- 25 Mar 2009
- Working Paper Summaries
Demographics, Career Concerns or Social Comparison: Who Games SSRN Download Counts?
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. Key concepts include: Envy and social comparisons play a strong role in predicting deceptive downloads. Discontinuities and other incentive anomalies invite gaming. At SSRN, gaming increases when it will increase a paper's visibility on SSRN by putting the paper (or keeping it) on a "Top 10 list." Some groups seem to be less likely to engage in download gaming. Females and researchers at low-ranked institutions seem to be somewhat less likely to engage in gaming. Closed for comment; 0 Comments.
- 24 Mar 2009
- Working Paper Summaries
Securing Jobs or the New Protectionism? Taxing the Overseas Activities of Multinational Firms
Popular imagination often links two significant economic developments: the rapid escalation of the foreign activities of American multinational firms over the last 15 years, and rising levels of economic insecurity, particularly among workers in certain sectors. The presumed linkages between these phenomena have led many to call for a reconsideration of the tax treatment of foreign investment. Increasing the tax burden on outbound investment by American multinational firms, it is claimed, offers the promise of alleviating domestic employment losses and insecurity while also raising considerable revenue. HBS professor Mihir A. Desai looks beneath the trends, examining the economic determinants of outbound investment decisions and synthesizing what is known about the relationship between domestic and foreign activities. Key concepts include: There is no clear evidence of significant negative impacts on domestic investment or employment due to the overseas activities of firms. Foreign activity by multinational firms does not necessarily displace domestic economic activity. Other factors—such as falling prices of investment goods, and/or trade patterns—may have driven the employment changes that are so worrisome. When policymakers decide the appropriate taxation of multinational firms, they should resist the tempting logic of protectionism. Closed for comment; 0 Comments.
- 20 Mar 2009
- Working Paper Summaries
Catering to Characteristics
Can patterns of corporate net stock issuance help identify times when particular characteristics, such as industry, size, or book-to-market ratio, are mispriced? The authors of this study argue that differences between the characteristics of issuers and repurchasers can shed light on characteristic related stock returns. Consider the case in which analysts were interested in forecasting the returns of Google. The standard approach would be to collect Google's characteristics (e.g., large, technology, non-dividend paying, etc) and associate these characteristics with an average return in the cross-section. The authors argue that if other stocks with these characteristics are issuing stock, this bodes poorly for Google's future returns, even if Google is itself not issuing. This research by HBS professor Robin Greenwood and Harvard doctoral student Samuel Hanson has implications for studying the stock market performance of seasoned equity offerings (SEOs), initial public offerings (IPOs), and recent acquirers. Key concepts include: The approach in this paper helps forecast returns to portfolios based on book-to-market, size, share price, distress, payout policy, profitability, and industry. The issuer-repurchaser spreads are informative for future returns, even controlling for firms' own issuance and repurchase decisions. Closed for comment; 0 Comments.
- 19 Mar 2009
- Working Paper Summaries
Beyond Gender and Negotiation to Gendered Negotiations
How does gender affect negotiations within organizations or rather how do organizations affect gender relations? Deborah Kolb, a professor at Simmons College School of Management, and HBS professor Kathleen McGinn explore how definitions of work, specified roles in organizations, status hierarchies, and the politics and practices of organizational realities affect how gender plays out in organizations. Considering gender in organizations from a "negotiated order perspective"—that is, from the perspective that cultural patterns and work practices are the result of past interaction and negotiation—not only expands the range of issues that are potentially negotiable, it also turns attention to rethinking certain dimensions of the negotiation process itself. Key concepts include: Following recent scholarship, the authors distinguish between "first generation" gender discrimination involving intentional acts of bias from "second generation" gender issues, practices that are embedded in organizational workings, that seem unbiased in isolation, but result in different experiences for and treatment of women and men. Certain roles may be deemed more suitable to men than women and vice versa, setting up the need to negotiate for opportunities and fit. A woman's effectiveness as a leader, and the authority she can claim, is often judged differently from that of her male counterparts. Access to networks and flexible work arrangements give rise to the need to negotiate and this need often falls along gendered lines. Closed for comment; 0 Comments.
