First Look

August 9, 2016

Among the highlights included in just-released research papers, case studies, articles, and books by Harvard Business School faculty:

Developers dig into open offices

Traditional office space design in many locations is giving way to the open office, and building developers are learning the new rules of the game. In the case study Reworking Office Space: Industry City, Brooklyn, Jamestown LP, a real estate investment and management firm, contemplates converting some of its space to “shared office space.” The case introduces the reader to the shared office market, including the similarities and differences from traditional office space and underlying trends driving the change, according to authors Arthur I. Segel and Andrew Baum.

Analyzing a medical technology startup

In the new multimedia case study BionX , students will grapple with a variety of issues faced in creating a technology startup in the health care industry, including “the strategic complexities of multi-layer distribution channels, difficulties attaining reimbursement from third-party payers (particularly Medicare), and valuation issues when significant capital is needed and financial performance is inconsistent.” The case was written by William A. Sahlman, Robert F. White, Ruth Page, and Hunter Ashmore.

Tracking the progress of immigrant entrepreneurship

In the working paper Immigrant Entrepreneurship, Sari Pekkala Kerr and William R. Kerr attempt to quantify immigrant contributions to new-firm creation. “We describe differences in the types of businesses initially formed by immigrants and their medium-term growth patterns. We also consider the relationship of these outcomes to the immigrants’ age at arrival to the United States.”

A complete list of new research and publications from Harvard Business School faculty follows.

— Sean Silverthorne
 
  • forthcoming
  • Organizational Behavior and Human Decision Processes

Managing Perceptions of Distress at Work: Reframing Emotion as Passion

By: Wolf, Elizabeth Baily, Jooa Julia Lee, Sunita Sah, and Alison Wood Brooks

Abstract—Expressing distress at work can have negative consequences for employees: observers perceive employees who express distress as less competent than employees who do not. Across five experiments, we explore how reframing a socially inappropriate emotional expression (distress) by publicly attributing it to an appropriate source (passion) can shape perceptions of, and decisions about, the person who expressed emotion. In Studies 1a–c, participants viewed individuals who reframed distress as passion as more competent than those who attributed distress to emotionality or made no attribution. In Studies 2a–b, reframing emotion as passion shifted interpersonal decision making: participants were more likely to hire job candidates and choose collaborators who reframed their distress as passion compared to those who did not. Expresser gender did not moderate these effects. Results suggest that in cases when distress expressions cannot or should not be suppressed, reframing distress as passion can improve observers' impressions of the expresser.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51433

Credit-Induced Boom and Bust

By: Di Maggio, Marco, and Amir Kermani

Abstract—Can a credit expansion induce a boom and bust in house prices and real economic activity? This paper exploits the federal preemption of national banks in 2004 from local laws against predatory lending to gauge the effect of the supply of credit on the real economy. Specifically, we exploit the heterogeneity in the market share of national banks across counties and in state anti-predatory laws to instrument for an outward shift in the supply of credit. First, a comparison between counties in the top and bottom deciles of presence of national banks in states with anti-predatory laws suggests that the preemption regulation resulted in an 11% increase in annual lending in the 2004–2006 period. Our estimates show that this lending increase is associated with a 3.3% rise in annual house price growth rate and a 2.2% expansion of employment in the non-tradable sectors. These effects are followed by a decline in loan origination, house prices, and employment of similar magnitude in subsequent years. Furthermore, we show that the increase in the supply of credit reduced mortgage delinquency rates during the boom years but increased them in bust years. Finally, these effects are stronger for subprime and inelastic regions.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=51407

