(Editor's Note: In a recent issue, Economic Sociology: The European Electronic Newsletter tackled the controversial issue of "commodification of the body." Harvard Business School professor Michel Anteby contributed the following essay that discusses issues around establishing a market for cadavers. Anteby's current research examines the morality of markets by focusing on the U.S. supply and demand of cadavers for medical research and education.)

Anyone who has been trained as a physician—or is close to someone who has been—is aware that the dissection of a cadaver is an integral part of the physician's learning and socialization. The first incision is something few physicians forget. That procedure is reproduced time after time, in country after country, and provides a seminal building block of medical education (Boulware et al. 2004). As a physician recalling that precise moment explains: "It is at times awe-inspiring and at other times profoundly upsetting" (Montross 2009). Dissecting a cadaver, she adds, also gives young doctors "an appreciation for the wonders of the human body". Students often give their first "patient" affectionate names; however, much less attention is paid to where the cadaver came from.

A. Tensions Around the Supply and Demand of Cadavers

Supplying human cadavers is left to the responsibility of others, most notably the anatomy course instructors or school administrators. These individuals are not alone in trying to secure specimens. Alongside primary medical education providers, a large number and wide range of other users are also trying to secure cadavers for their own needs. The continuing training of medical doctors, for instance, relies on cadavers. In addition, allied health professionals, emergency medical workers, and medical researchers all demand cadavers or cadaver parts. As an illustration, orthopedic surgeons use human joints to fine-tune their skills to learn new procedures. Similarly, some researchers studying Alzheimer's disease might require human brains. Also, government agencies and automotive manufacturers that try to improve automotive safety benefit from research using cadavers.

It does not help that many users seek the same "good" type of cadavers. A good specimen, in this context, means a young cadaver, one not overly obese or too evidently diseased. Such a description is generally the antithesis of cadavers made typically available through donations, so the supply is further strained. Not surprisingly, both in the United States and other countries, those who require cadavers often question the adequacy of the supply and regularly voice their fear of shortages of cadavers (Agthong and Wiwanitkit 2002; Assemblée Nationale du Québec 2004; U.K. Department of Health 2005).

However, trying to address the question of a shortage of cadavers often means facing the taboo on trading human anatomical goods (Delmonico et al. 2002; Scheper-Hughes 2000; Steiner 2006; Titmuss 1971). Blood, organs, and cadavers are generally thought to be better left untouched by market dynamics. Their sacredness sets them apart from other traded goods. As Philippe Steiner recently reminded us in this newsletter, he began researching organ donation because of the stringency of the ban on market transactions for organs (Steiner 2009). In essence, many would argue that blood, organs, and cadavers should not be considered goods.

That said, the demand for cadavers remains strong, and numerous ideas have been voiced to augment the supply. As an illustration, there is an ongoing debate about the impact of using financial incentives for donors or their families to encourage anatomical donations (Clay and Block 2002; Delmonico et al. 2002; Harrington and Sayre 2006; Obermann 1998). Similarly, surveys of potential whole-body donors seek to gain insight into the reluctance to donate and how better to educate potential donors (Boulware et al. 2004; Richardson and Hurwitz 1995; Sanner 1994). By understanding the reluctance to donate, the hope is that the root causes of such reluctance might be addressed.

Another novel solution to the cadaver shortage lies in securing specimens from a new set of actors in the commerce in cadavers. These actors are legal entrepreneurial ventures that have been operating for more than a decade in the United States; they cater to domestic users and international ones alike. (The procurement of cadavers is regulated, but the export of cadavers much less so.) For medical schools in countries with strong societal norms against donating one's body to science, such a supply route can prove quite practical. In those and other instances, medical schools can purchase for a fee the entrepreneurial ventures' services and help medical students learn their craft. Like corn, wheat, and civilian aircrafts, cadavers sent abroad can be seen as another U.S. export product, although one dwarfed by these other export categories. The notion of human cadavers as a thriving export industry is obviously far away; however, I want to suggest that its legality and limited occurrence underline crucial new developments in markets for anatomical goods. While the international organ trade is almost unanimously condemned, human cadavers can legally freely flow across the globe.