- 16 Mar 2009
- Working Paper Summaries
Running Out of Numbers: Scarcity of IP Addresses and What To Do About It
Hidden from view of typical users, every Internet communication relies on an underlying system of numbers to identify data sources and destinations. Users typically specify online destinations by entering domain names (e.g. "congress.gov"). But the Internet's routers forward data according to numeric IP addresses (e.g. 140.147.249.9). To date, the Internet has enjoyed an ample supply of "IPv4" IP addresses, but demand is substantial and growing. Current allocation rates suggest IPv4 exhaustion by approximately 2011. A new numbering system, IPv6, would relieve scarcity, but incentives hinder transition: IPv4 works well for existing networks, and offers easier and simpler access to existing Internet content and services. As a result, to date few networks have begun to support v6. In principle regulators could order networks to implement v6, but the applicable Internet coordinating organizations lack authority or power to force such a transition. In the meantime, a market mechanism for v4 addresses offers important benefits, including allocating scarce v4 addresses to those who need them most, and putting a positive price on v4 space in order to encourage transition to v6. Thus, it seems v4 transfers can help both to mitigate the worst effects of v4 scarcity, and to build the incentives necessary for transition to v6. Key concepts include: IPv4 scarcity will limit future expansion, hinder some technologies, and impose new costs on networks and users. Engineers have developed a new numbering system, IPv6, which offers many more possible addresses than the current IPv4 address system. But incentives hinder transition. An IP address "market" for the paid transfer of IP addresses could offer important benefits and avoid the worst effects of v4 scarcity. Closed for comment; 0 Comments.
- 12 Mar 2009
- Working Paper Summaries
Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds
Are nominal government bonds risky investments that investors must be rewarded to hold? Or are they safe investments, whose price movements are either inconsequential or even beneficial to investors as hedges against other risks? U.S. Treasury bonds have performed well as hedges during the financial crisis of 2008, but the opposite was true in the late 1970's and early 1980's. John Y. Campbell, a Visiting Scholar at HBS, Harvard Ph.D. candidate Adi Sunderam, and HBS professor Luis M. Viceira explore such changes over time in the risks of nominal government bonds. Key concepts include: A changing covariance between nominal and real variables is of central importance in understanding the term structure of nominal interest rates. Analyses of asset allocation traditionally assume that broad asset classes have a stable structure of risk over time; these new results, however, suggest that in the case of nominal bonds, at least, this assumption is seriously misleading. Closed for comment; 0 Comments.
- 05 Mar 2009
- Working Paper Summaries
CPC/CPA Hybrid Bidding in a Second Price Auction
How should online advertisers measure and pay for advertising deliveries? Options include pay per impression (CPM), per click (CPC), per action (CPA), or in proportion of the dollar value of merchandise sold. The advertisers who choose to pay one way may differ, systematically, from those who choose to pay in some other way. HBS professor Benjamin Edelman and doctoral student Hoan Soo Lee present the problem in an algebraic model in anticipation of measurement to follow in future work. Key concepts include: When advertisers and ad platforms evaluate payment metrics, it seems they currently focus on effects on parties' incentives. For example, parties recognize that if billing is proportional to the number of measured clicks, then click fraud would expose advertisers to unwarranted advertising expense. With such constraints in mind, parties attempt to balance the various competing incentives. We propose an additional factor advertisers and ad platforms ought to consider: which advertisers are systematically most likely to favor which payment metrics. Averages that fail to condition on advertisers' choices may badly misestimate an advertiser's true characteristics—causing the platform to select ads that later prove to be ill-advised. Readers with suggestions are invited to contact Professor Edelman and Hoan Soo Lee. Closed for comment; 0 Comments.
