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    First Look: May 19

    First Look

    19 May 2015

    Do Bank Analysts Audition For Jobs In Their Research Reports?

    In the working paper Career Concerns of Banking Analysts, researchers find a connection between optimistic forecasts by banking analysts and the likelihood those analysts will someday be employed by those banks. "Our results highlight the bias created by asking analysts to rate their outside opportunities in the labor market," according to researchers Joanne Horton, George Serafeim, and Shan Wu.

    Pivoting To A Direct-to-consumer Strategy

    American Well's innovative service allowing consumers to consult directly with physicians online has been picked up by high-profile health care companies, who offer the service to their patients. But American Well's executive team believes those companies are not doing enough to promote the service. Should American Well go directly to the consumer? The question is debated in the case study "American Well: The DTC Decision," by Elie Ofek and Natalie Kindred.

    Land Reform And Chinese Capitalism

    Meg Rithmire explores land reforms in the context of Chinese capitalism in the forthcoming book Land Bargains and Chinese Capitalism: The Politics of Property Rights under Reform. In one area of research, the author links "fiscal relations and economic bases to property rights regimes, finding that more 'open' cities are subject to greater state control over land."

    —Sean Silverthorne
    LinkedIn
    Email
     

    Publications

    • May 2015
    • Cambridge University Press

    Land Bargains and Chinese Capitalism: The Politics of Property Rights under Reform

    By: Rithmire, Meg

    Abstract—Land reforms have been critical to the development of Chinese capitalism over the last several decades, yet land in China remains publicly owned. This book explores the political logic of reforms to land ownership and control, accounting for how land development and real estate have become synonymous with economic growth and prosperity in China. Drawing on extensive fieldwork and archival research, this book tracks land reforms and urban development at the national level and in three cities in a single Chinese region. The study reveals that the initial liberalization of land was reversed after China's first contemporary real estate bubble in the early 1990s and that property rights arrangements at the local level varied widely according to different local strategies for economic prosperity and political stability. In particular, the author links fiscal relations and economic bases to property rights regimes, finding that more "open" cities are subject to greater state control over land.

    Publisher's link: http://www.amazon.com/Land-Bargains-Chinese-Capitalism-Politics/dp/1107539870/

    • May 2015
    • Journal of Economic Perspectives

    Bitcoin: Economics, Technology, and Governance

    By: Böhme, Rainer, Nicolas Christin, Benjamin Edelman, and Tyler Moore

    Abstract—Bitcoin is an online communication protocol that facilitates virtual currency including electronic payments. Since its inception in 2009 by an anonymous group of developers, Bitcoin has served tens of millions of transactions with total dollar value in the billions. Users have been drawn to Bitcoin for its decentralization, intentionally relying on no single server or set of servers to store transactions and also avoiding any single party that can ban certain participants or certain types of transactions. Bitcoin is of interest to economists in part for its potential to disrupt existing payment systems and perhaps monetary systems as well as for the wealth of data it provides about agents' behavior and about the Bitcoin system itself. This article presents the platform's design principles and properties for a non-technical audience; reviews its past, present, and future uses; and points out risks and regulatory issues as Bitcoin interacts with the conventional financial system and the real economy.

    Publisher's link: http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.29.2.213

    • May 2015
    • Journal of Public Economics

    De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution

    By: Lockwood, Benjamin B., and Matthew Weinzierl

    Abstract—The prominent but unproven intuition that preference heterogeneity reduces redistribution in a standard optimal tax model is shown to hold under the plausible condition that the distribution of preferences for consumption relative to leisure rises, in terms of first-order stochastic dominance, with income. Given familiar functional form assumptions on utility and the distributions of ability and preferences, a simple statistic for the effect of preference heterogeneity on marginal tax rates is derived. Numerical simulations and suggestive empirical evidence demonstrate the link between this potentially measurable statistic and the quantitative implications of preference heterogeneity for policy.

