First Look

September 20, 2016

Among the highlights included in new research papers, case studies, articles, and books released this week by Harvard Business School faculty:

Uncovering racial discrimination in the sharing economy

In an experiment on Airbnb, researchers find that applications from guests with distinctively African-American names are 16 percent less likely to be accepted relative to applicants with distinctively white names. Written by Benjamin G. Edelman, Michael Luca, and Daniel Svirsky, the report is scheduled in a forthcoming issue of American Economic Journal: Applied Economics. Racial Discrimination in the Sharing Economy: Evidence from a Field Experiment.

How to redevelop a 15th century palace

A new case study follows a development team considering options for redeveloping an iconic palace in Florence, Italy. “The possibilities included turning the upper floors into office space, hotel rooms, condominiums, or a private residence club, a new concept that was quickly gaining popularity in the US but still largely untested in Europe,” describe case authors Sid Yog, Arthur I. Segel, and Ricardo Andrade. The Redevelopment of Palazzo Tornabuoni (A).

Building trust in online marketplaces

“One central challenge faced by designers of online marketplaces is how to build enough trust to facilitate transactions between strangers,” according to the author of the new working paper Designing Online Marketplaces: Trust and Reputation Mechanisms (A). Michael Luca provides an “economist’s toolkit” focusing on trust and reputation mechanisms.

A complete list of new research and publications from Harvard Business School faculty follows.

— Sean Silverthorne
  • in press
  • More Than Managing: The Relentless Pursuit of Effective Jewish Leadership

Nudging as a Tool for Leaders

By: Bazerman, Max

Abstract—Jewish organizational life is inundated with publications on organizational change and effective leadership, but from mutually exclusive sources: business and organizational studies, on the one hand, and Jewish studies, on the other. One addresses leadership but not the religious soul. The other speaks from its Jewish soul but is only secondarily engaged in the study of leadership. More Than Managing thoughtfully combines both to be immediately applicable to Jewish organizational life. Inspired by 30 years of pioneering work by retail giant Leslie Wexner’s philanthropic focus on Jewish leadership, More Than Managing brings together diverse and remarkable thinkers to address challenges facing communal life and the skills and strategies demanded by them. The book features diverse strategies for 21st-century leadership, critical lessons for organizational and communal success, and the questions vital to our changing and challenging times. Questions include how leaders can overcome the mediocrity of bureaucratic organizations; how organizations can harness volunteer leadership for transformative change; and how professionals can sustain core values in the midst of daily routine. The diverse array of writers with international reputations in their fields makes it the only book of its kind.

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  • forthcoming
  • American Economic Journal: Applied Economics

Racial Discrimination in the Sharing Economy: Evidence from a Field Experiment

By: Edelman, Benjamin G., Michael Luca, and Daniel Svirsky

Abstract—In an experiment on Airbnb, we find that applications from guests with distinctively African-American names are 16% less likely to be accepted relative to identical guests with distinctively White names. Discrimination occurs among landlords of all sizes, including small landlords sharing the property and larger landlords with multiple properties. It is most pronounced among hosts who have never had an African-American guest, suggesting only a subset of hosts discriminate. While rental markets have achieved significant reductions in discrimination in recent decades, our results suggest that Airbnb’s current design choices facilitate discrimination and raise the possibility of erasing some of these civil rights gains.

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  • Summer 2016
  • Journal of Economic Perspectives

Motivated Bayesians: Feeling Moral While Acting Egoistically

By: Gino, Francesca, Michael I. Norton, and Roberto A. Weber

Abstract—A growing body of research yields ample evidence that individuals’ behavior often reflects an apparent concern for moral considerations. Using a broad definition of morality—to include varied non-egoistic motivations such as fairness, honesty, and efficiency as possible notions of “right” and “good”—economic research indicates that people’s behavior often reflects such motives (Fehr and Schmidt 2006; Abeler, Becker, and Falk 2014). Perhaps this should not come as a surprise to economists, given that Adam Smith prominently highlighted such motivations in The Theory of Moral Sentiments in 1759—17 years before The Wealth of Nations.

