First Look

May 15, 2007

How do preferences change when choices are made for tomorrow rather than the long term? A new study available for download found that consumers spent less at an online grocer and ordered a higher percentage of healthy products the further in advance they placed an order. The paper, "I'll Have the Ice Cream Soon and the Vegetables Later: Decreasing Impatience over Time in Online Grocery Orders," is written by Todd Rogers and Katherine L. Milkman, Harvard Business School doctoral students, and Professor Max H. Bazerman. The research has multiple implications for managers, consumers, and policymakers. Online and catalog retailers that offer different delivery options, for instance, "might be able to improve their demand forecasting by taking into account the fact that their customers may be decreasingly impatient and thus likely to order a higher percentage of 'want' goods and a lower percentage of 'should' goods for delivery in the near future relative to the more distant future," they write. Also this week: alliances among universities and biotech and pharmaceutical firms; a new model of transaction costs; and a field case that asks how aid can be used better to help the world's poor.
— Martha Lagace

Working Papers

I'll Have the Ice Cream Soon and the Vegetables Later: Decreasing Impatience over Time in Online Grocery Orders


How do decisions for the near future differ from decisions for the more distant future? Most economic models predict that they do not systematically differ. With online grocery data, we show that people are decreasingly impatient the further in the future their choices will take effect. In general, as the delay between order completion and delivery increases, customers spend less, order a higher percentage of "should" items (e.g., vegetables), and order a lower percentage of "want" items (e.g., ice cream). However, orders placed for delivery tomorrow versus two days in the future do not show this want/should pattern. A second study suggests that this arises because orders placed for delivery tomorrow include more items for planned meals (as opposed to items for general stocking) than orders placed for delivery in the more distant future, and that groceries for planned meals entail more should items than groceries for general stocking.

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Cases & Course Materials

Aid, Debt Relief, and Trade: An Agenda for Fighting World Poverty (A)

Harvard Business School Case 707-029

At the 2005 Group of Eight summit, world leaders agreed to relieve the world's poorest countries' debt burdens and double aid to Africa by 2010. The announcement raised questions whether debt relief would really help the poor. By examining past aid trends and policies of multilateral institutions, such as the International Monetary Fund and the World Bank, this case also questions whether aid can allow poor countries to break the vicious cycle of poverty, and/or how aid can be used effectively.

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Aid, Debt Relief, and Trade: An Agenda for Fighting World Poverty (B)

Harvard Business School Supplement 707-040

Supplements the (A) case.

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Alleviating Poverty and Malnutrition

Harvard Business School Case 907-409

Deals with approaches to alleviating poverty and how firms, governments, and NGOs are able to work together to accomplish these goals.

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Alleviating Poverty and Malnutrition: Successful Models

Harvard Business School Note 907-412

Provides successful models of private-public sector cooperatives in alleviating poverty and malnutrition.

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Harvard Business School Case 301-093

The top management team at India's leading home finance company must decide how to deal with the emergence of intense competition at the end of the 1990s. Having founded the industry and dominated it for nearly 20 years, the well-respected company faces a bevy of new entrants from the banking, mortgage finance, and insurance sectors. In particular, management must decide how to respond to an aggressive new competitor who has copied HDFC's processes, lured away some of its key staff, and whose misleading, but lawful, advertising of interest rates is drawing customers away from HDFC.

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Harvard Business School Supplement 301-094

Supplements the (A) case.

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The Price of Immediacy


This paper develops a new model of transaction costs, arising as the rents that a monopolistic market maker is able to extract from impatient investors. The mechanism for trade is a limit order, and immediacy is supplied when the limit order is executed. We show that limit orders are American options and their value represents the cost of transacting. The limit prices inducing immediate execution of the order are functionally equivalent to bid and ask prices and can be solved for various transaction sizes to characterize the market maker's entire supply curve.

We find considerable empirical support for the model's predictions in the cross-section of NYSE firms. The model produces unbiased, out-of-sample forecasts of abnormal returns for firms being added to the S&P 500 index.

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The Formation of Inter-Organizational Networks


This chapter will offer a literature review and some thoughts on processes that may systematically account for the formation of networks among economic actors. After describing the arguments for why sociologists (and increasingly, economists) view networks to be essential to the functioning of markets, I will review much of the work that has been done in economic sociology on the formation of networks, as well as a little of the research on the subject in economics and applied mathematics. Although I will describe research on networks at both the organizational and the individual levels, I shall focus on the organization level. In addition, in the interest of brevity, I will emphasize horizontal relationships among organizations, rather than vertical (i.e., buyer-supplier) transactions.

Vertical Alliance Networks: The Case of University-Biotechnology-Pharmaceutical Alliance Chains


Many young biotechnology firms act as intermediaries in tripartite alliance chains. They enter upstream partnerships with public sector research institutions, and later form commercialization alliances with established, downstream firms. We examine the alliance activity in a large sample of biotechnology firms and find: (i) firms with multiple in-licensing agreements are more likely to attract revenue-generating alliances with downstream partners; however, (ii) the positive relationship between in-licenses and downstream alliances attenuates as firms mature, and (iii) the diversity and the quality of the academic connections of firms' principals influences their chances of successfully acquiring commercialization rights to scientific discoveries in universities.