    Publisher's link: http://www.sciencedirect.com/science/article/pii/S0047272715000134

    • May 2015
    • Kumbh Mela, January 2013: Mapping the Ephemeral Mega City

    Government and the Minimalist Platform: Business at the Kumbh Mela

    By: Macomber, John D., and Tarun Khanna

    Abstract—India's Kumbh Mela, a religious festival occurring once every 12 years at the confluence of the Ganges and Yamuna rivers, attracts over 80 million pilgrims to a temporary "pop-up megacity" over the course of two months. A team of faculty and students from five Harvard schools attended the Kumbh Mela to learn from the phenomenon. The festival was a planning, organizational, financial, and spiritual success-in stark contrast to the understood concept of India as unable to accomplish projects at large scale. The authors propose that the concept of government as a minimalist platform-focusing on a handful of tasks and doing them well-was the key to success. The administration focused on land allocation, roads (mostly for walking), public safety, electricity, and water. Non-government actors provided almost all other products and services. This was a match of ambition with capability that can be replicated in other fast growing, semi-informal cities in the developing world.

    Publisher's link: http://www.amazon.com/Kumbh-Mela-January-2013-Ephemeral/dp/3775739904

     

    Working Papers

    Monetary Policy Drivers of Bond and Equity Risks

    By: Campbell, John Y., Carolin E. Pflueger, and Luis M. Viceira

    Abstract—The exposure of U.S. Treasury bonds to the stock market has moved considerably over time. While it was slightly positive on average in the period 1960-2011, it was unusually high in the 1980s and negative in the 2000s, a period during which Treasury bonds enabled investors to hedge macroeconomic risks. This paper explores the effects of monetary policy rules, monetary policy uncertainty, and macroeconomic shocks on nominal bond risks, using a New Keynesian model with habit formation and discrete regime shifts in 1977 and 2000. The increase in bond risks after 1977 is attributed primarily to a shift in monetary policy towards a more anti-inflationary stance, while the more recent decrease in bond risks after 2000 is attributed to a renewed focus on output stabilization combined with decreased volatility of supply shocks and increased volatility of the Fed's long-run inflation target. Endogenous responses of bond risk premia amplify these effects of monetary policy on bond risks.

    Download working paper: http://ssrn.com/abstract=2332106

    Career Concerns of Banking Analysts

    By: Horton, Joanne, George Serafeim, and Shan Wu

    Abstract—We study how career concerns influence banking analysts' forecasts and how their forecasting behavior benefits both them and bank managers. We show that banking analysts issue early in the year relatively more optimistic and later in the year more pessimistic forecasts for banks that could be their future employers. This pattern is not observed when the same analysts forecast earnings of companies that are not likely to be their future employers. Moreover, we use the Global Settlement as an exogenous shock, which limited outside opportunities and therefore exacerbated career concerns, and show that this forecast pattern is more pronounced after the Settlement. Both analysts and bank executives benefit from this behavior. Analysts issuing more biased forecasts for potential future employers are more likely to face favorable career outcomes, and bank executives appear to profit from the analysts' bias since the bias is associated with higher levels of insider trading. Our results highlight the bias created by asking analysts to rate their outside opportunities in the labor market.

    Download working paper: http://ssrn.com/abstract=2596966

     

    Cases & Course Materials

    • Harvard Business School Case 715-023

    Governing the 'Chinese Dream': Corruption, Inequality and the Rule of Law

    Xi Jinping assumed his position as head of China's fifth generation of leaders in 2012. Xi was head of both the People's Republic of China and the Chinese Communist Party, which had ruled China since 1949. Xi inherited a country far more unequal than the one that Mao Zedong, Communist China's first leader, had left behind in 1978. The growth of markets had made China much wealthier but also generated many social problems, including inequality, corruption, and social protests. This case discusses China's political and economic development in the 20th century to situate Xi's-and China's-contemporary challenges.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/715023-PDF-ENG