- 26 Feb 2009
- Working Paper Summaries
Barriers to Acting in Time on Energy and Strategies for Overcoming Them
What can the new presidential administration do to address our energy problems? For the past decade, most experts have accepted climate change as a fact, making the issue difficult to ignore—yet many politicians, and the voters who elect them, have done exactly that: ignored the problem. Scientists, policymakers, and others have come up with good ideas to address climate change and other energy issues. Many people seek to identify one cause of climate change, when it is abundantly clear that there are multiple causes. Cognitive, organizational, and political barriers exist that prevent us from addressing energy problems despite clearly identified courses of action. The creation and implementation of wise policy recommendations requires us to anticipate resistance to change and develop strategies that can overcome these barriers. Enacting wise legislation to act in time to solve energy problems requires surmounting cognitive, organizational, and political barriers to change. Key concepts include: The new U.S. presidential administration should identify energy policies that make wise tradeoffs across issues. The administration should communicate that decisions will be made to maximize benefits to society rather than to special-interest groups. The administration should seek energy policies that make sense even if climate change is less of a problem than best current estimates suggest. The administration should identify a series of small changes (nudges) that significantly influence the behaviors of individuals and organizations in a positive direction without infringing on personal liberties. When discounting of the future creates an insurmountable barrier to the implementation of wise policies, consider implementation on a mild delay. Closed for comment; 0 Comments.
- 25 Feb 2009
- Working Paper Summaries
Fear of Rejection? Tiered Certification and Transparency
The sub-prime crisis has thrown a harsh spotlight on the practices of securities underwriters, which provided too many complex securities that proved to ultimately have little value. Certifiers such as rating agencies, journals, standard setting bodies, and providers of standardized tests play an increasingly important role in the market economies. Yet as scrutiny of rating agencies in the aftermath of the sub-prime crisis has shown, these organizations have complex incentive structures and may adopt problematic approaches. On an explicit level, all major rating agencies follow a well-defined process, whose end product is the publication of a rating based on an objective analysis. But firms have been historically able to get rating agencies not to disclose ratings that displease them. HBS professor Josh Lerner and colleagues examined when certifiers might adopt more complex rating schemes, rather than the simple pass-fail scheme, and highlight that such nuanced schemes are more likely when the costs of such ratings are lower. In addition, these schemes are more common when sellers are less averse to the revelation of information about their quality, and more impatient. Key concepts include: Absent regulation, certifiers have a strong incentive not to publicize rejected applications. Transparency regulation always benefits sellers, but need not benefit users. Closed for comment; 0 Comments.
- 20 Feb 2009
- Working Paper Summaries
When Does Domestic Saving Matter for Economic Growth?
The researchers begin with a simply stated question: Can a country grow faster by saving more? Long-run growth theories imply that a country can grow faster by investing more in human or physical capital or in R&D, but that a country with access to international capital markets cannot grow faster by saving more. Domestic saving is therefore not considered an important ingredient in the growth process because investment can be financed by foreign saving. From the point of view of standard growth theory, the positive cross-country correlation between saving and growth that many commentators have noted appears puzzling. HBS professor Diego Comin and colleagues develop a theory of local saving and growth in an open economy with domestic and foreign investors. Key concepts include: Domestic saving is more critical for adopting new technologies in developing rather than developed economies. Familiarity with the technology frontier reduces its cost of adoption. Advanced countries readily adopt the frontier technology, but for countries far from the technology frontier, it is too expensive to adopt such technology without outside help. Entrepreneurs in these countries need to rely on foreign investors. However, domestic entrepreneurs may not deliver on their input contribution unless they have invested sufficient capital in the project. This co-investment is in turn financed out of domestic saving, highlighting the role of domestic saving in economic growth. Closed for comment; 0 Comments.