Abstract—We assess the extent to which unemployment insurance (UI) serves as an automatic stabilizer to mitigate the economy's sensitivity to shocks. Using a local labor market design based on heterogeneity in local benefit generosity (defined as the percentage of household income recovered by the unemployment benefit), we estimate that a one standard deviation increase in generosity attenuates the effect of adverse shocks on employment growth by 7% and on earnings growth by 6%. Consistent with the hypothesis that this effect derives from the local demand channel, we find that consumption is less responsive to local labor demand shocks in counties with more generous benefits. Our analysis finds that the local fiscal multiplier of unemployment insurance expenditure is approximately 1.9. Overall, our results suggest that UI has a beneficial effect on the economy by decreasing its sensitivity to shocks.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=51410

Immigrant Entrepreneurship

By: Pekkala Kerr, Sari, and William R. Kerr

Abstract—We examine immigrant entrepreneurship and the survival and growth of immigrant-founded businesses over time relative to native-founded companies. Our work quantifies immigrant contributions to new firm creation in a wide variety of fields using multiple definitions. While significant research effort has gone into understanding the economic impact of immigration into the United States, comprehensive data for quantifying immigrant entrepreneurship are difficult to assemble. We combine several restricted-access U.S. Census Bureau data sets to create a unique longitudinal data platform that covers 1992–2008 and many states. We describe differences in the types of businesses initially formed by immigrants and their medium-term growth patterns. We also consider the relationship of these outcomes to the immigrants’ age at arrival to the United States.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=51304

The Impact of the Entry of Biosimilars: Evidence from Europe

By: Scott Morton, Fiona, Ariel Dora Stern, and Scott Stern

Abstract—Biologic drugs (therapeutic proteins or "large-molecule drugs") represent a large and growing share of all drug spending in the United States, accounting for less than 1% of prescriptions filled but nearly 28% of drug spending. Whereas traditional (chemically synthesized, "small-molecule") drugs have historically faced price competition from generic drugs after patent expiration, biosimilars—biologic drugs that have been shown to be therapeutically equivalent to an already approved original biologic drug—have only been approved in the United States since 2015. Europe has had biosimilar entry since 2006. This paper considers how competition from biosimilars may impact the U.S. biosimilar market by examining data from the first eight years of biosimilar competition in 23 European countries. A major contribution of this project is the completion of a detailed survey, allowing us to precisely characterize European biologic drug procurement institutions over time. Using data from three classes of biosimilar drugs, we analyze how market features and public policies predict entry, market prices, and penetration of biosimilars. We find significant heterogeneity across countries and drug classes in all of these outcomes. While we observe that effective buyer institutions (in particular, committed tenders) are associated with increased biosimilar entry and penetration, price patterns are more difficult to glean from the available data. Our estimates can inform ongoing policy discussions on both sides of the Atlantic about the economic implications of biosimilar policies.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=51309

Abstract—This paper explores how the regulatory approval process affects innovation incentives in medical technologies. Prior studies have found early mover regulatory advantages for drugs. I find the opposite for medical devices, where pioneer entrants spend 34% (7.2 months) longer than follow-on entrants in regulatory approval. Back-of-the-envelope calculations suggest that the cost of this delay is upwards of 7% of the cost of bringing a new high-risk device to market. Considering potential explanations, I find that approval times are largely unrelated to technological novelty, but are meaningfully reduced by the publication of objective regulatory guidelines. Finally, I consider how the regulatory process affects small firms' market entry strategies and find that small firms are less likely to be pioneers in new device markets—a phenomenon that is not observed in new drug markets.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=49384

The case centers on Christ Church’s Treasurer, James Lawrie, who is contemplating his options for investing a portion of the College's endowment in real estate. Approximately 1/3 of the total $690 million endowment was allocated towards real estate, much higher than the typical 4% allocation by his American counterparts. Differing from many U.S. endowments, real estate has remained a vital part of the Christ Church endowment since its founding in the mid-16th century. The College began with significant real estate holdings originally received from Henry VIII, which seeded the College’s endowment. In the early 1980s, real estate represented 70% of the endowment’s holdings and from 2002 to 2015, Christ Church’s direct investments returned c.10% annually. Lawrie contemplates the future role of real estate in the College’s portfolio, assesses the performance of the “U.S. Endowment Model,” and compares Christ Church’s performance against others as he weighs a variety of investment strategies including redevelopment, land sales, specialist funds, pooling capital with the other Oxford Colleges, and taking on more debt considering the once-in-a-generational low interest rates.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/216086-PDF-ENG

