First Look

August 18, 2009

If giving to charity feels good, should organizations trumpet their ability to inspire good feelings in order to increase donations? Since nonprofits often serve a crucial function in a healthy society, new research suggests it is time to take a closer look at the costs and benefits of giving. Two big issues stand out: whether giving makes people happy or if such positive feelings are coincidental rather than caused by giving; and whether emphasizing good feelings might backfire for charities, undermining generosity in the long-term. HBS doctoral candidate Lalin Anik, professor Michael I. Norton, and coauthors Lara B. Aknin and Elizabeth W. Dunn examine these questions in the working paper "Feeling Good about Giving: The Benefits (and Costs) of Self-Interested Charitable Behavior" [PDF]. Preliminary research suggests that "advertising the emotional benefits of prosocial behavior may leave these benefits intact and might even encourage individuals to give more," they write, while noting that more laboratory and field study work remains. Among other new publications and cases this week, the case "From Little Things Big Things Grow: The Clontarf Foundation Program for Aboriginal Boys" looks at a program that seeks to encourage aboriginal children to attend school by appealing to their love of football. The case "Spain: Can the House Resist the Storm?" examines the role of the U.S. subprime mortgage debacle and domestic factors in Spain's economic recession.
— Martha Lagace

Working Papers

Feeling Good about Giving: The Benefits (and Costs) of Self-Interested Charitable Behavior


While lay intuitions and pop psychology suggest that helping others leads to higher levels of happiness, the existing evidence only weakly supports this causal claim. Research in psychology, economics, and neuroscience exploring the benefits of charitable giving has been largely correlational, leaving open the question of whether giving causes greater happiness. In this chapter, we have two primary aims. First, we review the evidence linking charitable behavior and happiness. We present research from a variety of samples (adults, children, and primates) and methods (correlational and experimental) demonstrating that happier people give more, that giving indeed causes increased happiness, and that these two relationships may operate in a circular fashion. Second, we consider whether advertising these benefits of charitable giving—asking people to give in order to be happy—may have the perverse consequence of decreasing charitable giving, crowding out intrinsic motivations to give by corrupting a purely social act with economic considerations.

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Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery


Prior studies suggest that, with elastically supplied inputs, free entry may lead to an inefficiently high number of firms in equilibrium. Under input scarcity, however, the welfare loss from free entry is reduced. Further, free entry may increase use of high-quality inputs, as oligopolistic firms underuse these inputs when entry is constrained. We assess these predictions by examining how the 1996 repeal of certificate-of-need (CON) legislation in Pennsylvania affected the market for cardiac surgery in the state. We show that entry led to a redistribution of surgeries to higher-quality surgeons and that this entry was approximately welfare neutral.

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Diversity in Experience and Team Familiarity: Evidence from Software Development (revised)


In knowledge-intensive settings, such as product or software development, fluid teams of individuals with different sets of experience are tasked with projects that are critical to the success of their organizations. Although building teams from individuals with diverse prior experience is increasingly necessary, prior work examining the relationship between experience and performance fails to find a consistent effect of diversity in experience on performance. The problem is that diversity in experience improves a team's information processing capacity and knowledge base but also creates coordination challenges. We hypothesize that team familiarity—team members' prior experience working with one another—is one mechanism that helps teams leverage the benefits of diversity in team member experience by alleviating coordination problems that diversity creates. We use detailed project- and individual-level data from an Indian software services firm to examine the effects of team familiarity and diversity in experience on performance for software development projects. We find the interaction of team familiarity and diversity in experience has a complementary effect on a project being delivered on time and on budget. In team familiarity, we identify one mechanism for capturing the performance benefits of diversity in experience and provide insight into how the management of experience accumulation affects team performance.

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Institutional Tax Clienteles and Payout Policy


This paper employs heterogeneity in institutional shareholder tax characteristics to identify the relation between firm payout policy and tax incentives. Analysis of a panel of firms matched with the tax characteristics of the clients of their institutional shareholders indicates that "dividend-averse" institutions are significantly less likely to hold shares in firms with larger dividend payouts. This relation between the tax preferences of institutional shareholders and firm payout policy may reflect dividend-averse institutions gravitating towards low dividend paying firms or managers adapting their payout policies to the interests of their institutional shareholders. Evidence is provided that both effects are operative. Plausibly exogenous changes in payout policy result in shifting institutional ownership patterns. Similarly, exogenous changes in the tax cost of institutional investors receiving dividends results in changes in firm dividend policy

What Do Dividends Tell Us About Earnings Quality?


