- November 2015
- Quarterly Journal of Economics
Behavioral Hazard in Health Insurance
Abstract—A fundamental implication of standard moral hazard models is overuse of low-value medical care because copays are lower than costs. In these models, the demand curve alone can be used to make welfare statements, a fact relied on by much empirical work. There is ample evidence, though, that people misuse care for a different reason: mistakes or "behavioral hazard." Much high-value care is underused even when patient costs are low, and some useless care is bought even when patients face the full cost. In the presence of behavioral hazard, welfare calculations using only the demand curve can be off by orders of magnitude or even be the wrong sign. We derive optimal copay formulas that incorporate both moral and behavioral hazard, providing a theoretical foundation for value-based insurance design and a way to interpret behavioral "nudges." Once behavioral hazard is taken into account, health insurance can do more than just provide financial protection—it can also improve health care efficiency.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=49544
- November 2015
- Annual Review of Economics
Peer-to-Peer Markets
Abstract—Peer-to-peer markets such as eBay, Uber, and Airbnb allow small suppliers to compete with traditional providers of goods or services. We view the primary function of these markets as making it easy for buyers to find sellers and engage in convenient, trustworthy transactions. We discuss elements of market design that make this possible, including search and matching algorithms, pricing, and reputation systems. We then develop a simple model of how these markets enable entry by small or flexible suppliers and the resulting impact on existing firms. Finally, we consider the regulation of peer-to-peer markets and the economic arguments for different approaches to licensing and certification, data, and employment regulation.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50041
- November 2015
- Accounting Review
The Effect of Target Difficulty on Target Completion: The Case of Reducing Carbon Emissions
Abstract—Targets are an integral component of management control systems and play a significant role in achieving desirable performance outcomes. We focus on a key environmental performance objective—reduction of carbon emissions—as a setting in which to examine how target difficulty affects the degree of target completion in long-term nonfinancial performance. We use a novel dataset compiled by the Carbon Disclosure Project (CDP) and find that firms setting more difficult targets complete a higher percentage of such targets. We also find that this effect is negatively moderated by the provision of monetary incentives. We corroborate this evidence by showing that target difficulty is more effective for carbon reduction projects requiring more novel knowledge and in high-pollution industries. We discuss limitations and suggest avenues for future research.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50057
- November 2015
- Negotiation and Conflict Management Research
Done but Not Published: The Dissertation Journeys of Roy J. Lewicki and J. Keith Murnighan
Abstract—This article explores the tumultuous path to publication that begins for many of us with trying to publish our dissertation. We invited Roy J. Lewicki and J. Keith Murnighan—the 2013 and 2015 recipients of the International Association for Conflict Management (IACM) Lifetime Achievement Award—to reflect on this process, as neither of them were successful in getting their dissertation articles published. We also asked them to reflect on the twists and turns of academic publishing, and we asked Max Bazerman to integrate these reflections. Together, we hope to spark generative conversations that will enable scholars to successfully navigate their academic careers.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50056
Public R&D Investments and Private-sector Patenting: Evidence from NIH Funding Rules
Abstract—We quantify the impact of scientific grant funding at the National Institutes of Health (NIH) on patenting by pharmaceutical and biotechnology firms. Our paper makes two contributions. First, we use newly constructed bibliometric data to develop a method for flexibly linking specific grant expenditures to private-sector innovations. Second, we take advantage of idiosyncratic rigidities in the rules governing NIH peer review to generate exogenous variation in funding across research areas. Our results show that NIH funding spurs the development of private-sector patents: a $10 million boost in NIH funding leads to a net increase of 2.3 patents. Though valuing patents is difficult, we report a range of estimates for the private value of these patents using different approaches.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50038
Catering to Investors Through Product Complexity
Abstract—This paper investigates the rationale for issuing complex securities to retail investors. We focus on a large market of investment products targeted exclusively at households: retail structured products in Europe. We hypothesize that banks strategically use product complexity to cater to yield-seeking households by making product returns more salient and shrouding risk. We find four empirical results consistent with this view. First, we show that structured products with complex payoff formulas offer higher headline rates, and that they more frequently expose investors to a complete loss of their investment. We then document that banks are more inclined to issue high-headline-rate and more complex products in low-rate environments. Finally, we find that high-headline-rate and more complex products are more profitable for banks, and that their ex post performance is lower.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50032
Cheaper by the Dozen: Using Sibling Discounts at Catholic Schools to Estimate the Price Elasticity of Private School Attendance
