First Look

Abstract—In differentiated goods markets with societal implications, quality standards are commonly implemented to avoid the under-provision of innovation. Firms have clear incentives to engage in strategic behavior because policymakers use market outcomes as a benchmark in designing regulation. This study examines a unique energy efficiency standard for television sets, under which future minimum efficiency standards are explicitly a function of current product offerings. The setting illustrates firms' dual incentives at work: A firm better differentiates products under a looser standard but may want to induce a tighter standard if it can benefit from raising rivals' costs. These incentives drive firms to ratchet quality. We develop a structural model of product entry that illustrates how the regulator's standard setting rule affects a firm's product quality decision. Counterfactual simulations illustrate that ratcheting down was prevalent in this market and that incentives to ratchet up did not exist. The results suggest that in many commonly regulated markets in which firms share similar cost structures, firms are likely to experience incentives to ratchet down and delay the introduction of innovative products. The study highlights the importance of understanding supply side incentives, such as ratcheting, in designing and assessing policy.

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Abstract—Many online markets are characterized by sellers that stock large numbers of products and sell each product infrequently. At the same time, consumer browsing information is typically tracked by online retailers and is much more abundant than purchase data. We propose a demand model that caters to this type of setting. Our approach, which is based on search and purchase data, is computationally light and allows for flexible substitution patterns. We apply the model to a data set containing browsing and purchase information from a retailer stocking over 500 products, recover the elasticity matrix, and solve for optimal prices for the entire assortment.

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Abstract—This paper assesses the relative influence of contextual drivers of voter behavior, such as economic growth, voting rules, and media consumption, vs. individual factors, such as race and education. We use individual-level panel data covering the vast majority of the U.S. voting-age population from 2008 to 2014 and track changes in movers’ behavior as they cross state lines to estimate a value-added model including voter, state, and election fixed effects, and allowing movers’ behavior to be arbitrarily different, both in levels and average trend, from non-movers’. We find that state characteristics explain about 52% of the observed cross-state variation in turnout, and voter characteristics the residual 48%. The factors most strongly correlated with state fixed effects are the availability of Election Day voter registration and no-excuse absentee voting, as well as electoral competitiveness. Education is the only variable showing a significant correlation with average voter effects.

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Abstract—While there is a rich literature of knowledge inflows into the multinational subsidiary, the literature is rooted in how subsidiaries inherit knowledge from the headquarters (HQ). In this paper we take the first step to liberate the construct of “subsidiary knowledge inheritance” from its umbilical attachment to the MNC HQ. We build on the prior theory of subsidiary absorptive capacity and argue that larger subsidiaries, characterized by greater knowledge stock and a greater fraction of local employees, could plausibly absorb more knowledge from the local host country context compared to absorbing knowledge from the HQ. We test our theoretical prediction using a novel methodology based on the classic gravity equation in economics and measures of knowledge distance. Using a custom dataset of patents filed by all global subsidiaries of the top 25 patenting U.S. multinationals, we find that the relative influence of the HQ and the host country on knowledge inflows to the subsidiary depends on subsidiary knowledge stock. Our findings show that as knowledge stock at the subsidiary grows, it absorbs more knowledge from the host country compared to the HQ. We additionally provide a stylized case study of CISCO Systems opening a “second HQ” in India to exemplify our core proposition.

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Abstract—Multiple-choice exams play a critical role in university admissions across the world. A key question is whether imposing penalties for wrong answers on these exams deters guessing from women more than men, disadvantaging female test takers. We consider data from a large-scale, high-stakes policy change that removed penalties for wrong answers on the national college entry exam in Chile. We find that the policy change significantly reduced a large gender gap in questions skipped. It also impacted gender gaps in performance, leading to increased representation of women in the top percentiles of achievement.

