First Look

Abstract—This book is a self-study guide written for someone who wishes to teach themselves basic financial accounting. It is based on a course by the same author that has been successfully completed by thousands of students worldwide. It explains concepts in simple language with illustrative examples, provides review questions and quizzes after each chapter and section, contains two full-length practice exams at the end of the book as well as a glossary. It compares and contrasts U.S. GAAP and IFRS for every topic covered in the book. For a preview of the book, please see: www.createspace.com/Preview/1186020.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50689

Abstract—Cities generate negative, as well as positive, externalities; addressing those externalities requires both infrastructure and institutions. Providing clean water and removing refuse requires water and sewer pipes, but the urban poor are often unwilling to pay for the costs of that piping. Standard welfare economics teaches us that either subsidies or Pigouvian fines can solve that problem, but both solutions are problematic when institutions are weak. Subsidies lead to waste and corruption; fines lead to extortion of the innocent. Zambia has attempted to solve its problem with subsidies alone, but the subsidies have been too small to solve the “last-mile problem,” and so most poor households remain unconnected to the water and sewer system. In nineteenth-century New York, subsidies also proved insufficient and were largely replaced by a penalty-based system. We present a model that illustrates the complementarity between infrastructure and institutions and provides conditions for whether fines, subsidies, or a combination of both are the optimal response. One point of the model is that the optimal fine is often not a draconian penalty but a mild charge that is small enough to avoid extortion.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50675

Abstract—We present an extrapolative model of bubbles. In the model, many investors form their demand for a risky asset by weighing two signals: an average of the asset’s past price changes and the asset’s degree of overvaluation. The two signals are in conflict, and investors “waver” over time in the relative weight they put on them. The model predicts that good news about fundamentals can trigger large price bubbles. We analyze the patterns of cash-flow news that generate the largest bubbles, the reasons why bubbles collapse, and the frequency with which they occur. The model also predicts that bubbles will be accompanied by high trading volume and that volume increases with past asset returns. We present empirical evidence that bears on some of the model’s distinctive predictions.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50677

Abstract—The “net neutrality” principle has triggered a heated debate, and advocates have proposed policy interventions. In this paper, we provide perspective by framing issues in terms of the positive economic factors at work. We stress the incentives of market participants and highlight the economic conflicts behind the arguments put forward by the different parties. We also identify several key open questions.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50676

Abstract—Using U.S. data from 1929 to 2013, we show that elevated credit-market sentiment in year t – 2 is associated with a decline in economic activity in years t and t + 1. Underlying this result is the existence of predictable mean reversion in credit-market conditions. That is, when our sentiment proxies indicate that credit risk is aggressively priced, this tends to be followed by a subsequent widening of credit spreads, and the timing of this widening is, in turn, closely tied to the onset of a contraction in economic activity. Exploring the mechanism, we find that buoyant credit-market sentiment in year t – 2 also forecasts a change in the composition of external finance: net debt issuance falls in year t, while net equity issuance increases, patterns consistent with the reversal in credit-market conditions leading to an inward shift in credit supply. Unlike much of the current literature on the role of financial frictions in macroeconomics, this paper suggests that time-variation in expected returns to credit-market investors can be an important driver of economic fluctuations.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50674

Abstract—Effective dispute resolution is important for reducing private and social costs. We study how resolution responds to changes in price and communication using a new, extensive dataset of copyright infringement incidences by firms. The data cover two field experiments run by a large stock-photography agency. We find that substantially reducing the requested amount generates a small increase in the settlement rate. However, for the same reduced request, a message informing infringers of the price reduction and acknowledging possible unintentionality generates a large increase in settlement; including a deadline further increases the response. The small price effect, compared to the large message effect, can be explained by two countervailing effects of a lower price: an inducement to settle early but a lower threat of escalation. Furthermore, acknowledging possible unintentionality may encourage settlement due to the typically inadvertent nature of these incidences. The resulting higher settlement rate prevents additional legal action and reduces social costs.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=49624

Abstract—Improving the political participation of immigrants could advance their interests and foster their integration into receiving countries. In this study, 23,800 citizens were randomly assigned to receive visits from political activists during the lead-up of the 2010 French regional elections. Treatment increased the turnout of immigrants without affecting non-immigrants, while turnout was roughly equal in the control group. A post-electoral survey reveals that immigrants initially had less political information, which could explain the heterogeneous impact. Although the effect fades quickly over subsequent elections, our findings suggest that voter outreach efforts can successfully increase immigrants' political participation, even when they do not specifically target their communities and concerns.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50666

No abstract available.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/916414-PDF-ENG

Hain Celestial manufactured natural and organic food and personal care products to be sold to retailers of these products. The company had grown successfully and profitably through acquisitions and organically for two decades. In late 2015, Hain faced challenges on several fronts. First, new consumers were interested in these products, and these consumers had characteristics different from those of historical consumers in the segment. Second, the natural and organic market segment had been growing faster than the conventional market overall and was expected to continue. This had caused large conventional manufacturers to enter this space, increasing the level of competition for Hain. Third, this segment growth was also attracting a wider range of retailers wanting to sell these products, and some of these retailers were introducing their own natural and organic brands.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/516007-PDF-ENG

In the fall of 2012, Hurricane Sandy forced a full evacuation of NYU Langone Medical Center in New York City. The institution, which comprised NYU Medical School and several teaching hospitals, had been on an upward trajectory for several years under the leadership of Dr. Robert I. Grossman. Grossman’s central initiative, which he credited with helping to create a performance-driven, transparency-focused culture, was an information technology dashboard system that provided managers and front-line workers with a wealth of real-time information. Would the disruption posed by the hurricane throw NYU Langone off track?

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/616026-PDF-ENG