First Look

August 27, 2013

Misunderstanding Your Health Care Coverage

One of the goals of the onrushing ObamaCare health care program is to present consumers with easily explained choices among vendors. The problem is that health care coverage is anything but easy to understand, and many consumers fail to grasp the basics of programs they already have. A better approach, according to the recent paper "Consumers' Misunderstanding of Health Insurance" is to create simplified insurance programs from the start. "Rather than trying to explain inherently complex insurance plans in simple terms … a more fundamental approach would be to (1) design health insurance products that are truly simple, and (2) require plans to offer identical features that can be directly compared." The report was written by George Loewenstein, Joelle Y. Friedman, Barbara McGill, Sarah Ahmad, Suzanne Linck, Stacey Sinkula, and John Beshears (HBS).

Case: Connecting Social Media And Advertising

In a new case study, John Deighton (HBS) and Leora Kornfeld (HBS) highlight Twitter's acquisition of Bluefin Labs to spotlight the shifting advertising arena as social media creates new opportunities for marketers. For example, how should advertisers think about the growing preference to consume media on multiple devices, such as TV and tablet, simultaneously. See "Bluefin Labs: The Acquisition by Twitter."

How Patent Wars Affect Corporate Strategy

In the working paper The Impact of Patent Wars on Firm Strategy: Evidence from the Global Smartphone Market, Yongwook Paik and Feng Zhu (HBS) explore how increased patent litigation in a particular area can change a company's strategy, to the point that a firm shifts focus to markets with weak intellectual property protection to reduce litigation risks.

— Sean Silverthorne


  • August 2013
  • Journal of Financial Economics

The Performance of Corporate Alliances: Evidence from Oil and Gas Drilling in the Gulf of Mexico

By: Beshears, John

Abstract—I use data on oil and gas drilling in the Gulf of Mexico to measure how a corporate alliance-a group of firms that jointly develops an offshore tract-performs relative to a solo firm. I employ a regression discontinuity strategy based on bids in first-price sealed-bid auctions for the rights to develop leases. By focusing on leases where one organizational form narrowly outbids the other, I measure drilling outcomes while controlling for the endogenous matching of projects and organizational forms. Solo firm leases are less profitable than alliance leases because alliance members combine their information and expertise.

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  • August 2013
  • Journal of Economic Behavior & Organization

Simplification and Saving

By: Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian

Abstract—The daunting complexity of important financial decisions can lead to procrastination. We evaluate a low-cost intervention that substantially simplifies the retirement savings plan participation decision. Individuals received an opportunity to enroll in a retirement savings plan at a pre-selected contribution rate and asset allocation, allowing them to collapse a multidimensional problem into a binary choice between the status quo and the pre-selected alternative. The intervention increases plan enrollment rates by 10 to 20 percentage points. We find that a similar intervention can be used to increase contribution rates among employees who are already participating in a savings plan.

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  • August 2013
  • University of Chicago Press

Who Uses the Roth 401(k), and How Do They Use It?"

By: Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian

Abstract—Using administrative data from 12 companies that added a Roth 401(k) option between 2006 and 2010, we describe the characteristics of Roth contributions. Approximately one year after the Roth is introduced, 9% of 401(k) participants have positive Roth balances. Roth participation is more than twice as high among 401(k) participants who were hired after the Roth introduction than among 401(k) participants who were hired before the Roth introduction. In essence, once an employee joins a 401(k) she becomes passive/inattentive, thereby reducing the likelihood of reacting to the introduction of a new Roth option. Conditional on contributing to the Roth, 66% of employee contributions go to the Roth, and half of employees contribute to both the Roth and another 401(k) account, consistent with a tax diversification motive. Roth usage is decreasing in age, less likely among women, and only weakly correlated with salary and tenure once we control for other employee characteristics.

  • August 2013
  • Journal of Public Economics

What Makes Annuitization More Appealing?"

