- forthcoming
- NBER Macroeconomics Annual 2015
Networks and the Macroeconomy: An Empirical Exploration
Abstract—The propagation of macroeconomic shocks through input-output and geographic networks can be a powerful driver of macroeconomic fluctuations. We first exposit that in the presence of Cobb-Douglas production functions and consumer preferences, there is a specific pattern of economic transmission whereby demand-side shocks propagate upstream (to input-supplying industries), and supply-side shocks propagate downstream (to customer industries), and that there is a tight relationship between the direct impact of a shock and the magnitudes of the downstream and the upstream indirect effects. We then investigate the short-run propagation of four different types of industry-level shocks: two demand-side ones (the exogenous component of the variation in industry imports from China and changes in federal spending) and two supply-side ones (TFP shocks and variation in knowledge/ideas coming from foreign patenting). In each case, we find substantial propagation of these shocks through the input-output network, with a pattern broadly consistent with theory. Quantitatively, the network-based propagation is larger than the direct effects of the shocks. We also show quantitatively large effects from the geographic network, capturing the fact that the local propagation of a shock to an industry will fall more heavily on other industries that tend to collocate with it across local markets. Our results suggest that the transmission of various different types of shocks through economic networks and industry interlinkages could have first-order implications for the macroeconomy.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=49883
- forthcoming
- Review of Economic Studies
Do Prices Determine Vertical Integration?
Abstract—What is the relationship between product prices and vertical integration? While the literature has focused on how integration affects prices, this paper provides evidence that prices can affect integration. Many theories in organizational economics and industrial organization posit that integration, while costly, increases productivity. It follows from firms' maximizing behavior that higher prices induce more integration. The reason is that at low prices, increases in revenue resulting from enhanced productivity are too small to justify the cost, whereas at high prices, the revenue benefit exceeds the cost. Trade policy provides a source of exogenous price variation to assess the validity of this prediction: higher tariffs should lead to higher prices and therefore to more integration. We construct firm-level indices of vertical integration for a large set of countries and industries and exploit cross-section and time-series variation in import tariffs to examine their impact on firm boundaries. Our empirical results provide strong support for the view that output prices are a key determinant of vertical integration.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=49893
- forthcoming
- Production and Operations Management
Technology Choice and Capacity Portfolios under Emissions Regulation
Abstract—We study the impact of emissions tax and emissions cap-and-trade regulation on a firm's technology choice and capacity decisions. We show that emissions price uncertainty under cap-and-trade results in greater expected profit than a constant emissions price under an emissions tax, which contradicts popular arguments that the greater uncertainty under cap-and-trade will erode value. We further show that two operational drivers underlie this result: i) the firm's option not to operate, which effectively right-censors the uncertain emissions price and ii) dispatch flexibility, which is the firm's ability to first deploy its most profitable capacity given the realized emissions price. In addition to these managerial insights, we also explore the effect of investment and production subsidies. Through an illustrative example, we show that production subsidies of higher investment and production cost technologies (such as carbon capture and storage technologies) have no effect on the firm's optimal total capacity when firms own a portfolio of both clean and dirty technologies. On the other hand, investment subsidies of these technologies increase the firm's total capacity, conditionally increasing expected emissions. Subsidization of a lower production cost technology has no effect on the firm's optimal total capacity in multi-technology portfolios.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=49873
- forthcoming
- Innovation, Intellectual Property, and Economic Development
U.S. High-Skilled Immigration, Innovation, and Entrepreneurship: Empirical Approaches and Evidence
Abstract—High-skilled immigrants are a very important component of U.S. innovation and entrepreneurship. Immigrants account for roughly a quarter of U.S. workers in these fields, and they have a similar contribution in terms of output measures like patents or firm starts. This contribution has been rapidly growing over the last three decades. In terms of quality, the average skilled immigrant appears to be better trained to work in these fields, but this is conditional on educational attainment of comparable quality to natives. The exception to this is that immigrants have a disproportionate impact among the very highest achievers (e.g., Nobel Prize winners). Studies regarding the impact of immigrants on natives tend to find limited consequences in the short run, while the results in the long run are more varied and much less certain. Immigrants in the United States aid business and technology exchanges with their home countries, but the overall effect that the migration has on the home country remains unclear. We know very little about return migration of workers engaged in innovation and entrepreneurship, except that it is rapidly growing in importance.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=49887