Over the past 30 years, there have been significant changes in the distribution of earnings (cross-sectional variation has increased, with increasing left skewness) as well as in corporate payout policy, with many fewer firms paying dividends and the emergence of stock repurchases. We investigate whether the informativeness of payout policy with respect to earnings quality changes over this period. We find that the reported earnings of dividend paying firms are more persistent than those of other firms, and that this relation is stable over time. We also find that dividend payers are less likely to report losses and those losses that they do report tend to be transitory losses driven by special items. Overall, the evidence shows that dividends are consistently informative with respect to earnings quality. These results do not hold as strongly for stock repurchases, consistent with repurchases representing less of a commitment.

The End of the Great Man

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Cases & Course Materials

A Chinese Start-up's Midlife Crisis:

Harvard Business School Case 309-060

Now into their third year at the helm of an Internet start-up in China, Ken Pao and Bill Li were managing a totally different company (with a new name) from the one they first founded in 2006. Having changed their business model from a social networking site to an online gaming business came with new challenges. They hired almost an entirely new staff, cultivated new partnerships, and most urgently sought new funding. However, with three years of experience, they were no longer a "start-up" and now faced the ramifications of mid-life. What would it take to remain a viable competitor in China in a new industry?

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Competing Through Business Models: Introductory Note for Students

Harvard Business School Course Overview 710-409

To aid students in the EC course, "Competing Through Business Models."

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Dartmouth-Hitchcock Medical Center: Spine Care

Harvard Business School Case 609-016

Describes the Spine Center at Dartmouth-Hitchcock Medical Center, a multidisciplinary unit that offers patients suffering from spinal problems "one-stop" access to a range of providers including orthopedic surgeons, neurosurgeons, neurologists, medical specialists in physical medicine and pain management, mental health providers, and occupational and physical therapists. The Center was created to address what its founder, James Weinstein, M.D., saw as the uncoordinated and inefficient delivery of spinal care in the United States. The Center emphasized using non-surgical treatments (e.g., physical therapy and exercise, behavioral modification, pain-relieving drugs) as either a complement to, or substitute for, surgical procedures, and patients were actively engaged in the process of determining what type of care to pursue. In addition, Weinstein and his staff collected data from the Center's clinical practice to conduct academic research on the outcomes and cost-effectiveness of various approaches to treatment. The case allows for a critical analysis of the Spine Center's unique approach to care delivery and provides an opportunity to examine the applicability of this model in other clinical areas.

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Dharavi: Developing Asia's Largest Slum

Harvard Business School Case 710-004

Maharashtra state is accepting bids to redevelop Dharavi, the largest slum in Asia. A real estate developer assesses the risks and tenders a bid. The bid conditions include providing new free housing to tens of thousands of slum dwellers, which is anticipated to be paid for from the revenues from developing and selling market-rate housing. While the primary concerns are cost of construction, cost of capital, and revenues from sale of units, the analysis must consider many aspects of risk including political risk, foreign exchange risk, market risk, and execution risk. Further, the discussion covers social aspects including whether the slum should be redeveloped at all, whether it should be redeveloped by government or by the private sector, and whether to accomplish it in large chunks or in smaller increments. Additional topics that can be covered include consideration of what happens to commercial activities formerly run from slum dwellings, whether the market-rate units will indeed sell for high prices if there are tens of thousands of former slum dwellers housed nearby, and whether the slum dwellers will be allowed to resell their units or whether they must remain in them. Other issues include timing of the project, guarantees to and from the government and the private parties to mitigate risk, and whether this model, if successful, can be extended to other slums in Asia.

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Echoing Green

Harvard Business School Case 410-013

This case presents the leadership challenges that Cheryl Dorsey, the president of Echoing Green, faces in early 2009. Echoing Green is a fellowship program that seeks to improve society by identifying and supporting social entrepreneurs who launch organizations to attack some of the world's most difficult problems. After turning Echoing Green around and re-building an organization almost from scratch over the last 7 years, Dorsey feels that Echoing Green is at a crossroads as it is facing much more competition. Adding to Dorsey's challenges, in late 2008 the economy is in crisis and many Echoing Green supporters are reducing or delaying their donations. In this situation, Dorsey has to decide whether, and if so how, to change Echoing Green's strategy as well as whether she is the right person to continue to lead the organization.

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Executive Pay and the Credit Crisis of 2008 (B)

Harvard Business School Supplement 110-005

As the recession lingered on into 2009, the U.S. government sought to limit executive pay and excessive risk. The debate raged over what constituted excessive risk and how best to mitigate it. This case describes the government restrictions on executive pay for TARP recipients and delves into the debate on executive compensation and incentives that encourage excessive risk.