By: Beshears, John, James J. Choi, David Laibson, Brigitte C. Madrian, and Stephen P. Zeldes

Abstract—We conduct and analyze two large surveys of hypothetical annuitization choices. We find that allowing individuals to annuitize a fraction of their wealth increases annuitization relative to a situation where annuitization is an "all or nothing" decision. Very few respondents choose declining real payout streams over flat or increasing real payout streams of equivalent expected present value. Highlighting the effects of inflation increases demand for cost of living adjustments. Frames that highlight flexibility, control, and investment significantly reduce annuitization. A majority of respondents prefer to receive an extra "bonus" payment during one month of the year that is funded by slightly lower payments in the remaining months. Concerns about later-life income, spending flexibility, and counterparty risk are the most important self-reported motives that influence the annuitization decision.

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  • August 2013
  • Journal of Economic Behavior & Organization

What Makes a Critic Tick? Connected Authors and the Determinants of Book Reviews

By: Dobrescu, Loretti I., Michael Luca, and Alberto Motta

Abstract—This paper investigates the determinants of expert reviews in the book industry. Reviews are determined not only by the quality of the product, but also by the incentives of the media outlet providing the review. For example, a media outlet may have the incentive to provide favorable coverage to certain authors or to slant reviews toward the horizontal preferences of certain readers. Empirically, we find that an author's connection to the media outlet is related to the outcome of the review decision. When a book's author also writes for a media outlet, that outlet is 25% more likely to review the book relative to other media outlets, and the resulting ratings are roughly 5% higher. Prima facie, it is unclear whether media outlets are favoring their own authors because these are the authors that their readers prefer or simply because they are trying to collude. We provide a test to distinguish between these two potential mechanisms and present evidence that this is because of tastes rather than collusion-the effect of connections is present both for authors who began writing for a media outlet before and after the book release. We then investigate other determinants of expert reviews. Relative to consumer reviews, we find that professional critics are less favorable to first time authors and more favorable to authors who have garnered other attention in the press (as measured by number of media mentions outside of the review) and who have won book prizes.

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  • August 2013
  • California Management Review

Strategic Management of Intellectual Property: An Integrated Approach

By: Fisher III, William W., and Felix Oberholzer-Gee

Abstract—In many organizations, the R&D, strategy, and legal functions are poorly integrated. As a consequence, firms miss opportunities to create and exploit the value of intellectual property. Functional silos are one reason for the lack of integration. More important, however, is the lack of a common framework and even language that would allow engineers, lawyers, and business executives to manage IP assets better. This article provides such a framework. There is no one best way to manage IP, and many managers overestimate the attractiveness of using IP to exert market power. Rather, the value of the various means to protect and benefit from IP depends on firm strategy, the competitive landscape, and the rapidly changing contours of intellectual property law.

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  • August 2013
  • Journal of Health Economics

Consumers' Misunderstanding of Health Insurance

By: Loewenstein, George, Joelle Y. Friedman, Barbara McGill, Sarah Ahmad, Suzanne Linck, Stacey Sinkula, John Beshears

Abstract—We report results from two surveys of representative samples of Americans with private health insurance. The first examines how well Americans understand, and believe they understand, traditional health insurance coverage. The second examines whether those insured under a simplified all-copay insurance plan will be more likely to engage in cost reducing behaviors relative to those insured under a traditional plan with deductibles and coinsurance and measures consumer preferences between the two plans. The surveys provide strong evidence that consumers do not understand traditional plans and would better understand a simplified plan, but weaker evidence that a simplified plan would have strong appeal to consumers or change their healthcare choices.

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  • August 2013
  • Academy of Management Journal

Turnkey or Tailored? Relational Pluralism, Institutional Complexity, and the Organizational Adoption of More or Less Customized Practices

By: Raffaelli, Ryan, and Mary Ann Glynn

Abstract—We examine how the organizational adoption of new practices is influenced by relational pluralism, i.e., an organization's multiple ties to actors inside and outside its industry. We theorize that institutional mechanisms of practice diffusion underlying relational networks, and filtered by organizational characteristics, influence the adoption of practices that are more customized (tailored) or less customized (turnkey). We hypothesize first, that organizations participating in extra-industry professional networks will, through normative conformity, be more likely to adopt turnkey practices; second, that the normative pressure of professional networks will interact with the mimeticism of industry peers such that organizations will be more likely to adopt tailored practices; and third, organizational filters will affect adoption of all practices. Using unique survey data from 161 F500 organizations, supplemented by archival and qualitative data, we focus on two Corporate Social Responsibility (CSR) practice variants. We find significant support for our first two hypotheses and mixed support for our third: organizational infrastructure and identity significantly affect practice adoption, albeit in different ways, but only marginal support for leadership and elite organizational status. Our results point to how a complex web of relational ties affects the organizational adoption of practice variants that differ in their degree of customization.