Abstract—The effect of vouchers on sorting between private and public schools depends upon the price elasticity of demand for private schooling. Estimating this elasticity is empirically challenging because prices and quantities are jointly determined in the market for private schooling. We exploit a unique and previously undocumented source of variation in private school tuition to estimate this key parameter. A majority of Catholic elementary schools offer discounts to families that enroll more than one child in the school in a given year. Catholic school tuition costs, therefore, depend upon the interaction of the number and spacing of a family’s children with the pricing policies of the local school. This within-neighborhood variation in tuition prices allows us to control for unobserved determinants of demand with a fine set of geographic fixed effects, while still identifying the price parameter. We use data from 3,700 Catholic schools, matched to restricted Census data that identifies geography at the block level. We find that a standard deviation decrease in tuition prices increases the probability that a family will send its children to private school by one-half percentage point, which translates into an elasticity of Catholic school attendance with respect to tuition costs of -0.19. Our subgroup results suggest that a voucher program would disproportionately induce into private schools those who, along observable dimensions, are unlike those who currently attend private school.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50036
Discretion in Hiring
Abstract—Who should make hiring decisions? We propose an empirical test for assessing whether firms should rely on hard metrics such as job test scores or grant managers discretion in making hiring decisions. We implement our test in the context of the introduction of a valuable job test across 15 firms employing low-skill service sector workers. Our results suggest that firms can improve worker quality by limiting managerial discretion. This is because, when faced with similar applicant pools, managers who exercise more discretion (as measured by their likelihood of overruling job test recommendations) systematically end up with worse hires.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50037
Toxic Workers
Abstract—While there has been a lot of research on finding and developing top performers in the workplace, less attention has been paid to the question of how to manage those workers who are harmful to organizational performance. In extreme cases, in addition to hurting performance, such workers can generate enormous regulatory and legal liabilities for the firm. We explore a large novel dataset of over 50,000 workers across 11 different firms to document a variety of aspects of workers’ characteristics and circumstances that lead them to engage in "toxic" behavior. We also find that avoiding a toxic worker (or converting him to an average worker) enhances performance to a much greater extent than replacing an average worker with a superstar worker.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50046
Discretionary Task Ordering: Queue Management in Radiological Services
Abstract—A long line of research examines how best to schedule work to improve operational performance. This literature traditionally takes the perspective of a central planner who can structure work and then expect individuals to execute tasks in a prescribed order. In many settings, however, workers have discretion to deviate from the assigned order. This paper considers the operational implications of “discretionary task ordering,” defined as the task sequence resulting from an individual’s ability to select which task to complete next from a work queue. Using data from 91 physicians reading a total of more than 2.4 million radiological studies over a period of two and a half years, we examine the conditions under which discretion is exercised and the performance effects of those choices. We find that, on average, deviations lead to slower read times. Doctors tend to deviate more with experience and when they have more variety within their queue. Interestingly, deviations tend to be more effective under those conditions, yet the improvement is not enough to offset the average deviation penalty. To develop our results further, we explore two common ordering heuristics: shortest expected processing time and batching similar cases. We find that choosing the shortest cases first is particularly detrimental for speed. Finally, batching is associated with better performance when it occurs naturally, but not when it results from using discretion. Our research identifies a “discretion fallacy,” offering a behavioral perspective on queue management and highlighting that managers must be careful when allowing discretion within worker queues.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50023
Evaluating Firm-Level Expected-Return Proxies
Abstract—We develop and implement a rigorous analytical framework for empirically evaluating the relative performance of firm-level expected-return proxies (ERPs), based on the premise that superior proxies should closely track true expected returns both cross-sectionally and over time (that is, the proxies should exhibit lower measurement-error variances). We then compare five classes of ERPs nominated in recent studies to demonstrate how researchers can easily implement our two-dimensional evaluative framework. Overall, our findings support the trend towards characteristic-based ERPs. We also document a tradeoff between time-series and cross-sectional ERP performance, indicating the optimal choice of proxy may vary across research settings. Our results illustrate how researchers can use our framework to critically evaluate and compare a growing body of ERPs.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=48124
Expertise vs. Bias in Evaluation: Evidence from the NIH
Abstract—Evaluators with expertise in a particular field may have an informational advantage in separating good projects from bad. At the same time, they may also have personal preferences that impact their objectivity. This paper develops a framework for separately identifying the effects of expertise and bias on decision making and applies it in the context of peer review at the U.S. National Institutes of Health (NIH). I find evidence that evaluators are biased in favor of projects in their own area, but that they also have better information about the quality of those projects. On net, the benefits of expertise tend to dominate the costs of bias. As a result, policies designed to limit reviewer biases may also reduce the quality of funding decisions.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50035
School Accountability and Principal Mobility: How No Child Left Behind Affects the Allocation of School Leaders