- 19 Feb 2009
- Working Paper Summaries
Dishonest Deed, Clear Conscience: Self-Preservation through Moral Disengagement and Motivated Forgetting
Why do people engage in unethical behavior repeatedly over time? In Everybody Does It! (1994), Thomas Gabor documents the pervasive immorality of ordinary people. Challenging the stereotype that only criminals violate the law, Gabor describes the numerous transgressions of everyday life and suggests that the excuses people make for their dishonest behavior parallel the justifications criminals make for their crimes. This common tendency of people to justify and distance themselves from their unethical behavior has captured the attention of several psychologists, and a long stream of research has documented differences in the way people think about their own ethical behavior and that of others. Harvard Business School's Lisa Shu and Max Bazerman, with colleague Francesca Gino, show that seemingly innocuous aspects of the environment can promote the decision to act ethically or unethically. Key concepts include: Once people behave dishonestly, they are able to morally disengage, setting off a downward spiral of future bad behavior and ever more lenient moral codes. However, this slippery slope can be forestalled with simple measures, such as honor codes, that increase people's awareness of ethical standards. Moral disengagement is not always a necessary condition leading to dishonesty, but it may in fact result from unethical behavior. The decision to behave dishonestly changes levels of moral disengagement, and the awareness of ethical standards affects the decision to engage in unethical behavior. Closed for comment; 0 Comments.
- 12 Feb 2009
- Working Paper Summaries
Platform Competition, Compatibility, and Social Efficiency
The last three decades have witnessed unprecedented growth in network industries such as video games, computers, credit cards, media, and telecommunications. These industries are often organized around physical or virtual platforms that enable distinct groups of agents to interact with one another, and are commonly referred to as two-sided markets or markets with two-sided platforms. An operating systems developer such as Microsoft, for example, provides a software platform that makes possible the completion of value-creating transactions between independent software vendors and users. A key attribute of the market that determines the intensity and scope of network effects is whether or not competing platforms are compatible. The effects of platform (in)compatibility on market outcomes, however, have largely been ignored by the literature on markets with two-sided platforms. This paper develops an explanation of why markets with two-sided platforms are often characterized by incompatibility with one dominant player that may choose to subsidize access to one side of the market. Key concepts include: This paper provides a theory for why firms may choose to make their platforms incompatible. Incompatibility might lead to market dominance and high profits by one of the platform providers, even if both providers are ex ante identical and there are no fixed costs of operation. Closed for comment; 0 Comments.
- 11 Feb 2009
- Working Paper Summaries
Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting
For decades, goal setting has been promoted as a halcyon pill for improving employee motivation and performance in organizations. Advocates of goal setting argue that for goals to be successful, they should be specific and challenging, and countless studies find that specific, challenging goals motivate performance far better than "do your best" exhortations. The authors of this article, however, argue that it is often these same characteristics of goals that cause them to "go wild." Key concepts include: The harmful side effects of goal setting are far more serious and systematic than prior work has acknowledged. Goal setting harms organizations in systematic and predictable ways. The use of goal setting can degrade employee performance, shift focus away from important but non-specified goals, harm interpersonal relationships, corrode organizational culture, and motivate risky and unethical behaviors. In many situations, the damaging effects of goal setting outweigh its benefits. Managers should ask specific questions to ascertain whether the harmful effects of goal setting outweigh the potential benefits. Closed for comment; 0 Comments.
