Working Papers
There are 329 working paper digests.
A large number of Harvard Business School faculty write working papers that summarize original research in a narrow segment of a field of study, and that are intended for publication within a period of one to three years. Descriptions and papers are posted on the HBS Faculty and Research Web site. Our archive focuses on those working papers that are publicly accessible for download. We add an executive summary to the author’s own abstract. For the most recent work, see our First Look section.
Management and the Financial Crisis (We Have Met the Enemy and He is Us …)
| Author: | William A. Sahlman |
|---|---|
| Published: | November 19, 2009 |
| Paper Release Date: | October 2009 |
| Feature: | Working Papers |
We have spent the past year mired in a global financial crisis that few saw coming and that will plague us for years to come. Such crises are gut-wrenching. Collectively and individually, we search for causes and solutions. Too often, we look for quick fixes that do long‐term damage, or we put the equivalent of duct tape on obvious problems, missing the true root causes. HBS professor William A. Sahlman argues that the macroeconomic problems were the result of terrible microeconomic decisions. The root cause of bad decision‐making resides in the nexus of culture, incentives, control and measurement, accounting, and human capital. We now have a unique opportunity to force a review of all the players in the financial system, from individual consumers to politicians and regulators to management teams at financial services firms.
India Transformed? Insights from the Firm Level 1988-2005
| Authors: | Laura Alfaro and Anusha Chari |
|---|---|
| Published: | November 18, 2009 |
| Paper Release Date: | October 2009 |
| Feature: | Working Papers |
Between 1986 and 2005, Indian growth put to rest the concern that there was something about the "nature of India" that made rapid growth difficult. Following broad-ranging reforms in the mid-1980s and early 1990s, the state deregulated entry, both domestic and foreign, in many industries, and also hugely reduced barriers to trade. Laura Alfaro of Harvard Business School and Anusha Chari of the University of North Carolina at Chapel Hill analyze the evolution of India's industrial structure at the firm level following the reforms. Despite the substantial increase in the number of private and foreign firms, the overall pattern that emerges is one of continued incumbent dominance in terms of assets, sales, and profits in both state-owned and traditional private firms.
Walking Through Jelly: Language Proficiency, Emotions, and Disrupted Collaboration in Global Work
| Authors: | Tsedal Neeley, Pamela J. Hinds, and Catherine Durnell Cramton |
|---|---|
| Published: | November 12, 2009 |
| Paper Release Date: | June 2009 |
| Feature: | Working Papers |
As organizations increasingly globalize, individuals are required to collaborate with coworkers across international borders. Many organizations are mandating English as the lingua franca, or common language, regardless of the location of their headquarters, to facilitate collaboration across national and linguistic boundaries. What is the emotional impact of lingua franca adoption on native and nonnative speakers who work closely together and often across national boundaries? This study examines the communication experience for native and nonnative English speakers in an organization that mandates English as the lingua franca for everyday use, and the impact of the lingua franca on collaboration among globally distributed coworkers. HBS professor Tsedal Neeley and coauthors describe in detail how emotions and actions were intertwined and evolved recursively as coworkers attempted to release themselves from unwanted negative emotions and inadvertently acted in ways that transferred negative experiences to their distant coworkers. Their findings have implications for managers who are charged with overseeing internationally distributed projects.
Endowments, Fiscal Federalism, and the Cost of Capital for States: Evidence from Brazil, 1891-1930
| Authors: | André C. Martínez Fritscher and Aldo Musacchio |
|---|---|
| Published: | November 10, 2009 |
| Paper Release Date: | October 2009 |
| Feature: | Working Papers |
Do endowments matter in determining the cost of capital for a country or state? Endowments, according to Banco de México's André C. Martínez Fritscher and HBS professor Aldo Musacchio, are the conditions that determine what kind of commodities can be produced and exported in a determined geographical region. Studying the determinants of the risk premium of the bonds issued by Brazilian states between 1891 and 1930—a period of extreme decentralization of fiscal revenues and expenditures in Brazil—the researchers find that risk premia are highly correlated with state public revenue per capita. Because these revenues came, to a large extent, from the taxes states levied on commodity exports, the researchers argue that endowments mattered to determine the cost of capital for states.
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.
