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    • COVID-19 Business Impact Center
      COVID-19 Business Impact Center
      First Look: December 23

      First Look

      23 Dec 2014

      Paying For Payouts

      The working paper Financing Payouts disputes the notion that firms rely on internally generated funds to pay for their payouts. "In stark contrast to this commonly held view, we find that firms rely on the capital markets to finance a third of aggregate payouts, mainly with debt but also with equity," write authors Joan Farre-Mensa, Roni Michaely, and Martin C. Schmalz.

      The Dirty-to-clean Technology Path

      In "Transitioning to Clean Technology," Daron Acemoglu, Ufuk Akcigit, Douglas Hanley, and William Kerr develop an economic model to look at the competitive landscape of fossil fuels and renewable energy sources. "If dirty technologies are more advanced to start with, the potential transition to clean technology can be difficult both because clean research must climb several rungs to catch up with dirty technology and because this gap discourages research effort directed towards clean technologies," they write. The article is forthcoming in the Journal of Political Economy.

      Housing Options For Senior Citizens

      Senior citizens made up 13.3 percent of the United States population in 2011, and will account for at least 20 percent by 2060, according to Census Bureau projections. In the note "Overview of Senior Housing in the United States," Charles F. Wu and Joseph Beyer explores the living options available to this fast-growing demographic. —Carmen Nobel

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      Publications

      • December 2014
      • Journal of Political Economy

      Transition to Clean Technology

      By: Acemoglu, Daron, Ufuk Akcigit, Douglas Hanley, and William R. Kerr

      Abstract—We develop a microeconomic model of endogenous growth where clean and dirty technologies compete in production and innovation, in the sense that research can be directed to either clean or dirty technologies. If dirty technologies are more advanced to start with, the potential transition to clean technology can be difficult both because clean research must climb several rungs to catch up with dirty technology and because this gap discourages research effort directed towards clean technologies. Carbon taxes and research subsidies may nonetheless encourage production and innovation in clean technologies, though the transition will typically be slow. We characterize certain general properties of the transition path from dirty to clean technology. We then estimate the model using a combination of regression analysis on the relationship between R&D and patents, and simulated method of moments using microdata on employment, production, R&D, firm growth, entry, and exit from the U.S. energy sector. The model's quantitative implications match a range of moments not targeted in the estimation quite well. We then characterize the optimal policy path implied by the model and our estimates. Optimal policy makes heavy use of research subsidies as well as carbon taxes. We use the model to evaluate the welfare consequences of a range of alternative policies.

      Publisher's link: http://www.hbs.edu/faculty/Publication%20Files/15-045_4e9f7d2d-24c3-4d8c-8843-1eb9016bc016.pdf

      • December 2014
      • Negotiations in Times of Conflict

      Better Deals Through Level II Strategies: Advance Your Interests by Helping to Solve Their Internal Problems

      By: Sebenius, James K.

      Abstract—Many negotiators have constituencies that must formally or informally approve an agreement. Traditionally, it is the responsibility of each negotiator to manage the internal conflicts and constituencies on his or her own side. Far less familiar are the many valuable ways that one side can meet its own interests by helping the other side with the other's "internal," "behind-the-table," or "Level II" constituency challenges. Sebenius (2013) offered a moderately theoretical treatment of this challenge. Moving from theory to practice and from simple to complex, the present paper builds on that work. It illustrates several classes of practical measures that negotiators can use to advance their own interests by focusing on the other side's Level II negotiations. Beyond tailoring the terms of the deal for this purpose (e.g., with "compensation provisions"), one side can help the other, and vice versa, via a number of devices, alone or in combination. These include a) shaping the form of the agreement (e.g., tacit v. explicit, process v. substantive); b) tailoring the form of the negotiating process itself (to send a useful signal to constituencies); c) avoiding (or making) statements that inflame (or mollify) the other side's internal opponents; d) helping the other side attractively frame the deal for Level II acceptability; e) providing the ingredients for the other side to make an acceptance or even "victory speech" about why saying "yes" to the deal you want is smart and in the other side's interests; f) constructive actions at the bargaining table informed by knowledge of the other side's internal conflicts (e.g., not escalating when the other side mainly speaks for domestic purposes); g) having the first side work with the other side to tacitly coordinate outside pressure on the other side's Level II constituents to accept the deal that the first side prefers; and h) in extraordinary cases, by directly negotiating with one's counterparts to design measures that thwart its Level II opponents.