B. The Legal U.S. Framework for Trading Human Cadavers

To my knowledge, the United States is the only country that has seen the development of legal entrepreneurial ventures supplying cadavers for medical education and research. The ventures are small operations (as opposed to individual brokers) and engage in the legal commerce in cadavers. In the U.S. entrepreneurial spirit, these ventures serve this atypical demand by acting as matchmakers between donors and health care areas. Such a development makes many observers pause since there is a strong taboo in many countries—including the United States—against trading human cadavers. However, the technicalities of the cadaver trade somewhat skirt this taboo.

Indeed, the law basically says cadavers cannot be bought and sold; however, the services surrounding their procurement can be reimbursed. More precisely, the 1987 Uniform Anatomical Gift Act that governs U.S. anatomical donations makes it a felony to "knowingly, for valuable consideration, purchase or sell a [body] part for transplantation or therapy, if removal of the part is intended to occur after the death of the descendent." However, the Act excludes from this consideration "the reasonable payment [by health care areas] for the removal, processing, disposal, preservation, quality control, storage, transportation, or implantation of a part," thus allowing operators to procure and supply body parts (National Conference of Commissioners on Uniform State Laws 1987). (A 2006 revision to the Act reiterated this framework.) The window of opportunity, if you wish, is even larger than it might appear. More specifically, the purchase or sale of whole bodies—not parts—is absent from the Act's provision. Second, the purchase and sale of body parts for purposes other than transplantation or therapy are also absent from the Act's provision. Thus, many opportunities open up for entrepreneurial pursuits.

In this context, mom-and-pop shops have emerged alongside more traditional academic-housed programs to procure whole-body donations. As an illustration, a potential donor in Arizona could decide to sign consent forms to donate his or her body to Science Care (a for-profit entrepreneurial venture located in Arizona) or to the University of Arizona's College of Medicine. Why the donor might chose to select one program over another is an empirical question, but the main point is that donors and their families have a choice of program recipient, and that some kind of trade occurs. Financial trades are not between the donors and the programs since donors and their families cannot receive financial compensation for donations but rather between the procuring programs and end users. Put otherwise, this framework allows programs to compete for donations and sell their services to specimen users.

In the past decade, legal for-profit or non-profit entrepreneurial ventures alongside traditional procuring programs in medical schools have started supplying users. In the United States, there are currently more than 100 academic-housed whole-body donation programs (University of Florida State Anatomical Board 2004) and a dozen for-profit or non-profit entrepreneurial ventures. Though welcomed by some specimen users, entrepreneurial ventures often conjure concern about the creation of a market for human cadavers. Such concern is also probably heightened by U.S. historical accounts of grave robbing (Goodwin 2006; Sappol 2002; Shultz 1991). Together these elements contribute to fears of "body-snatching."

C. A Market in All but Name

Arguably, our grandparents, parents, and friends are not being traded on an open market. Quite the contrary, U.S. law ensures that sufficient protection is in place so that this could never happen. However, the ability to legally acquire a cadaver and reimburse a supplier for procuring costs is an important step in creating a market infrastructure. It is a market where the goods are not priced but the services are. This is not to say that in the past, medical schools could not legally acquire cadavers from another program. A school could, for instance, call another school, even one out of state, to inquire if surplus cadavers were available for the upcoming academic year. If cadavers were available and the schools agreed to cooperate, the transportation and embalming costs could be reimbursed by the end user. In practice, however, school administrators did not consider this competing for specimens; instead, they felt they were helping each other out—perhaps even reciprocating the exchange in another academic year.

With the advent of entrepreneurial ventures, nothing in a way has changed; only new suppliers have come onboard in this commerce. However, the number of cadavers acquired by entrepreneurial ventures in recent years leaves little doubt that the ventures are a growing presence in the U.S. commerce for cadavers. There is no federal monitoring of whole body donations in the United States, but estimates suggest that the total number of whole-body donations might be about 20,000 annually (Becker and Elías 2007). Already, the two largest entrepreneurial ventures handle more than 2,000 donations per year or 10 percent of the yearly volume of donations.

D. A Glimpse into the Future?

The competitive forces that may appear in this new "market" are poorly understood. To assess the potential impact of entrepreneurial ventures on procurement of cadavers, Anteby and Hyman (2008) conducted an archival survey of voluntary in-state whole-body donors to two programs operating in the same U.S. state, namely the State of Maryland. Importantly, one program was a traditional academic-housed program and the other was an entrepreneurial venture. Both programs offered equal levels of financial reimbursement for transportation and cremation costs.

