Publications
- August 2013
- Journal of Financial Economics
X-CAPM: An Extrapolative Capital Asset Pricing Model
Abstract—Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs about future price changes in the stock market by extrapolating past price changes, while other investors hold fully rational beliefs. We find that the model captures many features of actual prices and returns; importantly, however, it is also consistent with the survey evidence on investor expectations.
Publisher's link: http://www.hbs.edu/faculty/Publication%20Files/bgjs13_84709dcc-425f-4fe2-8600-0f8cbb50be16.pdf
Abstract—The case method was developed concurrently with the emergence of business schools as a way of teaching future executives evidence-based problem solving in the classroom. Harvard Business School faculty led in developing the method. A particular challenge in the writing of cases is finding the balance between enough complexity, so that the problem posed reflects reality and supports alternative approaches to resolution, and too much complexity, which makes it impossible for the student to prepare. A great virtue of the method is that it replicates the managerial work involved in solving a problem within a group.
Publisher's link: http://www.palgraveconnect.com/esm/doifinder/10.1057/9781137294678.0080
- August 2013
- The Palgrave Encyclopedia of Strategic Management
Resource Allocation Theory
Abstract—This article considers the process of resource allocation, whereby an organization determines how best to apportion its factors of production between the various productive activities in which it wishes to engage. It is suggested that none of the academic approaches to date has provided an entirely coherent picture of the process, in part because of the contradictory models of the process that they generate. The article goes on to consider the planning processes that are involved in assessing future projects and the way in which past outcomes feed into the assessment of future projects.
Publisher's link: http://www.palgraveconnect.com/esm/doifinder/10.1057/9781137294678.0585
- August 2013
- The Palgrave Encyclopedia of Strategic Management
Succession Management
Abstract—Although often described as an event, if succession is managed properly it is the culmination of a development process that takes place over a number of years, led by the CEO working with the board of directors. In the ideal situation several candidates will have been developed, each of whom would be more or less capable of taking on the job, depending on the circumstances and prospects of a company. In fact, companies often turn to outsiders because they have failed to recruit, train, and develop the sort of talent that might take over leadership of the organization. To avoid this failure the board must make sure that the company is managed in such a way that talent is developed along with the business.
Publisher's link: http://www.palgraveconnect.com/esm/doifinder/10.1057/9781137294678.0085
- August 2013
- International Journal of Industrial Organization
Information and Two-Sided Platform Profits
Abstract—We study the effect of different levels of information on two-sided platform profits under monopoly and competition. One side (developers) is always informed about all prices and therefore forms responsive expectations. In contrast, we allow the other side (users) to be uninformed about prices charged to developers and to hold passive expectations. We show that platforms with more market power (monopoly) prefer facing more informed users. In contrast, platforms with less market power (i.e., facing more intense competition) have the opposite preference: they derive higher profits when users are less informed. The main reason is that price information leads user expectations to be more responsive and therefore amplifies the effect of price reductions. Platforms with more market power benefit because higher responsiveness leads to demand increases, which they are able to capture fully. Competing platforms are affected negatively because more information intensifies price competition.
Publisher's link: http://ssrn.com/abstract=2360263
Working Papers
Monetary Policy Drivers of Bond and Equity Risks
Abstract—The exposure of U.S. Treasury bonds to the stock market has moved considerably over time. While it was slightly positive on average in the period 1960-2011, it was unusually high in the 1980s and negative in the 2000s, a period during which Treasury bonds enabled investors to hedge macroeconomic risks. This paper explores the effects of monetary policy parameters and macroeconomic shocks on nominal bond risks, using a New Keynesian model with habit formation and discrete regime shifts in 1979 and 1997. The increase in bond risks after 1979 is attributed primarily to a shift in monetary policy towards a more anti-inflationary stance, while the more recent decrease in bond risks after 1997 is attributed primarily to a renewed emphasis on output stabilization and an increase in the persistence of monetary policy. Endogenous responses of bond risk premia amplify these effects of monetary policy on bond risks.