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Abstract—Assortment rotation—the retailing practice of changing the assortment of products offered to customers—has recently been used as a competitive advantage for both brick-and-mortar and online retailers. We focus on product categories where consumers may purchase multiple products during a season and investigate a new reason why frequent assortment rotations can be valuable to a retailer. Namely, by distributing its seasonal catalog of products over multiple assortments rotated throughout the season—as opposed to selling all products in a single, fixed assortment—the retailer effectively conceals a portion of its full product catalog from consumers, injecting uncertainty into the consumer's relative product valuations. Rationally acting consumers may respond to this additional uncertainty by purchasing more products, thereby generating additional sales for the retailer. We refer to this phenomenon as the value of concealment (VoC). We develop a model of consumer choice that is motivated by studies in the literature and show that the retailer enjoys a positive VoC under general conditions. We conduct numerical simulations to study the magnitude of the VoC and find that it can be substantial—in our simulations, retailers that switched from a fixed to a sequential assortment strategy saw a mean increase in sales of 13.5%. In contrast, we show that when consumers are forward looking, the value of concealment is context dependent; we present insights and discuss intuition regarding which product categories likely lead to positive vs. negative values of concealment.

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Abstract—How does the appearance of a new out-group affect the economic, social, and cultural integration of previous outsiders? We study this question in the context of the first Great Migration (1915–1930), when 1.5 million African Americans moved from the U.S. South to urban centers in the North, where 30 million Europeans had arrived since 1850. We test the hypothesis that black inflows led to the establishment of a binary black-white racial classification and facilitated the incorporation of—previously racially ambiguous—European immigrants into the white majority. We exploit variation induced by the interaction between 1900 settlements of southern-born blacks in northern cities and state-level outmigration from the U.S. South after 1910. Black arrivals increased both the effort exerted by immigrants to assimilate and their eventual Americanization. These average effects mask substantial heterogeneity: while initially less integrated groups (i.e., Southern and Eastern Europeans) exerted more assimilation effort, assimilation success was larger for those that were culturally closer to native whites (i.e., Western and Northern Europeans). These patterns are consistent with a framework in which perceptions of racial threat among native whites lower the barriers to the assimilation of white immigrants.

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Abstract—This paper undertakes a comprehensive analysis of alternative investment vehicles in private equity, using unexplored custodial data regarding 112 limited partners over four decades. We differentiate between alternative vehicles that are GP directed versus those where the LP has some discretion. Of the roughly 5,500 distinct investments made by the LPs in our sample, 32% of investments (17% of capital commitments) were in such alternative vehicles; the allocation increased by more than 10 percentage points over the last decade. Alternative vehicles were far more likely to be offered by larger and North America–based buyout funds. The average performance of these alternative vehicles lagged that of the GPs’ corresponding main funds. The best LP performance was among endowments, private pensions, and insurers. Finally, LPs with better past performance invested in alternative vehicles with better performance, even after conditioning on the GPs’ past records. This result suggests that bargaining between GPs and LPs leads to gradation in investment performance based on the parties’ outside options.

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Abstract—In recent years, the total spending on hosting the Olympic Games has snowballed. The 2008 Beijing Olympic Games spent $40 billion on infrastructure development, and the 2014 Sochi Winter Olympics reached $50 billion. Even when the glorious but costly Olympic Games come to an end, significant maintenance and operating costs for publicly owned large Olympic venues, which were constructed or renovated for the Games, continue to burden host cities and states for a long time afterward. Unless Olympic venues are used effectively after the Games, and can earn enough revenue to cover large ongoing costs, their owners—local governments and taxpayers—must pay off the deficits. Summer Olympics stadiums, normally built to seat over 70,000 people, are particularly at risk of becoming white elephants. This fieldwork based research and analysis revealed eight key factors to prevent Olympic sites from becoming white elephants from the viewpoints of venue sustainability and Olympic legacy: removal of specific equipment like a track after the Olympic Games; reducing capacity after the Olympic Games; continuous selective meaningful reinvestment after the Olympic Games; access to mass transit; the existence of no nearby competing venues with a large capacity; no financial burden of past debt or its accompanying psychological burden; the positive legacy from a venue's unique design and its global recognition; and an Olympics’ legacy from successful redevelopment of the surrounding area. Further, we have created a chart that we think can be used to evaluate the risk level of Olympic sites becoming white elephants soon after their Games end.