The study shows that although the programs procured from a somewhat similar pool of donors, they also complemented one another. Donations to the two programs did not significantly differ in terms of donors' sex, marital status, maximum educational level, or estimated hourly wage. However, the entrepreneurial venture's donors were significantly younger, more likely to be from a minority group, and more likely to have died from cancer. Thus, each program seemed to target a somewhat distinct population. The study also analyzed the programs' specimen recipients or end users. The most likely recipients of the entrepreneurial venture's specimens were for-profit organizations, continuing medical training organizations, and medical device companies. Non-profit and academic organizations were more likely recipients of the academic-housed program's specimens.

If the State of Maryland is representative of the broader U.S. cadaver commerce, some lessons can be learned from the analysis. Most notably, it seems that the programs do not yet fully compete; instead, they tend to specialize in their respective niches—politely eying each other and making sure not to overlap too directly. Such niche specialization is a fixture of many other nascent markets. It remains to be seen whether more head-on competition will occur later; however, if the history of other markets is any guide, such competition is to be expected in more mature markets.

Greater availability of cadavers for medical science could accelerate the quality of medical training and procedures—a fact most users recognize. Nonetheless, how much trust can be put in markets to ensure these outcomes? How should a donor decide between two donation options? What are the logics of such a decision? What does competition for whole-body donations look like? How might this impact other donations? More importantly, perhaps, should programs compete for donations? All these questions require empirical examination.

Much of the debate on human anatomical goods has focused on limiting the market's reach. The U.S. legal commerce in cadavers proves an anomaly in the broader debate on morals and markets (Fourcade-Gourinchas and Healy 2007; Zelizer 1979), particularly when compared to the commerce in blood and organs. Slowly and within limits, a legal, fairly unregulated U.S. commerce in cadavers is taking shape. The growth of entrepreneurial ventures suggests that the question of whether such commerce can exist has de facto been answered. Cadavers are being donated every day to a variety of programs, both to traditional medical schools and to entrepreneurial ventures located in and out-of-state. The few states that have tried to limit the reach of such ventures have mostly been prevented from interfering on the basis of freedom of interstate commerce.

Irrespective of whether a legal market for cadavers might be considered a reason for sorrow or joy, market dynamics around whole-body donations operate in the United States. It remains crucial to understand how and why these dynamics develop. Scholars, particularly economic sociologists engaging in the sociological analysis of economic phenomena, are ideally suited to analyze these developments and initiate a discussion. As Michael Sandel recently remarked, the decision when to use markets is "a political question" that requires debate (Sandel 2009). He added, "The hope for moral and civic renewal depends on having that debate now," but warned that such a debate is "not likely to produce quick or easy agreement." The commerce in cadavers begs for such a debate.

The commerce in cadavers in the United States rests on many key principles, including the need for explicit donor consent, the respect of the donor or the family's wishes, and the need to balance users' needs with donors' wishes. Another key principle governing this commerce, however, seems to be the freedom of interstate commerce that permits entrepreneurial ventures to grow and operate on a national scale. That same principle is often used to justify the free international flow of goods and is core to many international trade agreements. The day medical schools, medical-device companies, and continuing medical education facilities located abroad might routinely call a U.S. entrepreneurial venture to legally procure human cadavers is not far away. The debate on the legitimacy of fulfilling such a request might not produce a "quick and easy agreement" but is worth starting now. Purchasing the services of an entrepreneurial venture to send a cadaver (domestically or overseas) is no longer an empirical question; this does not mean, however, that it should not be a political one. The role of scholars is to provide the empirical input to inform the political debate.

Agthong, S., and V. Wiwanitkit. 2002. "Cadaver donation: A retrospective review at the King Chulalongkorn Memorial Hospital, Bangkok." The Southeast Asian Journal of Tropical Medicine and Public Health 33:166-167.

Anteby, Michel, and Mikell Hyman. 2008. "Entrepreneurial Ventures and Whole-Body Donations: A Regional Perspective from the United States." Social Science & Medicine 66:963-969.

Assemblée Nationale du Québec. 2004. "Débats de l'Assemblée Nationale. 26 octobre 2004. Vol. 38 N° 94."

