Medium Term Business Cycles in Developing Countries
| Authors: | Diego Comin, Norman Loayza, Farooq Pasha, and Luis Serven |
|---|---|
| Published: | November 5, 2009 |
| Paper Release Date: | October 2009 |
| Feature: | Working Papers |
At the end of 2007, the U.S. economy entered a recession that, by the first quarter of 2009, had reduced U.S. GDP by 2.2 percent. The Mexican economy was showing no sign of distress until the U.S. recession began. Despite that, Mexican GDP declined by 7.8 percent during the same period. This and similar episodes from other developing countries motivate several questions: Why do shocks to developed economies affect developing countries to such an extent? Does the response of developing economies to shocks that originate in their developed neighbors account for the larger volatility of developing economies? More broadly, what ingredients do macroeconomic models need to incorporate in order to account for the unique features of economic fluctuations in developing economies? To investigate these questions, the researchers developed a two-country asymmetric model to study the business cycle in developing countries. The mechanisms introduced in the model should provide an accurate account of business cycles in other developing countries.
What is the Role of Government Vis-à-Vis Capitalism?
| Published: | November 4, 2009 |
|---|---|
| Feature: | What Do YOU Think? |
| Forum: | open for comment; 4 Comments posted |
Online forum OPEN through November 24. A new monograph by HBS professor emeritus Bruce R. Scott describes the role that government plays in preserving both capitalism and democracy. Professor Jim Heskett asks: How should a government best support or constrain markets? What do you think?
HBS Begins Teaching Consumer Finance
| Q&A with: | Peter Tufano |
|---|---|
| Published: | October 28, 2009 |
| Feature: | Lessons from the Classroom |
Last spring HBS became the first top-ranked U.S. business school to offer a course in consumer finance. Professor Peter Tufano talks about the course and his determination to make consumer finance a broadly accepted academic pursuit. From the HBS Alumni Bulletin.
Strategies to Fight Ad-sponsored Rivals
| Authors: | Ramon Casadesus-Masanell and Feng Zhu |
|---|---|
| Published: | October 22, 2009 |
| Paper Release Date: | September 2009 |
| Feature: | Working Papers |
Many companies choose to finance themselves using ad revenues and offer their products or services—from newspapers to software applications, television programs, and online search—free to consumers. Yet the emergence of ad-sponsored entrants in various industries poses significant threats to the incumbents in these markets whose business models are often based on subscriptions or fees charged to their customers. Faced with the threat from ad-sponsored entrants, incumbents must choose strategies to respond. HBS professor Ramon Casadesus-Masanell and University of Southern California professor Feng Zhu create an analytical framework to establish guidelines for incumbent firms facing these issues. The researchers consider four alternative business models: pure-subscription-based; pure-ad-sponsored; mixed-single-product; and mixed-product-line-extension. Analysis shows that the optimal strategic and tactical choices change dramatically in the presence of an ad-sponsored rival. This is the first study to provide a comprehensive analysis of the competition between a free ad-sponsored entrant and an incumbent that has the option of choosing different business models.
Clusters of Entrepreneurship
| Authors: | Edward L. Glaeser, William R. Kerr, and Giacomo A. M. Ponzetto |
|---|---|
| Published: | October 8, 2009 |
| Paper Release Date: | September 2009 |
| Feature: | Working Papers |
Economic growth is highly correlated with an abundance of small, entrepreneurial firms. This relationship is even stronger looking across industries within cities, and has been taken as evidence for competition spurring technological progress, product cycles where growth is faster at earlier stages, and the importance of entrepreneurship for area success. Any of these interpretations is possible, however, and the only thing that we can be sure of is that entrepreneurial clusters exist in some areas but not in others. This paper first documents systematically some basic facts about average establishment size and new employment growth through entrepreneurship, then analyzes entry and industrial structures at the region and the city levels using the Longitudinal Business Database.
