First Look

First Look summarizes new working papers, case studies, and publications produced by Harvard Business School faculty. Readers receive early knowledge of cutting-edge ideas before they enter the mainstream of business practice. For complete details on faculty research, see our Working Papers section.

March 22

Financial innovation has brought us everything from interest to Eurobonds. But are the advantages of financial innovation as an engine of growth overstated? The answers await scholars willing to tackle this large subject. A new paper by Josh Lerner and Peter Tufano outlines a possible research agenda and attempts to identify how financial innovation is similar to and different from other forms of innovation. Read "The Consequences of Financial Innovation: A Counterfactual Research Agenda."

QuietRock, a soundproofing drywall material, was a hit product for the start-up Serious Materials. Now comes the hard part: figuring out what comes next. The new case "Serious Materials," written by Thomas Steenburgh and Liz Kind, presents challenges the company faces as it prepares to go to market with two new products, SeriousWindows and EcoRock.

In another case study of a fast-growing company, TripAdvisor, writers Sunil Gupta and Kerry Herman explore how CEO Stephen Kaufer thinks about prioritizing expansion plans for the world's largest travel site.

 

Publications

Forward: The Future of Consumer Credit and Mortgage Finance

Abstract

The recent collapse of the mortgage market revealed fractures in the credit market that have deep roots in the system's structure, conduct, and regulation. The time has come for a clear-eyed assessment of what happened and how the system should be strengthened and restructured. Such reform will have a profound and lasting impact on the capacity of Americans to use credit to build assets and finance consumption. Moving Forward explores what caused the crisis and, more important, focuses on the path ahead. The challenge remains the same as ever: protect consumers, ensure fairness, and guarantee soundness of the financial system without stifling innovation and overly restricting access to credit and consumer choice. Nicolas Retsinas, Eric Belsky, and their colleagues aim to stimulate debate based on analysis of the opportunities and challenges presented by the various components of global capital markets: financial engineering, risk assessment and management, specialization of financial intermediation, and marketing methods. The contributors—leaders in business, government, academia, and the nonprofit sector—discuss new research and ideas about the future of credit markets, including how improvements might be shaped by industry leaders.

Publisher's Link: http://www.jchs.harvard.edu/publications/MF10-16.pdf

Unable to Resist Temptation: How Self-control Depletion Promotes Unethical Behavior

Abstract

Individuals depleted of their self-regulatory resources are more likely to "impulsively cheat" than individuals whose self-regulatory resources are intact. We report results from four experiments that describe this relationship. Individuals depleted of self-control resources were more likely to behave dishonestly (Study 1), and this relationship was mediated by impaired moral awareness (Study 2). Unlike individuals with moderate or low moral identity, individuals high in moral identity did not cheat more when they were depleted (Study 3). Our results also show that resisting unethical behavior both requires and depletes self-control resources (Study 4). Taken together, our findings help to explain how otherwise ethical individuals predictably engage in unethical behavior.

Download the paper: http://www.francescagino.com/uploads/4/7/4/7/4747506/gino_et_al_obhdp_2011.pdf

Paradoxical Frames and Creative Sparks: Enhancing Individual Creativity through Conflict and Integration

Abstract

Across industries, organizations operate in increasingly complex and uncertain environments. To succeed in such environments, organizations require their members to think creatively and integrate conflicting demands. We propose that the adoption of paradoxical frames—mental templates that encourage individuals to recognize and embrace contradictions—increases creativity. In four laboratory studies using different creativity tasks and different manipulations for eliciting paradoxical frames, participants who adopted paradoxical frames were more creative than their counterparts who did not. Our results suggest that the positive influence of paradoxical frames on creativity is due to the paradoxical relationship between task elements and not merely to their joint activation. This paradoxical relationship creates a sense of conflict in individuals and enhances their ability to integrate contradictions, which in turn increases creativity.

Download the paper: http://www.francescagino.com/uploads/4/7/4/7/4747506/mironspektor_gino_argote_obhdp_2011.pdf

 

Working Papers

The Profits of Power: Commerce and Realpolitik in Eurasia

An abstract is unavailable at this time.