Working Papers

X-CAPM: An Extrapolative Capital Asset Pricing Model

By: Barberis, Nicholas, Robin Greenwood, Lawrence Jin, and Andrei Shleifer

Abstract—Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns: they expect the stock market to perform well (poorly) in the near future if it performed well (poorly) in the recent past. 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, but is also consistent with the survey evidence on investor expectations. This suggests that the survey evidence does not need to be seen as an inconvenient obstacle to understanding the stock market; on the contrary, it is consistent with the facts about prices and returns and may be the key to understanding them.

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The Dynamics of Firm Lobbying

By: Kerr, William R., William F. Lincoln, and Prachi Mishra

Abstract—We study the determinants of the dynamics of firm lobbying behavior using a panel data set covering 1998-2006. Our data exhibit three striking facts: (i) few firms lobby, (ii) lobbying status is strongly associated with firm size, and (iii) lobbying status is highly persistent over time. Estimating a model of a firm's decision to engage in lobbying, we find significant evidence that up-front costs associated with entering the political process help explain all three facts. We then exploit a natural experiment in the expiration in legislation surrounding the H-1B visa cap for high-skilled immigrant workers to study how these costs affect firms' responses to policy changes. We find that companies primarily adjusted on the intensive margin: the firms that began to lobby for immigration were those who were sensitive to H-1B policy changes and who were already advocating for other issues, rather than firms that became involved in lobbying anew. For a firm already lobbying, the response is determined by the importance of the issue to the firm's business rather than the scale of the firm's prior lobbying efforts. These results support the existence of significant barriers to entry in the lobbying process.

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Abstract—We examine how patent wars affect firm strategy. We hypothesize that, as patent wars intensify, firms shift their business foci to markets with weak intellectual property (IP) protection due to increased litigation risks. This shift is attenuated for firms with stronger technological capabilities and is more pronounced for firms whose home markets have weak IP systems. Using data from the global smartphone market, we find support for these hypotheses. Interestingly, we also find that the patent war intended to hamper the growth of the Android platform may have merely shifted the sales to weak IP countries. This study sheds light on the emerging patent enforcement strategy literature by highlighting the heterogeneity in the efficacy of national patent systems in explaining firm strategy in platform-based markets.

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Cases & Course Materials

  • Harvard Business School Case 513-091

Bluefin Labs: The Acquisition by Twitter

What is the value of Bluefin Labs' social listening data to Twitter? Acquired by Twitter in 2013, Bluefin had built a system that gathered millions of online comments in an effort to develop new metrics for TV programs and brand advertising. With data from Twitter and other social sites, expressions, not just impressions, could now be aggregated, measured, and used to calibrate brand performance and to sell media time. A second objective of the case is to understand the implications of social TV viewing, the audience engagement that results when people watch television with a smartphone or tablet in hand, participating in a virtual community of real-time TV watchers.

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  • Harvard Business School Case 913-420

Tim Blanchard at Jones Mendel & Co.

Tim Blanchard struggles to balance all the demands facing him as a partner of a consulting firm. He must decide how to serve clients, mentor his people, provide strategy and direction to the high-tech group, and spend time with family.

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Corporate Head of Agriculture Hans Jöhr's mind raced in anticipation of the executive board meeting that afternoon. Jöhr recognized the meeting as a key opportunity to strategize far into the future, reexamining how his team's efforts in sustainable agricultural sourcing supported Nestlé's position as the world's leading nutrition, health, and wellness company. The company had undertaken to impact three of the world's most urgent challenges-nutrition, water, and rural development-and Jöhr's team was fundamental to each of these pillars. Yet the forces changing the global food system were formidable: unprecedented levels of hunger, obesity, and chronic disease; land degradation, frequent natural disasters, and critical threats to water supply; population growth by the billions in the coming decades, along with increased urbanization; and a volatile and tentative world economy. In the face of such threats and complexity, how could Hans Jöhr ensure that Nestlé's agricultural raw materials were safe, high quality, of consistent supply, and sustainably, ethically, and economically produced? How can the procurement process enable the small-scale producer to become a viable partner in the milk production models that Nestlé has developed in the developing world? Further, how could his team excel beyond the company's day-to-day business and enable Nestlé's visions for the future?

