First Look

Abstract—This paper studies the effect of corporate and personal taxes on innovation in the United States over the 20th century. We use three new datasets: a panel of the universe of inventors who patent since 1920; a dataset of the employment, location, and patents of firms active in R&D since 1921; and a historical state-level corporate tax database since 1900, which we link to an existing database on state-level personal income taxes. Our analysis focuses on the impact of taxes on individual inventors and firms (the micro level) and on states over time (the macro level). We propose several identification strategies, all of which yield consistent results: i) OLS with fixed effects, including inventor and state-times-year fixed effects, which make use of differences between tax brackets within a state-year cell and which absorb heterogeneity and contemporaneous changes in economic conditions; ii) an instrumental variable approach, which predicts changes in an individual or firm's total tax rate with changes in the federal tax rate only; and iii) a border county strategy, which exploits tax variation across neighboring counties in different states. We find that taxes matter for innovation: higher personal and corporate income taxes negatively affect the quantity, quality, and location of inventive activity at the macro and micro levels. At the macro level, cross-state spillovers or business-stealing from one state to another are important, but do not account for all of the effect. Agglomeration effects from local innovation clusters tend to weaken responsiveness to taxation. Corporate inventors respond more strongly to taxes than their non-corporate counterparts.

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Abstract—As technology platforms have created new markets and new ways of acquiring information, economists have come to play an increasingly central role in tech companies—tackling problems such as platform design, strategy, pricing, and policy. Over the past five years, hundreds of PhD economists have accepted positions in the technology sector. In this paper, we explore the skills that PhD economists apply in tech companies, the companies that hire them, the types of problems that economists are currently working on, and the areas of academic research that have emerged in relation to these problems.

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Abstract—When innovations are successfully commercialized into new products, they can create value for both consumers and firms. When products malfunction, however, they can harm consumers and disrupt firm operations. Product failures are, therefore, likely to impact firms’ subsequent innovation activities. Using 13 years of Food and Drug Administration data, we examine the effects of firm and competitor medical device recalls on subsequent new product innovation. Recalls vary by source, proximity, and severity while innovations vary in their sophistication and novelty. We use recurrent-event accelerated failure time models to examine how product failures experienced by firms and their competitors impact subsequent major and minor innovations. We find that focal firm recalls slow minor innovation, an effect that is strongest when recalls are in the same product area as innovation activity. A one standard deviation increase in the number of proximate focal firm recalls implies more than a one-year delay in minor innovation. However, competitor firm recalls lead to acceleration in both minor and major innovative activity. The relationship between competitor recalls and minor innovation is strongest when recalls are more severe, while the relationship between competitor recalls and major innovation is strongest when recalls are proximate and more severe. Just one localized, severe competitor recall leads to a one-month reduction in time to major innovation. Our results suggest that product failures influence subsequent innovation but that their impact is dependent upon recall source, proximity, and severity. The strategic and public policy implications of these results are highlighted.

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Abstract—We examine whether centralized hiring (in this study, by the head office of a U.S. retail chain) or decentralized hiring (by store managers) leads to better employee-company matches. While centralized hiring can ensure that enough resources are invested in consistently hiring people aligned with company values, it can also neglect the unit managers’ knowledge of which individuals would best match local conditions. We use difference-in-differences analyses to examine the effects of a switch from decentralized to centralized hiring at our research site. We find that, on average, centralized hiring does not increase the quality of employee-company matches but is associated with relatively higher employee departure rates in stores where the manager is likely to be more informed than headquarters (stores that serve repeat customers, stores that serve customers demographically atypical of the chain, or stores with higher information-gathering costs for headquarters).

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Abstract—We demonstrate that data from digital platforms such as Yelp have the potential to improve our understanding of gentrification, both by providing data in close to real time (i.e., nowcasting and forecasting) and by providing additional context about how the local economy is changing. Combining Yelp and Census data, we find that gentrification, as measured by changes in the educational, age, and racial composition within a zip code, is strongly associated with increases in the numbers of grocery stores, cafes, restaurants, and bars, with little evidence of crowd-out of other categories of businesses. We also find that changes in the local business landscape is a leading indicator of housing price changes and that the entry of Starbucks (and coffee shops more generally) into a neighborhood predicts gentrification. Each additional Starbucks that enters a zip code is associated with a 0.5% increase in housing prices.

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Abstract—On June 23, 2016, 52% of UK voters opted to put their country on the path to leave the European Union by March 29, 2019. This result was a surprise to many and went against the advice of the vast majority of economic experts and business leaders. Two years later, and after a remarkable period in UK politics, key questions about the future relationship between the UK and the EU remain unresolved. Various models have been proposed; the latest one by Prime Minister May triggered the resignation of a number of key ministers. All of them struggle to deal with a fundamental tension: how to square barrier-free trade between the UK and the EU, especially across the border between Ireland and Northern Ireland, with both full policy sovereignty for the UK and adherence to the “four freedoms” at the heart of the EUs Single Market. A “no deal” Brexit by default remains an option, despite the costs to UK businesses and the wider UK economy.

