First Look

December 17, 2013

Birth Control Dilemma In Zambia

Field researchers Nava Ashraf, Erica Field, and Jean Lee find that women in their Zambian study are much more likely to seek family planning services if they are given access to free contraceptives on their own than if they are given access that requires spousal consent. "However," the authors write, "women given access to contraception alone report a lower subjective well-being, suggesting a psychosocial cost of making contraceptives more concealable." Read "Household Bargaining and Excess Fertility: An Experimental Study in Zambia" in a forthcoming issue of American Economic Review.

Humor Vs. Efficacy

We're all familiar with the idea of laughing all the way to the bank. But it turns out that inducing laughter may not be the best way marketers to make money—despite the spate of funny ads on the airways. Thales S. Teixeira and Horst Stipp use facial tracking software to discover that the funniest ads often are not the most effective. They detail their findings in "Optimizing the Amount of Entertainment in Advertising: What's So Funny about Tracking Reactions to Humor?" published in the Journal of Advertising Research.

The Impact Of Modularity

In "Modularity and Intellectual Property Protection," Carliss Y. Baldwin and Joachim Henkel investigate the former's impact on the latter. "In this paper, we will show that modularity can be used to protect IP by enabling companies to disperse and hide information that might otherwise be difficult to protect through the legal system," they write.

— Carmen Nobel


  • August 2013
  • Harvard Business Review Press

Can China Lead? Reaching the Limits of Power and Growth

By: Abrami, Regina M., William C. Kirby, and F. Warren McFarlan

Abstract—At the time of the American Revolution, China was the strongest, richest, and most powerful civilization in the world. The Great Qing Empire ruled China and dominated East Asia by a combination of power and cultural prestige. China's economy was the world's largest. China seemed without peer. Decline came fast. By 1900, China had been invaded, defeated, and degraded, first by Western nations, and then by Japan. An entire system of governance was blown away. In 1911, an imperial tradition of more than 2,000 years ended. After the subsequent disasters of world war and Maoist utopianism, China was an impoverished third world economy holding 20% of the world's population and barely 5% of its economic activity. Today China has again emerged as a great power. Beijing is once more the capital of a multi-ethnic empire that dominates East Asia. Foreign students flock to China to live, study, and work. New infrastructure of airports, highways, railways, electricity, and telecommunications dominate the landscape. It has a powerful government, appears respected in the world, and for the first extended time in modern history, it faces no real external threats to its security. China's resurgence has been driven by a combination of private entrepreneurship and top-down bureaucratic capitalism, by an unmatched and unchecked culture of engineering ambition, of rote learning and educational experimentation, of sophisticated tastes along with basic concerns with food safety. It is a country that is at once cosmopolitan and confused about what its new global roles should be. How will those conflicting strategies, shortcomings, and achievements play out in the future? How do we imagine this great and resurgent nation with its embedded conflicts and challenges will look in 2034? We examine successively the forces that have made China as we know it today, the history and role of the Party, its success in engineering and infrastructure construction, its challenges in planning and innovation, and the special things that a firm must do to compete successfully in the Chinese market. We conclude with China's approach to the global economy and our prognostication for 2034.

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Abstract—Throughout the twentieth century, the U.S. government willingly deployed power, hard and soft, to protect American investments all around the globe. Why did the United States get into the business of defending its citizens' property rights abroad? The Empire Trap looks at how modern U.S. involvement in the empire business began, how American foreign policy became increasingly tied to the sway of private financial interests, and how postwar administrations finally extricated the U.S. from economic interventionism, even though the government had the will and power to continue. Maurer examines the ways that American investors initially influenced their government to intercede to protect investments in locations such as Central America and the Caribbean. Costs were small-at least at the outset-but with each incremental step, American policy became increasingly entangled with the goals of those they were backing, making disengagement more difficult. Maurer discusses how, all the way through the 1970s, the U.S. not only failed to resist pressure to defend American investments, but also remained unsuccessful at altering internal institutions of other countries in order to make property rights secure in the absence of active American involvement. Foreign nations expropriated American investments, but in almost every case the U.S. government's employment of economic sanctions or covert action obtained market value or more in compensation-despite the growing strategic risks. The advent of institutions focusing on international arbitration finally gave the executive branch a credible political excuse not to act. Maurer cautions that these institutions are now under strain and that a collapse might open the empire trap once more. With shrewd and timely analysis, this book considers American patterns of foreign intervention and the nation's changing role as an imperial power.