Becker, Gary S., and Julio Jorge Elías. 2007. "Introducing Incentives in the Market for Live and Cadaveric Organ Donations." Journal of Economic Perspectives 21:3-24.

Boulware, L. Ebony, Lloyd E. Ratner, Lisa A. Cooper, Thomas A. LaVeist, and Neil R. Powe. 2004. "Whole Body Donation for Medical Science: A Population-Based Study." Clinical Anatomy 17:570-577.

Clay, Megan, and Walter Block. 2002. "A Free Market for Human Organs." Journal of Social, Political & Economic Studies 27:227.

Delmonico, Francis L., Robert Arnold, Nancy Scheper-Hugues, Laura A. Siminoff, Jeffrey Kahn, and Stuart J. Youngner. 2002. "Ethical Incentives - Not Payment - For Organ Donation." New England Journal of Medicine 346:2002-2005.

Fourcade-Gourinchas, Marion, and Kieran Healy. 2007. "Moral Views of Market Society." Annual Review of Sociology 22:285-311.

Goodwin, Michele. 2006. Black Markets: The Supply and Demand of Body Parts. New York, NY: Cambridge University Press.

Harrington, David E., and Edward A. Sayre. 2006. "Paying for Bodies, But Not for Organs." Regulation 29:14-19.

Montross, Christine. 2009. "Dead Body of Knowledge." Pp. 6 in International Herald Tribune.

National Conference of Commissioners on Uniform State Laws. 1987. "Uniform Anatomical Gift Act." Philadelphia, PA: American Bar Association.

Obermann, Konrad. 1998. "Some politico-economic aspects of organ shortage in transplantation medicine." Social Science & Medicine 46:299-311.

Richardson, Ruth, and Brian Hurwitz. 1995. "Donors' attitudes towards body donation for dissection." Lancet 346:27-30.

Sandel, Michael. 2009. "Morals and Markets." in The Reith Lectures, June 9th: British Broadcasting Corporatipn, Radio 4.

Sanner, Margareta. 1994. "A Comparison of Public Attitudes toward Autopsy, Organ Donation, and Anatomic Dissection: A Swedish Survey." Journal of the American Medical Association 271:284-288.

Sappol, Michael. 2002. A Traffic of Dead Bodies: Anatomy and Embodied Social Identity in Nineteenth-Century America. Princeton, NJ: Princeton University Press.

Scheper-Hughes, Nancy. 2000. "The Global Traffic in Human Organs." Current Anthropology 41:34.

Shultz, Suzanne. 1991. Body Snatching: The Robbing of Graves for the Education of Physicians in Early Nineteenth Century America. Jefferson, NC: McFarland & Co.

Steiner, Philippe. 2006. "Le Don d'Organe : Une Typologie Analytique." Revue Française de Sociologie 47:479-506. -. 2009. "Economic Sociology in France: Interview with Philippe Steiner." economic sociology_the european electronic newsletter 10.

Titmuss, Richard. 1971. The Gift Relationship: From Human Blood to Social Policy. New York: Vintage.

U.K. Department of Health. 2005. "More body donations needed to sustain medical education, training and research."

University of Florida State Anatomical Board. 2004. "Body Donations Programs in the United States."

Zelizer, Viviana A. 1979. Morals and Markets. The Development of Life Insurance in the United States. New York: Columbia University Press.

Abstract

We build a two country asymmetric DSGE model with two features: (i) a product cycle structure determines the range of intermediate goods used to produce new capital in each country and (ii) there are investment flow adjustment costs in the developing economy. We calibrate the model to match the Mexico-US trade and FDI flows. The model is able to explain (i) why US shocks have a larger effect on Mexico than in the US and hence why the Mexican economy is more volatile than the US; (ii) why US business cycles lead over medium term fluctuations in Mexico and (iii) why Mexican consumption is not less volatile than output.

Keywords: Business Cycles in Developing Countries, Co-movement between Developed and Developing economies, Volatility, Extensive Margin of Trade, Product Life Cycle, FDI. 58 pages.

Recently a number of questions have been raised about capitalism and how it serves us, particularly in boom and bust cycles. But perhaps a bigger debate has arisen about the role of government in helping capitalism to serve us better in times of economic stress. That's why Bruce Scott's new monograph, The Concept of Capitalism, deserves some attention. In it, Scott describes the context in which the debate about the role of government should take place. It's an exercise in political economics, one in which the relationships between democracy (politics) and capitalism (economics) are explored.