Abstract—The move toward increased school accountability may substantially affect the career risks that school leaders face without providing commensurate changes in pay. Since effective school leaders likely have significant scope in choosing where to work, these uncompensated risks may undermine the efficacy of accountability reforms by limiting the ability of low-performing schools to attract and retain effective leaders. This paper empirically evaluates the economic importance of principal mobility in response to accountability by analyzing how the implementation of No Child Left Behind (NCLB) in North Carolina affected principal mobility across North Carolina schools and how it reshaped the distribution of high-performing principals across low- and high-performing schools. Using value-added measures of principal performance and variation in pre-period student demographics to identify schools that are likely to miss performance targets, I show that NCLB decreases average principal quality at schools serving disadvantaged students by inducing more able principals to move to schools less likely to face NCLB sanctions. These results are consistent with a model of principal-school matching in which school districts are unable to compensate principals for the increased likelihood of sanctions at schools with historically low-performing students.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50034
Impact Evaluation Methods in Public Economics: A Brief Introduction to Randomized Evaluations and Comparison with Other Methods
Abstract—Recent years have seen a large expansion in the use of rigorous impact evaluation techniques. Increasingly, public administrations are collaborating with academic economists and other quantitative social scientists to apply such rigorous methods to the study of public finance. These developments allow for more reliable measurements of the effects of different policy options on the behavioral responses of citizens, firm owners, or public officials. They can help decision makers in tax administrations, public procurement offices, and other public agencies design programs informed by well-founded evidence. This paper provides an introductory overview of the most frequently used impact evaluation methods. It is aimed at facilitating communication and collaboration between practitioners and academics by introducing key vocabulary and concepts used in rigorous impact evaluation methods, starting with randomized controlled trials and comparing them with other methods ranging from simple pre-post analysis to difference-in-differences, matching estimations, and regression discontinuity designs.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50014
Experimental Evidence of Pooling Outcomes Under Information Asymmetry
Abstract—Operational decisions under information asymmetry can signal a firm's prospects to less-informed parties, such as investors, customers, competitors, and regulators. Consequently, managers in these settings often face a tradeoff between making an optimal decision and sending a favorable signal. We provide experimental evidence on the choices made by decision makers in such settings. Equilibrium assumptions that are commonly applied to analyze these situations yield the least cost-separating outcome as the unique equilibrium. In this equilibrium, the more informed party undertakes a costly signal to resolve the information asymmetry that exists. We provide evidence, however, that participants are much more likely to pursue a pooling outcome when such an outcome is available. This result is important for research and practice because pooling and separating outcomes can yield dramatically different results and have divergent implications. We find evidence that the choice to pool is influenced by changes in the underlying newsvendor model parameters in our setting. In robustness tests, we show that choosing a pooling outcome is especially pronounced among participants who report a high level of understanding of the setting and that participants who pool are rewarded by the less informed party with higher payoffs. Finally, we demonstrate through a reexamination of Lai et al. (2012) and Cachon and Lariviere (2001) how pooling outcomes can substantively extend the implications of other extant signaling game models in the operations management literature.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=47633
- Harvard Business School Case 816-028
Duetto: Industry Transformation with Big Data
No abstract available at this time.
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- Harvard Business School Case 515-029
Sturm, Ruger & Co. and the Business of Guns
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- Harvard Business School Case 816-029
Sam Martin & Cathy Slater
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- Harvard Business School Case 916-003
Launching Yelp Reservations (A)
This case presents a multi-party negotiation among Yelp, current partner OpenTable, and two startups in the online restaurant reservation industry.
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- Harvard Business School Case 916-004
Launching Yelp Reservations (B)
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- Harvard Business School Case 516-013
Vita: Cosmetics in the Nordics
Vita is a Norwegian cosmetics retailer owned by FSN Capital, a Scandinavian private equity company. The company has a strong market position in Norway. The case focuses on two strategic issues: how to develop an e-commerce strategy to supplement the company's traditional retail strategy, and how best to grow the company in Sweden. While both of these are potentially important future growth drivers, they also entail large investments in new capabilities, adversely affecting current performance. Given FSN's investment horizon, what is the best way to balance the short- and long-term?
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- Harvard Business School Case 116-009
Kjell & Company: Electronics Accessories Retail in the Nordics
Swedish electronics accessories retailer Kjell is considering several issues as it plots its next stage of growth. How should it balance opportunities to expand retail stores into a new market (Oslo, Norway) with additional growth in its home market—Sweden—with decisions about investments to build out its nascent online channel? Simultaneously, the company is piloting a new sales associate performance management system: should store associates be measured by monthly targets, or will daily targets prove to be more useful?
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- Harvard Business School Case 516-024
Mérieux NutriSciences: Marketing Food Safety Testing
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