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  • August 2013
  • American Economic Review

Household Bargaining and Excess Fertility: An Experimental Study in Zambia

By: Ashraf, Nava, Erica Field, and Jean Lee

Abstract—We posit that household decision making over fertility is characterized by moral hazard due to the fact that most contraception can only be perfectly observed by the woman. Using an experiment in Zambia that varied whether women were given access to contraceptives alone or with their husbands, we find that women given access with their husbands were 19% less likely to seek family planning services, 25% less likely to use concealable contraception, and 27% percent more likely to give birth. However, women given access to contraception alone report a lower subjective well-being, suggesting a psychosocial cost of making contraceptives more concealable.

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  • August 2013
  • American Economic Journal: Macroeconomics

Medium Term Business Cycles in Developing Countries

By: Comin, Diego A., Norman Loayza, Farooq Pasha, and Luis Serven

Abstract—Business cycle fluctuations in developed economies (N) tend to have large and persistent effects on developing countries (S). We study the transmission of business cycle fluctuations for developed to developing economies with a two-country asymmetric DSGE model with two features: (i) endogenous and slow diffusion of technologies from the developed to the developing country and (ii) adjustment costs to investment flows. Consistent with the model, we observe that the flow of technologies from N to S co-moves positively with output in both N and S. After calibrating the model to Mexico and the U.S., it can explain the following stylized facts: (i) shocks to N have a large effect on S, (ii) business cycles in N lead over medium-term fluctuations in S, (iii) the outputs in S and N co-move more than their consumption, and (iv) interest rates in S are counter-cyclical.

  • August 2013
  • International Journal of Project Management

Project Complexity and Systems Integration: Constructing the London 2012 Olympics and Paralympics Games

By: Davies, Andrew, and Ian Mackenzie

Abstract—Our study of the London Olympics 2012 construction programme showed that systems integration is one of the major challenges involved in delivery of a complex "system of systems"-or array-project. Organizations cope with complexity by decomposing a project into different levels of systems integration with clearly defined interfaces and buffers between levels and individual component subsystems. At the "meta systems integration" level, an organization has to be established with the capabilities to understand the total system of systems, manage external interfaces with the multiple stakeholders, and coordinate the integration of its component parts. At the "systems integration" level, efforts are made to manage each individual system as a loosely coupled, relatively self-contained subsystem with defined interfaces to coordinate interdependencies with other parts of the overall array. Establishing processes to maintain stability whilst responding dynamically to uncertain and changing conditions is one of the most challenging aspects of systems integration.

  • August 2013
  • Journal of Experimental Social Psychology

Group Membership Alters the Threshold for Mind Perception: The Role of Social Identity, Collective Identification, and Intergroup Threat

By: Hackel, Leor M., Christine E. Looser, and Jay J. Van Bavel

Abstract—Human faces are used as cues to the presence of social agents, and the ability to detect minds and mental states in others occupies a central role in social interaction. In the current research, we present evidence that the human propensity for mind perception is bound by social group membership. Specifically, we show how identification with different social groups influences the threshold for mind perception. In three experiments, participants assessed a continuum of face morphs that ranged from human to doll faces. These faces were described as in-group or out-group members. Participants had higher (i.e., more stringent) thresholds for perceiving minds behind out-group faces, both in minimal (Experiment 1) and real-world groups (Experiment 2). In other words, out-group members required more humanness than in-group members to be perceived as having minds. This intergroup bias in mind perception was moderated by collective identification, such that highly identified group members had the highest threshold for perceiving minds behind out-group relative to in-group faces. In contrast, Democrats and Republicans who perceived the other party as threatening had lower thresholds for perceiving minds behind out-group faces (Experiment 3). These experiments suggest that mind perception is a dynamic process in which relevant contextual information such as social identity and out-group threat change the interpretation of physical features that signal the presence of another mind. Implications for mind perception, dehumanization, and intergroup relations are discussed.