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From Little Things Big Things Grow: The Clontarf Foundation Program for Aboriginal Boys

Harvard Business School Case 910-402

This case focuses on the growth of an innovative non-profit institution that motivates aboriginal children to attend school by harnessing their love of football.

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The Millennium Challenge Corporation and Ghana

Harvard Business School Case 310-025

A U.S. government agency, the Millennium Challenge Corporation (MCC), provides aid to developing countries, focusing on poverty reduction through economic growth. It measures results through an economic rate of return based on increases in farmer incomes anticipated over twenty years. As MCC and Ghana finalize a $547 million grant for agriculture and transportation infrastructure, they come up against an accountability and measurement problem: how to address an urgent request from Ghana to fund community services-such as schools and drinking water-for which the results will be more difficult to measure.

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Note on Capital in the U.S. Financial Industry

Harvard Business School Note 310-005

This note was created to supplement classroom discussion in the EC course "Managing the Financial Firm" and provides background for exploring issues general managers in financial firms face in considering appropriate capital levels.

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A Note on Cost Reduction in Financially Troubled Organizations

Harvard Business School Note 809-161

This note discusses methods for reducing costs, particularly labor costs, in a financially distressed organization.

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Oprah Winfrey

Harvard Business School Case 809-068

The case explores the entrepreneurial journey of Oprah Winfrey, examining how she built an audience for one of the most successful television shows in history; how she created the company, Harpo Productions, that produces that show as well as other media offerings; how she leads and manages her organization; and how she has chosen to use the authority and other fruits of success to make a significant social as well as business contribution. The case uses interviews with Winfrey and her team to analyze how the business model and strategy of the company has changed—in the context of a dynamic marketplace, rapid technological innovation, and Winfrey's own evolving conception of her purpose and path.

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Risk Management at Wellfleet Bank: Abridged

Harvard Business School Case 110-011

Inspired by one of the few banks that successfully weathered the 2007-2009 credit crisis, the case illustrates risk management in the world of corporate lending. Chief executive Alastair Dowes has to decide if the risk governance process is adequate to uncover mega-risks, based on reflections on the risk assessment and sanctioning of a $1 billion credit proposal. Students will be invited to assess and review the risks in the proposal and to arrive at a decision (whether Wellfleet should accept it or not). At the same time, students will learn that gray-area risk decisions and, in particular, risk-adjusted performance measurement can rarely be automated. Risk governance requires executives to strike a balance between risk modeling and qualitative business judgment—a holistic (rather than silo-based) view of risks.

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Spain: Can the House Resist the Storm?

Harvard Business School Case 709-021

On September 16, 2008, President Rodriguez Zapatero recognized the severity of Spain's macroeconomic situation and clearly pointed to the culprit in front of the Spanish Congress: "Let nobody doubt it; there is already a wide consensus about the origin of the crisis: [It is] in the U.S. and its subprime mortgages." During the last eight years, Spain had gone through a phenomenal expansion that has had many important ingredients: immigration, housing boom, banking and financial market regulation, current account deficit, and productivity growth. This case analyzes how they interacted during the period 2000-2007 and what drove the Spanish recession in 2008.

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Sustainability at Millipore

Harvard Business School Case 610-012

This case describes Millipore Corporation's approach to becoming a more environmentally sustainable company. As he prepared for his quarterly meeting with the CEO, the Director of Sustainability needed to develop positions on several issues. Tactically, he needed to recommend whether the company should purchase carbon offsets to help meet its aggressive greenhouse gas reduction targets, and whether to continue publicly reporting its greenhouse gas emissions and strategies despite recent problems. On a more strategic level, he needed to recommend how to take the company's Sustainability Initiative to the next level and consider whether changes were needed to its organizational structure. Finally, he needed to develop a more systematic approach to prioritizing investments in various projects being proposed to improve environmental performance. The case provides a background of the sustainability movement and reviews major sustainability frameworks (including The Natural Step, Carbon Footprints, and the Sustainability Hierarchy) and prevailing sustainability performance metrics.

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VeeV on the Rocks?

Harvard Business School Case 410-006

Three pressing challenges (equity split, extent of commitment to social responsibility, and product discoloration) confront VeeV, the world's first alcoholic beverage infused with acai berries. Brothers Courtney and Carter Reum founded VeeV in 2007 and the firm has experienced rapid growth since then. The case documents the backgrounds of the young founders, details the launch and early phase of the company, and presents three challenges the founders must address: how to split the equity of the new company, how far to go in their efforts to be a "green" and socially responsible brand, and an unexpected potential product quality issue.

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