First Look

January 31, 2017

A case study in democracy

Harvard Business School is known for its case method of teaching, in which students read real-world case studies of business dilemmas, and place themselves in the role of decision-maker. In his new book Democracy: A Case Study, David Moss adapts the case method to explore pivotal moments in American political history. The book, published by Belknap Press of Harvard University, will be available on February 21.

Google’s mobile competitive practices

In Google, Mobile and Competition: The Current State of Play, Ben Edelman looks at Google’s Android-related practices that have raised objections from competition regulators. “…Google’s restrictions impede efforts of competing app developers seeking to enter the markets at issue—including preventing them from paying device manufacturers to make them the sole preinstalled services, in their respective genres, on a given device,” he writes. The article appears in the Winter 2017 issue of CPI Antitrust Chronicle.

Women and ethnic minorities in VC

Paul Gompers and Sophie Q. Wang report a lack of diversity at venture capital firms in their paper Diversity in Innovation. “We show that from 1990 to 2016 women have been less than 10% of the entrepreneurial and venture capital labor pool, Hispanics have been around 2%, and African Americans have been less than 1%,” they write. “This is despite the fact that all three groups have much higher representation in education programs that lead to careers in these sectors as well as having higher representation in other highly compensated professions. Asians, on the other hand, have much higher representation in the venture capital and entrepreneurial sector than their overall percentages in the labor force.”

— Carmen Nobel
 
  • 2017
  • Cambridge, MA: Belknap Press of Harvard University Press

Democracy: A Case Study

By: Moss, David

Abstract—Democracy: A Case Study invites readers to experience American history anew and come away with a deeper understanding of the greatest strengths and vulnerabilities of the nation’s democracy as well as its resilience over time. The book adapts the case method to revitalize conversations about governance and democracy and show how the United States has often thrived on political conflict. Each of the book’s nineteen case studies presents readers with a pivotal moment in U.S. history and raises questions facing key decision makers at the time. The cases ask readers to weigh choices and consequences and wrestle with momentous decisions, provoking them to rethink which factors made the difference between constructive and destructive conflict. Democracy is both a guide to America’s democratic history and an immediate, practical exercise for anyone looking for a way to strengthen our common civic commitments.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52134

  • 2017
  • Academy of Management Annals

Making Transparency Transparent: The Evolution of Observation in Management Theory

By: Bernstein, Ethan

Abstract—Observation is key to management scholarship and practice. Yet a holistic view of its role in management has been elusive, in part due to shifting terminology. The current popularity of the term “transparency” provides the occasion for a thorough review, which finds (a) a shift in the object of observation from organizational outcomes to the detailed individual activities within them; (b) a shift from people observing the technology to technology observing people; and (c) a split in the field, with managers viewing observation almost entirely from the observer’s perspective, leaving the perspective of the observed to the realm of scholarly methodology courses and philosophical debates on privacy. I suggest how the literature on transparency and related literatures might be improved with research designed in light of these trends.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52164

  • forthcoming
  • Explorations in Economic History

Prizes, Patents and the Search for Longitude

By: Burton, M. Diane, and Tom Nicholas

Abstract—The 1714 Longitude Act created the Board of Longitude to administer a large monetary prize and progress payments for the precise determination of a ship’s longitude. However, the prize did not prohibit patenting. We use a new dataset of marine chronometer inventors to show that the propensity to patent was high. We argue that while the prize spurred entry by key inventors, and progress payments facilitated research investment in an area of significant social value, patents promoted disclosure. Our findings highlight the importance of complementarities between prize and patent-based incentives in the design of innovation inducement contests.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52140

  • Winter 2017
  • CPI Antitrust Chronicle

Google, Mobile and Competition: The Current State of Play

By: Edelman, Benjamin G.

