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    First Look: June 24, 2008

    First Look

    24 Jun 2008
    The old foreign aid paradigm—think the Marshall Plan—was based on one government pouring massive amounts of aid into another national economy. A much-improved approach for the 21st century, suggest Justin Muzinich and HBS professor Eric Werker, writing in the June/July issue of Policy Review, would be to tap into the private sector. As they write, "[E]mploying the tax system for development is a way to use government incentives to encourage and channel private transfers that will have a great impact on reducing poverty. … [C]ountries that have escaped poverty in the postwar era have largely done so through harnessing the productive capacities of the private sector—frequently foreign investment." This week also sees a short (96-page), succinct guide to the necessary skill of managing your boss: Managing Up by HBS professor Linda A. Hill. Other publications include a working paper for download on better decision-making, and a paper based on a new methodology, developed by Harvard University Professor and strategy expert Michael E. Porter, about regional concentration patterns in the European Union as compared with the U.S. economy. —Martha Lagace
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    Working Papers

    Firm-Size Distribution and Cross-Country Income Differences

    Authors: Laura Alfaro, Andrew Charlton, and Fabio Kanczuk
    Abstract

    We investigate, using firm-level data for 79 developed and developing countries, whether differences in the allocation of resources across heterogeneous plants are a significant determinant of cross-country differences in income per worker. For this purpose, we use a standard version of the neoclassical growth model augmented to incorporate monopolistic competition among heterogeneous firms. For our preferred calibration, the model explains 58% of the log variance of income per worker. This figure should be compared to the 42% success rate of the usual model.

    Download the paper from SSRN ($5): http://papers.nber.org/papers/w14060

    Bounded Decision Making: From Description to Improvement

    Authors: Dolly Chugh, Katherine L. Milkman, and Max H. Bazerman
    Abstract

    The optimal moment to address the question of how to improve human decision making has arrived. In recent research, judgment and decision-making scholars have moved beyond the concept of bounded rationality to recognize a broader set of bounds that affect decision making. We specify a taxonomy that assembles the field's knowledge about these decision-making bounds and organizes efforts toward deepening this knowledge and developing strategies for improvement. Specifically, we group five identified decision-making bounds into three broad categories: bounds on information processing, bounds on the optimal weighting of priorities, and bounds on noticing information. The first category encompasses bounded rationality, the first bound to be discovered and studied extensively. The second category encompasses bounded willpower and bounded self-interest. The third category encompasses two recently identified bounds: bounded ethicality and bounded awareness. By organizing diverse theories into a clear framework, the taxonomy should aid researchers and educators in identifying new strategies for improving decision making.

    Download the paper: http://www.hbs.edu/research/pdf/08-102.pdf

    Cases & Course Materials

    (None this week.)

    Publications

    Managing Up

    Author: Linda A. Hill
    Publication: Boston, Mass.: Harvard Business School Press, forthcoming
    Abstract

    Managing up is not political game playing. Rather, it's a conscious approach to working with your supervisor toward goals that are important to both of you. Through managing up, you build a productive working relationship with your boss and create a way to use the complementary strengths of you and your boss to deliver value to your company. This volume helps you: Understand the business results you produce by learning how to manage up; Cultivate a mutually beneficial relationship with your manager; Communicate effectively with your boss about priorities and problems; and Negotiate win-win solutions to on-the-job challenges with your supervisor.

    Publisher's site:
    http://www.hbsp.harvard.edu/b02/en/common/item_detail.jhtml?id=2277&referral=2340

    Southeast Asia and the Political Economy of Development

    Authors: Regina M. Abrami and Richard Doner
    Publication: In Southeast Asia in Political Science: Theory, Region, and Qualitative Analysis, edited by Erik Martinez Kuhonta, Dan Slater and Tuong Vu. Stanford University Press, forthcoming
    Abstract

    This chapter assesses contemporary qualitative research on Southeast Asia and its contribution to the field of political economy. It focuses especially on the political origins of economic institutions and their influence on economic performance. It provides evidence of how intra-regional differences in socio-political variables have aided theoretical development, and with respect to questions of entrepreneurship, regime durability, and democratic transition especially.

    Publisher's site:
    http://www.sup.org/book.cgi?book_id=5810%20%20

    The Impact of Academic Patenting on the Rate, Quality, and Direction of (Public) Research Output

    Authors: Pierre Azoulay, Waverly Ding, and Toby E. Stuart
    Periodical: Journal of Industrial Economics (forthcoming)
    Abstract

    We examine the influence of faculty patenting activity on the rate, quality, and content of public research outputs in a panel dataset spanning the careers of 3,862 academic life scientists. Using inverse probability of treatment weights (IPTW) to account for the dynamics of self-selection into patenting, we find that patenting has a positive effect on the rate of publication of journal articles, but no effect on the quality of these publications. Using several measures of the "patentability" of the content of research papers, we also find that patenters may be shifting their research focus to questions of commercial interest. We conclude that the often-voiced concern that patenting in academe has a nefarious effect on public research output is, at least in its simplest form, misplaced.