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Abstract—Why do incumbent firms frequently reject non-incremental innovations? Beyond technical, structural, or economic factors, we propose an additional factor: the degree of the top management team’s (TMT) frame flexibility, i.e., their capability to perceptually expand an innovation’s categorical boundaries and to cast the innovation as emotionally resonant with the organization’s identity, competencies, and competitive boundaries. We argue that forces of inertia generally constrict how TMTs perceive innovations but that frame flexibility can overcome these constraints, increasing the likelihood of adoption and broadening the organization’s innovation practices. We advance a theoretical model that relaxes the assumption that cognitive frames are static, showing how they become flexible via categorical positioning, and introduce a role for emotional frames that appeals to organizational sentiments and aspirations in innovation adoption.

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Abstract—While much is known about transnational climate governance, less is known about transnationalism's contributions to the realization of the United Nations Sustainable Development Goals (SDGs). This paper helps balance the literature via comparative analysis of the potential contributions of two voluntary sustainability certification programs for artisanal and small-scale gold mining (ASGM): Fairtrade International and the Alliance for Responsible Mining. Assessment of four necessary conditions for SDG contributions (goal alignment, rule strength, uptake patterns, indirect effects) suggest weak contributions to date. First, only the weakest versions of standards are being adopted, and only by miners above the poverty line prior to certification. Second, adoption levels are low, and rates of decertification almost as high as certification. Third, awareness raising among consumers and partnerships with public actors are equally weak. Yet programs do align well with the SDGs and have potential. To improve, programs should consider uniting, becoming more “producer-friendly,” and consider the role within ASGM governance systems they are best suited to play (which may be none at all). Findings contribute to debates on the merits of increasing governance fragmentation and the role of political consumption in global problem solving. The ASGM case provides lessons about the diffusion of certification to new sectors, with the aim of guiding global resources towards their most efficient and effective ends.

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Abstract—This paper probes extant theory on product diversification in the empirical realm of fair trade and eco-labeling organizations (i.e., certification organizations). While much is known about diversification in for-profit firms, less is known about the more complex choices faced by hybrid organizations that balance social and economic objectives and curate symbolic, values-based portfolios. By process-tracing original interview data from three leading certification organizations, the paper finds that certification organizations prefer to diversify into product categories with three features: high levels of fit with the organization’s current clients, campaigns, and strategies; appealing market features, defined as highly integrated, predictable, low-risk supply chains and non-luxury status; and skillful activists who deploy discourse and resources strategically. Organizational fit and market features often drive decisions, but a product lacking these can still become certified if the product activist is skillful enough. The data did not fully support hypotheses on the primacy of exogenous opportunity structures and consumer values in diversification decisions. The findings contribute to the broader literatures on institutional entrepreneurship, market categories, and social movements. They also help activists and managers appraising this business and policy tool understand its potential and limits, guiding certification’s trajectory towards the markets its best suited to serve.

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For a modular presentation of the same material, please see “Christine Lagarde (A): A French Prime Minister Calls” (HBS No. 419-017), “Christine Lagarde (B): Being a Public Servant” (HBS No. 419-018), and “Christine Lagarde (C): Managing the IMF” (HBS No. 419-019). These full-length cases describe various stages of Christine Lagarde's career. They are stand-alone cases that can also be used over several classes. The entire series, including its video products, was designed to be modular. The case covers the youth and career trajectory of Christine Lagarde across her time at Baker & McKenzie, as a minister in the government of France, and as the head of the International Monetary Fund (IMF). The case highlights the challenges and opportunities she faced during each phase of her career and how she managed them. Lagarde started her career in 1981 as a lawyer at the global law firm Baker & McKenzie, which employed approximately 2,500 lawyers across 35 countries by 1999, when she became the firm's first non-American and female chairman. In 2005, she became France's Minister for Foreign Trade in President Jacques Chirac's administration and was the EU's de facto finance minister when the financial crisis was most acute. In 2011, she was selected to head the IMF. Since 2011, Lagarde worked to build the foundation for the IMF's adaptation to the realities of the 21st century. By 2017, shortly after Lagarde began her second term as the managing director of the IMF, the world faced both opportunities and challenges as a result of the rapidly evolving, hyper-connected global economy, including deeper cross-border integration, the rise of emerging economies, technological change, and growing wealth and income inequality within countries. These interrelated dynamics were playing out alongside heightened anxiety within the populations of some major advanced economies about what these changes meant for them. The concerns manifested themselves in an inward focus, rumblings of protectionism, and questions about the worth of international cooperation and the multilateral system itself. Lagarde believed that the challenges facing the world economy warranted not less but more global cooperation. In this context, she had to determine how the IMF—as the leading advocate of global economic cooperation since its creation—could better demonstrate its effectiveness. She knew that it was a critical moment.