    • Harvard Business School Case 315-012

    Hospital for Special Surgery (A)

    Hospital for Special Surgery, a focused factory for orthopedics and joint disease, is contemplating various growth options: further growth in the United Kingdom's National Health Services, management of hospitals in the United States, and/or hospital consulting. This case reviews the issues surrounding growth of a nonprofit institution and the United Kingdom's socialized health care system.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/315012-PDF-ENG

    • Harvard Business School Case 415-050

    Continental Hope Group

    This case provides an opportunity to examine and discuss how a traditional Chinese private business was launched and developed into a globalizing, multi-industry corporation. It also highlights how second generation entrepreneurs successfully developed an innovative industry model to sustain a green and profitable business; how the company valued, motivated, and retained its talent; and how Chinese private enterprise can go global.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/415050-PDF-ENG

    • Harvard Business School Case 515-032

    American Well: The DTC Decision

    In late 2013, telehealth company American Well, which developed a digital platform that allowed patients to conduct online medical consultations with physicians, is considering pursuing a direct-to-consumer (DTC) strategy. Founded in 2006, American Well had, to date, primarily sold its solution to health plans, which then provided online care services to their members using their own brand name. But while American Well attracted some of the largest U.S. health insurers as clients, a surprisingly small number of individual members had actually used the online care service. American Well management believed low consumer awareness-the result of insufficient marketing by health plans, among other factors-was hampering uptake of what should be a highly valuable offering for all stakeholders involved. They wondered if a DTC approach, in which American Well would become a consumer brand and market a telehealth service directly to the public, for example through a mobile app, could drive utilization and catapult the business to the next level. If a DTC offering were given the green light, the company had to come up with a coherent marketing plan to launch it and figure out how to manage potential conflicts with existing clients, who might view the move as competing with their own telehealth efforts. Moreover, the move had to be considered in light of other initiatives the company had recently embarked on, such as marketing its platform to pharmacy chains, targeting large employers, and selling kiosks that provided a physical space to conduct online consultations. The case forces students to grapple with the challenges and barriers involved in disrupting an established industry, examine alternative go-to-market strategies and the timing of implementing them, and consider different business models to manage supply and generate revenues. The case also offers a rich analysis of digital marketing issues.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/515032-PDF-ENG

    • Harvard Business School Case 715-403

    Dow: Breakthroughs to World Challenges

    Dow had adopted the "Breakthroughs to World Challenges" (BWC) program as part of its 10-year 2015 Sustainability Goals. BWC was a set of internal award recognizing products that effectively addressed one of five world challenges: energy and climate change, sustainable water supply, decent affordable housing, personal health, and food supply. By late summer 2014, two products had been designated as BWCs, and two others were set to be announced in the fall. Dow senior executives believed that Dow was creating shared value through its BWC products. As management began drafting the company's sustainability plan for 2015 and beyond, CEO Andrew Liveris confronted the question of whether to maintain, modify, or terminate the BWC program.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/715403-PDF-ENG

    • Harvard Business School Case 715-044

    America's Budget Impasse

    "America's Budget Impasse" draws on a series of recent government documents to explore America's recent economic performance, President Obama's budget strategy, and the budget proposals of the Republican Senate and House Budget Committees. Using the Economic Reports of the President for 2014 and 2015 and the Budget of the United States for FY 2016, the case summarizes where we've recently been economically, with the Bush tax cuts and Obama's stimulus, where we are today, and where Obama would like us to go. For contrast, it also summarizes Senator Enzi's budget proposal and Congressman Price's budget proposal-the chairs of the Senate and House Budget Committees.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/715044-PDF-ENG

    • Harvard Business School Case 714-033

    Should Corporate Profits Be Taxed?

    Taxing corporations is popular, but why? Corporations do not bear the burden of taxes, people do, and the incidence of the corporate income tax burden is likely to be far different from what many of its supporters assume.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/714033-PDF-ENG

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