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  • forthcoming
  • Journal of Oncology Practice

Communicating Value in Healthcare Using Radar Charts: A Case Study of Prostate Cancer

By: Thaker, Nikhil G., Tariq N. Ali, Michael E. Porter, Thomas W. Feeley, Robert S. Kaplan, and Steven J. Frank

Abstract—Question: Can we create a value-based tool to visualize the outcomes and cost of various treatments that could facilitate patient-centered decision making? Summary Answer: We developed a standardized value framework by using radar charts to visualize and communicate a wide range of patient outcomes and cost for three forms of prostate cancer treatment.

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Firm Selection and Corporate Cash Holdings

By: Begenau, Juliane, and Berardino Palazzo

Abstract—The gradual replacement of traditional U.S. public companies by more R&D-intensive firms is key to understanding the secular trend in average cash holdings. Over the last 35 years, an increasing share of R&D-intensive firms has entered the stock market with progressively higher cash balances. This positive entry effect dominates the negative within-firm effect post IPO. We build a firm industry model with endogenous entry to quantify the importance of two competing selection mechanisms: an increasing share of R&D-intensive firms in the overall economy and more favorable IPO conditions. Only the combination of both mechanisms successfully generates a sizable secular increase.

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Can Staggered Boards Improve Value? Evidence from the Massachusetts Natural Experiment

By: Daines, Robert, Shelley Xin Li, and Charles CY Wang

Abstract—We study the effect of staggered boards on long-run firm value, using a natural experiment: a 1990 law that imposed a staggered board on all firms incorporated in Massachusetts. We find a significant and positive average increase in Tobin's Q among the Massachusetts treated firms, suggesting that staggered boards can be beneficial for early-life-cycle firms, which exhibit greater information asymmetries between insiders and investors. These results are validated using a larger sample of firms from the Investor Responsibility Research Center. In exploring possible channels for these effects, we find that the effects are stronger among innovating Massachusetts firms, particularly those facing greater Wall Street scrutiny. The evidence is consistent with staggered boards improving managers' incentives to make long-term investments.

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Sovereign Debt Portfolios, Bond Risks, and the Credibility of Monetary Policy

By: Du, Wenxin, Carolin E. Pflueger, and Jesse Schreger

Abstract—Nominal debt provides consumption-smoothing benefits if it can be inflated away during recessions. However, we document empirically that countries with more countercyclical inflation, where nominal debt provides better consumption smoothing, issue more foreign-currency debt. We propose that monetary policy credibility explains the currency composition of sovereign debt and nominal bond risks in the presence of risk-averse investors. In our model, low credibility governments inflate during recessions, generating excessively countercyclical inflation in addition to the standard inflationary bias. With countercyclical inflation, investors require risk premia on nominal debt, making nominal debt issuance costly for low credibility governments. We provide empirical support for this mechanism, showing that countries with higher nominal bond-stock betas have significantly larger nominal bond risk premia and borrow less in local currency.

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Abstract—Since its launch in 2007, Android has become the dominant mobile device operating system worldwide. In light of this commercial success and certain disputed business practices, Android has come under substantial attention from competition authorities. We present key aspects of Google’s strategy in mobile, focusing on Android-related practices that may have exclusionary effects. We then assess Google’s practices under competition law and, where appropriate, suggest remedies to right the violations we uncover.

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Abstract—Online marketplaces have proliferated over the past decade, creating new markets where none existed. By reducing transaction costs, online marketplaces facilitate transactions that otherwise would not have occurred and enable easier entry of small sellers. One central challenge faced by designers of online marketplaces is how to build enough trust to facilitate transactions between strangers. This paper provides an economist’s toolkit for designing online marketplaces, focusing on trust and reputation mechanisms.

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No abstract available.

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  • Harvard Business School Case 517-017

Singapore Airlines: Premium Goes Multi-Brand

Singapore Airlines had long been considered the gold standard for its innovative customer service. However, the company was faced with new sources of competition, from the rapid growth of Southeast Asian low-cost carriers on the one hand, to the expansion of premium Gulf carriers on the other. The company, therefore, decided to launch a low-cost airline of its own called Scoot, the fourth brand in its portfolio. Now CEO Goh Choon Phong must consider how to grow all four airlines without cannibalizing its own market share or diluting the sterling brand of the parent airline.