James Tallest analyzed the opportunity to invest in a distressed portfolio of high quality properties in Germany by acquiring one or more non-performing loans from Deutschland Bank. While he considers the many aspects of the deal that is about to unfold, he must decide which securities to acquire, the price he should offer to each of them, and whether to retain the former owner of the portfolio as property manager.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/216055-PDF-ENG

  • Harvard Business School Case 816-016

Business Models Problem Set

No abstract available.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/816016-PDF-ENG

  • Harvard Business School Case 716-003

East Timor: Betting on Oil

No abstract available.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/716003-PDF-ENG

  • Harvard Business School Case 816-702

BionX

The BionX multimedia case introduces students to BionX Medical Technologies, a company founded in 2007 to create bionic solutions that "restored normalized limb function and improved quality of life" for people with amputations or other mobility impairments. The company's first product, the BiOM was a foot and ankle prosthetic designed to restore normalized walking function by providing amputees with motorized propulsion, emulating the function of lost muscles and tendons. The company's products were based on technology developed by Dr. Hugh Herr, Director of the Biomechatronics Research Group at the MIT Media Lab. Through the case, students will gain an appreciation of the hurdles faced when launching a new technology venture, the strategic complexities of multi-layer distribution channels, difficulties attaining reimbursement from third-party payers (particularly Medicare), and valuation issues when significant capital is needed and financial performance is inconsistent.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/816702-HTM-ENG

  • Harvard Business School Case 216-075

Reworking Office Space: Industry City, Brooklyn

Jamestown is contemplating how to best lease a portion of their new development along the Brooklyn waterfront, Industry City. The 6 million square foot, mixed-use development is meant to accommodate Brooklyn’s growing innovation, creative, and “maker” communities. Jamestown is intrigued by the recently revived trend of “shared office space,” championed by WeWork and originated by well-known players like Regus. The case is intended to introduce the reader to the shared office market, including the similarities and differences from traditional office space, and explore the underlying trends driving this change, as well as the risks to the business model. Jamestown must weigh the pros and cons of their different leasing strategies, including economic, operational, and reputational, and must decide whether or not to lease the space to a traditional tenant, lease the space to a third-party shared office operator (e.g., WeWork or Regus), or develop their own shared office offering.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/216075-PDF-ENG

  • Harvard Business School Case 614-072

RCA: Color Television and the Department of Justice (A)

This case examines the early history of the color television receiver market and the global consequences of an historic 1958 consent decree with the U.S. Department of Justice that opened RCA's patents to licensing by domestic competitors royalty-free. This externality had a dramatic impact on the long-term health of the U.S. consumer electronics industry. The associated (B) case is 614-073.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/614072-PDF-ENG

  • Harvard Business School Case 614-073

RCA: Color Television and the Department of Justice (B)

Supplement to HBS Case No. 614-072.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/614073-PDF-ENG

  • Harvard Business School Case 117-027

Cyber Breach at Target

In November and December of 2013, Target Corporation suffered one of the largest cyber breaches to date. The breach that occurred during the busy holiday shopping season resulted in personal and credit card information of approximately 110 million Target customers being compromised. The case describes the details of the breach, circumstances that lead to it, consequences for customers and for Target, and the company's response. Additionally, the case discusses the role of management and the board of directors in cyber security at Target. Target's board of directors was subject to intense criticism by shareholders and governance experts such as the leading proxy advisor Institutional Shareholder Services (ISS). Lastly, the case discusses the critique and defense of the board's role and is designed to allow for a discussion of the causes and consequences of the cyber breach and accountability of directors in cyber security.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/117027-PDF-ENG