Scott's primary thesis is that "Two systems of governance—capitalism (involving economic actors) and democracy (involving political actors)—prevail in the world today … [T]hey can and do influence each other. Indeed, participants in one system can use their positions in that system as a base from which to compete for power in the other."

Scott argues that past analyses by proponents of the Friedman school of economics fall short because they regard markets and pricing mechanisms as the means by which economies are to a large degree self-regulating. It's a free market philosophy governed by the classic "invisible hand" that Scott claims leads at times to a "free-for all," like an athletic contest without rules. What's to be done about it? That's where a political authority comes in, one similar to FIFA in soccer. Its responsibility, whether in a democracy or an authoritarian regime, is to establish institutions, regulations, and regulators that create what Scott terms "formal markets" that foster competition within constraints set by a political authority. In short, political and economic systems are interdependent.

Even in a democracy, according to Scott, "… government by the people is no assurance that it is for the people. For the market frameworks of a capitalist society to best balance societal costs and benefits … [p]olitical leaders working through the political institutions of legislatures are responsible for shaping the institutions of capitalism such that the markets function for the people." Scott describes the role that government plays in preserving both capitalism and democracy. In his words, "Capitalism requires more than markets, firms, and individual economic actors; it requires structure, security, and adaptability…. Until we accept government's framework-defining role as an essential feature, we will not have a satisfactory understanding of capitalism as a system of governance."

What is government's role in supporting or constraining markets? Is it to set the rules and enforce them? Does the sports analogy apply here, with government setting and enforcing the rules even-handedly through officials in its employ? Or is government's role instead to let market mechanisms and the "invisible hand" do their best? Have economists approached these issues too narrowly in the past? What is the role of government vis-à-vis a capitalistic system? What do you think?

To read more:

Bruce Scott, The Concept of Capitalism (Heidelberg: Springer, 2009) (The words in parentheses in the quotes are mine.)

With executive compensation soaring to unprecedented levels in recent years, the prickly issue of CEO pay has received increasing media and government attention. Now, with the perfect storm of a failing economy, government bailouts, and high unemployment, the topic has hit white-hot status.

One particular tool put forward in reforms is the idea of "say on pay," which gives shareholders a non-binding vote on executive compensation and severance packages. The Obama administration has proposed requiring it in all public companies. And just before its August recess, the U.S. House of Representatives passed a bill granting shareholders a non-binding vote on executive compensation and severance packages. It also maintains that compensation committees should be independent of management.

But given its non-binding status, does say on pay work to control executive compensation?

Say on pay has been a research focus of HBS assistant professor Fabrizio Ferri, who started his career at Stern Stewart & Co specializing in performance measurement and incentive compensation issues. In the paper "Say on Pay Vote and CEO Compensation: Evidence from the UK," Ferri and coauthor David Maber (HBS DBA '09), assistant professor at University of Southern California, analyzed the provision, which has been available to United Kingdom shareholders since 2002.

Although Ferri and Maber found no indication of a change in levels of CEO pay after the adoption of say on pay in the UK, they did discover an increase in the sensitivity of CEO pay to poor performance and a reduction in severance packages. The effect was more pronounced in firms with high voting dissent, but was also observed more generally in organizations with excess CEO pay, suggesting that some companies acted in advance of the annual meeting to avoid a confrontation with shareholders.

These findings suggest that say-on-pay legislation can be a useful tool for shareholders to strengthen the link between CEO pay and performance when it comes to those much-maligned golden parachutes.

Ferri sees say on pay as a tool utilized "quite judiciously" in the past.

"There's no evidence that the process was hijacked by special interests. And it works quite well in terms of favoring more communication and awareness between shareholders and boards." He adds that it forces both entities to grapple with an extremely complex issue.

"To have more say on pay, you need to have something to say in the first place."

One at a time

The political climate has muddied the waters a bit in framing that discussion, says Ferri.

There is the question of how to best align the interests of management and shareholders to incentivize long-term performance. Then there's the larger debate over the government's role in issuing limits on the huge pay discrepancies between a company's highest-ranked employees and those further down the ladder—a discussion that could easily stretch beyond business to the lavishly compensated worlds of professional sports and entertainment. There's also the concern over executive pay at firms that received government bailout money.