Download the paper: http://www.hbs.edu/research/pdf/11-028.pdf

Do Not Trash the Incentive! Monetary Incentives and Waste Sorting

Abstract

This paper examines whether monetary incentives are an effective tool for increasing domestic waste sorting. We exploit the exogenous variation in the pricing systems experienced during the 1999-2008 decade by the 95 municipalities in the district of Treviso (Italy). We estimate with a panel analysis that pay-as-you-throw (PAYT) incentive-based schemes increase by 12.2% the ratio of sorted to total waste. This increase reflects a change in the behavior of households, which keep unaltered the production of total waste but sort it to a larger extent. In addition, we show that several factors that may discourage local administrators from adopting PAYT—illegal dumping and higher cost of management—are not important at the aggregate level. Hence, our results support the use of PAYT as an effective tool to increase waste sorting.

Download the paper: http://www.hbs.edu/research/pdf/11-093.pdf

The Consequences of Financial Innovation: A Counterfactual Research Agenda

Abstract

Financial innovation has been both praised as the engine of growth of society and castigated for being the source of the weakness of the economy. In this paper, we review the literature on financial innovation and highlight the similarities and differences between financial innovation and other forms of innovation. We also propose a research agenda to systematically address the social welfare implications of financial innovation. To complement existing empirical and theoretical methods, we propose that scholars examine case studies of systemic (widely adopted) innovations, explicitly considering counterfactual histories had the innovations never been invented or adopted.

Download the paper: http://papers.nber.org/papers/w16780

An Empirical Decomposition of Risk and Liquidity in Nominal and Inflation-Indexed Government Bonds

Abstract

This paper decomposes the excess return predictability in inflation-indexed and nominal government bonds into effects from liquidity, market segmentation, real interest rate risk, and inflation risk. We estimate a large and variable liquidity premium in U.S. Treasury Inflation Protected Securities (TIPS) from the co-movement of breakeven inflation with liquidity proxies. The liquidity premium is around 70 basis points in normal times, but much larger during the early years of TIPS issuance and during the height of the financial crisis in 2008-2009. The liquidity premium explains the high excess returns on TIPS as compared to nominal Treasuries over the period 1999-2009. Liquidity-adjusted breakeven inflation appears stable, suggesting stable inflation expectations over our sample period. We find predictability in both inflation-indexed bond excess returns and in the spread between nominal and inflation-indexed bond excess returns even after adjusting for liquidity, providing evidence for both time-varying real interest rate risk premia and time-varying inflation risk premia. Liquidity appears uncorrelated with real interest rate and inflation risk premia. We test whether bond return predictability is due to segmentation between nominal and inflation-indexed bond markets but find no evidence in either the U.S. or in the U.K.

Download the paper: http://www.hbs.edu/research/pdf/11-094.pdf

Inflation-Indexed Bonds and the Expectations Hypothesis

Abstract

This paper empirically analyzes the Expectations Hypothesis (EH) in inflation-indexed (or real) bonds and in nominal bonds in the U.S. and in the U.K. We strongly reject the EH in inflation-indexed bonds and also confirm and update the existing evidence rejecting the EH in nominal bonds. This rejection implies that the risk premium on both real and nominal bonds varies predictably over time. We also find strong evidence that the spread between the nominal and the real bond risk premium, or the breakeven inflation risk premium, also varies over time. We argue that the time variation in real bond risk premia most likely reflects both a changing real interest rate risk premium and a changing liquidity risk premium, and that the variability in the nominal bond risk premia reflects a changing inflation risk premium. We estimate significant time series variability in the magnitude and sign of bond risk premia.

Download the paper: http://www.hbs.edu/research/pdf/11-095.pdf

 

Cases & Course Materials

Identifying Firm Capital Structure

Bo Becker
Harvard Business School Case 211-072

Students are asked to link concealed balance sheets with firm descriptions. The case helps students understand how balance sheets reflect industry and firm characteristics.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/211072-PDF-ENG

Kepak and the Future of the Irish Beef Industry

David E. Bell, Damien P. McLoughlin, and Mary Shelman
Harvard Business School Case 511-070

As Ireland's third largest beef processor, Kepak faces new opportunities as well as significant challenges from the collapse of the "Celtic Tiger." The government has identified food and agriculture as one way the country could significantly grow exports. However, the beef industry is suffering from overcapacity and from an inefficient farming structure. CEO John Horgan is considering the best way to position Kepak for success, including the possibility of an umbrella Irish beef brand, opportunities for "co-opetition" within the industry, and how to expand the firm's successful convenience foods business to more countries.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/511070-PDF-ENG

