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New research on law from Harvard Business School faculty on issues including law enforcement, lawfulness, and lawsuits and litigation practices.
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Investor Lawsuits Against Auditors Are Falling, and That's Bad News for Capital Markets

by Martha Lagace

It's becoming more difficult for investors to sue corporate auditors. The result? A weakening of trust in US capital markets, says Suraj Srinivasan. Open for comment; Comment(s) posted.

The Unexpected Way Whistleblowers Reduce Government Fraud

by Kristen Senz

Even unfounded allegations by whistleblowers can force government contractors to renegotiate their terms, say Jonas Heese and Gerardo Perez Cavazos. Open for comment; Comment(s) posted.

The Changing Landscape of Auditor Litigation and Its Implications for Audit Quality

by Colleen Honigsberg, Shivaram Rajgopal, and Suraj Srinivasan

Data from 1996 to 2016 shows that shareholder litigation against auditors has declined in recent years. Empirical evidence shows that Rule 10b-5, the Securities Act statute used for class action lawsuits, has lost its bite for use against auditors. This decline is driven, at least in part, by the US Supreme Court’s narrowing of liability standards. These findings suggest weakened shareholder protection with profound implications for investors.

Consumers Blame Business for Global Health Problems. Can Business Become the Solution?

by Danielle Kost

3Questions Millions of people have been harmed by cigarettes, defective merchandise, pollution, addiction and other business by-products. Pioneering companies are exploring healthier ways to operate, say Amy C. Edmondson and Dr. Howard K. Koh. Open for comment; Comment(s) posted.

The Creation and Evolution of Entrepreneurial Public Markets

by Shai Bernstein, Abhishek Dev, and Josh Lerner

Since 1990, new stock exchanges geared toward fast-growing, entrepreneurial companies have proliferated around the world. This analysis shows that exchanges in countries with better shareholder protection allowed younger and less profitable companies to raise more capital. These markets alone cannot boost entrepreneurial activity but need enabling institutions.

Arbitration with Uninformed Consumers

by Mark Egan, Gregor Matvos, and Amit Seru

Using data on securities disputes, this study of information advantages in consumer arbitration finds that industry-friendly arbitrators are 40 percent more likely than consumer-friendly arbitrators to be selected to take on arbitration cases. Limiting respondents’ and claimants’ inputs over the selection process could improve outcomes for consumers.

How Does Product Liability Risk Affect Innovation? Evidence from Medical Implants

by Alberto Galasso and Hong Luo

This analysis examines how a surge in liability risk faced by upstream suppliers of general purpose technologies (polymers) affected downstream innovation in implant technologies. Implant patenting dropped by 36 percent relative to non-implant technologies.

Buying the Verdict

by Lauren H. Cohen and Umit G. Gurun

This paper documents systematic evidence that firms engage in specialized, locally targeted advertising when taken to a court trial in a given location. Policymakers should consider what impact such targeted advertising is having—and whether it is a desired impact—on juries and the judicial process more generally.

Why South Korea's Samsung Built the Only Outdoor Skating Rink in Texas

by Michael Blanding

New research by Lauren Cohen and Umit Gurun finds that when some companies are sued, they put their advertising dollars to work in unusual ways to influence local juries. Meet 'TiVo,' the championship steer. Open for comment; Comment(s) posted.

Transaction Costs and the Duration of Contracts

by Alexander MacKay

When buyers transact with sellers, they select not only whom to transact with but also for how long. This paper develops a model of optimal contract duration arising from underlying supply costs and transaction costs. The model allows for the quantification of transaction costs, which are often unobserved, and the impact of these costs on welfare.

Handgun Waiting Periods Prevent Hundreds of Homicides Each Year

by Dina Gerdeman

Waiting-period laws reduce gun-related homicides by 17 percent and gun-related suicides by up to 11 percent, according to a study by Deepak Malhotra, Michael Luca, and Christopher Poliquin. Open for comment; Comment(s) posted.

How an African History Scholar Became a Modern Righter of Wrongs

by Carmen Nobel

A scholar of colonial-era African history, Caroline M. Elkins had dramatic success turning prior knowledge into real-world action—namely, with a groundbreaking lawsuit against the British government, which revealed a chillingly bureaucratic process for destroying evidence of torture. Open for comment; Comment(s) posted.

