First Look

Abstract—This article seeks to understand the motivations behind the People's Republic of China's attempt to present an alternative development model for the post-colonial world and challenge Soviet leadership in the international communist movement in mid-1960s. When the wave of post-war decolonization crested in Africa in the late 1950s and early 1960s, inaugurating dozens of new states desperate for a political and economic model that would put flesh on the bones of independence, the USA and USSR were eager to offer aid and advice to promote their own models. The PRC, suffering the consequences of a century-long tangle with imperialism and decades of war coupled with the effects of the Great Leap Forward, was in a distinctly disadvantageous position to compete with the two superpowers. However, it did compete, and the question is why. The existing historiography on the Sino-Soviet split focuses on Mao's desire for leadership of the international communist movement, his contempt for Khrushchev, and his battle for control of the Chinese Communist Party line. This tends to render the Chinese as the unpredictable aggressor and the Soviets as playing a reactive game. This article argues instead that the timing and nature of the Chinese challenge reflect the reactive elements in the PRC's own policy, which was formulated largely in response to a perceived security threat resulting from the Soviet policy of "Peaceful Coexistence" as well as Soviet misunderstanding and neglect of the anti-colonial revolution.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=49812

Abstract—We introduce a novel empirical strategy to measure the size of credit shocks. Theoretically, we show that credit shocks reduce the value of long-term relative to short-term investments. Empirically, we can, therefore, compare the reduction of long-term relative to short-term investments within firms, allowing for firm-times-year fixed effects. Using Spanish firm level data, we estimate the credit crunch to be equivalent to an additional tax rate of around 11% on the longest lived capital. To pin down credit constraints as the underlying cause, we apply triple differences strategies using foreign ownership or pre-crisis debt maturity.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50081

Abstract—We study the prevalence and traits of global collaborative patents for U.S. public companies, where the inventor team is located both within and outside of the United States. Collaborative patents are frequently observed when a corporation is entering into a new foreign region for innovative work, especially in settings where intellectual property protection is weak. We also connect collaborative patents to the ethnic composition of the firm’s U.S. inventors and cross-border mobility of inventors within the firm. The inventor team composition has important consequences for how the new knowledge is exploited within and outside of the firm.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50098

Abstract—The goal of this chapter is to give an overview of the nascent field of consumer neuroscience and discuss when and how it is useful to integrate the “black box” of the consumer’s brain into consumer psychology. To reach this goal, we first briefly outline several methods that are part of the consumer neuroscience toolkit and how they are currently used. We then provide an overview of the research that has laid the foundation of consumer neuroscience, showcasing studies that highlight the concrete promises of applying neuroscience to consumer psychology. Building from this, we focus on using brain data to predict consumer behavior, a topic that has recently generated a lot of excitement from academics and practitioners alike. Last, we take a look at newer developments we think will have an important future impact on our understanding of consumer psychology.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50106

Abstract—Operational decisions under information asymmetry can signal a firm's prospects to less-informed parties, such as investors, customers, competitors, and regulators. Consequently, managers in these settings often face a tradeoff between making an optimal decision and sending a favorable signal. We provide experimental evidence on the choices made by decision makers in such settings. Equilibrium assumptions that are commonly applied to analyze these situations yield the least cost separating outcome as the unique equilibrium. In this equilibrium, the more informed party undertakes a costly signal to resolve the information asymmetry that exists. We provide evidence, however, that participants are much more likely to pursue a pooling outcome when such an outcome is available. This result is important for research and practice because pooling and separating outcomes can yield dramatically different results and have divergent implications. We find evidence that the choice to pool is influenced by changes in the underlying newsvendor model parameters in our setting. In robustness tests, we show that choosing a pooling outcome is especially pronounced among participants who report a high level of understanding of the setting and that participants who pool are rewarded by the less informed party with higher payoffs. Finally, we demonstrate through a reexamination of Lai et al. (2012) and Cachon and Lariviere (2001) how pooling outcomes can substantively extend the implications of other extant signaling game models in the operations management literature.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50107

Abstract—We conduct a field experiment in which we vary the sales force compensation scheme at an Asian enterprise that sells consumer durable goods. With variation generated by the experimental treatments, we model sales force performance to identify the effectiveness of various forms of conditional and unconditional compensation. We account for salesperson heterogeneity by using a hierarchical Bayesian framework to estimate our model. We find conditional compensation in the form of quota-bonus incentives to improve performance. We find little evidence that effectiveness differs between a quota-bonus plan and a punitive-bonus plan framed as a penalty for not achieving quota. We find unconditional compensation in the form of reciprocity to be effective at improving sales force performance only when given as a delayed reward of which the effectiveness decreases with repeated exposure. We also find heterogeneity in the impact of compensation on performance across salespeople; unconditional compensation is more effective for salespeople with high base performance, whereas conditional compensation is equally effective across all types of salespeople. Lastly, we find seasonality to influence sales volumes for salespeople with low base sales, but not so much for those with high base sales.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=49141

Abstract—It is widely believed that carbon leakage—offshoring and foreign entry in response to carbon regulation—increases global emissions. It is also widely believed that a carbon tariff—imposing carbon costs on imports entering the emission-regulated region—would eliminate carbon leakage. However, neither of these assertions necessarily holds. Under a carbon tariff, foreign firms with a production cost advantage adopt clean technology at a lower emissions price than domestic firms, and foreign entry can increase in emissions price when foreign firms hold this edge. Further, domestic firms conditionally offshore production despite a carbon tariff, but doing so implies that they adopt cleaner technology. Therefore, carbon leakage can arise under a carbon tariff but, under mild conditions, it decreases global emissions. Due in part to this clean leakage, imposing a carbon tariff is shown to decrease global emissions. However, domestic firm profits can increase, decrease, or remain unchanged due to a carbon tariff. This suggests a carbon tariff's principal benefit is not to protect domestic firm profits, as some argue. Rather, it is to improve emissions regulation efficacy, enabling emissions price to be used to reduce global emissions in many settings in which it would otherwise fail to do so.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=42912

Abstract—While there has been a strong focus in past research on discovering and developing top performers in the workplace, less attention has been paid to the question of how to manage those workers on the opposite side of the spectrum: those who are harmful to organizational performance. In extreme cases, aside from hurting performance, such workers can generate enormous regulatory and legal fees and liabilities for the firm. We explore a large novel dataset of over 50,000 workers across 11 different firms to document a variety of workers’ characteristics and circumstances that lead them to engage in what we call "toxic" behavior. We also explore the relationship between toxicity and productivity and the ripple effect that toxic workers have on their peers. Finally, we find that avoiding a toxic worker (or converting him to an average worker) enhances performance to a much greater extent than replacing an average worker with a superstar worker.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50046

Abstract—I analyze a rare disasters economy that yields a measure of the risk neutral probability of a macroeconomic disaster, p*t. A large panel of options data provides strong evidence that p*t is the single factor driving option-implied jump risk measures in the cross section of firms. This is a core assumption of the rare disasters paradigm. A number of empirical patterns further support the interpretation of p*t as the risk-neutral likelihood of a disaster. First, standard forecasting regressions reveal that increases in p*t lead to economic downturns. Second, disaster risk is priced in the cross section of U.S. equity returns. A zero-cost equity portfolio with exposure to disasters earns risk-adjusted returns of 7.6% per year. Finally, a calibrated version of the model reasonably matches the (i) sensitivity of the aggregate stock market to changes in the likelihood of a disaster and (ii) loss rates of disaster risky stocks during the 2008 financial crisis.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50104

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