- 29 May 2007
- First Look
- 28 May 2007
- Research & Ideas
How Property Ownership Changes Your World View
When Argentine squatters were granted property title it changed the way they viewed the world. HBS professor Rafael Di Tella discusses his research into how property ownership affects our beliefs and also our attitudes toward capitalism. Closed for comment; 0 Comments.
- 25 May 2007
- Working Paper Summaries
Self-Regulatory Institutions for Solving Environmental Problems: Perspectives and Contributions from the Management Literature
What role can business managers play in protecting the natural environment? Academic research on when it might "pay to be green" has advanced understanding of how and when firms achieve sustained competitive advantage. The focus of such research, however, has begun to change in light of limits to available "win-win" opportunities and to gaps in regulation. This paper, intended as a book chapter, reviews current literature and explores the potential of self-regulatory institutions to solve environmental problems. Key concepts include: Firms have created self-regulatory institutions to mitigate the risk of common sanctions and to address information asymmetries regarding production and employment practices. Some self-regulatory institutions appear to reduce asymmetries in information, others to facilitate coordinated investment in solutions to common problems. Future research needs to identify the factors that lead some, but not all, self-regulatory institutions to be effective routes to solving environmental problems. The literature reviewed here is proving valuable to scholars who study the self-regulation of standards, knowledge sharing, and open-source software development. Closed for comment; 0 Comments.
- 24 May 2007
- Working Paper Summaries
Repugnance as a Constraint on Markets
While some kinds of transactions are repugnant at certain times and places, they are considered perfectly acceptable in other situations. This essay examines a wide range of examples, including the buying and selling of kidneys for transplantation. Repugnance has important consequences for the transactions and markets we see. Key concepts include: Distaste for certain kinds of transactions can be a real constraint on markets and how they are designed, every bit as real as the constraints imposed by technology or the requirements of incentives and efficiency. Discussion is essential. Just as economists see very few tradeoffs as taboo, non-economists often decline to discuss tradeoffs at all, preferring to focus on the repugnance of transactions like organ sales. The laws against buying or selling kidneys reflect a reasonably widespread repugnance, making it difficult for arguments that focus only on the gains from trade to make headway in changing these laws. But that does not mean that gains from exchange can't be realized. Behavioral economics has been concerned mostly with how individuals make choices. But attitudes about repugnance shape whole markets, and therefore shape what choices people face, and so may be an important way that "behavioral" considerations affect the economy. Closed for comment; 0 Comments.
- 23 May 2007
- Working Paper Summaries
What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns
Most industries exhibit some degree of geographic concentration. Although many theories attempt to explain this agglomeration, empirical tests of these theories are difficult as they all predict similar outcomes within individual industries. This study considers how industries coagglomerate—that is, which industry pairs locate together—to form a tractable analysis. The authors specifically study the relative importance of proximity to suppliers and customers, to firms using similar labor, and the sharing of ideas for explaining agglomeration. Key concepts include: In manufacturing, transport costs for goods, people, and ideas all still seem to matter. Given the remarkable decline of transportation costs over the 20th century, it is striking that transport costs remain so important. It is unclear how these results would extend to non-manufacturing industries. Services are costly to transport since they involve face-to-face interaction, and idea flows might take precedence in non-manufacturing industries. Closed for comment; 0 Comments.
- 22 May 2007
- First Look
- 22 May 2007
- Working Paper Summaries
Strategy-Proofness versus Efficiency in Matching with Indifferences: Redesigning the NYC High School Match
One of the goals of school matching systems is to limit the extent to which students and parents feel it necessary to "game the system" to be accepted at a favored school. Several years ago, the authors of this paper assisted the New York City Department of Education in redesigning the way it matched over 90,000 students entering public high schools each year. The situation in New York City is a hybrid: Some schools actively rank potential students, others have no preferences, and still others fall in between. This paper concentrates on the welfare considerations and incentives that arise in school choice due to the fact that many students are regarded by schools as equivalent. The research develops and expands on economic theory demanded by the design of school choice mechanisms. Key concepts include: As economists are more often asked to design practical markets and allocation mechanisms, they will increasingly navigate two-way feedback between theory and design. The paper raises new theoretical questions. It would be helpful to have answers before the next major design or redesign of school matching systems. Closed for comment; 0 Comments.
- 22 May 2007
- Working Paper Summaries
The Speed of New Ideas: Trust, Institutions and the Diffusion of New Products
Does trust confer competitive advantage in terms of time, money, and productivity? Previous research indicates that it does. This study shifts perspective slightly and asks whether trust can also act as a barrier to entry. In other words, are trusted suppliers protected from competition if buyers are reluctant to try new products and services offered by other suppliers? Oberholzer-Gee and Calanog explored the link between levels of trust and the decision to adopt a new product using a field experiment on the diffusion of an innovative floor drain for the plumbing market. Key concepts include: Entrepreneurs from less-trusted groups—in this study, African-Americans—found it more difficult to overcome trust barriers. Trust can act as a barrier to entry for new firms and products because trust makes existing relationships more productive. Trust in current suppliers is a particularly strong deterrent to entry if the product is associated with a less-trusted group. Information from an intermediary organization, in this case a national industry association, can neutralize the negative impact of trust. Trust in institutions is therefore a valuable substitute for interpersonal trust. Closed for comment; 0 Comments.
