First Look

June 2, 2009

Once upon a time, critics of file-sharing services such as Napster warned of doom and gloom for the music industry in the form of decreased incentives for artists to create and distribute music. Was the pessimism justified? Perhaps not—according to research by HBS professor Felix Oberholzer-Gee and University of Kansas colleague Koleman Strumpf highlighted in their new working paper, "File-Sharing and Copyright" [PDF]. Digital technology allows sharing, but also makes music less expensive to produce. And a wider audience may translate into concert tours and ticket sales, which would increase the artists' income. "[W]e do not yet have a full understanding of the mechanisms by which file-sharing may have altered the incentives to produce entertainment," the authors write. "However, in the industry with the largest purported impact—music—consumer access to recordings has vastly improved since the advent of file-sharing. Since 2000, the number of recordings produced has more than doubled. In our view, this makes it difficult to argue that weaker copyright protection has had a negative impact on artists' incentives to be creative." Also this week, professor Michael I. Norton and Duke colleague Dan Ariely write in the June issue of Harvard Business Review about how concepts, such as the desire for increased status, influence our purchase decisions. "How Concepts Affect Consumption" describes three classes of conceptual consumption: expectations (desires affect the perceived value of an object); goals (goal-directed shopping can be more expensive than not); and memories (people who enjoy a memorable experience might not wish to repeat it, in order to preserve the positive memory).
— Martha Lagace

Working Papers

Truth in Giving: Experimental Evidence on the Welfare Effects of Informed Giving to the Poor


It is often difficult for donors to predict the value of charitable giving because they know little about the persons who receive their help. This concern is particularly acute when making contributions to organizations that serve heterogeneous populations. While we have considerable evidence that donors are more generous if they know their assistance benefits a preferred group, we know little about the demand for such information. To start closing this gap, we study transfers of income to real-world poor people in the context of dictator games. Our dictators can purchase signals about why the recipients are poor. We find that a third of the dictators are willing to pay a dollar to learn more about their recipient. Dictators who devote resources to acquiring information are individuals whose giving is particularly responsive to recipient type. They use the information mainly to withhold resources from "undeserving" types, leading to a drastic decline in aggregate transfers. With endogenous information about recipients, we find that all types of poor subjects are worse off. Our results suggest that the effects of truth-in-giving policies are highly responsive to recipient heterogeneity and biased against more generous giving.

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File-Sharing and Copyright


The advent of file sharing has considerably weakened effective copyright protection. Today, more than 60% of Internet traffic consists of consumers sharing music, movies, books, and games. Yet, despite the popularity of the new technology, file sharing has not undermined the incentives of authors to produce new works. We argue that the effect of file sharing has been muted for three reasons: First, the cannibalization of sales that is due to file sharing is more modest than many observers assume. Empirical work suggests that in music, no more than 20% of the recent decline in sales is due to sharing. Second, file sharing increases the demand for complements to protected works, raising, for instance, the demand for concerts and concert prices. The sale of more expensive complements has added to artists' incomes. Third, in many creative industries, monetary incentives play a reduced role in motivating authors to remain creative. Data on the supply of new works are consistent with the argument that file sharing did not discourage authors and publishers. Since the advent of file sharing, the production of music, books, and movies has increased sharply.

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Firsthand Experience and the Subsequent Role of Reflected Knowledge in Cultivating Trust in Global Collaboration


While scholars contend that firsthand experience—time spent onsite observing the people, places, and norms of a distant locale—is crucial in globally distributed collaboration, how such experience actually affects interpersonal dynamics is poorly understood. Based on 47 semi-structured interviews and 140 survey responses in a global chemical company, this paper explores the effects of firsthand experience on intersite trust. We find firsthand experience leads not just to direct knowledge of the other, but also knowledge of the self as seen through the eyes of the other—what we call "reflected knowledge." Reflected and direct knowledge, in turn, affect trust through identification, adaptation, and reduced misunderstandings.

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How Concepts Affect Consumption


Duke behavioral economist Ariely and Harvard Business School professor Norton explore how our consumption of concepts influences physical consumption, both positively and negatively.

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Organizational Ambidexterity: IBM and Emerging Business Opportunities


The empirical evidence is that only a tiny fraction of organizations live to age 40. Why this should be is a puzzle, since when firms are doing well they have all the resources (financial, physical, and intellectual) to continue to be successful. Yet the evidence is that most organizations fail. Drawing on recent advances in evolutionary theory, this paper illustrates how multi-level selection processes help organizations adapt in the face of technological and market changes. We show how this process, along with the concepts of organizational ambidexterity and dynamic capabilities, may help organizations survive over long time periods. We illustrate how one deliberate and repeatable version of this process enabled IBM to generate more than $15 billion in growth between 2000 and 2005.


Cases & Course Materials

Brummer and the bracNet Investment

Harvard Business School Case 309-065

bracNet, a for-profit/nonprofit partnership, aims to establish Internet connectivity throughout Bangladesh. Venture capitalist Patrik Brummer invested in a first round of funding to connect major cities. Should he invest again, this time in a rural roll-out, which may have lower financial returns but greater social returns?

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Montgomery County Business Roundtable for Education

Harvard Business School Case 309-105

Montgomery County Business Roundtable for Education (MCBRE) was a business-public education partnership with Montgomery County Public Schools (MCPS) that promoted cross-sector knowledge sharing and academic excellence. Its suite of core student programs, such as "720," where business leaders addressed nearly half of the ninth-grade class about the importance of achievement in high school, and the Young Professionals Conference, an event for juniors that highlighted exciting business practices, allowed businesses to connect with students at the individual level. At the same time, the creation of platforms for business-education learning brought system-level improvements. In particular, MCBRE's board of advisors meetings brought together top executives from companies such as Lockheed Martin, NASDAQ, and PricewaterhouseCoopers with MCPS leaders to learn about management and leadership practices. After leading MCBRE for the past five years, first as executive director and now as board chair, Jane Kubasik was leaving. While the newly hired executive director, Heather Schwager, was more than qualified to take over, there were some concerns. Kubasik had planned and implemented most of MCBRE's current initiatives and single-handedly recruited nearly all of MCBRE's current members. Would MCBRE be able to retain its impressive membership without Kubasik? With its selective invite-only criteria for new members, would MCBRE be able to continue to grow? Should growth even be a goal?

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Note: Restructuring Distressed Companies-Cross National Comparisons

Harvard Business School Note 209-111

This note briefly describes bankruptcy regimes and out-of-court restructuring in five countries: the U.S., the U.K., Germany, France, and Japan.

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