Abstract— I present Google practices that have raised objections from competition regulators. I consider the key impediments to competition and examine the business models foreclosed by Google's restrictions.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52178

  • January 2017
  • Nature Biomedical Engineering

Review Times and Adverse Events for Cardiovascular Devices

By: Stern, Ariel Dora, Daniel B. Kramer, Melissa Ouellet, and Aaron S. Kesselheim

Abstract—The Food and Drug Administration approves new medical devices after in-depth reviews of safety and effectiveness data. Some have advocated for shorter review times to encourage innovation. We evaluated whether regulatory review time and product novelty serve as predictors of adverse event reports involving high-risk cardiovascular devices by linking regulatory review times for all 106 new, high-risk cardiovascular devices approved from 2000 to 2009 to subsequent adverse event reports. Reports were classified as involving patient injury/death or not. Statistical models evaluated whether review times or product novelty predicted adverse event reporting. Longer review times were associated with a lower probability of any subsequent reports and a lower probability of reports involving injury/death. Controlling for review time, novel products were no more likely than established products to have adverse events reports. These data may inform proposals for review of high-risk devices.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52136

  • in press
  • Organizational Behavior and Human Decision Processes

Creativity in Unethical Behavior Attenuates Condemnation and Breeds Social Contagion: When Transgressions Seem to Create Little Harm

By: Wiltermuth, S., L. Vincent, and F. Gino

Abstract—Across six studies, people judged creative forms of unethical behavior to be less unethical than less creative forms of unethical behavior, particularly when the unethical behaviors imposed relatively little direct harm on victims. As a result of perceiving behaviors to be less unethical, people punished highly creative forms of unethical behavior less severely than they punished less-creative forms of unethical behavior. They were also more likely to emulate the behavior themselves. The findings contribute to theory by showing that perceptions of competence can positively color morality judgments, even when the competence displayed stems from committing an unethical act. The findings are the first to show that people are judged as morally better for performing bad deeds well as compared to performing bad deeds poorly. Moreover, the results illuminate how the characteristics of an unethical behavior can interact to influence the emulation and diffusion of that behavior.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52160

Immigration and the Rise of American Ingenuity

By: Akcigit, Ufuk, John Grigsby, and Tom Nicholas

Abstract—This paper builds on the analysis in Akcigit et al. (2017) by using U.S. patent and Census data to examine macro- and micro-level aspects of the relationship between immigration and innovation. We construct a measure of foreign born expertise and show that technology areas where immigrant inventors were prevalent between 1880 and 1940 experienced more patenting and citations between 1940 and 2000. We also show that immigrant inventors were more productive during their life cycle than native born inventors, although they received significantly lower levels of labor income than their native born counterparts. Overall, the contribution of foreign born inventors to U.S. innovation was substantial, but we also find evidence of an immigrant inventor wage gap that cannot be explained by differentials in productivity.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52141

Capturing Value from IP in a Global Environment

By: Alcácer, Juan, Karin Beukel, and Bruno Cassiman

Abstract—This paper documents the strong growth in tools used by firms to protect their intellectual property (IP), develop their know-how, and build and maintain their reputation globally during the last decades. We focus on three tools: patents, trademarks, and industrial designs. We find that, although most IP applications come from a few countries (the United States, European Union, Japan, China, and South Korea), most growth in IP activity has come from middle-income countries, especially in Asia. We observe important differences in the origins of this growth. For example, while in India most applicants were foreign firms, in China most were local. However, most Indian innovations are also applied overseas, while Chinese innovations rarely made it out of China. Interestingly, growth in applications varies by IP tool, with industrial designs experiencing the most growth.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52174

Diversity in Innovation

By: Gompers, Paul A., and Sophie Q. Wang

Abstract—In this paper we document the patterns of labor market participation by women and ethnic minorities in venture capital firms and as founders of venture capital–backed startups. We show that from 1990 to 2016 women have been less than 10% of the entrepreneurial and venture capital labor pool, Hispanics have been around 2%, and African Americans have been less than 1%. This is despite the fact that all three groups have much higher representation in education programs that lead to careers in these sectors as well as having higher representation in other highly compensated professions. Asians, on the other hand, have much higher representation in the venture capital and entrepreneurial sector than their overall percentages in the labor force. We explore potential supply side explanations including both education attainment as well as relevant prior job experience. We also explore the correlation between diversity and state-level variations. Finally, we discuss how these patterns are consistent with homophily based hiring and homophily induced information flows about career choices. We end the paper by discussing areas for future research.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52168

Rainy Day Stocks

By: Gormsen, Niels, and Robin Greenwood

Abstract—We study the good- and bad-times performance of equity portfolios formed on characteristics. Many characteristics associated with good performance during bad times—value, profitability, small size, safety, and total volatility—also perform well during good times. Stocks with characteristics signifying high liquidity, such as high turnover and low bid-ask spreads, perform well during bad times but otherwise underperform. We develop a simple but flexible procedure to recover a “risk neutral alpha” that recognizes a 1% return experienced during bad times as being more valuable than a 1% return generated during good times. We also show how an investor can build a “rainy day” portfolio that minimizes underperformance during bad times.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52149

Relative Performance Benchmarks: Do Boards Get It Right?