- 21 May 2007
- Research & Ideas
Fixing the Marketing-CEO Disconnect
In many companies, the marketing function has wandered far from the company's overall strategy. The result: lower margins and declining productivity, says Professor Gail McGovern. She discusses what executives can do to repair the split and introduces a new diagnostic tool for measuring marketing performance used in HBS executive education programs. Key concepts include: In many companies a wall has grown between the marketing function and the C-suite. Reasons for this are varied, but may include CEO and board priorities taken up by other issues or too much delegation of responsibility to the chief marketing officer. When a firm's marketing activities are not supportive of its greater strategic goals, the result can be low growth and declining margins. The key challenge in aligning marketing activities with corporate strategy is to develop a set of metrics to be used by top executives and the board that measure the impact of marketing activities against the goals of the corporation. Closed for comment; 0 Comments.
- 18 May 2007
- Working Paper Summaries
An Empirical Approach to Understanding Privacy Valuation
What do consumers value and why? Researchers on privacy remain stumped by a "privacy paradox." Consumers declare that they value privacy highly, yet do not take steps to guard it during transactions. At the same time, consumers feel unable to enact their preferences on privacy. Clearly, scholars need a more nuanced understanding of how consumers treat information privacy in complex situations. To test the hypothesis that there is a homo economicus behind privacy concerns, not just primal fear, Wathieu and Friedman conducted an experiment based on a real-world situation about the transmission of personal information in the context of car insurance. Their experiment was based on a previous case study about marketing processes that use membership databases of trusted associations (such as alumni associations) to channel targeted deals to members through a blend of direct mail and telemarketing. Key concepts include: Contrary to some research, the chief privacy concern appears based on data use, not data itself. There is consumer demand for social control that focuses on data use. Sophisticated consumers care about economic context and indirect economic effects. Closed for comment; 0 Comments.
- 18 May 2007
- Working Paper Summaries
Media Markets and Localism: Does Local News en Español Boost Hispanic Voter Turnout?
The increased integration of markets for news and entertainment means that more viewers can watch shows that better match their preferences, whether that means American football, Japanese anime, or Mexican soap operas. But is there an attendant risk to civic society, as some scholars claim? Do locally engaged citizens turn into passive viewers? The explosion in the U.S. of local television news in Spanish provides an ideal stage for probing these questions. This paper tests whether the presence of local television news affects local civic engagement in the form of voter turnout. Key concepts include: The availability of Spanish-language local television news significantly boosts Hispanic voter turnout. Regulatory policies should protect local media. Closed for comment; 0 Comments.
- 17 May 2007
- Working Paper Summaries
The Price of Capital: Evidence from Trade Data
Is the price of capital higher across different countries? Motivated by the fact that most countries import the bulk of machinery and equipment, Alfaro and Ahmed used an alternative trade data to capture differences in the price of capital goods across countries. On this basis they found evidence that capital goods are more expensive in poor countries. Key concepts include: Findings were consistent with conventional wisdom: The price and cost of capital in poor countries is high. Given that most countries import the bulk of their machinery equipment from a small number of industrialized countries, investment distortions might be a factor in the observed differences in physical capital intensity across countries. Higher prices might inhibit the diffusion of technologies from rich to poor countries. Closed for comment; 0 Comments.
- 16 May 2007
- Working Paper Summaries
On The General Relativity of Fiscal Language
The failure to distinguish economics from linguistics is distressingly common in fiscal policy and theoretical research. Like measures of time and distance, standard fiscal measures such as deficits, taxes, and transfer payments depend on one’s reference point, reporting procedure, language, and labels. Green and Kotlikoff’s paper provides a general proof that such standard fiscal measures are economically ill-defined and instead reflect the arbitrary labeling of underlying fiscal conditions. Key concepts include: Official reports of deficits dramatically influence policy decisions while diverting attention from fundamental and meaningful measures of fiscal policy. Analyses based on standard fiscal measures and on derivative measures such as disposable income, private asserts, and personal saving represent exercises in linguistics, not economics. Closed for comment; 0 Comments.
- 16 May 2007
- Working Paper Summaries
Growth and the Quality of Foreign Direct Investment: Is All FDI Equal?