    The Small World of Investing: Board Connections and Mutual Fund Returns

    Authors: Lauren Cohen, Andrea Frazzini, and Christopher Malloy
    Publication: Journal of Political Economy (forthcoming). (Winner of the Barclays Global Investors Award, Best Paper in Asset Pricing, European Finance Association 2007)
    Abstract

    This paper uses social networks to identify information transfer in security markets. We focus on connections between mutual fund managers and corporate board members via shared education networks. We find that portfolio managers place larger bets on firms they are connected to through their network, and perform significantly better on these holdings relative to their non-connected holdings. A replicating portfolio of connected stocks outperforms a replicating portfolio of non-connected stocks by up to 7.8% per year. Returns are concentrated around corporate news announcements, consistent with mutual fund managers gaining an informational advantage through the education networks. Our results suggest that social networks may be an important mechanism for information flow into asset prices.

    Position and Emotion: The Significance of Georg Simmel's Structural Theories for Leadership and Organizational Behavior

    Authors: Rosabeth Moss Kanter and Rakesh Khurana
    Publication: In The Oxford Handbook of Sociology and Organization Studies: Classical Foundations, edited by Paul S. Adler. Oxford, UK: Oxford University Press, forthcoming
    Abstract

    No abstract is available at this time.

    Publisher's site:
    http://www.oup.com/uk/catalogue/?ci=9780199535231

    A Better Approach to Foreign Aid

    Authors: Justin Muzinich and Eric Werker
    Publication: Policy Review 149 (June-July 2008)
    Abstract

    Frustration with U.S. foreign aid is widespread. At the same time, flows of private development finance—including foreign direct investment and remittances—have begun to dwarf official aid. We suggest a new approach that harnesses the power of private development finance to direct it towards developmental and foreign policy goals. Specifically, we argue that tax credits for companies, and tax breaks for individuals, can be used to incentivize productive investments while being a positive force for meaningful reform in the developing world.

    Download the paper:
    http://www.hoover.org/

    Competitive Positioning Through New Product Development

    Author: Elie Ofek
    Publication: Chap. 3 in Handbook of New Product Development Management, edited by Christoph Loch and Stylianos Kavadias, 49-85. Oxford: Butterworth-Heinemann, 2007
    Abstract

    No abstract is available at this time.

    Book link::
    http://89.96.193.118/book/9780750685528/loch-christoph-h/handbook-new-product.html

    Industrial Specialization and Regional Clusters in the Ten New EU Member States

    Authors: Orjan Solvell, Christian H.M. Ketels, and Goran Lindqvist
    Publication: Special Issue on Macro and Micro Level Competitiveness. Competitiveness Review: An International Business Journal Incorporating Journal of Global Competitiveness 18, nos. 1/2 (2008): 104-130
    Abstract

    Purpose—The purpose of this paper is to provide an analysis of regional concentration patterns within ten new European Union (EU) member states, EU10, and make comparisons with EU15 and the U.S. economy.
    Design/methodology/approach—Industrial specialization and clusters are measured as employment in the intersection between a sector (three-digit NACE data) and a particular region (NUTS 2 level), with a total of 38 sectors and 41 regions within EU10. Regional cluster size and degree of specialization is measured along 3D: absolute number of employees (>10,000 jobs is used as cut-off for a regional cluster), degree of specialization (regional sector employment is at least two times expected levels) and degree of regional market labor dominance (>3 per cent of total employment in a particular sector). Each of these three measures of cluster size, specialization and labor market focus are classified with a "star." The largest and most specialized clusters receive three stars.
    Findings—EU10 exhibits 19 three-star regional clusters, which display high values for each of the three measured parameters. In addition, there are 92 two-star regional clusters and 313 one-star regional clusters. The analysis also suggests that regional concentration in EU10 is clearly lower than in the USA, and slightly lower than in the old EU member states. In a few cases—IT, biopharmaceuticals and communications equipment—where the total size of the cluster is small, and there is little historical legacy in Eastern Europe, the EU10 exhibits higher geographical concentration than EU15.
    Research limitations/implications—Overall, the economies of EU10 exhibit a pattern of geographical concentration close to a random distribution, i.e. the process of regional concentration and redistribution of industry is in a very early phase. If Europe is to build a more competitive economy, industrial restructuring towards larger clusters must be allowed and pushed by policy makers both at the national and EU levels.
    Practical implications—Policymakers must be well informed about geographical concentration patterns of industry. The research offers a consistent methodology of mapping regional clusters and geographical concentration patterns across sectors.
    Originality/value—This paper is the first in measuring regional concentration patterns in Europe at this fine level and is based on a new methodology developed by Professor Michael E. Porter at Harvard University. The paper has also introduced a new method of ranking clusters according to the star model.

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