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Abstract—To predict others’ behavior and make their own choices, voters and candidates can rely on information provided by polls and past election results. We isolate the impact of candidates’ rankings using an RDD in French local and parliamentary two-round elections, where up to 3 or 4 candidates can qualify for the second round. Candidates who barely ranked first in the first round are more likely to run in the second round (5.6pp), win (5.8pp), and win conditionally on running (2.9 to 5.9pp), than those who barely ranked second. The effects are even larger for ranking second instead of third (23.5, 9.9, and 6.9 to 12.2pp), and ranking third instead of fourth also increases candidates’ second round outcomes (14.6, 2.2, and 3.0 to 5.0pp). These results are largest when the candidates have the same political orientation (making coordination relatively more important and desirable), but they remain strong when two candidates only qualify for the second round (and there is no need for coordination), suggesting that bandwagon effect is an important driver of voter behavior and election outcomes.

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No abstract available.

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Late in 2017, CEO Ryan Williams and his team debated whether Cadre should become not only a technology-enabled investment manager, but also an online trading exchange providing high levels of liquidity for investors in commercial real estate (CRE) equity. Cadre was a pioneering New York City–based startup, offering investors equity in individual CRE properties that its investment team had sourced and vetted. Traditional private equity (PE) funds required investors in CRE equity to accept an entire portfolio of properties, while imposing high fees and holding periods of up to 10 years. Cadre allowed investors both deal-by-deal selectivity and managed accounts of Cadre properties, at fee levels substantially lower than those charged by PE funds.

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No abstract available.

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No abstract available.

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Since its founding eight years earlier, Hidrovias do Brasil (“Hidrovias”), an integrated logistics provider serving corporate customers exporting products from South America via the Atlantic Ocean, had grown to 900 employees and $253 million in annual revenues. Hidrovias was founded by the Brazilian private equity firm, Pátria Investments, who had built the business from the ground up, forging and nurturing relationships with customers, investors, government entities, and suppliers. As Bruno Serapiao, Hidrovias’s CEO pondered next steps for the company, he considered the following questions: What had been the key drivers of Hidrovias’s success to date? What were the major challenges? And, what was the best path for the company going forward?

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This case is a setting to discuss “loan to own” investment strategy that is often pursued by distressed investors. The aftermath of the 2007 financial crisis left many companies with poor liquidity and limited ability to obtain credit. One of these companies was Pierre Foods, a producer and distributor of processed and precooked protein products that had experienced several years of promising sales growth and held a leading market position. Despite this, 2007 saw Pierre foods adversely affected by a spike in production costs and unsustainably high leverage. This made Pierre Foods an attractive opportunity for Oaktree Capital Management, allowing them to employ its strategy of investing in distressed debt securities with the goal of leading a restructuring during which their debt investment would be converted into a controlling equity stake. The challenge of executing “loan to own” strategy is being able to identify ahead of the restructuring the debt layer that stands to become equity (the so called “fulcrum security”). Overall, this case can be used to understand unique elements of a representative distressed investment. It can also be used as a platform for discussing sources of value and risks associated with distressed investing.

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In early 2017, HCA Holdings, an investor-owned hospital management company, faced a strategically important capital allocation decision. After the exit of its private equity sponsors in 2016, HCA had to determine how best to allocate its substantial annual free cash flows among several competing alternatives. Equity analysts and some mutual fund investors were clamoring for the company to initiate regular quarterly dividends, while some other hedge fund investors were eager to see more share repurchases. Other choices being advocated by various parties included reducing leverage to improve HCA's credit rating to investment grade, spurring growth by initiating a major acquisition program or reinvesting heavily in existing markets to enhance HCA's strong competitive position. These choices had to be made in the face of uncertainty about the future of healthcare regulation and tax policy following the 2016 U.S. presidential election and in the context of its closest publicly traded peers struggling with heavy debt burdens. HCA's capital allocation choices would be crucial to its ability to provide high quality health care to patients, implement its corporate strategy, and deliver value to shareholders.

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Two partners acquired MC Tool in October 2007 for $5 million. The company was a machine shop that manufactured parts for a wide variety of applications in the energy, automotive, and industrial equipment industries. In their first year of ownership, the partners focused on improving operations and enhancing sales with impressive results: sales doubled and EBTIDA increased by over 40%. But the "Great Recession" had an immediate impact in the fall of 2008 as customers cancelled orders and new sales became scarce. MC Tool's core business was cyclical and risky. The partners were considering transforming the business toward manufacturing more precise parts that would be less cyclical and less risky.

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