Understanding the effect of foreign direct investment is important for two main reasons: It informs foreign investment policy, and it has implications for the effect of rapidly growing investment flows on the process of economic development. While academics tend to treat foreign direct investment as a homogenous capital flow, policymakers maintain that some FDI projects are better than others. In fact, national policies toward FDI seek to attract some types of FDI while regulating other types, reflecting a belief among policymakers that FDI projects differ greatly in terms of the national benefits to be derived from them. Policymakers from Dublin to Beijing, for instance, have implemented complex FDI regimes in order to influence the nature of FDI projects attracted to their shores. Using a dataset on 29 countries, Alfaro and Charlton distinguished different qualities of FDI in order to examine the various links between types of FDI and growth. Key concepts include: FDI at the industry level is associated with higher growth in value added. The relation is stronger for industries with higher skill requirements and for industries more reliant on external capital. FDI quality is associated with positive and economically significant growth. More research on the consequences of FDI is needed before promoting FDI. Closed for comment; 0 Comments.
- 15 May 2007
- First Look
- 15 May 2007
- Working Paper Summaries
How is Foreign Aid Spent? Evidence from a Compelling Natural Experiment
Foreign aid is viewed as a transfer of resources that can be used to generate meaningful growth in the recipient country's economy. How this aid is ultimately spent, therefore, determines how effective it is in achieving its purposes. Yet economists to date possess little understanding of how foreign aid trickles through a country's economy. This paper examines a foreign aid windfall that poorer Muslim countries have systematically received from rich, oil-producing Arab states. When the price of oil skyrocketed during the 1973-1986 oil crisis (and again after 2001), OPEC nations took a substantial portion of the money they received and gave it away as foreign aid, mostly to Muslim nations. When the price of oil crashed and income plunged in the oil-producing countries, the aid dried up. Werker, Ahmed, and Cohen examined the short-term effect of foreign aid on aggregate demand, the components of gross domestic product, and the balance of payments. Key concepts include: Oil-driven bonuses in foreign aid from wealthy Arab oil producers to poor Muslim countries were mostly consumed on imported non-capital goods. The aid crowded out domestic savings and did little to attract foreign investment. Long-term economic growth was unaffected. The popular critique that aid is "wasted" did not jibe with the data. Every component of the domestic economy, including investment, was raised in the short term. Foreign aid may be an effective tool of fiscal policy that can be used to smooth the business cycle in developing countries. But a challenge remains: How can the temporary stimulus be converted into lasting economic growth? Closed for comment; 0 Comments.
- 15 May 2007
- Working Paper Summaries
I’ll Have the Ice Cream Soon and the Vegetables Later: Decreasing Impatience over Time in Online Grocery Orders
How do people’s preferences differ when they make choices for the near term versus the more distant future? Providing evidence from a field study of an online grocer, this research shows that people act as if they will be increasingly virtuous the further into the future they project. Researchers examined how the length of delay between when an online grocery order is completed and when it is delivered affects what consumers order. They find that consumers purchase more "should" (healthy) groceries such as vegetables and less "want" (unhealthy) groceries such as ice cream the greater the delay between order completion and order delivery. The results have implications for public policy, supply chain managers, and models of time discounting. Key concepts include: Consumers spend less and order a higher percentage of "should" items and a lower percentage of "want" items the further in advance of delivery they place a grocery order. Encouraging people to order their groceries up to 5 days in advance of consumption could influence the healthfulness of the foods that people consume. Similarly, asking students in schools to select their lunches up to a week in advance could considerably increase the healthfulness of the foods they elect to eat. Online and catalog retailers that offer a range of goods as well as different delivery options might be able to improve their demand forecasting by understanding these findings. Closed for comment; 0 Comments.
- 14 May 2007
- Research & Ideas
The Key to Managing Stars? Think Team
Stars don't shine alone. As Harvard Business School's Boris Groysberg and Linda-Eling Lee reveal in new research, it is imperative that top performers as well as their managers take into account the quality of colleagues. Groysberg and Lee explain the implications for star mobility and retention in this Q&A. Key concepts include: It takes a team. Despite a star's talent, knowledge, experience, and reputation, his or her colleagues make the difference for sustaining top performance. Before considering a career move, carefully evaluate the support you would receive from colleagues even in other parts of the firm. Closed for comment; 0 Comments.
- 08 May 2007
- First Look
Health Care Under a Research Microscope
Perhaps no industry has caught the research attention of Harvard Business School faculty as much as health care. Researchers are investigating business-focused solutions on everything from improving team work among surgical teams to developing market motivations that increase the use of water purification in poor villages. Key concepts include: The $2 trillion American health care system has grown bloated and overly expensive, and it delivers poor service to many patients. Harvard Business School faculty are looking at the system through a business management perspective to recommend changes in almost all aspects of health care research and delivery. Around the world, HBS researchers are studying ways to improve medical services to the poor using techniques that include everything from motivational marketing to microfinance. Closed for comment; 0 Comments.