  • August 2013
  • Journal of Applied Psychology

Rainmakers: Why Bad Weather Means Good Productivity

By: Lee, Jooa Julia, Francesca Gino, and Bradley R. Staats

Abstract—People believe that weather conditions influence their everyday work life, but to date, little is known about how weather affects individual productivity. Contrary to conventional wisdom, we predict and find that bad weather increases individual productivity and that it does so by eliminating potential cognitive distractions resulting from good weather. When the weather is bad, individuals appear to focus more on their work than on alternate outdoor activities. We investigate the proposed relationship between worse weather and higher productivity through four studies: (1) field data on employees' productivity from a bank in Japan, (2) two studies from an online labor market in the United States, and (3) a laboratory experiment. Our findings suggest that worker productivity is higher on bad rather than good weather days and that cognitive distractions associated with good weather may explain the relationship. We discuss the theoretical and practical implications of our research.

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  • August 2013
  • Journal of Economics and Management Strategy

Doing Well by Doing Good? Community Development Venture Capital

By: Lerner, Josh, and Anna Kovner

Abstract—This paper examines the investments and performance of community development venture capital (CDVC). We find substantial differences between CDVC and traditional venture capital (VC) investments: CDVC investments are far more likely to be in nonmetropolitan regions and in regions with little prior venture capital activity. Moreover, CDVC is likely to be in earlier-stage investments and in industries outside the venture capital mainstream that have lower probabilities of successful exit. Even after we control for this unattractive transaction mix, the probability of a CDVC investment being successfully exited is lower. One benefit of CDVCs may be their effect in bringing traditional VC investment to underserved regions: when we control for the presence of traditional VC investments, each additional CDVC investment results in an additional 0.06 new traditional VC firm in a region.

  • August 2013
  • The Accounting Review

Network Effects in Countries' Adoption of IFRS

By: Ramanna, Karthik, and Ewa Sletten

Abstract—If the differences in accounting standards across countries reflect relatively stable institutional differences (e.g., auditing technology, the rule of law, etc.), why did several countries rapidly, albeit in a staggered manner, adopt IFRS over local standards in the 2003-2008 period? We test the hypothesis that perceived network benefits from the extant worldwide adoption of IFRS can explain part of countries' shift away from local accounting standards. That is, as more jurisdictions with economic ties to a given country adopt IFRS, perceived benefits from lowering transactions costs to foreign financial-statement users increase and contribute significantly towards the country's decision to adopt IFRS. We find that perceived network benefits increase the degree of IFRS harmonization among countries, and that smaller countries have a differentially higher response to these benefits. Further, economic ties with the European Union are a particularly important source of network effects. The results, robust to numerous alternative hypotheses and specifications, suggest IFRS adoption was self-reinforcing during the sample period, which, in turn, has implications for the consequences of IFRS adoption.

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  • August 2013
  • Journal of Advertising Research

Optimizing the Amount of Entertainment in Advertising: What's So Funny about Tracking Reactions to Humor?

By: Teixeira, Thales S., and Horst Stipp

Abstract—Humor and other entertaining content, as opposed to demonstrations of product features and "selling," are increasingly used in advertising, such as TV commercials, to attract and keep consumers' attention. This study uses facial tracking to explore how marketers can best use entertainment in ads to increase their effectiveness in increasing intent to purchase. The findings suggest that the optimal amount of entertainment differs by type of entertainment and target group, but not by product category, and confirms that the funniest ads are not necessarily the most effective.

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Working Papers

Abstract—Innovation has traditionally taken place within an organization's boundaries and/or with selected partners. This Chandlerian approach to innovation has been rooted in transaction costs, organizational boundaries, and information processing challenges associated with distant search. Information processing, storage, and communication costs have long been an important constraint on innovation and a reason for innovative activities to take place inside the boundaries of an organization. However, exponential technological progress has led to a dramatic decrease in information constraints. In a range of contexts, information costs approach zero. In this chapter, we discuss how sharply reduced information costs enable organizations to engage with communities of developers, professionals, and users for core innovative activities, frequently through platform-based businesses and ecosystems and by incorporating user innovation. We then examine how this ease of external engagement impacts the organization and its strategic activities. Specifically, we consider how this shift in information processing costs affects organization boundaries, business models, interdependence, leadership, identity, search, and intellectual property. We suggest that much of the received wisdom in these areas of organization theory requires revisiting. We then discuss the implications for an organization's management of innovation and conclude with research opportunities.