PureCircle

David E. Bell and Aldo Sesia
Harvard Business School Case 510-032

In December 2008, the U.S. Food and Drug Administration (FDA) determined that high-purity Rebaudioside A (Reb A), a natural and calorie-free product that a young company named PureCircie manufactured from the Stevia plant, could be used in beverages, foods, and as a table top sweetener in the U.S.—the largest market for sugar and sweeteners in the world. While the FDA's determination was the breakthrough the company had hoped for, much remained uncertain—most obvious, would consumers accept Reb A as a substitute for sugar or the myriad sweeteners already established in the marketplace? The potential seemed high given consumers' growing concerns about obesity and diabetes. Yet, nothing was certain. What worried the company's leadership was the prospect of Reb A taking off—that is, being widely accepted by consumers and used by food and beverage (F&B) companies in mainstream mass-market products such as carbonated soft drinks—and the timing of the take off. If Reb A did go mainstream, PureCircle would need to at least double its capacity to secure its position in the industry. If leadership overbuilt the company's capacity and Reb A ultimately remained a niche product, they would severely jeopardize PureCircle's viability. Yet if leadership waited too long, the opportunity to create substantial wealth for the company's shareholders would be lost. As it was, the company's founder and CEO had already gambled by investing in enough production capacity for acceptance in the niche beverage market-before a market for Reb A had been established.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/510032-PDF-ENG

Carbon Trading Simulation: Black Cement Inc.

Peter A. Coles
Harvard Business School Supplement 911-053

This simulation presents students the opportunity to experience firsthand the economics of carbon markets and permit trading. Each student has private role information about a company he or she manages. The student must make decisions about pollution-reducing investments and production levels in the face of uncertainty about pollution permit prices. Students form groups of five, and throughout the exercise students may buy or sell permits within their group. Trading outcomes dictate permit prices, and at the end of trading, each firm calculates profits and pays over pollution penalties as needed.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/911053-PDF-ENG

Carbon Trading Simulation: Brown Cement Inc.

Peter A. Coles
Harvard Business School Supplement 911-052

This simulation presents students the opportunity to experience firsthand the economics of carbon markets and permit trading. Each student has private role information about a company he or she manages. The student must make decisions about pollution-reducing investments and production levels in the face of uncertainty about pollution permit prices. Students form groups of five, and throughout the exercise students may buy or sell permits within their group. Trading outcomes dictate permit prices, and at the end of trading, each firm calculates profits and pays over pollution penalties as needed.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/911052-PDF-ENG

Carbon Trading Simulation: Green Cement Inc.

Peter A. Coles
Harvard Business School Exercise 911-051

This simulation presents students the opportunity to experience firsthand the economics of carbon markets and permit trading. Each student has private role information about a company he or she manages. The student must make decisions about pollution-reducing investments and production levels in the face of uncertainty about pollution permit prices. Students form groups of five, and throughout the exercise students may buy or sell permits within their group. Trading outcomes dictate permit prices, and at the end of trading, each firm calculates profits and pays over pollution penalties as needed.

Purchase this exercise:
http://cb.hbsp.harvard.edu/cb/product/911051-PDF-ENG

Carbon Trading Simulation: Greenpeace

Peter A. Coles
Harvard Business School Supplement 911-054

This simulation presents students the opportunity to experience firsthand the economics of carbon markets and permit trading. Each student has private role information about a company he or she manages. The student must make decisions about pollution-reducing investments and production levels in the face of uncertainty about pollution permit prices. Students form groups of five, and throughout the exercise students may buy or sell permits within their group. Trading outcomes dictate permit prices, and at the end of trading, each firm calculates profits and pays over pollution penalties as needed.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/911054-PDF-ENG

Carbon Trading Simulation: White Cement Inc.

Peter A. Coles
Harvard Business School Supplement 911-055

This simulation presents students the opportunity to experience firsthand the economics of carbon markets and permit trading. Each student has private role information about a company he or she manages. The student must make decisions about pollution-reducing investments and production levels in the face of uncertainty about pollution permit prices. Students form groups of five, and throughout the exercise students may buy or sell permits within their group. Trading outcomes dictate permit prices, and at the end of trading, each firm calculates profits and pays over pollution penalties as needed.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/911055-PDF-ENG