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This case covers formative events and influences in Christine Lagarde’s childhood and her trajectory from studying political science and law to heading the world’s largest law firm. As she prepares to transition back to practice in 2005, the new Prime Minister of France calls to offer her a ministerial position in the new Cabinet. She has to decide whether she wants to take on a role in the public sector. For coverage of her career from 2005 to 2011, see “Christine Lagarde (B): Being a Public Servant” (HBS No. 419-018). For coverage of her career from 2011 to 2018, see “Christine Lagarde (C): Managing the IMF” (HBS No. 419-019). For comprehensive coverage of her evolution and career, see “Christine Lagarde” (HBS No. 419-016).

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This case covers the career of Christine Lagarde from 2005 to 2011 after she joins the French Government. After serving several grueling years as Finance Minister during the financial crisis that started in 2007/2008, she is being considered as the next Managing Director of the International Monetary Fund (IMF). As the first female head of the IMF, she would lead a very complex, 187-member organization typically run by economists. The ability to shape better outcomes to some of the world’s thorniest problems appeals to her, but she needs to carefully consider the risks. For coverage of Christine Lagarde’s evolution from childhood to 2005, see “Christine Lagarde (A): A French Prime Minister Calls” (HBS No. 419-017). For coverage of her career from 2011 to 2018, see “Christine Lagarde (C): Managing the IMF” (HBS No. 419-019). For comprehensive coverage of her evolution and career, see “Christine Lagarde” (HBS No. 419-016).

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This case covers the career of Christine Lagarde from 2011 to 2018 as she takes the helm of a troubled multilateral organization during a time of deepening economic turmoil. As the first female leader of the International Monetary Fund (IMF), and as a non-economist, she overcomes early challenges to gain her footing with the multiple constituencies she must serve. She also focuses the IMF on “macro-critical” issues including gender, socioeconomic inequality, and climate change. In 2016, she is reelected to serve another term as Managing Director and considers how to ensure that the IMF remains relevant. For coverage of her childhood to 2005, see “Christine Lagarde (A): A French Prime Minister Calls” (HBS No. 419-017). For coverage of her career from 2005 to 2011, see “Christine Lagarde (B): Being a Public Servant” (HBS No. 419-018). For comprehensive coverage of her evolution and career, see “Christine Lagarde” (HBS No. 419-016).

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By 2016, SOS Group, the largest social enterprise group in France, was facing new challenges. In November 2015, the group had released its strategic goals for 2020. It aimed to double its turnover and headcount by that time, which would make SOS Group one of the largest social enterprise groups in Europe and in the world. Jean-Marc Borello, founder of the organization, knew SOS Group faced the choices of growing organically or through acquisition across activities, as well as in France or globally. By 2016, SOS Group already operated in 20 countries and was contemplating entering 10 new countries by 2020. It also considered entering new sectors, such as culture. While Borello thought that aggressive growth was needed in the current context, some within the group wondered if that was the right way for SOS Group to measure and scale its social impact. Compounding these issues, Borello, whose opportunistic acquisition strategy had shaped SOS Group throughout its life, was considering retirement in the coming years. Under these circumstances, how could SOS Group achieve its strategic goals, while keeping its key values intact at a time when its governance would also change?

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This note describes the major considerations and frameworks of compensation. Its audience is general managers interested in learning about their own or their employees’ compensation.

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In December 2017, Jacobs Douwe Egberts (JDE, a Dutch coffee company) made an offer to acquire OldTown Berhad (OTB), a Malaysian coffee company. Three large shareholders, representing more than half of the outstanding shares, have agreed to tender their shares, and analysts who follow OTB are recommending that investors accept the offer. The remaining shareholders must decide if the acquisition offer is reasonable and whether to tender their shares or not.

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