By: Ma, Paul, Jee Eun Shin, and Charles C.Y. Wang

Abstract—Standard principal-agent models suggest that boards design incentive contracts that filter out common shocks in performance to motivate costly effort from the CEO—a process entailing the judicious selection of benchmarks for relative performance evaluation (RPE). We evaluate the efficacy of firms' chosen RPE benchmarks and document that, relative to a normative benchmark, index-based benchmarks perform 14% worse in their time-series return-regression R2 and 16% worse in measurement error variance; firms choosing specific peers only modestly underperform. Structural estimates suggest that, absent frictions, the underperformance of index-based benchmarks imply a performance penalty of 106–277 basis points in annual returns. Consistent with these estimates, firms choosing index-based benchmarks exhibit lower annual returns and ROA. Finally, reduced-form analyses suggest that the inefficient benchmarking is associated with governance-related frictions. Collectively, these findings provide new evidence on the explicit practice of RPE and its implications for corporate governance and firm performance.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=51919

The Persistent Effect of Initial Success: Evidence from Venture Capital

By: Nanda, Ramana, Sampsa Samila, and Olav Sorenson

Abstract—We used data on individual investments in the portfolios of venture capital firms to study persistence in their performance. Each additional IPO among a VC's first five investments predicted a 13% higher IPO rate for its subsequent 50 investments. Roughly half of this performance persistence stemmed from investment "styles"—investing in particular regions and industries. We found no evidence of performance persistence stemming from a differential ability to select or govern portfolio companies. Rather, our results suggest that early success in venture investing yields better deal flow in subsequent investments, thereby perpetuating differences in the outcomes of initial investments.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52142

  • Harvard Business School Case 817-059

Triangulate: Stay, Pivot or Exit?

No abstract available.

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https://cb.hbsp.harvard.edu/cbmp/product/817059-PDF-ENG

  • Harvard Business School Case 817-040

Elon Musk: Balancing Purpose and Risk

No abstract available.

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https://cb.hbsp.harvard.edu/cbmp/product/817040-PDF-ENG

The case addresses reforms to regulations in Israel’s telecommunications industry initiated and implemented under the leadership of Minister of Communications Moshe Kahlon in 2009–2010. The case highlights the challenges faced by a politician attempting to institute regulatory and legislative reforms in the face of uncertainty and resistance from an incumbent oligopoly. When Kahlon entered office, three cellular companies, Pelephone, Cellcom, and Partner (the Big Three), dominated the market. Against Big Three opposition, Kahlon must decide whether to continue pushing changes to introduce new competitors in the industry, remove contract termination fees, and reduce the payment of interconnection fees between cellular providers, which advantaged incumbent companies and drove up consumer prices. Kahlon applied a distinct political style that won him support from career civil servants within the ministry of communications and ministry of finance, from the press, and from the public.

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https://cb.hbsp.harvard.edu/cbmp/product/417017-PDF-ENG

The case complements “Moshe Kahlon: Telecommunications Reform and Competition in Israel’s Cellular Market (A).” This (B) case describes the successful implementation of the reforms, which led to the entry of new competitors into the industry, a sharp decline in consumer prices, and layoffs and declining performance at the Big Three.

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https://cb.hbsp.harvard.edu/cbmp/product/417018-PDF-ENG

  • Harvard Business School Case 217-036

Diversified Alpha at Acadian Asset Management

No abstract available.

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https://cb.hbsp.harvard.edu/cbmp/product/217036-PDF-ENG

  • Harvard Business School Case 716-080

China: The New Normal

No abstract available.

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https://cb.hbsp.harvard.edu/cbmp/product/716080-PDF-ENG