Mochi Media

Thomas Eisenmann and Amit Jain
Harvard Business School Case 811-056

In late 2009, the management of Mochi Media, a venture-backed startup, must decide how to invest scarce resources to achieve continued growth. Mochi has developed a three-sided platform, connecting Flash game developers, sites that aggregate these games, and advertisers. The case describes the company's history from conception through 2009, when strategic options include broadening beyond Flash games into iPhone-, Android-, and Facebook-based games, and vertically integrating into the game aggregator role, which would capture more value but put Mochi into direct competition with platform partners.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/811056-PDF-ENG

William Jeffrey Departs from Bay Colony Mutual

Lena G. Goldberg
Harvard Business School Case 311-088

A board's decision making and process in investigating and terminating a company's CEO are explored, and the company's policies and contractual obligations considered.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/311088-PDF-ENG

Rebecca S. Halstead: Steadfast Leadership

Boris Groysberg and Deborah Bell
Harvard Business School Case 411-050

Reviews Rebecca Halstead's career history, detailing how, through her personal attributes, skills, experiences, challenges, and organizational practices, she developed into a successful leader and commander in the U.S. Army. The case profiles her leadership style and philosophy. It examines her career strategies and rise through the ranks; strategies she used to deal with challenges faced as a woman in the military; how she turned around a troubled military unit; and how she dealt with a difficult boss who threatened her command of a 25,000-person combat mission.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/411050-PDF-ENG

TripAdvisor

Sunil Gupta and Kerry Herman
Harvard Business School Case 511-004

By 2010, TripAdvisor (TA) was the largest travel site in the world operating in 24 countries and 16 languages, with listings for 455,000 hotels, 92,000 attractions, and 564,000 restaurants in over 71,000 destinations worldwide. It had over 40 million reviews from 35 million unique monthly visitors who were contributing 21 new reviews every minute. Known for its hotel reviews, TA expanded into flights, vacation rentals, and international markets like China. Each of these expansion paths provided unique opportunities as well as new challenges. In August 2010, Stephen Kaufer, CEO, was debating how to prioritize his growth plans for the company.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/511004-PDF-ENG

Recruiting Andrew Yard (A)

Brian J. Hall, Nicole S. Bennett, and Sara del Nido
Harvard Business School Case 911-028

This case describes a compensation negotiation between a global HR director and a candidate for a high-level executive position. The situation becomes awkward when the candidate feels insulted because he is given a monetary incentive to join the company more quickly than originally planned. The case provides an opportunity to analyze negotiation strategy and the importance of emotional intelligence and effective interpersonal communication during a negotiation.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/911028-PDF-ENG

Purchase this supplement (B):
http://cb.hbsp.harvard.edu/cb/product/911029-PDF-ENG

Purchase this supplement (C):
http://cb.hbsp.harvard.edu/cb/product/911030-PDF-ENG

Assembling Smartphones: Takt Time =/= Cycle Time?

Willy Shih and Ethan S. Bernstein
Harvard Business School Case 611-012

The case was prepared to be used as part of a process review in the first year Technology and Operations Management course at HBS. It offers students an opportunity to discuss the context of a manufacturing process choice, and then examine actual production numbers that resulted from a series of choices. While there isn't a traditional case issue, the discussion should focus on the gap between theoretical process designs and the reality of practical implementations, with the impact of operator variability in pace and the complex intertwining with work scope. The case only meant for one discussion pasture to review the Hayes-Wheelwright product-process matrix and the impact of variability on line performance. While comparative numbers for the process choices are provided, the hope would be to develop students' intuition around why the numbers change so much.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/611012-PDF-ENG

Children's Hospital Boston (A)

Scott A. Snook and Jeffrey C. Connor
Harvard Business School Case 411-041

Five year old Matty died at Children's Hospital Boston as a result of elective neurosurgery to "cure" his epilepsy. The organizational system, not the surgery, had failed. During post-operative recovery, he experienced a prolonged seizure that resulted in his death. Confused leadership, organizational differentiation, structurally induced silence, and organizational misalignment contributed to the death. How could this happen in such a world class medical facility?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/411041-PDF-ENG

Serious Materials

Thomas Steenburgh and Liz Kind
Harvard Business School Case 511-111

Serious Materials is a startup that is moving into clean tech markets. The company's first product, QuietRock, originated the soundproofing drywall category and created a steady stream of revenue. It was now considering how to expand its product line to compete in the rapidly developing green building markets. How should Serious Materials go to market when they launch their highly anticipated Serious Windows and EcoRock product lines? What do they need to do to develop their brand?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/511111-PDF-ENG