Service Quality, Inventory and Competition: An Empirical Analysis of Mobile Money Agents in Africa
Abstract—The use of electronic money transfer through cellular networks ("mobile money") is rapidly increasing in the developing world. The resulting electronic currency ecosystem could improve the lives of the estimated two billion people who live on less than $2 a day by facilitating more secure, accessible, and reliable ways to store and transfer money than are currently available. The development of this ecosystem requires a network of agents to conduct cash-for-electronic value transactions and vice versa. This paper examines how service quality, competition, and poverty are related to demand and inventory (of electronic credit and physical cash) where, in this setting, service quality consists of pricing transparency and agent expertise. Among our results, we find that average demand increases with both pricing transparency and agent expertise, and that agent expertise interacts positively with competitive intensity. We also find that competition is associated with higher inventory holdings of both cash and electronic value, and that agents in high-poverty areas hold greater amounts of cash but do not carry a smaller amount of electronic value indicating that they devote more capital to their inventory. These results offer insight to mobile money operators with respect to monitoring, training, and the business case for their agents. This paper furthers our understanding of service quality, competition, and inventory, while developing a foundation for the exploration of mobile money by operations management scholars.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=48472
Social Networks, Ethnicity, and Entrepreneurship
Abstract—We study the relationship between ethnicity, occupational choice, and entrepreneurship. Immigrant groups in the United States cluster in specific business sectors. For example, Koreans are 34 times more likely than other immigrants to operate dry cleaners, and Gujarati-speaking Indians are 108 times more likely to manage motels. We develop a model of social interactions where non-work relationships facilitate the acquisition of sector-specific skills. The resulting scale economies generate occupational stratification along ethnic lines, consistent with the reoccurring phenomenon of small, socially isolated groups achieving considerable economic success via concentrated entrepreneurship. Empirical evidence from the United States supports our model's underlying mechanisms.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=49868
Do People Who Care About Others Cooperate More? Experimental Evidence from Relative Incentive Pay
Abstract—We experimentally study ways in which the social preferences of individuals and groups affect performance when faced with relative incentives. We also identify the mediating role that communication and leadership play in generating these effects. We find other-regarding workers tend to depress efforts by 15% on average. However, selfish workers are nearly three times more likely to lead workers to coordinate on minimal efforts when communication is possible. Hence, the other-regarding composition of a team of workers has complex consequences for organizational performance.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=49874
Corporate Sponsorship in Culture—A Case of Partnership in Relationship Building and Collaborative Marketing by a Global Financial Institution and a Major Art Museum
Abstract—Purpose: This paper examines cultural sponsorship from a partnership and relationship marketing perspective. It studies a case of how a partnership between two international institutions, a bank and a museum, adds value to both in terms of interaction with customers and breadth of audiences. The paper further points to key aspects of resource integration in a co-marketing partnership. Design / methodology: The data were generated through an in-depth case study of a sponsorship collaboration between a major global financial institution (UBS) and a multi-site major museum (Guggenheim). The primary sources of data were interviews with key representatives over a 12-month period and direct observations. Findings: The study explores the role of the sponsorship for both partners. For the bank, the partnership with a major art institution gives access to cultural, symbolic, and social resources, which can add value to and differentiate wealth management services. From the perspective of the bank, the partnership serves to strengthen relationships with key clients by establishing cultural bonds and demonstrating shared values. It also serves to stimulate interaction among clients with a shared interest in arts, and creates opportunities for communication in informal settings. From the perspective of the museum, the partnership supports its international expansion in terms of audiences and acquisitions of art from regions of the world previously underrepresented in its collection. The partnership also helps to expand the network of museum partners and potential donors. A critical element is resource integration between the sponsorship partners. We identify and discuss key determinants of successful resource integration in terms of complementary resource mobilization and internal integration. The paper employs a relationship marketing and service management approach for evaluating corporate sponsorship arrangements. Originality and value: The study makes a contribution to the sponsorship literature by evaluating how a cultural engagement can be linked to a relationship marketing strategy. It also presents insights from service marketing for the wealth management sector. It further contributes to the understanding of co-marketing partnerships between commercial organizations and non-profit arts organizations.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=49908
- Harvard Business School Case 716-010
Movile: Building a Global Technology Company
No abstract available.