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  • Harvard Business School Case 213-129

Blackstone Alternative Asset Management

This case explores reasons for Blackstone Alternative Asset Management's (BAAM) growth from 2007 to 2013, a time when the overall fund of hedge funds industry contracted substantially. Additionally, the case analyzes evolving business models and value propositions within the fund of hedge funds industry. J. Tomilson Hill, CEO of BAAM and vice-chairman of the Blackstone Group, is the protagonist. At the time of the case, BAAM was considering two potential directions for future growth: 1) providing hedge fund products for the defined-contribution pension space and 2) beginning direct internal "manufacturing" of investments. In the context of the current fund of hedge funds industry, the case considers challenges and opportunities for these potential new areas for growth.

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This case compares and contrasts four different models for delivering cancer care in India and the United States. Students are asked to select the best model in its alignment with the Six Forces in those two countries and Africa, to which one of the models is considering expansion, and intrinsic business characteristics. The Indian models are all focused factories, but one is a hub and spoke model, with a hospital hub and ambulatory spokes, while the other offers only ambulatory services and is located on the grounds of teaching hospitals. The U.S. models are all focused factory hospitals, one academic and the other a private, for-profit firm.

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  • Harvard Business School Case 413-121


In 2011, a group of passionate social entrepreneurs in Rio de Janeiro, with the support and encouragement of several prominent philanthropists and members of government, launch Ensina!, seizing Brazil's unprecedented economic growth and national commitment to education. The new independent educational non-profit is to be part of Teach For All, a global network of organizations inspired by Teach For America. While Ensina! is quickly able to raise the initial capital, recruit graduates from top colleges, garner positive press, and demonstrate early success in increasing student performance, the organization runs into a number of operational challenges in implementing its programs in schools. After pursuing various avenues to address obstacles for Ensina!'s execution found in navigating national education policy and funding, forging partnerships with municipal and state governments, confronting widespread cultural perspectives on teaching as a profession, and managing relationships with local school administrators and staff, Ensina!'s staff and board, despite some success and demonstrated impact, decide to suspend the program in January. Following this decision, Fabio Campos, the most recent CEO of Ensina!, contemplates the possibility of relauching a restructured Ensina! to help bring about enduring, transformative reform to Brazil's public education system, which he believes to be crucial to the future success of Brazil as a nation. The case presents students the opportunity to explore conditions necessary for successful collaborations between non-profit organizations and the government, grapple with the challenges of long-term large-scale performance improvement in public education, and examine Ensina!'s goals in public education reform and different operational strategies for organizations like Ensina! to consider implementing in the future.

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  • Harvard Business School Case 713-480

Vietnam: Sustaining the Growth of an Asian Tiger

The case tracks Vietnam's economic policy choices and performance from the end of the Vietnam War to the Doi Moi economic reforms and the economic transformation that followed. Throughout this period, the country had become a darling of the international aid community. As the country was preparing for the 2011 Party Congress, however, signs of growing economic frictions were becoming increasingly visible. The case closes by setting the scene for the challenges the new leadership was going to face.

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  • Harvard Business School Case 210-047

Five and Six Dulles Station

Cricket Real Estate Advisors needs to decide if they should invest in a proposed joint venture development with Buddy Holly & Associates. Holly is a successful northern Virginia office developer who plans to develop two buildings containing 232,750 rentable square feet. Students need to evaluate the deal's structure and financial arrangements, recommend changes, and decide whether to proceed with the deal.

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  • Harvard Business School Case 713-083

Valero Energy Corporation and Tight Oil

Valero Energy, an incredibly successful U.S. refiner, needs to make some decisions about tight oil. As production of light tight oil increases-from Eagle Ford, Bakken and elsewhere-Valero considers whether to add topping capacity to handle it, on top of its recent investments for heavy oil. Political decisions, however, are pending on Keystone XL, on crude oil exports, and on LNG exports. Prices, therefore, are up in the air, especially as global capacity increases. Petrochemical companies and oil producers have conflicting views on the appropriate policy. Bill Klesse, the CEO, can either sit back and wait, or move to capture greater market share.

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