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Modularity and Intellectual Property Protection

By: Baldwin, Carliss Y., and Joachim Henkel

Abstract—Modularity is a means of partitioning technical knowledge about a product or process. When state-sanctioned intellectual property (IP) rights are ineffective or costly to enforce, modularity can be used to hide information and thus protect IP. We investigate the impact of modularity on IP protection by formally modeling the threat of expropriation by agents. The principal has three options to address this threat: doing nothing, licensing the focal IP ex ante, and paying agents to stay loyal. His optimal choice depends on external parameters-the share of untrustworthy agents in the population, the intensity of competition in duopoly, and the degree of complementarity in the system. We show how the principal can influence the value of these options by modularizing the technical system and by hiring clans of agents, thus exploiting relationships among them. Extensions of the model can be used to incorporate screening and signaling in the hiring process, the effect of an imperfect legal system, and social norms of fairness. We illustrate our arguments with examples from practice.

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Cases & Course Materials

  • Harvard Business School Case 212-060

Saks Incorporated

Saks Fifth Avenue, a luxury department store chain, has been hard hit by the 2008 financial crisis and stock market crash. Speculation about impending bankruptcy is rampant in the press. The CEO, Stephen Sadove, must decide how to respond.

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  • Harvard Business School Case 914-017

TheLadders (B)

Supplements the (A) case.

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  • Harvard Business School Case 514-036

Vogue: Defining the Culture of Fashion

In March 2013, Susan Plagemann, vice president and publisher of Vogue-widely regarded as the world's most influential fashion magazine and publishing conglomerate Condé Nast's marquee title-is seeking answers to two questions. First, how she can best approach the intensely competitive advertising market in which some competitors in recent times have had two to three times the page growth that Vogue has had? Second, how should she utilize the growing importance of digital channels that may increase pressure on traditional revenue sources but also fuel new ecommerce partnerships and other opportunities? Can Vogue, as both the fashion industry and the magazine's readers have become so accustomed to, stay one step ahead?

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Abridged version of one of six cases that describe the roles and responsibilities of managers at each of the hierarchical levels of management within the U.S. Stores business unit of Staples, the world's largest office supply company. Together, the cases form a complete integrated package. Explores five distinct jobs-store manager, district manager, regional vice-president, division senior vice-president, and president of the U.S. Stories business units-and, for each level, describes the key management tasks, planning, decision making, leadership processes, and critical choices that lead to superior execution and operational performance. Provides background information on Staples' organization and strategy.

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  • Harvard Business School Case 214-039

Note on LBO Capital Structure

No abstract available.

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  • Harvard Business School Case 811-024

Felipe Calderón: Leading with Light and Power (A)

This sequence of cases explores how leaders get their teams focused on framing, analyzing, and ultimately acting upon complex decisions. The (A) case provides an inside look as Felipe Calderón, president of Mexico, works with his cabinet ministers to decide how to turnaround a corrupt, highly unionized, and poorly managed state-owned company that distributes electrical energy to Mexico City and the surrounding environs. While previous administrations over several decades were aware of the problem, none wanted to risk the political or economic consequences of prolonged strikes and power outages in one of the world's most populous cities. Yet, it is now clear that the company's poor financial performance and corruption are causing significant harm to Mexico. A central theme is the president's role in making sure his team has done its homework and is fully prepared to make the appropriate decision. The (B) case, to be handed out during class, provides the actual decision criteria used. The (C) case, to be handed out at the end of class, describes what the team ultimately decided and how they executed it.

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  • Harvard Business School Case 614-023

PadFone vs. FonePad

To Jonney Shih, Chairman of ASUSTek Computer, the introduction of Apple's iPad made clear the need to transition his company to a new cloud-computing era. But the company's roots in the manufacture of Windows-powered desktop and notebook PCs bounded the creativity of his design and engineering teams. The case examines the ASUS's efforts to get into the smartphone business, leveraging experimentation it has done in tablets and a range of hybrid devices. Will its experimentation and recombination of features lead it to market success or simply confuse consumers?

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  • Harvard Business School Case 614-019

Raising the Level of Abstraction

This technical note discusses abstraction as a way of generalizing a process or component for wider application. By hiding complexity inside a module, abstraction enables system designers to think at a higher level. This lowers entry barriers to using (and reusing) a complex technology.

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A hedge fund is deciding whether to liquidate its position in Apollo Group, a for-profit education firm, in light of significant political and macro-economic uncertainty facing the industry. As part of the investment analysis a complete discounted cash flow analysis must be performed.

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