Using a numerical simulation of the U.S. mortgage market, the researchers show that the ratchet effect is capable of generating the magnitude of losses suffered by mortgage lenders during the financial crisis of 2007-2008. These observations have important implications for risk management practices and regulatory reform.

Breakthrough Inventions and Migrating Clusters of Innovation

Author:	William R. Kerr
Published:	September 30, 2009
Paper Release Date:	September 2009
Feature:	Working Papers

In just a short period of time the spatial location of invention can shift substantially. The San Francisco Bay Area grew from 5 percent of U.S. domestic patents in 1975-1984 to over 12 percent in 1995-2004, for example, while the share for New York City declined from 12 percent to 7 percent. Smaller cities like Austin, Texas, and Boise, Idaho, seem to have become clusters of innovation overnight. Despite the prevalence of these movements, we know very little about what drives spatial adjustments in U.S. invention, the speed at which these reallocations occur, and their economic consequences. In this paper, HBS professor William R. Kerr investigates whether breakthrough inventions draw subsequent research efforts for a technology to a local area. Evidence strongly supports the conclusion that centers of breakthrough innovations experience subsequent growth in innovation relative to their peer locations.

Harvard and HBS: The Next 100 Years

Published:	September 30, 2009
Feature:	HBS Business Summit

Harvard President Drew Gilpin Faust reflected on Harvard Business School's past 100 years and shared her vision of the future, while HBS Dean Jay Light discussed the School's history and highlighted key focus areas for the future.

Improving Accountability at the World Bank

Published:	September 28, 2009
Feature:	Research & Ideas

Its legitimacy and effectiveness on the line, the World Bank faces criticism from its constituents and the civil society organizations that serve them. What options and arguments for accountability make the most sense for global governance institutions like the World Bank? HBS professor Alnoor Ebrahim testified before the U.S. House of Representatives on paths to change.