First Look

January 28, 2014

The Economics Of Attention

It is increasingly costly to attract the attention of consumers, to the point where attention can be thought of as a currency, Thales S. Teixeira tells us in his new paper, The Rising Cost of Consumer Attention: Why You Should Care, and What You Can Do about It. His proposal: "Lower its cost or use attention more efficiently by adopting multitasker-tailored ads, Lean Advertising, and Viral Ad Symbiosis."

Circle Surrogacy Considers Outsourcing

Surrogacy services allow couples and individuals from a variety of backgrounds to build families—but at a cost of $100,000 or more. So John Weltman, president and founder of Circle Surrogacy, wants to explore the idea of outsourcing these services to lower the cost to clients. The problem, as explained in the new case "Modern Family Planning: The Business of Circle Surrogacy," is that the idea would threaten the company's high-touch premium strategy. How should the company proceed?

The History Of Business History

The new edited volume Business History looks at the evolution of the discipline of business history with foundational articles written beginning in 1934. Editors Walter A. Friedman and Geoffrey Jones include an introduction that describes the formation of the field from its origins at Harvard Business School in the late 1920s.

— Sean Silverthorne


  • August 2013
  • Princeton University Press

Fortune Tellers: The Story of America's First Economic Forecasters

By: Friedman, Walter A.

Abstract—The period leading up to the Great Depression witnessed the rise of the economic forecasters, pioneers who sought to use the tools of science to predict the future, with the aim of profiting from their forecasts. This book chronicles the lives and careers of the men who defined this first wave of economic fortune tellers, men such as Roger Babson, Irving Fisher, John Moody, C. J. Bullock, and Warren Persons. They competed to sell their distinctive methods of prediction to investors and businesses and thrived in the boom years that followed World War I. Yet, almost to a man, they failed to predict the devastating crash of 1929. Despite their failures, this first generation of economic forecasters helped to make the prediction of economic trends a central economic activity and shed light on the mechanics of financial markets by providing a range of statistics and information about individual firms. They also raised questions that are still relevant today. What is science and what is merely guesswork in forecasting? What motivates people to buy forecasts? Does the act of forecasting set in motion unforeseen events that can counteract the forecast made?

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  • August 2013
  • Edward Elgar Publishing

Business History

By: Friedman, Walter A., Geoffrey Jones

Abstract—This volume contains a selection of 42 foundational articles on the discipline of business history written between 1934 and the present day by scholars based in the United States, Europe, Asia, and Latin America. A wide-ranging editorial introduction describes the formation and evolution of the discipline from its origins at the Harvard Business School in the late 1920s. Over the following century, the editors show that the discipline and its practitioners often found themselves on the margins of academic discourses and their own institutions. There was a constant struggle to define the borders of the field and the central research questions that it sought to answer. However, the commitment to engage with the complexities of business and the disinclination to rely on models with simplistic assumptions about business behavior also enabled business history to be highly creative and, at times, to exercise a huge impact on management studies more generally, especially strategy and the study of entrepreneurship.

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  • August 2013
  • Management Science

The Distinct Effects of Information Technology and Communication Technology on Firm Organization

By: Bloom, Nicholas, Luis Garicano, Raffaella Sadun, and John Van Reenen

Abstract—Empirical studies on information communication technologies (ICT) typically aggregate the "information" and "communication" components together. We show theoretically and empirically that this is problematic. Information and communication technologies have very different effects on the decisions taken at each level of an organization. Better information access pushes decisions down, as it allows for superior decentralized decision making without an undue cognitive burden on those lower in the hierarchy. Better communication pushes decisions up, as it allows employees to rely on those above them in the hierarchy to make decisions. Using an original dataset of firms from the U.S. and seven European countries we study the impact of ICT on worker autonomy, plant manager autonomy, and span of control. Consistent with the theory, we find that better information technologies (Enterprise Resource Planning, ERP, for plant managers and CAD/CAM for production workers) are associated with more autonomy and a wider span of control. By contrast, communication technologies (like data networks) decrease autonomy for both workers and plant managers. Treating technology as endogenous using instrumental variables (distance from the birthplace of ERP and heterogeneous telecommunication costs arising from different regulatory regimes) strengthens our results.