"All these issues are converging by chance, but they should be considered separately," says Ferri. "Say on pay is not supposed to solve all these issues. It's simply a tool that shareholders will use as they see fit. It may or may not be used in a way that government believes will be good for society. Shareholders have a different objective function from government in that sense." Ferri points out that when the economy was doing well, for example, shareholders had a healthy appetite for the sort of risk-taking that contributed to the subprime mortgage crisis.

Modeled after the UK law, the legislation before Congress makes some wonder if the legislation's non-binding nature will result in any noticeable effect on executive pay. Others, including Ferri, believe a lighter hand produces better results.

"Historically, when the government tries to set limits it doesn't work very well," he comments. "The flexibility of executive compensation is so enormous that it's always possible to find loopholes. It can even create distorting incentives that make the problem worse."

In 1993, for example, Congress imposed a $1 million cap on CEO salary tax deductibility that then led to an explosion of other perks and forms of compensation, such as stock option grants.

"My sense is that the Obama administration fundamentally believes in the power of markets combined with good government supervision," Ferri says. "While some legislators have been pushing for more socialistic solutions, they worry about intervening too much."

Increased shareholder involvement

Ferri sees the increased interest in executive pay as an objective opportunity to recognize its importance as a complicated business decision with "huge consequences" on the actions taken by management. While there hasn't been much variation on compensation packages in the past, Ferri advocates a more holistic approach that tailors executive pay to a company's individual circumstances.

"I like the notion of say on pay because it encourages institutional shareholders to think and get involved—not only in terms of compensation levels, but in the choice of performance measures consistent with a firm strategy, goal setting, time horizon, etc."

Like all interested observers, Ferri will be watching to see how compensation practices change over time. Despite past periods of outrage, he notes that the situation often reverts to "business as usual," with some cynics asserting that is already the case today. Whatever one's view on executive pay, it seems increasingly clear that the collective involvement of multiple stakeholders will shape whatever praise or blame is to come in the future.

Ferri, on leave as a visiting assistant professor of accounting at NYU's Stern School of Business, sees a number of avenues for future research on executive compensation, including its influence on risk-taking and the effects of regulation and disclosure regimes on pay. With increasing access to data from EU nations, he also foresees the potential for comparative analysis of how different nations handle compensation.

Abstract

Large shareholders may play an important role for firm performance and policies, but identifying this empirically presents a challenge due to the endogeneity of ownership structures. We develop and test an empirical framework which allows us to separate selection from treatment effects of large shareholders. Individual blockholders tend to hold blocks in public firms located close to where they reside. Using this empirical observation, we develop an instrument - the density of wealthy individuals near a firm's headquarters - for the presence of a large, non-managerial individual shareholder in a firm. These shareholders have a large impact on firms, controlling for selection effects. 60 pages.

Last spring HBS became the first top-ranked U.S. business school to offer a course in consumer finance. Jointly taught by HBS professor Peter Tufano and Harvard Law School professor Howell Jackson (HBS MBA '80), the elective course attracted 52 students, with one-third coming from the Law School. Tufano recently talked about the course and his determination to make consumer finance a broadly accepted academic pursuit.

Roger Thompson: Why did you want to teach a course in consumer finance?

Peter Tufano: The household sector in America is huge, representing approximately $61 trillion of assets. And consumer finance businesses are the touch points between the financial system and millions of consumers. Despite its size and importance, we had ignored this sector almost entirely in our curriculum.

Q: Was HBS alone in not offering a consumer finance course?

A: No. I surveyed the top twenty MBA programs in America and the top five in Europe. While some offer banking courses, and others offer behavioral courses, none had a course that was specifically about consumer finance.

Here at HBS, we have a rich set of finance electives, including courses on behavioral topics, investment management, financial markets, private equity, venture capital, financial engineering (which I also coteach), and a host of other topics. Retail financial services are also occasionally the subject of cases in other areas.

But we didn't have a course that would help students understand consumers and the financial service firms that serve them, including traditional banks, insurance companies, credit card issuers, and brokers, as well as a host of entrepreneurial ventures in this space.

Q: When did you get the idea to develop such a course?