      Publisher's link: http://www.hbs.edu/faculty/Publication%20Files/14-091_6caacd58-20c1-4257-9be5-204972ad4b4c.pdf

      • December 2014
      • International Encyclopedia of the Social & Behavioral Sciences

      Negotiations: Statistical Aspects

      By: Sebenius, James K.

      Abstract—Negotiation analysis seeks to develop prescriptive theory and useful advice for negotiators and third parties. It generally emphasizes the parties' underlying interests, alternatives to negotiated agreement, approaches to productively manage the inherent tension between competitive actions to "claim" value individually and cooperative ones to "create" value jointly, as well as efforts to change perceptions of the game itself. Since advice to one side does not necessarily presume the full game-theoretic rationality of the other side(s), negotiation analysts often draw on the findings of behavioral scientists and experimental economists. Further, this approach does not generally assume that all the elements of the "game" are common knowledge. It tends to de-emphasize the application of game-theoretic solution concepts or efforts to find unique equilibrium outcomes. Instead, to evaluate possible strategies and tactics, negotiation analysts generally focus on changes in perceptions of the "zone of possible agreement" and the (subjective) distribution of possible negotiated outcomes conditional on various actions. It has been used to develop prescriptive advice for the simplest bilateral negotiations between monolithic parties, for negotiations through agents or with linked "internal" and "external" aspects, for negotiations in hierarchies and networks, as well as for more complex coalitional interactions.

      • December 2014
      • Journal of Experimental Psychology: General

      Anxious and Egocentric: How Specific Emotions Influence Perspective Taking

      By: Todd, Andrew R., Matthias Forstmann, Pascal Burgmer, Alison Wood Brooks, and Adam D. Galinsky

      Abstract—People frequently feel anxious. Although prior research has extensively studied how feeling anxious shapes intrapsychic aspects of cognition, much less is known about how anxiety affects interpersonal aspects of cognition. Here, we examine the influence of incidental experiences of anxiety on perceptual and conceptual forms of perspective taking. Compared with participants experiencing other negative, high-arousal emotions (i.e., anger or disgust) or neutral feelings, anxious participants displayed greater egocentrism in their mental-state reasoning: they were more likely to describe an object using their own spatial perspective, had more difficulty resisting egocentric interference when identifying an object from others' spatial perspectives, and relied more heavily on privileged knowledge when inferring others' beliefs. Using both experimental-causal-chain and measurement-of-mediation approaches, we found that these effects were explained, in part, by uncertainty appraisal tendencies. Further supporting the role of uncertainty, a positive emotion associated with uncertainty (i.e., surprise) produced increases in egocentrism that were similar to anxiety. Collectively, the results suggest that incidentally experiencing emotions associated with uncertainty increases reliance on one's own egocentric perspective when reasoning about the mental states of others.

      Publisher's link: http://www.hbs.edu/faculty/Publication%20Files/Todd%20et%20al%202014_162adbe2-6427-4cd1-8675-46aab9eda0e7.pdf

       

      Working Papers

      Managing the Family Firm: Evidence from CEOs at Work

      By: Bandiera, Oriana, Andrea Prat, and Raffaella Sadun

      Abstract—We develop a new survey instrument to codify CEOs' diaries in large samples and use it to measure the labor supply of 1,114 family and professional CEOs of manufacturing firms across six countries (Brazil, France, Germany, India, the United Kingdom, and the United States). By this measure, family CEOs work 9% fewer hours relative to professional CEOs, even when we control for a wide range of CEO, firm, and industry characteristics. The differences in hours worked between family and professional CEOs are larger when the opportunity cost of leisure is lower. We interpret these results as evidence of differences in preferences for leisure across CEOs rather than optimal responses to organizational differences correlated with ownership. Differences in labor supply are larger in countries where inheritance laws favor wealth concentration and are correlated with differences in firm performance.

      Download working paper: http://ssrn.com/abstract=2363528

      Return on Political Investment in the American Jobs Creation Act of 2004

      By: Chen, Hui, Katherine Gunny, and Karthik Ramanna

      Abstract—Prior literature raises a "puzzle" of high rates of return on corporate political investment, but evidence for this puzzle is largely descriptive in nature. We exploit the setting of the American Jobs Creation Act's passage in 2004 to provide more robust estimates of political returns based on instrumentation in a two-stage regression model. We find for the median sample firm that an increase of $1 million in lobbying spending is associated with about $32.35 million in taxes saved. These estimates, while consistent with a high-returns "puzzle," are nearly an order of magnitude lower than those previously reported via descriptive methods.