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Israel enjoyed the highest concentration of technology start-ups in the world per capita. Despite regional instability, the country maintained strong economic growth and was considered a high-tech powerhouse. But not all Israelis benefited. Between the 1980s and 2010s, income distribution had widened. By 2015, 20 business groups—nearly all family owned—controlled one in four listed companies through corporate pyramids. Public anger over the high cost of living, which many believed was due to a lack of competition, led to a series of protests. Some academics and members of the Knesset (Parliament) called for reforms to limit the activities of corporate pyramids.

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  • Harvard Business School Case 416-003

Big Spaceship: The Evolving Agency

This case discusses the evolution of Big Spaceship, an advertising and marketing agency, from a product-focused business to a relationship-oriented one as clients seek deeper and more meaningful long-term partnerships. The 15-year-old company had already evolved multiple times over its history as new technological platforms and services emerged to change the way people communicated and received information, and as the broader advertising industry changed. New and more aggressive competitors were emerging, and the industry was quickly consolidating. Big Spaceship had adjusted its strategy, organizational structure, and human capital accordingly. The company’s founder and CEO, Michael Lebowitz, now wondered what he needed to do to keep his company competitive in the years to come. Had he found the right way to organize his people and structure the organization following the transition from project-based to relationship-based work, or were further changes necessary? How could he keep people engaged as the nature of the work evolved in some instances to become more predictable? What new systems and processes were needed to ensure a steady output of high quality work? Lebowitz was proud that the organization had retained a distinctly different feel from, and approach to work than, traditional advertising agencies, and Lebowitz and his colleagues wanted to maintain these intangible elements as the company evolved. But was this incompatible with his business goals?

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  • Harvard Business School Case 816-072

Neurotrack and the Alzheimer's Puzzle

Elli Kaplan founded Neurotrack in 2012 with a breakthrough noninvasive cognitive diagnostics test that will detect Alzheimer's disease in its earliest pre-symptomatic stages. While the company has gained great traction in the three years since it was started, with no therapeutic product available in the foreseeable future, Kaplan is considering whether it is time to change the company's business model.

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The case describes the nature of juvenile recidivism in Massachusetts and explores the potential structure of a privately funded, publicly guaranteed pay-for-success contract.

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This case study was prepared as part of a research project on Culture, Conduct, and Governance in Financial Firms. The objective of this project is to compare and contrast the efforts of U.S. and European banks to induce changes in organization culture in the aftermath of the 2008 financial crisis. Since this crisis, wide ranging regulations aimed at improving risk management and bankers’ ethics have been promulgated in the United States and in Europe, and more rules are currently under discussion. Academics, regulators, and public officials have proposed many of these measures. At the same time, banks have been implementing their own company-tailored culture change programs. This project and the Morgan Stanley case in particular describes these change programs and banks’ experience with them so far—with particular attention being paid to how banks are using compensation and other incentives to change and reinforce organization culture and conduct. One of the central questions of this case is whether or not the voluntary efforts of Morgan Stanley to strengthen their conduct and culture will prove to be “effective” or “adequate” according to bank regulators and the general public. This case lends itself to analysis and discussion in a variety of related graduate-level courses dealing with the management of financial institutions, financial regulation, corporate governance, organization behavior, and corporate accountability and ethics.

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  • Harvard Business School Case 216-069

The Redevelopment of Palazzo Tornabuoni (A)

In the spring of 2004, Byrne Murphy and his partners at Fingen Group discussed options to redevelop Palazzo Tornabuoni, an iconic 15th century palace in the heart of Florence, Italy. The possibilities included turning the upper floors into office space, hotel rooms, condominiums, or a private residence club, a new concept that was quickly gaining popularity in the U.S. but still largely untested in Europe. While they factored the economics and the risks involved in each of the options, they wondered which would preserve the property's historical heritage and still deliver attractive returns.

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  • Harvard Business School Case 216-070

The Redevelopment of Palazzo Tornabuoni (B)

On December 16, 2010, Byrne Murphy received a call from his Italian partner at Fingen Group. The recently renovated Palazzo Tornabuoni, an iconic 15th century palace in the heart of Florence, Italy, had been seized by the local police. While Murphy tries to understand the reasons behind the seizure and figures out a strategy to accommodate guests flying in for holidays, he wonders if he and partners have chosen the right redevelopment option for the palace.

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