Systemic Risk and the Refinancing Ratchet Effect
| Authors: | Amir E. Khandani, Andrew W. Lo, and Robert C. Merton |
|---|---|
| Published: | October 1, 2009 |
| Paper Release Date: | September 2009 |
| Feature: | Working Papers |
During periods of rising house prices, falling interest rates, and increasingly competitive and efficient refinancing markets, cash-out refinancing is like a ratchet, incrementally increasing homeowner debt as real-estate values appreciate without the ability to symmetrically decrease debt by increments as real-estate values decline. This paper suggests that systemic risk in the housing and mortgage markets can arise quite naturally from the confluence of these three apparently salutary economic trends. Using a numerical simulation of the U.S. mortgage market, the researchers show that the ratchet effect is capable of generating the magnitude of losses suffered by mortgage lenders during the financial crisis of 2007-2008. These observations have important implications for risk management practices and regulatory reform.
Breakthrough Inventions and Migrating Clusters of Innovation
| Author: | William R. Kerr |
|---|---|
| Published: | September 30, 2009 |
| Paper Release Date: | September 2009 |
| Feature: | Working Papers |
In just a short period of time the spatial location of invention can shift substantially. The San Francisco Bay Area grew from 5 percent of U.S. domestic patents in 1975-1984 to over 12 percent in 1995-2004, for example, while the share for New York City declined from 12 percent to 7 percent. Smaller cities like Austin, Texas, and Boise, Idaho, seem to have become clusters of innovation overnight. Despite the prevalence of these movements, we know very little about what drives spatial adjustments in U.S. invention, the speed at which these reallocations occur, and their economic consequences. In this paper, HBS professor William R. Kerr investigates whether breakthrough inventions draw subsequent research efforts for a technology to a local area. Evidence strongly supports the conclusion that centers of breakthrough innovations experience subsequent growth in innovation relative to their peer locations.
Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery
| Authors: | David M. Cutler, Robert S. Huckman, and Jonathan T. Kolstad |
|---|---|
| Published: | September 17, 2009 |
| Paper Release Date: | August 2009 |
| Feature: | Working Papers |
Many professions rely on highly and variably skilled individuals. If a new firm is looking to enter a specific market, in addition to setting up a physical facility the company needs to hire or contract with specialized labor. In the short term, the supply of these specialists is relatively inelastic. From the point of view of economics, there remains a well-known potential for free entry to be inefficient when firms make entry decisions without internalizing the costs associated with the business they "steal" from incumbent firms. In 1996 Pennsylvania eliminated its certificate-of-need (CON) policy that had restricted entry by hospitals into expensive clinical programs, such as coronary artery bypass graft (CABG) programs—leading to an increase from 43 to 63 in the number of hospitals providing this service. HBS professor Robert Huckman and coauthors examine the welfare implications of entry in the market for cardiac surgery.
Quantifying the Economic Impact of the Internet
| Published: | August 17, 2009 |
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| Feature: | Research & Ideas |
Businesses around the advertising-supported Internet have incredible multiplier effects throughout the economy and society. Professor John Quelch starts to put some numbers on the impact.
Business Summit: Ethics in Globalization
| Published: | July 17, 2009 |
|---|---|
| Feature: | HBS Business Summit |
It is impossible to regulate against greed and ethical shortcomings. What can be done is to force greater transparency and accountability.
"Too Big To Fail": Reining In Large Financial Firms
| Published: | June 22, 2009 |
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| Feature: | Research & Ideas |
Four little words have cost U.S. taxpayers dearly in government bailouts of once-mighty Wall Street firms. Congress can put an end to such costly rescues, says HBS professor David A. Moss, and the Federal Reserve could be a super regulator, adds senior lecturer Robert C. Pozen. But will Congress enact the regulatory cure that is required? From the HBS Alumni Bulletin.
Business Summit: The Future of Market Capitalism
| Published: | June 16, 2009 |
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| Feature: | HBS Business Summit |
Professor Michael E. Porter leads a discussion on the shortcomings of the capitalist system and ways the business community can better serve broader societal interests.
Business Summit: Lawrence Summers on Market Capitalism's Historic Opportunity
| Published: | June 12, 2009 |
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| Feature: | HBS Business Summit |
Confronting today's economic challenges represents an historic opportunity to save capitalism from itself, and in doing so, to create more prosperity and improve the lives of more people, says Lawrence Summers.
What Does Slower Economic Growth Really Mean?
| Published: | June 5, 2009 |
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| Feature: | What Do YOU Think? |
| Forum: | closed | 44 Comments posted |
Respondents to this month's column by HBS professor Jim Heskett came close to general agreement on the proposition that economic growth is not measured properly by GDP, calling for new indicators. Jim sums up. (Online forum now closed. Next forum begins July 6.)