- 04 Feb 2009
- Working Paper Summaries
Unravelling in Two-Sided Matching Markets and Similarity of Preferences
Hiring policy is one of the most important determinants of a firm's success. The hiring process calls for collecting information in order to choose the best individual from among the candidates. In certain markets, however, firms hire workers long before all the pertinent information is available. Those early matches often turn out to be inefficient when the job starts. This phenomenon of contracting long before the job begins, and before relevant information is available, is called unravelling. Unravelling has been recognized as a serious problem in numerous markets, and measures designed to preclude it (such as centralized clearinghouses and enforcement of uniform hiring) have not always been successful. In order to provide insights for designing better measures to prevent unravelling in markets prone to it, this paper examines a two-sided matching market populated by firms on one side and workers on the other. Key concepts include: Unravelling prevails in certain markets because some employers see a better chance to hire their most-preferred candidates when they contract early than when they wait. Unravelling becomes more likely as firms' preferences over workers grow more similar. This is the case because when firms' preferences are very similar, lower-ranked firms can be matched with their most-preferred workers only by contracting with them early. Despite insufficient information in the first period, it may be worthwhile for lower-ranked firms to bear the risk and contract early. The firms most likely to unravel are those "in the middle"—bad enough to prefer the uncertainty of early contracting, but good enough to be accepted. From a policy standpoint, a mechanism that precludes unravelling is preferable in some circumstances. Closed for comment; 0 Comments.
- 29 Jan 2009
- Working Paper Summaries
An Exploration of the Japanese Slowdown during the 1990s
Why was the 1990s a lost decade for Japan? HBS professor Diego Comin argues that it was the combination of some shocks that lasted for about three years and the response of companies that drastically reduced their expenses in adopting new technologies and developing new ones. Though the severe shocks that hit the Japanese economy did not persist, the investments that Japanese companies and entrepreneurs did not undertake to improve technology and production methods during the 1990s propagated those shocks and made their effects very long-lasting. Key concepts include: Technology adoption decisions by firms are a powerful force in propagating shocks and making their effects very persistent. This explains why shocks that lasted for about three years generated a productivity slowdown over a decade. This same model accounts for economic fluctuations in the U.S. In light of this, a critical factor to predict the macro consequences of the current financial crisis in the U.S. is the persistence of the shocks. Since the current shocks are unlikely to last for three years or so, it is unlikely that the U.S. experiences a "lost decade." Closed for comment; 0 Comments.
- 26 Jan 2009
- Working Paper Summaries
The Decentering of the Global Firm
Firms such as Caterpillar are typically considered American companies by virtue of history while Honda, for example, is regarded as a Japanese company. However, the archetypal multinational firm with a particular national identity and a corporate headquarters fixed in one country is becoming obsolete as firms continue to maximize the opportunities created by global markets. The defining characteristics of what makes a firm belong to a country—where it is incorporated, where it is listed, the nationality of its investor base, the location of its headquarters functions—are no longer bound to one country. Why are these changes taking place, and what are their consequences? This paper places the increasing mobility of corporate identities within the broader setting of transformations to the "shape" of global firms over the last half century. Key concepts include: Responding strategically to these changes requires a reconceptualization of what a corporate home is. Managers will make conscious choices about how to unbundle activities that have traditionally been centered in a home country headquarters. Policymakers in countries around the world need to understand how to create attractive homes for firms, and researchers need to devise ways to incorporate these changes in their empirical and theoretical work. Closed for comment; 0 Comments.
- 22 Jan 2009
- Working Paper Summaries
Turbulent Firms, Turbulent Wages?
Has more creative destruction among firms raised wage volatility in the United States? Most of the related research on the remarkable and well-documented widening of wage inequality in the U.S. over the past three decades focuses on permanent components of workers' earnings, particularly the rising returns to education and ability associated with technological change, trade, and de-unionization. Less is known, however, about the contribution of larger transitory fluctuations. HBS professor Comin and colleagues explore whether workers' average pay is more volatile in firms that have experienced higher turbulence in sales. Findings have important implications for theories of labor markets and optimal wage compensation schemes. Key concepts include: The performance of publicly-traded U.S. firms has become much more volatile over the past three decades. Rising turbulence in sales among U.S. firms has raised their workers' wage volatility, increasing wage risks for many workers. Workers' average pay is more volatile in firms that have experienced higher turbulence in sales. This is true even after controlling for firm characteristics, including average wage, average profits, size, age, or firm-specific fixed effects. Evidence of a correlation between firm and wage volatility does not reflect reorganization within companies. The effect is strong and has grown markedly since the 1980s. This reflects an increasing reliance of compensation schemes that put a larger weight on the firm performance. Closed for comment; 0 Comments.