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- Harvard Business School Case 716-403
Shareholder Activists and Corporate Strategy
By 2015, there had been an upsurge in activist shareholders arguing for radical changes in companies' corporate strategies. Personalities like Carl Icahn, Bill Ackman, and Daniel Loeb were feared and loathed in some quarters, celebrated in others. With nearly $120 billion in assets under management in 2014, and big players like Icahn Enterprises managing $22.3 billion, Pershing Square managing $13.4 billion, and Third Point managing $8.3 billion, activist hedge funds had become a prominent feature of the corporate landscape, escaping some of their earlier approbation as corporate raiders or, even worse, "greenmailers." Activism covered a range of approaches—from proxy votes and demands for Board seats, to full blown takeover attempts—and sought to pressure changes on a wide range of issues—from corporate governance and executive pay, to strategic direction and excessive corporate overhead. Yet one of the most common concerned the scope of the corporation. In many cases, activists demanded the splitting up of the corporate entity, or the spinning off or sale of part of the company to another owner.
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- Harvard Business School Case 416-005
Proxy Contest at DuPont
On January 9, 2015, Nelson Peltz of Trian Fund Management launched a proxy fight for four out of the twelve seats on the DuPont board. The fund had previously published a public letter addressed to shareholders outlining its proposal to break the company into three areas: agriculture and nutrition, industrial materials, and performance chemicals and criticizing the company for its poor performance. CEO and Chairman Ellen Kullman and her board were left with the difficult decision. Should they allow four of Trian's nominees onto their board, knowing that it would mean replacing four highly experienced and valuable directors, or should they go face to face with Peltz in a very public proxy fight?
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- Harvard Business School Case 815-074
Equity Compensation in Startup Ventures
Setting equitable and "market" level compensation for founders and early employees of startups is one of the most important elements of a new venture. It is not only central to attract and retain the best human capital for the startup, but it is critical to align incentives between investors and management. This note provides a framework to think about compensation in startup ventures and is intended for entrepreneurs thinking about starting a venture, as well as for employees looking to join a young high-potential startup.
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- Harvard Business School Case 714-027
Reform in the Chicago Public Schools
In 2012, the Chicago Teachers Union went on strike over proposed reforms by the city's mayor, Rahm Emanuel. At the heart of the reforms, and the strike, was frustration over many decades of underperformance in the Chicago Public Schools (CPS) and a surge of controversial, largely market-based, experimentation in public education in many U.S. cities.
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- Harvard Business School Case 316-015
Finalizing a Deal Between Riva Corporation and Charlton Corporation: Charlton's Internal Deliberation (A)—Charlton CEO
No abstract available.
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- Harvard Business School Case 316-016
Finalizing a Deal Between Riva Corporation and Charlton Corporation: Charlton’s Internal Deliberation (B)—Charlton COO
No abstract available.
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- Harvard Business School Case 316-017
Finalizing a Deal Between Riva Corporation and Charlton Corporation: Charlton's Internal Deliberation (C)—Charlton Independent Director 1
No abstract available.
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- Harvard Business School Case 316-018
Finalizing a Deal Between Riva Corporation and Charlton Corporation: Charlton's Internal Deliberation (D)—Charlton Independent Director 2
No abstract available.
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- Harvard Business School Case 316-019
Finalizing a Deal Between Riva Corporation and Charlton Corporation: Charlton’s Internal Deliberation (E)—Charlton Independent Director 3
No abstract available.
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- Harvard Business School Case 616-009
From Correlation to Causation
To make sound business decisions, managers must be comfortable with the concepts of correlation and causation. This background note provides an overview of correlation and causation using examples and explains why the former does not imply the latter. It also describes several methods for gaining insights into causal relations, including randomized experiments, panel data, matching, and regression discontinuity. The note is intended for a general audience and does not require advanced statistics knowledge.
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