Observation Bias: The Impact of Demand Censoring on Newsvendor Level and Adjustment Behavior
| Author: | David F. Drake |
|---|---|
| Published: | January 31, 2012 |
| Paper Release Date: | December 2011 |
| Feature: | Working Papers |
As the fundamental model for managing inventory under demand uncertainty, the newsvendor model has received significant research attention, but behavioral issues—the focus of this paper—have been less well studied. Nils Rudi and David Drake demonstrate how different aspects of the newsvendor model, a rather complex managerial decision setting, result in a combination of behavioral deviations from the normative solution prescribed within existing literature. The results can help managers prioritize order quantity improvements based on product margins and the degree of demand feedback available in the setting that they operate in.
Income Inequality and Social Preferences for Redistribution and Compensation Differentials
| Author: | William R. Kerr |
|---|---|
| Published: | January 20, 2012 |
| Paper Release Date: | December 2011 |
| Feature: | Working Papers |
Market-based factors have substantially increased inequality in the United States over the last three decades. If the inequality caused by these mechanisms reduces social preferences regarding distributive equality, the inequality can become amplified and entrenched. The potential thus exists for the formation of a "vicious cycle" where increases in disparity weaken concern for wage equality or redistribution. This weakened concern affords greater future compensation differentials, a shrinking of the welfare state, and so on that further increase inequality and again shift preferences. Alternatively, changes in social preferences can counteract inequality increases. William Kerr characterizes how changes in inequality affect social attitudes towards government-led redistribution and compensation differentials. The results of this study provide mixed evidence regarding the vicious-cycle hypothesis. Kerr's findings suggest that social preferences regarding inequality adjust to desire more redistribution while allowing greater labor market inequality.
Income Inequality: What's the Right Amount?
| Published: | January 4, 2012 |
|---|---|
| Feature: | What Do YOU Think? |
| Forum: | closed | 67 Comments posted |
Summing Up Comments were large in number and broad of opinion reflecting on Professor Jim Heskett's question, Does income inequality promote or stunt economic growth? Is there a "right" right amount of income disparity?
Published in 2011
Greater Fiscal Integration Best Solution for Euro Crisis
| Published: | December 6, 2011 |
|---|---|
| Feature: | Views on News |
| Forum: | open for comment; 1 Comment posted |
Ministers and central bankers are working to solve the debt crisis that threatens the European integration project. Is there hope? There is reason to be optimistic, according to Harvard Business School's Dante Roscini, a former investment banker.
Only Capitalists Can Save Capitalism
| Published: | November 30, 2011 |
|---|---|
| Feature: | Research & Ideas |
| Forum: | open for comment; 9 Comments posted |
Capitalism appears to be going through a crisis of confidence, evident in everything from Occupy Wall Street to middle-class riots across the globe. The fix? Capitalists themselves. An interview with the authors of Capitalism at Risk, Joseph L. Bower, Herman B. "Dutch" Leonard, and Lynn S. Paine.
Carbon Tariffs: Impacts on Technology Choice, Regional Competitiveness, and Global Emissions
| Author: | David F. Drake |
|---|---|
| Published: | November 22, 2011 |
| Paper Release Date: | October 2011 |
| Feature: | Working Papers |
Under current emissions regulation such as the European Union Emissions Trading Scheme (EU-ETS) and the Regional Greenhouse Gas Initiative (RGGI) in the Northeast US, imports entering the region fall outside the regulatory regime and incur no carbon costs. As a result, imports can compete within the carbon-regulated region with a new-found advantage, potentially altering the competitive balance between emissions-regulated and -unregulated firms. While implementing carbon tariffs—border adjustments— may appear to be a straightforward solution to this asymmetry, the potential for such a measure to be interpreted as a trade barrier, and thereby initiate a reciprocal tariff, has thus far stymied debate on the issue. This paper explores the impact of such border adjustments on firms' technology choice, regional competitiveness, and global emissions. The analysis shows that border adjustments (or lack thereof) play a vital role in determining firms' technology and production choices, both of which are fundamental operations management decisions that ultimately determine economic and environmental performance. Results have implications for each of the primary stakeholders: regulators making the policy decision regarding border adjustments; firms interested in understanding their competitiveness and location strategies under a border adjustment; and technology producers interested in assessing the potential impact of border adjustments on demand for cleaner technologies.
Private Equity and Employment
| Authors: | Steven J. Davis, John C. Haltiwanger, Ron S. Jarmin, Josh Lerner, and Javier Miranda |
|---|---|
| Published: | November 16, 2011 |
| Paper Release Date: | September 2011 |
| Feature: | Working Papers |
Is there truth to the claim that leveraged buyouts bring huge job losses? In this paper, the authors examine employment responses to US private equity buyouts at a much more granular level than earlier research, exploiting a much larger sample of transactions, a more extensive set of controls, and a novel ability to track outcomes at firms and establishments (e.g., individual factories and offices). They also exploit the strengths of their data to explore new questions about private equity's role in the creative destruction process and its impact on restructuring activity inside target firms. Overall, they find that private equity buyouts catalyze the creative destruction process in the labor market as measured by gross job flows and the purchase and sale of business establishments, with only a modest net impact on employment. Research by Steven J. Davis, John C. Haltiwanger, Ron S. Jarmin, Josh Lerner, Javier Miranda.