Estimating the Effects of Large Shareholders Using a Geographic Instrument
| Authors: | Bo Becker, Henrik Cronqvist, and Rüdiger Fahlenbrach |
|---|---|
| Published: | October 29, 2009 |
| Paper Release Date: | October 2009 |
| Feature: | Working Papers |
Are large shareholders good monitors of management? A public firm's shareholders have extensive legal control rights in the corporation, but in practice much of this control is delegated to managers. In companies with small, dispersed shareholders, owners may find it costly to coordinate and exercise monitoring and control, leaving management with considerable discretion. Large shareholders, however—by concentrating a block of shares in the hands of a single decision-maker—may play a beneficial role in facilitating effective owner control. Yet large shareholders are not without their costs. HBS professor Bo Becker and coauthors develop and test a framework to quantify the impact of large owners (individual non-managerial blockholders, not mutual funds or other institutions) on several key aspects of firm behavior. They show that such shareholders play an important role for corporate governance in sizable U.S. public firms, and can affect several firm policies.
Stock Price Fragility
| Authors: | Robin Greenwood and David Thesmar |
|---|---|
| Published: | October 27, 2009 |
| Paper Release Date: | October 2009 |
| Feature: | Working Papers |
Does the composition of ownership of a financial asset influence future returns and risk? Previous economic research has documented significant price effects of investor demand in numerous settings, including retail demand for options, investor demand for bonds, and mutual funds' flow-driven demand for stocks. This paper provides a methodology to identify assets that are vulnerable to such investor demand shocks. The central idea is that assets are risky if the current owners of the asset face correlated liquidity shocks—i.e., they buy and sell at the same time. We call assets with a high concentration of owners who trade in the same direction "fragile." A related concept is "co-fragility." Two assets are "co-fragile" if their owners have correlated trading needs, even if the holdings of these owners do not directly overlap. The authors build measures of fragility for U.S. stocks between 1990 and 2007. Consistent with their predictions, more fragile stocks are more volatile, and two co-fragile stocks exhibit high correlations among their stock returns.
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.
Mixed Source
| Authors: | Ramon Casadesus-Masanell and Gastón Llanes |
|---|---|
| Published: | October 15, 2009 |
| Paper Release Date: | September 2009 |
| Feature: | Working Papers |
As most managers know, commercial firms may benefit from participating in open source software development by selling complementary goods or services. Open source has the potential to improve value creation because it benefits from the efforts of a large community of developers. Proprietary software, on the other hand, results in superior value capture because the intellectual property remains under the control of the original developer. While the straightforward rationale for "mixed source" (a combination of the two) is appealing, what does it mean for a business model? Under what circumstances should a profit-maximizing firm adopt a mixed source business model? How should firms respond to competitors' adoption of mixed source business models? And what are the right pricing structures under mixed source compared with the proprietary business model? In this paper the researchers analyze a model where firms with modular software must decide which modules to open and which to keep proprietary. Findings can be directly applied to the design of optimal business strategies.
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.
Specific Knowledge and Divisional Performance Measurement
| Authors: | Michael C. Jensen and William H. Meckling |
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| Published: | October 7, 2009 |
| Paper Release Date: | September 2009 |
| Feature: | Working Papers |
Performance measurement is one of the critical factors that determine how individuals in an organization behave. It includes subjective as well as objective assessments of the performance of both individuals and subunits of an organization such as divisions or departments. Besides the choice of the performance measures themselves, performance evaluation involves the process of attaching value weights to the different measures to represent the importance of achievement on each dimension. This paper examines five common divisional performance measurement methods: cost centers, revenue centers, profit centers, investment centers, and expense centers. The authors furnish the outlines of a theory that attempts to explain when each of these five methods is likely to be the most efficient.
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.
"I read Playboy for the articles": Justifying and Rationalizing Questionable Preferences
| Authors: | Zoë Chance and Michael I. Norton |
|---|---|
| Published: | September 24, 2009 |
| Paper Release Date: | September 2009 |
| Feature: | Working Papers |
We want others to find us good, fair, responsible and logical; and we place even more importance on thinking of ourselves this way. Therefore, when people behave in ways that might appear selfish, prejudiced, or perverted, they tend to engage a host of strategies designed to justify questionable behavior with rational excuses: "I hired my son because he's more qualified." "I promoted Ashley because she does a better job than Aisha." Or, "I read Playboy for the articles." In this chapter from a forthcoming book, HBS doctoral student Zoë Chance and professor Michael I. Norton describe various means of coping with one's own questionable behavior: through preemptive actions and concurrent strategies for re-framing uncomfortable situations, forgoing decisions, and forgetting those decisions altogether.