Tort Reform and Innovation

by Alberto Galasso and Hong Luo

This paper investigates how tort reforms might affect the development of new medical device technologies. The authors find that caps on non-economic damages (such as pain and suffering) are associated with an average decline in patenting for medical instrument technologies. The effect, however, is highly varied and depends on the characteristics of both the devices and the medical fields.

When Mass Shootings Lead to Looser Gun Restrictions

by Carmen Nobel

Do mass shootings lead to more gun-related legislation? The answer is yes, with an important twist, according to new research by Michael Luca, Deepak Malhotra, and Christopher Poliquin. Open for comment; Comment(s) posted.

The ‘Mother of Fair Trade’ was an Unabashed Price Protectionist

by Dina Gerdeman

Historian Laura Phillips Sawyer unearths the story of little-known drug store owner Edna Gleason who, in a man’s world, helped fire a progressive movement to protect small-business owners from price-slashing chains. Open for comment; Comment(s) posted.

‘Does 'What We Do' Make Us 'Who We Are'? Organizational Design and Identity Change at the Federal Bureau of Investigation

by Ranjay Gulati, Ryan Raffaelli, and Jan Rivkin

Both the design and identity of the FBI changed greatly in the wake of the September 11, 2001 terrorist attacks. This study tracing the co-evolution of the Bureau’s organizational design and identity before the 9/11 attacks and through three subsequent phases finds that successful changes to organizational identity are likely to be delayed after a radical external shock: Management is likely to be constrained, appropriate design is probably unclear, or both.

Financial Patent Quality: Finance Patents After State Street

by Josh Lerner, Ann Leamon, Mark Baker & Andrew Speen

Although the past few decades have seen a surge in patents of inventions related to financial services, concerns have been raised about the quality of those patents. New research shows that finance patents in aggregate cite fewer non-patent publications and especially fewer academic publications.

Internalizing Global Value Chains: A Firm-Level Analysis

by Laura Alfaro, Pol Antras, Davin Chor & Paola Conconi

Manufacturing activities that used to be performed in close proximity are increasingly fragmented across firms and countries. This paper provides strong evidence that considerations driven by contractual frictions critically shape firms' ownership decisions along their value chains.

Dragging Patent Trolls Into the Light

by Michael Blanding

New research by Lauren Cohen and colleagues shows that patent trolls are not just the stuff of fairy tales. Open for comment; 5 Comment(s) posted.

Digital Discrimination: The Case of Airbnb.com

by Benjamin G. Edelman & Michael Luca

To build trust and facilitate transactions, online marketplaces present information not only about products, but also about the people offering the products. Many platforms now allow sellers to present personal profiles, post pictures of themselves, and even link to their Facebook accounts. While these features serve the laudable goals of building trust and accountability, they can also bring unintended consequences: Personal profiles may facilitate discrimination. Benjamin G. Edelman and Michael Luca investigate the extent of racial discrimination against hosts on the popular online rental marketplace Airbnb.com. They construct a data set combining pictures of all New York City landlords on Airbnb with their rental prices and information about characteristics and quality of their properties. The authors use this data to measure differences in outcomes according to host race. Nonblack hosts are able to charge approximately 12 percent more than black hosts, holding location, rental characteristics, and quality constant. Moreover, black hosts receive a larger price penalty for having a poor location relative to nonblack hosts. These differences highlight the risk of discrimination in online marketplaces, suggesting an important unintended consequence of a seemingly-routine mechanism for building trust. Key concepts include: Online marketplaces have the potential to reduce discrimination by facilitating more arms-length transactions. However, social platforms such as Airbnb.com, a popular online marketplace for short-term rentals, may have the opposite effect. This paper investigates the differences in prices of properties from hosts of varying races. Non-black hosts charge approximately 12% more than black hosts for comparable properties. Online marketplaces should think carefully about whether, and why, the looks of buyers and sellers should be relevant to the purchase at hand. Airbnb might consider eliminating or reducing the prominence of host photos. It is not clear what beneficial information these photos provide, while they risk facilitating discrimination by guests. Closed for comment; 0 Comment(s) posted.