      Download working paper: http://ssrn.com/abstract=2537079

      Financing Payouts

      By: Farre-Mensa, Joan, Roni Michaely, and Martin C. Schmalz

      Abstract—Despite the obvious interest in payout policy, no paper to date has systematically analyzed how payouts are funded, perhaps because the answer might have appeared just too obvious: payouts are funded with free cash flow-at least over long enough time periods. In stark contrast to this commonly held view, we find that firms rely on the capital markets to finance a third of aggregate payouts, mainly with debt but also with equity. Such "financed payouts" are widespread, persistent, prevalent both among dividend-paying and repurchasing firms, and large in magnitude. Standard interpretations of agency or signaling theories are unable to explain this behavior. We argue, however, that our findings are consistent with a reinterpretation of ideas related to agency conflicts and a holistic view of corporate financial strategy that examines payout and capital structure decisions jointly.

      Download working paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2535675

       

      Cases & Course Materials

      • Harvard Business School Case 813-169

      Excel Entertainment

      No abstract available.

      Purchase this case:
      https://cb.hbsp.harvard.edu/cbmp/product/813169-PDF-ENG

      • Harvard Business School Case 714-507

      Texas Children's Hospital: Congenital Heart Disease Care

      In 2014, Dr. Charles D. Fraser Jr., Surgeon-in-Chief of Texas Children's Hospital in Houston, was contemplating the future direction of the congenital heart disease program. The nation's largest pediatric hospital, Texas Children's was ranked by U.S. News & World Report as #4 in the nation in 2012-2013. It was ranked #3 in pediatric heart care and heart surgery, following Boston Children's and Children's Hospital of Philadelphia (CHOP). Texas Children's had some of the highest volumes in the nation, seeing more than 20,000 congenital heart disease patients and performing over 800 cardiac surgeries annually. Fraser led the reorganization of Texas Children's care for congenital heart disease conditions beginning in 1995 and had initiated universal outcome measurement. In 2014, the challenge was to continue to improve care in a complicated patient population and take outcome measurement to a new level. Also, Texas Children's had recently formed partnerships with pediatric hospitals in Temple, San Antonio, and Mexico City, and how to structure these partnerships was under active discussion.

      Purchase this case:
      https://cb.hbsp.harvard.edu/cbmp/product/714507-PDF-ENG

      • Harvard Business School Case 514-122

      Note on Mobile Health Care

      Delivering health care to the global population was a challenge. Health care costs accounted for 10% of world GDP by 2013. In the U.S., health care costs were expected to top $3.1 trillion in 2014. New technologies, shortages of trained personnel, and lengthening life expectancies were accelerating the growth of health care costs. Physicians often failed to engage patients in preventative care, which many believed would help combat the rising costs of treating chronic conditions. Diabetes and hypertension, in particular, afflicted many developed nations and were a growing threat in the developing world. Mobile health (mHealth) used networked devices to distribute or collect medical information from patients and/or medical personnel. Given its low cost and broad reach, many wondered if and how mHealth could help solve the global health care crisis.

      Purchase this case:
      https://cb.hbsp.harvard.edu/cbmp/product/514122-PDF-ENG

      • Harvard Business School Case 315-016

      Teckentrup: A Door to Managing Difference

      For Kai Teckentrup, the owner and co-CEO of the German "Mittelstand" door manufacturer Teckentrup, balancing competitive pressures, demographic realities, and values were at the heart of the diversity program that he had started and championed at the company. Beyond this, attracting skilled workers to Germany was a national imperative; as the native population aged and its numbers in the workforce shrank, it would be critical to find new workers to fund and maintain the retirement and social service programs provided by the government. The company had made significant progress, and Kai was a recognized leader in German business for his attention to and success in managing diversity, but he knew there was much more to do.

      Purchase this case:
      https://cb.hbsp.harvard.edu/cbmp/product/315016-PDF-ENG

      • Harvard Business School Case 215-005

      Overview of Senior Housing in the United States

      This technical note provides an overview of the senior housing industry in the United States. There were 40 million seniors in America in 2010, and that number was expected to double by 2050. Seniors would make up 1 in every 5 Americans. This note explores the living options available to this important and fast-growing demographic.

      Purchase this case:
      https://cb.hbsp.harvard.edu/cbmp/product/215005-PDF-ENG

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