- 21 Jan 2009
- Working Paper Summaries
The Supply Side of Innovation: H-1B Visa Reforms and US Ethnic Invention
The H-1B visa program governs most admissions of temporary immigrants into the U.S. for employment in patenting-related fields. This program has become a point of significant controversy in the public debate over immigration, with proponents and detractors at odds over how important H-1B admission levels are for U.S. technology advancement and whether native U.S. workers are being displaced by immigrants. In this study, Kerr and Lincoln quantify the impact of changes in H-1B admission levels on the pace and character of U.S. invention over the 1995-2006 period. Key concepts include: Immigrants represented 24 percent and 47 percent of the U.S.'s scientists and engineers (S&Es) with bachelors and doctorate educations in the 2000 Census, respectively. Immigrants have accounted for most of the net increase in U.S. S&Es since 1995. Because it governs the admissions of many S&E immigrants, the H-1B program plays an important role in U.S. innovation. Moreover, the policy shifts in this program have been relatively large compared to other policies concerning immigration or innovation. Fluctuations in H-1B admissions levels significantly influence the rate of Indian and Chinese patenting in cities and firms dependent upon the program relative to their peers. Most specifications find little impact on the invention rates of native U.S. workers, although a small crowding-in effect may exist. Most increases in U.S. innovation with higher H-1B admissions come through direct contributions of the immigrants themselves. Closed for comment; 0 Comments.
- 14 Jan 2009
- Working Paper Summaries
Smart Money: The Effect of Education, Cognitive Ability, and Financial Literacy on Financial Market Participation
(Previously titled "If You Are So Smart, Why Aren't You Rich? The Effects of Education, Financial Literacy and Cognitive Ability on Financial Market Participation.") Individuals face an increasingly complex menu of financial product choices. The shift from defined benefit to defined contribution pension plans, and the growing importance of private retirement accounts, require individuals to choose the amount they save, as well as the mix of assets in which they invest. Yet, participation in financial markets is far from universal in the United States. Moreover, researchers have only a limited understanding of what factors cause participation. Cole and Shastry use a very large dataset new to the literature in order to study the important determinants of financial market participation. They find that higher levels of education and cognitive ability cause increased participation—however, financial literacy education does not. Key concepts include: The relationship between education and savings is difficult to measure, because both are affected by many factors (motivation, ability, etc.). This paper documents an important causal relationship between education and financial market participation. A set of financial literacy education programs, mandated by state governments, did not have an effect on individual savings decisions. It is imperative to conduct rigorous evaluations of financial literacy education programs to measure their efficacy. Closed for comment; 0 Comments.
The Bloody Millennium: Internal Conflict in South Asia
What accounts for the disturbing trend of increasing terrorism and associated fatalities in South Asia? In 2007, a quarter of all terrorist attacks worldwide were committed in South Asia, second only to Iraq. HBS professor Lakshmi Iyer presents the first comprehensive analysis of internal conflict in South Asia using multiple data sources and incorporating a long-run time frame. She finds that the intensity of internal conflict in the post-2001 period is strongly associated with poverty, both in a cross-country comparison and in a comparison of districts within India and Nepal. Measures implemented by regional and national governments to combat internal violence vary considerably across countries and over time. Typically, the use of military force or relying on unofficial militias has not proved to be a successful counterinsurgency tactic in South Asia; strengthening police activity and using a political accommodation approach has led to some successes in the past. Key concepts include: Since 2001, incidents of terrorism and associated fatalities have been rising steadily in South Asia. The increasing trend in incidents of terrorism and associated fatalities is observed primarily in the economically lagging regions of South Asia. There is a clear difference in conflict trends in leading and lagging regions. Economic backwardness can have adverse security consequences in the long run. Global events are likely to increase conflict within individual countries. Closed for comment; 0 Comments.