First Look

Abstract—We decompose capital flows-both debt and equity-into public and private components and study their relationship with productivity growth. This exercise reveals that international capital flows are mainly shaped by government decisions and sovereign-to-sovereign transactions. Specifically, we show (i) international capital flows net of government debt are positively correlated with growth and allocated according to the neoclassical predictions; (ii) international capital flows net of official aid flows, which are mostly accounted as debt, are also positively correlated with productivity growth consistent with the predictions of the neoclassical model; and (iii) public debt flows are negatively correlated with growth only if government debt is financed by another sovereign and not by private lenders. Our results show that the failure to consider official flows as the main driver of uphill flows and global imbalances is an important shortcoming of the recent literature.

Download working paper: http://ssrn.com/abstract=1920472

Abstract—Online collaborative platforms have emerged as a complementary approach to traditional organizations for coordinating the collective efforts of creative workers. However, it is surprising that they result in any productive output as individuals often work without direct monetary incentives while collaborating with unknown others. In this paper, we distinguish the conditions necessary for eliciting effort from those affecting the quality of interdependent teamwork. We consider the role of incentives versus social processes in catalyzing collaboration. We test our hypotheses using a unique data set of 260 individuals randomly assigned to 52 teams tasked with developing working solutions to a complex innovation problem over 10 days, with varying monetary incentives. We find that levels of effort are driven by cash incentives and the presence of other interacting teammates. The level of collaboration, by contrast, was not sensitive to cash incentives. Instead, individuals increased their communication if teammates were also actively participating. Additionally, team performance is uniquely driven by the level of emergent interdependence, as indexed by the diversity of topics discussed and the temporal coordination of activity in short focused time periods. Our results contribute to the literature on how alternative organizational forms can be designed to solve complex innovation tasks.

Download working paper: http://ssrn.com/abstract=2384068

Abstract—This study empirically investigates the relationship between design structure and organization structure in the context of new infrastructure development projects. Our research setting is a capital program to develop new school buildings in the city of Manchester, UK. Instead of creating a controlled, hierarchical organization, which would mirror the buildings' design structure, the Manchester City Council created a "commons organization," and chose to share decision-rights with local claimants. Each school's faculty was thus given rights equal to Council staff to participate in the design process and to approve the school's design. In the natural resources literature, commons theory predicts that, if a robust governance structure is created, this complex form of organizing gives claimants incentives to contribute to the enterprise whilst dampening collective action problems (Ostrom, 1990). Here we extend this claim to the production of man-made artifacts. The design commons induced teachers to volunteer time and effort to communicate their practical knowledge but created corresponding tensions over interdependent choices for the final design. Yet, none of the projects succumbed to collective action problems in the form of budget overruns, bogged-down processes, or users feeling disenfranchised. Applying Ostrom's (1990) principles of robust commons governance, we show that the Manchester design commons organization was robust by her criteria and propose that robustness contributed positively to the outcome. We also discuss design flexibility as an intervening variable that was critical in reconciling differences that governance alone could not resolve. We conclude with the rudiments of a theory describing when and why a commons organization can be advantageous for production of designs

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Abstract—This paper combines experimental and field data to examine how those with the responsibility to enforce rules may penalize transgressors more harshly when they are faced with a conflicting motivation to be lenient. Specifically, we test how transgressors are punished when it is their birthday: a day when social norms dictate people should be treated preferentially. We first establish that individuals expect leniency on their birthday. We then show that, compared to other days, transgressors are in fact penalized more severely for transgressing rules when it is their birthday, both by law enforcement (using more than 134,000 arrest records for drunk driving in Washington State) and by participants with responsibility to enforce rules in an experimental lab setting. We also show that this effect is driven by psychological reactance. We discuss both the theoretical and practical implications of our findings.

Download working paper: http://ssrn.com/abstract=2280370

Abstract—What makes a decision strategic? When is strategy most important? This paper studies the structure and value of strategy (in its everyday sense), starting from a (functional) definition of strategy as "the smallest set of (core) choices to optimally guide the other choices." This definition captures the idea of strategy as the core of an intended course of action that is potentially flexible and adaptive. It coincides with the equilibrium outcome of a "strategy formulation game" where a person can-at a cost-look ahead, investigate, and announce a small set of choices to the rest of the organization. Starting from that definition, the paper studies what makes a decision "strategic" and what makes strategy important, considering commitment, irreversibility, and persistence of a choice; the presence of uncertainty (and the type of uncertainty); the number and strength of interactions and the centrality of a choice; its level and importance; the need for specific capabilities; and competition and dynamics. It shows, for example, that irreversibility does not make a decision more strategic but makes strategy more valuable, that long-range strategies will be more concise, that a choice of what not to do can be very strategic, and that a strategy "bet" can be valuable. It shows how strategy endogenously creates a hierarchy among decisions. And it also shows how understanding the structure of strategy may enable a strategist to develop the optimal strategy in a very parsimonious way.

Download working paper: http://ssrn.com/abstract=2383981

Abstract—This paper studies how strategy-formally defined as "the smallest set of (core) choices to optimally guide the other choices"-relates to the strategist, for example, whether an optimal strategy should depend on who is CEO. The paper first studies why different people may systematically consider different decisions "strategic"-with marketing people developing a marketing-centric strategy and favoring the marketing side of business-and derives two rational mechanisms for this outcome, one confidence-based and the other implementation-based. It then studies why it matters that it is the CEO and important decision makers (rather than an outsider) who formulate the strategy and shows that outsider-strategists often face a tradeoff between the quality of a strategy and its likelihood of implementation, whereas the CEO's involvement helps implementation because it generates commitment, thus linking strategy formulation and implementation. In some sense, the paper explains why strategy is the quintessential responsibility of the CEO. Moreover, it shows that the optimal strategy should depend on who is CEO. It then turns that question around and studies strategy as a tool for exerting leadership, asking when the set of strategic decisions are exactly the decisions a CEO should control to give effective guidance. It finally shows how a CEO's vision, in the sense of a strong belief, about strategic decisions makes it more likely that the CEO will propose a strategy and that this strategy will be implemented. But strong vision about the wrong decisions, such as subordinate or others' decisions, may be detrimental to strategy and its implementation.

Download working paper: http://ssrn.com/abstract=2383972