Download working paper: http://ssrn.com/abstract=2332106
Pricing and Efficiency in the Market for IP Addresses
Abstract—We consider market rules for transferring IP addresses, numeric identifiers required by all computers connected to the Internet. Transfers usefully move resources from lowest- to highest-valuation networks, but transfers tend to cause socially costly growth in the Internet's routing table. We propose a market rule that avoids excessive trading and comes close to achieving social efficiency. We argue that this rule is feasible despite the limited powers of central authorities. We also offer a framework for reasoning about future prices of IP addresses and then explore the role of rentals in sharing information about the value of IP address and assuring allocative efficiency.
Download working paper: http://ssrn.com/abstract=1934217
Elevating Repositioning Costs: Strategy Dynamics and Competitive Interactions in Grand Strategy
Abstract—This paper proposes an approach for modeling strategic interactions that incorporates the costs to firms of changing their strategies. The costs associated with strategy modifications, which we term "repositioning costs," constitute a defining feature of strategic choice, which is particularly relevant to interactions involving grand strategies. Repositioning costs can critically affect competitive dynamics by making strategies "sticky" and, consequently, the implications of strategic interaction for strategic choice. And yet, while the organization and strategy literatures broadly recognize the importance of repositioning costs, game-theoretic treatments at the grand-strategy level with very limited exceptions have not focused on them. In this paper we argue for greater recognition of repositioning costs, provide a repositioning cost typology, and demonstrate the fertility of this approach with a simple model of inter-firm competitive interaction in which repositioning costs increase with the length of time that a firm has been executing its current strategy.
Download working paper: http://www.hbs.edu/faculty/Pages/download.aspx?name=14-103.pdf
'My Bad!' How Internal Attribution and Ambiguity of Responsibility Affect Learning from Failure
Abstract—Learning in organizations is a key determinant of individual and organizational success, and one valuable source of this learning is prior failure. Previous research finds that although individuals can learn from failed experiences, they do not always do so. To explain why this is true, we explore how individuals process failed experiences as a potential source of learning. Drawing on attribution theory, we conceptualize the differential impact that internal (self-focused) and external (factors outside of one's control) attributions after failure may have on individuals' learning and identify a key factor that shapes whether individuals attribute failure internally or externally, namely perceived ambiguity of responsibility. We hypothesize that when perceived ambiguity of responsibility is low rather than high, individuals will be more likely to attribute their failure internally and in turn devote more effort to learning and improving. We test our hypotheses using data collected in field and laboratory settings. This multi-method approach supports our theoretical model and permits us to gain further insight into how learning from failure occurs for individuals in work organizations.
Download working paper: http://ssrn.com/abstract=2426674
Firms and the Economics of Skilled Immigration
Abstract—Firms play a central role in the selection, sponsorship, and employment of skilled immigrants entering the United States for work through programs like the H-1B visa. This role has not been widely recognized in the literature, and the data to better understand it have only recently become available. This paper discusses the evidence that has been assembled to date in understanding the impact of high-skilled immigration from the perspective of the firm and the open areas that call for more research. Since much of the U.S. immigration process for skilled workers rests in the hands of employer firms, a stronger understanding of these implications is essential for future policy analysis, particularly for issues relating to fostering innovation.
Download working paper: http://www.people.hbs.edu/wkerr/Kerr_Kerr_Lincoln_WP14_IPEFirms.pdf
Revisiting the Classical View of Benefit-Based Taxation
Abstract—This paper explores how the persistently popular "classical" logic of benefit-based taxation, in which an individual's benefit from public goods is tied to his or her income-earning ability, can be incorporated into modern optimal tax theory. If Lindahl's methods are applied to that view of benefits, first-best optimal policy can be characterized analytically as depending on a few potentially estimable statistics, in particular the coefficient of complementarity between public goods and innate talent. Constrained optimal policy with a Pareto-efficient objective that strikes a balance-controlled by a single parameter-between this principle and the familiar utilitarian criterion can be simulated using conventional constraints and methods. A wide range of optimal policy outcomes can result, including those consistent with existing policies. To the extent that such an objective reflects the mixed normative reasoning behind prevailing policies, this model may offer a useful approach to a positive optimal tax theory.