Operational Failures and Problem Solving: An Empirical Study of Incident Reporting
| Authors: | Julia Adler-Milstein, Sara J. Singer, and Michael W. Toffel |
|---|---|
| Published: | September 23, 2009 |
| Paper Release Date: | August 2009 |
| Feature: | Working Papers |
Operational failures occur within organizations across all industries, with consequences ranging from minor inconveniences to major catastrophes. How can managers encourage frontline workers to solve problems in response to operational failures? In the health-care industry, the setting for this study, operational failures occur often, and some are reported to voluntary incident reporting systems that are meant to help organizations learn from experience. Using data on nearly 7,500 reported incidents from a single hospital, the researchers found that problem-solving in response to operational failures is influenced by both the risk posed by the incident and the extent to which management demonstrates a commitment to problem-solving. Findings can be used by organizations to increase the contribution of incident reporting systems to operational performance improvement.
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.
Repetition of Interaction and Learning: An Experimental Analysis
| Authors: | Bradley R. Staats, Francesca Gino, and Gary P. Pisano |
|---|---|
| Published: | September 16, 2009 |
| Paper Release Date: | August 2009 |
| Feature: | Working Papers |
As the global economy grows increasingly knowledge-based, organizations in a wide variety of settings, from manufacturing to service operations, rely increasingly on project teams. Organizational performance is therefore strongly affected by the learning that occurs within teams. But how do teams learn best? This study examines whether and how learning in teams is dependent on the teams' prior experience working together. Findings may help managers to design well-functioning learning organizations.
Financing Constraints and Entrepreneurship
| Authors: | William R. Kerr and Ramana Nanda |
|---|---|
| Published: | September 11, 2009 |
| Paper Release Date: | August 2009 |
| Feature: | Working Papers |
Financing constraints are one of the biggest concerns impacting potential entrepreneurs around the world. Given the important role that entrepreneurship is believed to play in the process of economic growth, alleviating financing constraints for would-be entrepreneurs is also an important goal for policymakers worldwide. In this paper HBS professors William R. Kerr and Ramana Nanda review two major streams of research examining the relevance of financing constraints for entrepreneurship. They then introduce a framework that provides a unified perspective on these research streams, thereby highlighting some important areas for future research and policy analysis in entrepreneurial finance.
Banking Deregulations, Financing Constraints and Firm Entry Size
| Authors: | William R. Kerr and Ramana Nanda |
|---|---|
| Published: | September 11, 2009 |
| Paper Release Date: | July 2009 (revised October 2009) |
| Feature: | Working Papers |
How do financing constraints on new start-ups affect the initial size of these new firms? Since bank debt comprises the majority of U.S. firm borrowings, new ventures are especially sensitive to local bank conditions due to their limited options for external finance. Liberalization in the banking sector can thus have important effects on entrepreneurship in product markets. As HBS professors William Kerr and Ramana Nanda explain, the 1970s through the mid-1990s was a period of significant liberalization in the ability of banks to establish branches and to expand across state borders, either through new branches or through acquisitions. Using a database of annual employment data for every U.S. establishment from 1976 onward, Kerr and Nanda examine how U.S. branch banking deregulations impacted the entry size of new start-ups in the non-financial sector. This paper is closely related to their prior work examining how the deregulations impacted the rates of startup entry and exit in the non-financial sector.
Feeling Good about Giving: The Benefits (and Costs) of Self-Interested Charitable Behavior
| Authors: | Lalin Anik, Lara B. Aknin, Michael I. Norton, and Elizabeth W. Dunn |
|---|---|
| Published: | September 10, 2009 |
| Paper Release Date: | August 2009 |
| Feature: | Working Papers |
Helping others takes countless forms and springs from countless motivations, from deep-rooted empathy to a more calculated desire for public recognition. Social scientists have identified a host of ways in which charitable behavior can lead to benefits for the giver, whether economically via tax breaks, socially via signaling one's wealth or status, or psychologically via experiencing well-being from helping. Charitable organizations have traditionally capitalized on all of these motivations for giving, with a recently emerging focus on highlighting the mood benefits of giving—the feelings of empowerment, joy, and inspiration that giving engenders. Indeed, if giving feels good, why not advertise the benefits of "self-interested giving," allowing people to experience that good feeling while increasing contributions to charity at the same time? HBS doctoral candidate Lalin Anik, Professor Michael I. Norton, and coauthors explore whether organizations that seek to increase charitable giving by advertising the benefits of giving are making claims supported by empirical research and, most importantly, whether such claims actually increase donations.