Spatial Determinants of Entrepreneurship in India
| Authors: | Ejaz Ghani, William R. Kerr, and and Stephen O'Connell |
|---|---|
| Published: | November 10, 2011 |
| Paper Release Date: | October 2011 |
| Feature: | Working Papers |
In South Asia, which regional traits encourage local entrepreneurship? While multiple studies have considered this question in advanced economies, especially for the manufacturing sector, there has been very little empirical evidence for developing countries like India. While India has historically had low entrepreneurship rates, this weakness is improving and will be an important stepping stone to further development. In this paper, the authors explore the spatial determinants of local entrepreneurship in India for both manufacturing and services. At the district level, their strongest evidence points to the roles that local education levels and physical infrastructure quality play in promoting entry. They also find evidence that strict labor regulations discourage formal sector entry, and better household banking environments encourage entry in the unorganized sector. The paper then evaluates how incumbent industrial structures of cities shape the type of entrants that emerge in local areas. Startups are more frequent for a city in industries that share common labor needs or have customer-supplier relationships with the city's incumbent businesses. This is among the first studies to quantify the spatial determinants of entrepreneurship in India. Moreover, it moves beyond manufacturing to consider services, which are very important for India's economic growth.
The Forgotten Book that Helped Shape the Modern Economy
| Published: | November 7, 2011 |
|---|---|
| Feature: | Research & Ideas |
| Forum: | open for comment; 11 Comments posted |
A British merchant's long-forgotten work, An Essay on the State of England, could lead to a rethinking of how modern economies developed in Europe and America, and add historical perspective on the proper relationship between government and business. An interview with business historian Sophus A. Reinert.
Multi-Sided Platforms
| Authors: | Andrei Hagiu and Julian Wright |
|---|---|
| Published: | November 4, 2011 |
| Paper Release Date: | October 2011 |
| Feature: | Working Papers |
Research in multi-sided platforms (MSPs) studies how payment networks bring together cardholders and retailers, shopping malls bring together shoppers and retailers, and video game systems bring together gamers and game developers. Andrei Hagiu and Julian Wright propose a new definition of MSPs that aims to capture what makes eBay, shopping malls, Yellow Pages directories, and dating websites different from "regular" firms such as a bakery or car dealership, as well as how to characterize less clear-cut examples. They also discuss the economic trade-offs that determine where organizations choose to place themselves on the continuum between MSPs and resellers, or between MSPs and input suppliers.
Market Competition, Government Efficiency, and Profitability Around the World
| Authors: | Paul M. Healy, George Serafeim, Suraj Srinivasan, and Gwen Yu |
|---|---|
| Published: | October 13, 2011 |
| Paper Release Date: | May 2011 |
| Feature: | Working Papers |
Understanding whether and how corporate profitability mean reverts across countries is important for valuation purposes. This research by Paul M. Healy, George Serafeim, Suraj Srinivasan, and Gwen Yu suggests that firm performance persistence varies systematically. Country product, capital, and to a lesser extent labor market competition all affect the rate of mean reversion of corporate profits. Corporate profitability exhibits faster mean reversion in countries with more competitive factor markets. In contrast, government efficiency decreases the speed of mean reversion, but only when the level of market competition is held constant. The findings are useful to practitioners and scholars interested in understanding how country factors affect corporate profitability.
Sovereigns, Upstream Capital Flows and Global Imbalances
| Authors: | Laura Alfaro, Sebnem Kalemli-Ozcan, and Vadym Volosovych |
|---|---|
| Published: | September 20, 2011 |
| Paper Release Date: | August 2011 |
| Feature: | Working Papers |
Uphill capital flows and global imbalances have been at central stage in debates among academics and policymakers for quite some time. Many have argued that capital has been flowing upstream from fast-growing developing nations to stagnant countries in the last decade. At the same time, these emerging countries accumulate a vast amount of reserves. HBS Professor Laura Alfaro and coauthors dissect capital flows between 1970 and 2004 into private and public components for every type of capital, namely FDI, equity and debt. The authors show that upstream flows and global imbalances are manifestations of the same underlying phenomenon: the central role of official flows in determining the international allocation of capital. Private capital does not flow on average uphill from emerging market countries and total capital flows uphill only out of five Asian countries including China due to reserve accumulation which completely dwarfs the net inflows of private capital.
HBS Faculty Views on Debt Crisis
| Published: | August 10, 2011 |
|---|---|
| Feature: | Views on News |
| Forum: | open for comment; 27 Comments posted |
In the midst of the US debt crisis, Harvard Business School faculty offer their views on what went wrong and what needs to be done to right the US ship of state.