Download working paper: http://ssrn.com/abstract=2425225
Cases & Course Materials
- Harvard Business School Case 514-033
Barbara Krakow Gallery
The Barbara Krakow Gallery is a successful contemporary art gallery located in Boston. It utilizes a very rare "no haggle pricing" strategy and extended sales cycle when selling pieces to collectors. Though it remains profitable and very respected, the size and scope of the gallery will be brought into question when Barbara Krakow, its founder, retires and hands it over to her associate, Andrew Witkin.
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- Harvard Business School Case 814-035
Chegg, Inc.: Building the Student Hub
No abstract available.
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- Harvard Business School Case 413-096
Novartis: Leading a Global Enterprise
Novartis, the world's leading health care company, was formed in 1996 out of a merger of two very different, mid-tier Switzerland-based pharma companies. The case traces the company's evolution over the past 17 years as it transformed into a truly global enterprise with 127,000 employees of 153 nationalities in 140 countries generating $56.7 billion in 2012 revenues and $9.6 billion in net income, making the firm one of the world's largest and most profitable companies. CEO since 2010, Joe Jimenez had taken over from one of the merger's architects and visionary legacy CEO Daniel Vasella. He recognized that the global health care environment would create severe challenges for Novartis in the years ahead and that Novartis needed to make sure it had the right strategy, structure, talent, and spirit to live up to its ambitions.
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- Harvard Business School Case 414-028
Man Jit Singh at Sony Entertainment Television (A)
Explores the role of CEO Man Jit Singh and his senior management committee in leading Multi Screen Media Pvt. Ltd. (formerly SET Pvt. Ltd.), a leading television broadcaster in India. Describes Singh's decision to evaluate employees based on values as well as performance and the management committee's response. Allows for discussion of 1) the impact of leadership style on team culture, performance, and effectiveness; 2) the challenges of building a values-based organization; 3) the complexities of managing talent in a young industry, particularly within an emerging market; and 4) the final decision by CEO Man Jit Singh and the subsequent actions taken by members of the management committee.
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- Harvard Business School Case 314-083
The Weather Company
New CEO David Kenny transformed The Weather Company in less than two years from a primary identity as a cable television channel to a multi-platform digital company innovating in the uses of weather data. He assesses progress and considers strategic choices and organizational challenges ahead. He created a new narrative for the company in the era of Big Data, putting science at the center (great forecasts) and stressing services, stories (the ability to communicate the data to users), and safety (preparation for severe weather, including using social media). Now he has questions about how much to invest in the declining but still important television business; how to build and hold audiences beyond severe weather events when audiences spike; how to stay ahead of growth of digital platforms, especially mobile, when current partners (such as Google) could easily turn into competitors; and how to build organizational capabilities, culture, and talent to be ready for ongoing and future change, including global growth. Kenny grapples with a number of strategic tensions: between innovations and the traditional business, between global and local, and about increased partnering or proprietary advantages. He must continue to lead and develop the team to support a vision that is still unfolding.
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- Harvard Business School Case 814-055
Strava
Strava is a new fast-growing social network for the avid cyclist and runner. The Strava case traces the entrepreneurial journey of two serial entrepreneurs who have been co-founders in a prior venture and who co-founded Strava three years ago. The protagonists must decide whether or not to accept the Series A investment terms from their venture capitalists.
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- Harvard Business School Case 114-031
Dana Hall: Funding a Mission (D)
This case is a sequel to "Dana Hall: Funding a Mission" (A), (B), and (C) cases. It focuses on the causes of recent fund-raising success and the complex resource allocation problems the school faces as it tries to deliver on its mission. In conjunction with the (A), (B), and (C) cases, it is a rich story of how mission and finance can play out over a very long period.