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  • August 2013
  • Cambridge Handbook of Institutional Investment and Fiduciary Duty

Investment Fiduciaries, The Role of the Public Corporation, and Greater Commitments to Sustainability: Signals from the Corporate Board

By: Eccles, Robert G., J. Herron, and George Serafeim

Abstract—This book is a comprehensive reference work exploring recent changes and future trends in the principles that govern institutional investors and fiduciaries. A wide range of contributors offer new perspectives on dynamics that drive the current emphasis on short-term investment returns. Moreover, they analyze the forces at work in markets around the world, which are bringing into sharper focus the systemic effects that investment practices have on the long-term stability of the economy and the interests of beneficiaries in financial, social, and environmental sustainability. This volume provides a global and multi-faceted commentary on the evolving standards governing institutional investment, offering guidance for students, researchers, and policy makers interested in finance, governance, and other aspects of the contemporary investment world. It also provides investment, business, financial media, and legal professionals with the tools they need to better understand and respond to new financial market challenges of the twenty-first century.

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  • August 2013
  • Psychological Science

The Emergence of 'Us and Them' in 80 Lines of Code: Modeling Group Genesis in Homogeneous Populations

By: Gray, Kurt, David G. Rand, Eyal Ert, Kevin Lewis, Steve Hershman, and Michael I. Norton

Abstract—Psychological explanations of group genesis often require population heterogeneity in identity or other characteristics, whether deep (e.g., religion) or superficial (e.g., eye color). We use game-theoretical agent-based models to explore group genesis in homogeneous populations and find robust group formation with just two basic principles: reciprocity and transitivity. These emergent groups demonstrate in-group cooperation and out-group defection, even though agents lack common identity. Group formation increases individual payoffs, and group structure is robust to varying levels of reciprocity and transitivity. Increasing population size increases group size more than group number, and manipulating baseline trust in a population has predictable effects on group genesis. An interactive online demonstration enables first-hand exploration of the parameter space (, and available source code (supplementary materials) provides a guide to implementing psychological agent-based models.

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  • August 2013
  • PLoS ONE

Give What You Get: Capuchin Monkeys (Cebus apella) and 4-year-old Children Pay Forward Positive and Negative Outcomes to Conspecifics

By: Leimgruber, Kristin L., Adrian F. Ward, Jane Widness, Michael I. Norton, Kristina R. Olson, Kurt Gray, and Laurie R. Santos

Abstract—The breadth of human generosity is unparalleled in the natural world, and much research has explored the mechanisms underlying and motivating human prosocial behavior. Recent work has focused on the spread of prosocial behavior within groups through paying-it-forward, a case of human prosociality in which a recipient of generosity pays a good deed forward to a third individual, rather than back to the original source of generosity. While research shows that human adults do indeed pay forward generosity, little is known about the origins of this behavior. Here, we show that both capuchin monkeys (Cebus apella) and 4-year-old children pay forward positive and negative outcomes in an identical testing paradigm. These results suggest that a cognitively simple mechanism present early in phylogeny and ontogeny leads to paying forward positive, as well as negative, outcomes.

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  • August 2013
  • Accounting Horizons

SOX after Ten Years: A Multidisciplinary Review

By: Srinivasan, Suraj, and John C. Coates IV

Abstract—We review and assess research findings from 120+ papers in accounting, finance, and law to evaluate the impact of the Sarbanes-Oxley Act. We describe significant developments in how the Act was implemented and find that despite severe criticism, the Act and institutions it created have survived almost intact since enactment. We report survey findings from informed parties that suggest that the Act has produced financial reporting benefits. While the direct costs of the Act were substantial and fell disproportionately on smaller companies, costs have fallen over time and in response to changes in its implementation. Research about indirect costs such as loss of risk taking in the U.S. is inconclusive. The evidence for and social welfare implications of claimed effects such as fewer IPOs or loss of foreign listings are unclear. Financial reporting quality appears to have gone up after SOX, but research on causal attribution is weak. On balance, research on the Act's net social welfare remains inconclusive. We end by outlining challenges facing research in this area and propose an agenda for better modeling costs and benefits of financial regulation.

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Working Papers

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: trust, licensing, and paying agents to stay loyal. We show how the principal can influence the value of these options by modularizing the system and by hiring clans of agents, thus exploiting relationships among them. Extensions address screening and signaling in hiring, the effects of an imperfect legal system, and social norms of fairness. We illustrate our arguments with examples from practice.