An Exploration of Optimal Stabilization Policy
| Authors: | N. Gregory Mankiw and Matthew C. Weinzierl |
|---|---|
| Published: | August 5, 2011 |
| Paper Release Date: | May 2011 |
| Feature: | Working Papers |
The researchers explore alternative policy responses to a recession caused by a decline in aggregate demand, the situation affecting the global economy over the last several years. They show that policies that stimulate the economy at the lowest budgetary cost may not be the best policies in terms of well-being, as well-being depends not only on the level of activity but also on the composition of it (due to consumption, investment, and government spending). In their model of the economy, monetary policy is the best response, and if it is sufficient to stop the recession, government spending ought to move in the same direction as private spending. If monetary policy is insufficient or restricted, fiscal policy should try to replicate what monetary policy would do. If that option, too, is restricted, conventional policies that increase government spending are merited.
Tax Policy and the Efficiency of US Direct Investment Abroad
| Authors: | Mihir A. Desai, C. Fritz Foley, and James R. Hines Jr. |
|---|---|
| Published: | August 3, 2011 |
| Paper Release Date: | July 2011 |
| Feature: | Working Papers |
The tax policy toward multinational firms has come under increased scrutiny with the rise of global activities of firms and concerns that these activities displace activities at home. This scrutiny has raised the question of whether current tax policy inefficiently subsidizes the foreign activities of firms. Mihir A. Desai, C. Fritz Foley, and James R. Hines, Jr. consider this claim by applying the theory of dynamic efficiency to the activities of multinational firms. Specifically, by comparing direct investment abroad with repatriated investment returns over the last sixty years, they conclude that firms are not investing to dynamically inefficient levels, suggesting that current tax policy is not an inefficient subsidy.
Poultry in Motion: A Study of International Trade Finance Practices
| Authors: | Pol Antras and C. Fritz Foley |
|---|---|
| Published: | July 15, 2011 |
| Paper Release Date: | May 2011 |
| Feature: | Working Papers |
When engaging in international trade, exporters must decide which financing terms to use in their transactions. Should they ask the importers to pay for goods before they are loaded for shipment, ask them to pay after the goods have arrived at their destination, or should they use some form of bank intermediation like a letter of credit? In this paper, Pol Antrās and C. Fritz Foley investigate this question by analyzing detailed data on the activities of a single US-based firm that exports frozen and refrigerated food products, primarily poultry. The data cover roughly $7 billion in sales to more than 140 countries over the 1996-2009 period and contain comprehensive information on the financing terms used in each transaction.
The Surprising Power of Age-Dependent Taxes
| Author: | Matthew Weinzierl |
|---|---|
| Published: | June 22, 2011 |
| Paper Release Date: | May 2011 |
| Feature: | Working Papers |
Professor Matthew Weinzierl helps initiate a resurgence of interest in the idea of age-dependent taxes—that is, the idea of making the tax rate contingent upon the age of the tax payer. Using optimal tax theory as well as data from the US Panel Study of Income Dynamics, he shows how the administratively simple reform of age dependence can make the tax system substantially more efficient and more equitable.
Is it Time for a National Bankruptcy?
| Published: | June 2, 2011 |
|---|---|
| Feature: | What Do YOU Think? |
| Forum: | closed | 47 Comments posted |
Summing Up Is a national bankruptcy a tragedy or a needed lesson in fiscal reform? Jim Heskett's readers ponder the implications of a country going insolvent.
An Empirical Decomposition of Risk and Liquidity in Nominal and Inflation-Indexed Government Bonds
| Authors: | Carolin E. Pflueger and Luis M. Viceira |
|---|---|
| Published: | May 27, 2011 |
| Paper Release Date: | March 2011 |
| Feature: | Working Papers |
The yields on US Treasury Inflation Protected Securities (TIPS) have declined dramatically since they were first issued in 1997. This paper asks to what extent the returns on nominal and inflation-indexed bonds in both the US and the UK can be attributed to differential liquidity and market segmentation or to real interest rate risk and inflation risk.
Big BRICs, Weak Foundations: The Beginning of Public Elementary Education in Brazil, Russia, India, and China, 1880-1930
| Authors: | Latika Chaudhary, Aldo Musacchio, Steven Nafziger, and Se Yan |
|---|---|
| Published: | May 3, 2011 |
| Paper Release Date: | February 2011 (Revised July 2011 |
| Feature: | Working Papers |
In deducing why some nations are more developed than others, it makes sense to look at their educational systems. While comparative studies on the subject focus either on developed nations or on differences between developed and developing economies, this paper hones in four of the largest developing nations at the turn of the twentieth century: Brazil, Russia, India, and China (BRIC). Research was conducted by Aldo Musacchio of Harvard Business School, Laktika Chaundhary of Scripps College, Steven Nafziger of Williams College, and Se Yan of Peking University.