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- Harvard Business School Case 513-103
Ron Johnson: Retail at Target, Apple, and J.C. Penney
In April 2013, Ron Johnson (HBS '84) stepped down after just 18 months as CEO of J.C. Penney. In his brief tenure, Johnson, an acclaimed retailer respected for his innovation and success in shaping the retail image at Target and Apple, introduced dramatic departures from J.C. Penney's traditional retail approach and enacted changes quickly and simultaneously, with little market testing. Over Johnson's final 12 months as CEO, J.C. Penney shares dropped more than 50%. The case describes the environments at Target, Apple, and J.C. Penney during Johnson's tenure and how his experiences may have shaped the strategies that he implemented while CEO at J.C. Penney.
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- Harvard Business School Case 514-085
J.C. Penney's 'Fair and Square' Strategy (B): Out with the New, In with the Old
In his August 2012 earnings call, CEO Ron Johnson urged investors to be patient and stay the course with the revised J.C. Penney marketing strategy despite mounting negative financial indicators. The heart of the strategy was the "Fair and Square" approach to pricing. This was a switch from J.C. Penney's previous high-low pricing program to a new everyday low pricing policy that aimed to fit with a radical repositioning of the J.C. Penney business model and brand. However, with sales continuing to decline, the board fired Johnson in April 2013 and appointed Johnson's predecessor Myron E. "Mike" Ullman III as his successor. What would Ullman do to stop J.C. Penney's losses? Would he push forward with Johnson's "Fair and Square" vision, would he return to the former strategy, could he manage a hybrid strategy, or would he define a new path for the retailer to follow?
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- Harvard Business School Case 514-073
J.C. Penney's 'Fair and Square' Strategy (C): Back to the Future
Rehired in April 2013, Myron E. "Mike" Ullman III was brought back to stabilize the retailer's business. Under Ron Johnson's "Fair and Square" program, sales had declined rapidly, and quarterly losses and expensive capital investments had put severe pressure on cash reserves. Ullman decided to combine "Fair and Square" everyday low pricing and high-low pricing to reverse the negative trend. For example, to welcome people back to its stores, J.C. Penney ran deep discount sales for Mother's Day and Veterans Day. By November 2013 the retail stores posted positive sales comparisons year over year, the first time since December 2011. However, margins remained low, and Wall Street was wondering if J.C. Penney was sacrificing margin to drive store traffic. Would 2013 holiday sales be strong enough for J.C. Penney to begin building stronger margins? Would another strategy have been more effective? Did the board dispose of Johnson too quickly? Was it wise to bring back Ullman? Can J.C. Penney get back on its feet?
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- Harvard Business School Case 514-057
Cancer Screening in Japan: Market Research and Segmentation
Since founding CancerScan in 2008, Jun Fukuyoshi and Yoshiki Ishikawa had helped to improve cancer screening rates in Japan. Between 2005 and 2007, awareness of breast cancer in Japan rose from 55% to 70%, but the incidence of breast cancer screenings remained constant. Jun and Yoshiki applied market research techniques to increase the screening rate for breast cancer, a disease that killed over 12,000 Japanese women in 2011. Cancer screening initiatives accounted for 60% of the company's 2013 sales of $2.5 million.
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- Harvard Business School Case 514-034
Rana Plaza: Workplace Safety in Bangladesh (A)
On April 24, 2013, the Rana Plaza factory building collapsed in Dhaka, the capital of Bangladesh. Over 1,100 people were killed in the worst industrial accident since the Union Carbide plant gas leak in Bhopal, India. Most of the victims worked for garment factories, whose primary clients were European, U.S., and Canadian firms. Export contracts to such firms had helped Bangladesh become the world's second largest clothing exporter. Rana Plaza was not the first tragedy to occur in Bangladesh's garment industry, and without intervention, more might follow. International brand owners, domestic and foreign governments, labor unions, and non-governmental organizations (NGOs) stepped up to discuss their responsibilities for improving conditions for Bangladeshi garment workers.
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- Harvard Business School Case 514-035
Rana Plaza: Workplace Safety in Bangladesh (B)
In the aftermath of the Rana Plaza building collapse, a group of international retailers and labor unions partnered to create a proposal for more stringent inspections and enforcement of safety standards in Bangladesh's garment factories. The proposal was met by opposition from several U.S. firms, which claimed the proposal carried too a high a risk of litigation for them to sign. Neither proposal relied on legislation, but options for government involvement are also discussed in the case.