A: The inspiration came to me ten years ago, about the time I got tenure. As I reflected on my post-tenure plans, I wrote about my interest in how the financial sector works for regular individuals. At the time, my colleagues thought this was an amusing concept.

Over the years my research has been increasingly focused on consumer finance, combining case studies, empirical projects, and experiments—the latter often in conjunction with the Doorways to Dreams Fund, a nonprofit I cofounded that is an R&D lab for new financial products for low-income families.

My first outlet for teaching the topic was an executive education program that I cochaired with [HBS professor emeritus] Dwight Crane for the Credit Union Executives Society. It was a relatively short hop from there to develop the broader Consumer Financial Services (CFS) Executive Education program at HBS. To prepare for that, I teamed up with Howell Jackson at Harvard Law School, who is an expert in financial institutions. We launched the CFS program two years ago, and it gave Howell and me the confidence that we could pull off an even more ambitious undertaking, a joint JD/MBA course, which we launched last January. This substantive example of intra-University collaboration also dovetailed nicely with my role as senior associate dean for Planning and University Affairs.

Q: It would seem that the timing was perfect given the many consumer credit and debt issues that played key roles in the economic crisis that hit last fall.

A: Howell and I have been working on these issues for a decade. With the economic crisis, the issues of household debt, retail financial services, and regulation in this sector came to the fore. But we'd be working on these issues and offering this course even if consumer finance was still unpopular. While it might have taken a crisis to convince some, we believed for a decade that this was an important sector that raised serious issues and deserved substantially greater attention in academia and the classroom.

Q: How did you organize the course?

A: We concluded that we needed a relatively simple set of ideas to organize the course. First, we adopted a functional perspective, a concept that [University Professor] Bob Merton and a number of us have been working on for the last fifteen years. The functional perspective posits that if we want to understand financial products or institutions, rather than look at product or company names, we should look at what functions they perform. In the classroom, we study four functions: payments, movements of money from today to tomorrow (savings and investing), movements of money from tomorrow back to today (borrowing), and managing risk.

Second, given the phenomenon we are studying, we wanted our students to understand three levels of analysis: households, businesses, and the broad political economy.

We begin with individuals and households. It's shocking to me how little we think about the family in the MBA Program. By the time our MBAs graduate, they will have looked at financial statements for hundreds of companies. Other than our course, they would have never looked at the financial statements of a single household. So we begin by having them analyze real numbers for real household budgets. We also bring in concepts from behavioral economics, psychology more broadly, and sociology. We have cases and materials that are at the household level, because we think that before you can discuss business practice or public policy, you must first understand households.

Q: What comes after looking at households?

A: The second level is the company and the industry. Here, we use a more "traditional" set of HBS cases that address a host of industries. What function does this firm perform? What are its economics? How can you deliver this function more efficiently? How can you build a competitive advantage against rivals?

The third level of analysis is the political economy. All the businesses that we study at HBS work in the context of a larger political economy. Consumer finance businesses, in particular, more so than many others, operate under substantial regulatory and legal scrutiny, and for good reasons. As it turns out, those legal and regulatory constructs are changing dramatically in the current environment.

Q: So how did the course go?

A: For a first offering, we felt the course went pretty well. We had students from both schools and the Harvard Kennedy School, used pedagogies and materials from HBS and the Law School, and even trudged back and forth across the Charles each week. The students learned a great deal more from the two of us than if either one of us had taught the course alone.

The students were engaged. The topics were interesting and important. We pulled together some just-in-time course materials, such as the Obama administration's home foreclosure proposals, so we could look at very current issues. We are enthused about teaching it again this year, and we're working on new materials.

Q: Where do you go from here?

A: I'm interested in helping build a field around consumer finance. To that end I've helped to create a seminar series for researchers at Harvard, the Boston Fed, and other local universities where we get together twice a year to talk about consumer finance research.

This fall, we're launching a national consumer finance working group at the National Bureau of Economic Research. I also participate in an FDIC program that funds consumer finance research. It's all part of a broader effort to legitimize this field as an important and rigorous area of research and teaching.

Fortunately here at Harvard, we have faculty and students at the Law School, the Business School, the Economics Department, and the Kennedy School who share this point of view. We've been trying to put our efforts together wherever we can to push this area forward. It's very exciting!