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Towards a Contingency Theory of Enterprise Risk Management

By: Mikes, Anette, and Robert S. Kaplan

Abstract—Enterprise risk management (ERM) has become a crucial component of contemporary corporate governance reforms, with an abundance of principles, guidelines, and standards. This paper portrays ERM as an evolving discipline and presents empirical findings on its current state of maturity, as evidenced by a survey of the academic literature and by our own field research. Academics are increasingly examining the adoption and impact of ERM, but the studies are inconsistent and inconclusive, due, we believe, to an inadequate specification of how ERM is used in practice. Based on a 10-year field project, over 250 interviews with senior risk officers, and 3 detailed case studies, we put forward a contingency theory of ERM, identifying potential design parameters that can explain observable variation in the "ERM mix" adopted by organizations. We also add a new contingent variable: the type of risk that a specific ERM practice addresses. We outline a "minimum necessary contingency framework" (Otley, 1980) that is sufficiently nuanced, while still empirically observable, that empirical researchers may, in due course, hypothesize about "fit" between contingent variables, such as risk types and the ERM mix, as well as about outcomes such as organizational effectiveness.

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Abstract—Attention is a necessary ingredient for effective advertising. The market for consumer attention (or "eyeballs") has become so competitive that attention can be regarded as a currency. The rising cost of this ingredient in the marketplace is causing marketers to waste money on costly attention sources or reduce their investment in promoting their brands. Instead, they should be thinking about how to "buy" cheaper attention and how to use it more effectively. Research in the emerging field of the Economics of Attention shows how this can be achieved. Here, I argue that, irrespective of the means to attain it, attention always comes at a price. I also show that the cost of attention has increased dramatically (seven- to nine-fold) in the last two decades. To counteract this trend, I propose novel approaches to lower its cost or use attention more efficiently by adopting multitasker-tailored ads, Lean Advertising, and Viral Ad Symbiosis. To guide the choice of which approach to take, I propose the Attention-contingent Advertising Strategy, a framework to match the most effective approach to the quality of attention contingently available. As the value of attention rises, marketers need to become better managers of attention. This paper is intended to help them in this regard.

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Cases & Course Materials

  • Harvard Business School Case 714-418

Modern Family Planning: The Business of Circle Surrogacy

The business of surrogacy, a boutique practice with client costs upwards of $100,000, allowed couples and individuals from a variety of backgrounds, ages, and sexual orientations to build families. This case examines Circle Surrogacy (CS), one of the premier surrogacy agencies in the world, as its president and founder, John Weltman, was about to share an executive presentation with his core management team where he would recommend an option to outsource its surrogacy services. While the changing cultural and regulatory environment had made surrogacy possible for more people, it remained cost-prohibitive for the majority of its eligible audience. Weltman's proposal, if enacted, would create a new opportunity for CS, increasingly faced with competition from other agencies, to offer lower cost surrogacies to intended parents. However, the launch of an outsourced surrogacy service would threaten the company's core value proposition and challenge its prevailing high-touch, premium strategy. How should Weltman and CS best proceed?

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The case describes a pilot project on applying activity-based costing to measure the cost of treating patients. After an overview of Boston Children's Hospital and its local health care market environment, the case presents process maps and financial data relating to patients making office visits to a plastic surgeon for three different diagnoses. Students use the hospital's existing cost system and a proposed new system, based on time-driven activity-based costing, to calculate and compare costs and margins of the three types of office visits.

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  • Harvard Business School Case 514-015

Pearle Vision: Clearly Different?

Ohio-based optical retailer Pearle Vision, part of the vertically integrated Italian eyewear group Luxottica, sold glasses and offered in-store eye exams. Once the largest U.S. optical retailer, Pearle Vision, with 266 corporate stores and 356 franchised stores in 2012, was struggling to compete with and differentiate itself from industry leader LensCrafters, also owned by Luxottica. Increasing competition from low-price competitors, such as Walmart's optical stores, was adding further competitive pressure. The case takes place in early 2013, with Pearle Vision's new CEO announcing his plans for revitalizing the chain. Will his strategy work?