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- Harvard Business School Case 914-027
Bruce Allyn: Negotiating with the KGB (A)
Isolated by the KGB in Moscow, Harvard graduate student Bruce Allyn faces high-pressure negotiation tactics to recruit him for the Soviet spy agency. At the tense height of the Cold War, with CIA agents systematically being exposed and executed in Russia, Allyn was participating in an unusual joint U.S.-Soviet study that alternated between the two countries. Going about his doctoral research, meeting and making friends with Russians, he accepted a low-key invitation from a trusted Russian friend to meet for lunch somewhere on the outskirts of Moscow. After hours of warm conversation, great food, and endless alcohol with a group of Russians, all but one of this group drifted out of the room. Suddenly the sole remaining man, "Vladimir," looked straight at Bruce and stated: "I am a high-ranking KGB officer. I have been commissioned to make to you a proposal." Drunk, isolated, and highly vulnerable, Allyn must negotiate with this sophisticated KGB counterpart. To recruit Allyn to secretly work for the KGB, the agent tries many approaches: barely veiled threats, offers of money, and the promise of high-level access and Soviet documents that would enable Allyn over time to become the top U.S. Sovietologist. Should Allyn accept the offer, the agent stresses how Allyn could have a much better life and far more effectively advance the shared goals of reducing the risks of nuclear war and improving relations between the two hostile superpowers. Allyn must figure out what to do.
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- Harvard Business School Case 914-028
Bruce Allyn: Negotiating with the KGB (B)
This case picks up (from the end of the "A" case) the detailed story of the KGB's high-pressure negotiations with Harvard doctoral student Bruce Allyn to recruit him as a secret asset for the Soviet spy agency. At the end of the "A" case, Allyn must figure out what to do. The "B" case recounts subsequent episodes in the negotiation as well as its conclusion.
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- Harvard Business School Case 914-026
Rough Justice: Stuart Eizenstat and Holocaust-Era Asset Restitution (B)
This case carefully traces the process by which Stuart Eizenstat handled the negotiation challenges outlined in "Rough Justice: Stuart Eizenstat and Holocaust-Era Asset Restitution (A)." It describes the outcome of the Swiss negotiations and briefly sketches Eizenstat's subsequent involvement in analogous restitution negotiations in Germany, Austria, France, and Israel.
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- Harvard Business School Case 114-001
Atlanta Schools: Measures to Improve Performance
The widespread cheating scandal that rocked the Atlanta public school system in 2010 and 2011 illustrates how high-stakes performance pressure, without sufficient risk controls, can drive dangerous behavior. After becoming superintendent of the low-income and academically struggling Atlanta, Georgia, school system in 1999, Beverly Hall implemented new measurement systems-many of them derived from business best practices-to motivate and evaluate the performance of teachers and principals. Educators whose students performed well on standardized tests received bonuses and public recognition; educators whose students fell short received reprimands, warnings, and eventually termination. With so much riding on "meeting the numbers," teachers and principals began taking drastic steps, including collaborating to change students' test answers while intimidating colleagues who threatened to expose the deception. As Atlanta students' (fabricated) test scores soared, leaders in business and politics praised Beverly Hall's data-driven approach for transforming a lagging school system into a model of success. More than a decade into Hall's tenure, multiple investigations finally exposed the scandal in Atlanta-and its terrible impact on the district's students. (For instructors who want to inject some extra energy, and fun, in the classroom, this case study provides material for students to stage skits in front of the class to illustrate how and why the cheating occurred.)
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- Harvard Business School Case 713-542
Strategic Complements and Substitutes
The framework of strategic complements and substitutes can help companies anticipate competitors' responses. It is particularly helpful in deciding on price- or capacity-commitments (or pre-emption), but it can provide more general guidance for analyzing the potential impact of commitments and pre-emption.
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