First Look

Abstract—As the cost of storing, sharing, and analyzing data has decreased, economic activity has become increasingly digital. But while the effects of digital technology and improved digital communication have been explored in a variety of contexts, the impact on economic activity—from consumer and entrepreneurial behavior to the ways in which governments determine policy—is less well understood. Economic Analysis of the Digital Economy explores the economic impact of digitization, with each chapter identifying a promising new area of research. The Internet is one of the key drivers of growth in digital communication, and the first set of chapters discusses basic supply-and-demand factors related to access. Later chapters discuss new opportunities and challenges created by digital technology and describe some of the most pressing policy issues. As digital technologies continue to gain in momentum and importance, it has become clear that digitization has features that do not fit well into traditional economic models. This suggests a need for a better understanding of the impact of digital technology on economic activity, and Economic Analysis of the Digital Economy brings together leading scholars to explore this emerging area of research.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=49762

Abstract—Why do consumers make the purchases they do, and which ones make them truly happy? Why are consumers willing to spend huge sums of money to appear high status? This handbook addresses these key questions and many more. It provides a comprehensive overview of consumer psychology, examining cutting-edge research at the individual, interpersonal, and societal levels. Leading scholars summarize past and current findings and consider future lines of inquiry to deepen our understanding of the psychology behind consumers' decision making, their interactions with other consumers, and the effects of societal factors on consumption. The Cambridge Handbook of Consumer Psychology will act as a valuable guide for faculty as well as graduate and undergraduate students in psychology, marketing, management, sociology, and anthropology.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=49031

Abstract—Multinational firms unavoidably exert influence over politics through power that is generated by both structure and process. While both political economy and management scholars address international firms, neither field has an adequate understanding of the reciprocal relationship between multinational firms and geopolitical systems. The links between multinational firms form a distinct type of international system for the private sector—one that is simultaneously enmeshed in geopolitics and international markets even as it is also autonomous from them. The scholarly literature on the power of business in politics has demonstrated how influence derives from instrumental agency as well as structural influence, but it has taken an unnecessarily restrictive view of politics and an overly materialist theory of power. Politics are about much more than government policies. In this paper I propose an analytical framework for understanding the multinational firm as a set of relationships. I then apply one key element of that approach—the relationships among firms as a direct source of geopolitical outcomes—to the natural gas trade of Eurasia in three eras that span nearly 40 years. I conclude that the influence of business on a broader understanding of politics—and not just policies—should be central to the study of international and comparative political economy.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=49065

Abstract—Decisions involving charitable giving often occur under the shadow of risk. A common finding is that potential donors give less when there is greater risk that their donation will have less impact. While this behavior could be fully rationalized by standard economic models, this paper shows that an additional mechanism is relevant: the use of risk as an excuse not to give. In a laboratory study, participants evaluate risky payoffs for themselves and risky payoffs for a charity. When their decisions do not involve tradeoffs between money for themselves and the charity, they respond very similarly to self risk and charity risk. By contrast, when their decisions force tradeoffs between money for themselves and the charity, participants act more averse to charity risk and less averse to self risk. These altered responses to risk bias participants towards choosing payoffs for themselves more often, consistent with excuse-driven responses to risk. Additional results support the existence of excuse-driven types.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=49637

Abstract—We present a case study that illustrates task shifting, the transfer of activities from senior to junior colleagues, in the context of cardiac surgery at the Narayana Health City Cardiac Hospital (NH) in India. The case discusses the factors driving the adoption of task shifting at NH and identifies the implications of task shifting for surgeon training, surgical capacity, and procedure costs. A comparison of the outcomes of two senior surgeons with similar experience, workload, and patient profiles—but varying in their level of task shifting—suggests that shifting of lower complexity tasks by senior surgeons to trained junior colleagues does not negatively impact in-hospital mortality and post-procedure length of stay. The study concludes with a discussion of task shifting’s potential to improve access to affordable tertiary care in resource-constrained settings.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=49780

Abstract—An essential element of capitalism is corporate reporting. Today’s capitalism is supported by financial reporting. Critics of today’s capitalism argue that it is too short-term oriented and rewards companies for creating negative externalities. Integrated reporting can play an important role in changing this since it is focused on the material issues that affect a company’s ability to create value over the short-, medium-, and long-term. Each country must take its own path to integrated reporting. This is illustrated by analyzing the different regulatory and legislative regimes in the United States and the European Union.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=49803

Abstract—We consider a network revenue management problem where an online retailer aims to maximize revenue from multiple products with limited inventory. As common in practice, the retailer does not know the expected demand at each price and must learn the demand information from sales data. We propose an efficient and effective dynamic pricing algorithm, which builds upon the Thompson sampling algorithm used for multi-armed bandit problems by incorporating inventory constraints into the pricing decisions. Our algorithm proves to have both strong theoretical performance guarantees as well as promising numerical performance results when compared to other algorithms developed for the same setting. More broadly, our paper contributes to the literature on the multi-armed bandit problem with resource constraints, since our algorithm applies directly to this setting when the inventory constraints are interpreted as general resource constraints.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=49779

Abstract—We study how a mortgage reform that enabled home equity–based borrowing had an impact on entrepreneurship, using individual- and firm-level micro data from Denmark. The reform allowed entrepreneurs to bypass the project screening function of banks, by instead relying on the value of housing collateral to access credit. This enables us to study the efficacy of banks' screening technologies by examining the quality of the marginal entrants who benefited from reform. As expected, the reform relaxed constraints and led to an increase in entrepreneurship through the collateral channel. However, on average, new entrants were more likely to start businesses in sectors where they had no prior experience, were more likely to fail, and had lower performance than those who did not benefit from the reform. Our results provide evidence that despite asymmetric information and opacity in startup lending, banks' screening can play an important role in credit allocation to more promising entrepreneurs. In such instances, the marginal individuals selecting into entrepreneurship when they can bypass bank screening will tend to start businesses that are of lower quality than the average existing businesses, leading to an increase in churning entry that may not translate into an equivalent increase in the overall level of entrepreneurship.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=48100

The Gilbert Lumber Company is faced with a need for increased bank financing due to its rapid sales growth and low profitability. Students must determine the reasons for the rising bank borrowing, estimate the amount of borrowing needed, and assess the attractiveness of the loan to the bank. A rewritten version of an earlier case. Allows students to practice ratio analysis, financial forecasting, and evaluating financing alternatives.

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Germany's Chancellor Angela Merkel faced economic and moral pressure to encourage greater immigration from struggling European, and especially Eurozone, countries after the economic downturn that began in 2008. In fact, it was possible that both the euro currency union and the European political union depended on increasing migration across member countries, including into Germany. But German domestic politics made Merkel's decision a difficult one. Instructors may also obtain a Teaching Note, written by this case’s author, that provides suggestions for using this case effectively in the classroom.

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