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  • Harvard Business School Case 114-048

The LEGO Group: Envisioning Risks in Asia (B)

This brief follow-up complements the case, "The LEGO Group: Stepping Up in Asia" (HBS No. 113-054), and discusses the aftermath of the scenario planning session in which LEGO managers contemplated the risks of their new Asian strategy. The scenario planning exercise played a role in managers' realization that the Group could not simply "copy-paste" its existing operating model across the diversity of Asian markets. LEGO invested significantly in Asia throughout 2012-2013 in order to adapt its playbook to the anticipated challenges. The case also describes how, in 2013, scenario planning became part of the business-planning process at the LEGO Group. It allows students to understand the difference between a tailored scenario planning exercise and the tenuous future-gazing processes that generally fail to get traction among business managers.

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  • Harvard Business School Case 714-003

Qatar: Energy for Development

Despite being the richest country in the world on a per capita basis, for analysts Qatar belongs in the group of emerging markets considered "frontier markets." This case analyzes the strengths and weaknesses of the development strategy of this small country as set forth by Emir Hamad bin Khalifa Al Thani, who ruled from 1995 to 2013. In 2013, for the first time in Qatar's history, Emir Hamad passed on control of the government to his son Tamim peacefully, and Tamim, as Emir, promised to continue with the development strategy of economic diversification set forth by his father. Yet, it is not clear if the ambitious investments in infrastructure, education, tourism, and real estate Emir Hamad made were enough to steer the economy away from its dependence on gas exports.

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  • Harvard Business School Case 714-414

LinkedIn (C)

No abstract available.

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  • Harvard Business School Case 213-074

Residencial Los Andes

Peninsula Investment Group is deciding whether or not to recapitalize an equity investment in a Residencial Los Andes, a residential project in Santiago, Chile, or take a substantial loss. The project did not meet its sales goals, and the bank pressured the investors to liquidate the construction loan. Early on, Peninsula had identified Chile as a target market; however, in investing in Residencial Los Andes, it had made several exceptions to its investment strategy. The case addresses what went wrong in the evolution of the project as well as what measures would need to be taken if Peninsula did increase its capital commitment.

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  • Harvard Business School Case 814-043

Endeavor: Miami Heats Up

Endeavor Global was a nonprofit that for 15 years had worked to nurture entrepreneurship in emerging markets by selecting local high-impact entrepreneurs for mentoring and aid in scaling up their businesses from committed local business leaders. In summer 2012, Endeavor received an invitation to replicate its model in Miami, Florida, and the Endeavor board was meeting to debate the value of such a move. At issue were questions of organizational mission and the relevance of Miami, as well as branding, funding, and focus. The invitation had come in the midst of a major expansion effort by Endeavor into new emerging markets and threatened to disrupt those efforts and tax a new hybrid funding model that Endeavor was implementing. Founder Linda Rottenberg, with the support of her board, must determine the implications of possibly opening in Miami on Endeavor's resources and mission. How could Rottenberg justify to overseas affiliates a choice to invest in a first-world city?

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  • Harvard Business School Case 614-050

MIT Mystery Hunt: The Answer Is Secondary

The MIT Mystery Hunt is an annual puzzle-based scavenger hunt at MIT. It is run every year by a different team, and every year is slightly different as teams try new ideas and decide whether to keep or ignore ideas from previous years. As the Mystery Hunt has grown, organizers face the challenge of balancing efficient administration while keeping it free of excessive administration.

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  • Harvard Business School Case 713-510

Benetton Group S.p.A., 2000

In 2000, Benetton was one of the leading mass fashion competitors in the world with approximately $1.9 billion in sales across 5,500 stores in 120 countries. But the company's fortunes seemed to be on the wane. Challengers from H&M to Gap had overtaken Benetton in revenue and profitability. How could chairman Luciano Benetton turn around the company's struggling fortunes?

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  • Harvard Business School Case 713-513

Benetton Group S.p.A., 2012

On May 31, 2012, Benetton was officially delisted and taken private by Edizione, the Benetton family's holding company. At $2.6 billion, Benetton's sales in 2011 were virtually the same as they were in 2000, but Inditex from Spain, Hennes & Mauritz (H&M) from Sweden, and Fast Retailing from Japan had all grown several times larger over the same period. What happened to this global retail giant? With Benetton under private ownership, would Harvard Business School graduate Alessandro Benetton be able to make the changes required to return the company to its former strength?

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  • Harvard Business School Case 713-538

Inditex: 2000

No abstract available.

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  • Harvard Business School Case 713-539

Inditex: 2012

No abstract available.

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