Business Summit: Introduction to the Future of Market Capitalism
| Published: | May 29, 2009 |
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| Feature: | HBS Business Summit |
Professor Joseph L. Bower discusses a two-year research project exploring the views of global business leaders and HBS faculty on what might threaten the world's economic progress.
The Unseen Link Between Savings and National Growth
| Q&A with: | Diego A. Comin |
|---|---|
| Published: | May 18, 2009 |
| Feature: | Research & Ideas |
Professor Diego Comin and fellow researchers find a little observed link between private savings and country growth. The work may offer a simple interpretation for the East Asia "miracle" and for failures in Latin America. Q&A.
Misgovernance at the World Bank
| Q&A with: | Eric D. Werker |
|---|---|
| Published: | April 20, 2009 |
| Feature: | Research & Ideas |
Board members may be inclined to advance their own interests at voting time. This appears true for the World Bank's Board of Executive Directors, too. The problem? Many countries are being shut out of development funding. New research by Harvard Law School student Ashwin Kaja and HBS professor Eric Werker tells why misgovernance at the World Bank should be corrected.
Gray Markets and Multinational Transfer Pricing
| Authors: | Romana L. Autrey and Francesco Bova |
|---|---|
| Published: | April 16, 2009 |
| Paper Release Date: | February 2009 (revised October 2009) |
| Feature: | Working Papers |
Gray market goods are brand-name products that are initially sold into a designated market but then resold through unofficial channels into a different market. Gray markets can arise when transaction and search costs are low enough to allow products to "leak" from one market segment back into another. Examples of industries with active gray markets include pharmaceuticals, automobiles, and electronics. Understandably, reactions to gray market encroachment are mixed. On the one hand, consumer advocates and governments have applauded the increasing role that gray markets have played in improving competition for domestic goods. On the other hand, multinationals have decried the increasing role of gray markets in the economy, with an estimated $40 billion in cannibalized sales resulting from gray markets in the information technology sector alone. This study investigates the optimal price of a multinational's internal transfers and the consequences of regulations mandating arm's-length transfer pricing.
The Economics of Structured Finance
| Authors: | Joshua D. Coval, Jakub Jurek, and Erik Stafford |
|---|---|
| Published: | April 9, 2009 |
| Paper Release Date: | October 2008 |
| Feature: | Working Papers |
This paper investigates the spectacular rise and fall of structured finance. HBS professor Joshua Coval, Princeton professor Jakub Jurek, and HBS professor Erik Stafford begin by examining how the structured finance machinery works. They construct simple examples of collateralized debt obligations (CDOs) that show how pooling and tranching a collection of assets permits credit enhancement of the senior claims. They then explore the challenge faced by rating agencies, examining, in particular, the parameter and modeling assumptions that are required to arrive at accurate ratings of structured finance products. They conclude with an assessment of what went wrong and the relative importance of rating agency errors, investor credulity, and perverse incentives and suspect behavior on the part of issuers, rating agencies, and borrowers.
Demographics, Career Concerns or Social Comparison: Who Games SSRN Download Counts?
| Authors: | Benjamin G. Edelman and Ian I. Larkin |
|---|---|
| Published: | March 25, 2009 |
| Paper Release Date: | February 2009 |
| Feature: | Working Papers |
Why do certain individuals commit fraudulent acts—in this case repeatedly downloading their own working papers from the Social Science Research Network (SSRN) repository to increase the papers' reported download counts? HBS professors Benjamin G. Edelman and Ian I. Larkin study the relative importance of demographic, economic, and psychological factors leading individuals to commit this kind of gaming. Authors engage in deceptive self-downloading to improve a paper's visibility on SSRN, to obtain more favorable assessments of paper quality, and to obtain possible benefits for promotion and tenure decisions at those schools that consider download counts in tenure decisions. Data indicates that authors are more likely to inflate their papers' download counts when a higher count greatly improves the visibility of a paper on the SSRN network. Authors are also more likely to inflate their papers' download counts when their peers recently had successful papers—suggesting an "envy" effect in download gaming. Download inflations are also affected somewhat by career concerns (e.g. just before changing jobs) and by demographic factors, though these effects are smaller. On the whole, analysis suggests a heightened risk of fraudulent acts not only where economic returns are high, but also where prestige, status, or reputation are important.
