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The State and Fate of Community Banking

February 26, 2015 Comments off

The State and Fate of Community Banking
Source: Harvard Kennedy School, Mossavar-Rahmani Center for Business & Government

This working paper focuses on the plight of community banks in the United States. It begins by examining different definitions of what constitutes a community bank, and goes on to review what makes these institutions unique and distinguishes them from larger regional or national peers. Our assessment of Federal Deposit Insurance Corporation data finds that community banks service a disproportionately large amount of key segments of the U.S. commercial bank lending market – specifically, agricultural, residential mortgage, and small business loans. However, community banks’ share of U.S. banking assets and lending markets has fallen from over 40 percent in 1994 to around 20 percent today. Interestingly, we find that community banks emerged from the financial crisis with a market share 6 percent lower, but since the second quarter of 2010 – around the time of the passage of the Dodd-Frank Act – their share of U.S. commercial banking assets has declined at a rate almost double that between the second quarters of 2006 and 2010. Particularly troubling is community banks’ declining market share in several key lending markets, their decline in small business lending volume, and the disproportionate losses being realized by particularly small community banks. We review studies on the impact of regulation, consumer trends and other factors on community banks, and examine the consequences of consolidation on U.S. lending markets. We conclude with a discussion of policies that could promote a more competitive and robust banking sector.

The Politics of Selecting the Bench from the Bar: The Legal Profession and Partisan Incentives to Politicize the Judiciary

February 4, 2015 Comments off

The Politics of Selecting the Bench from the Bar: The Legal Profession and Partisan Incentives to Politicize the Judiciary
Source: Harvard University

The American judiciary, like other branches of government, has increasingly come under attack as both ideologically driven and politicized. Using an original dataset that captures the ideological positioning of nearly half a million judges and lawyers who have made campaign contributions, we present empirical evidence showing politicization through various tiers of judicial hierarchy. Specifically, we show that, the higher the court, the more conservative and more polarized it becomes, in contrast with the broader population of attorneys, who tend to be liberal. These findings suggest that political actors not only rely on ideology in the selection of judges onto courts, but that they do so strategically, prioritizing higher courts. As explanation for these findings, we present a model of judicial politicization that formulates the ideological composition of the judiciary as a function of the ideological distributions of attorneys and politicians. To our knowledge, our study is the first to provide a direct ideological comparison across tiers of the judiciary and between judges and lawyers, and also the first to document how — and why — American courts are politicized.

The Air War versus The Ground Game: An Analysis of Multi-Channel Marketing in US Presidential Elections

January 30, 2015 Comments off

The Air War versus The Ground Game: An Analysis of Multi-Channel Marketing in US Presidential Elections
Source: Harvard Business School Working Papers

Firms increasingly use both mass-media advertising and targeted personal selling to successfully promote products and brands in the marketplace. In this study, we jointly examine the effect of mass-media advertising and personal selling in the context of U.S. presidential elections, where the former is referred to as the “air war” and the latter the “ground game.” Specifically, we look at how different types of advertising―candidates’ own ads vs. outside ads―and personal selling―in the form of utilizing field offices―affect voter preferences. Further, we ask how these various campaign activities affect the outcome of elections through their diverse effects on various types of people. We find that personal selling has a stronger effect among partisan voters, while candidates’ own advertising is better received by non-partisans. We also find that personal selling accounted for the Democratic victories in the 2008 and 2012 elections and that advertising was critical only in a close election, such as the one in 2004. Interestingly, had the Democrats received more outside advertising in 2004, the election would have ended up in a 269-269 tie. Our findings generate insights on how to allocate resources across and within channels.

Seesaws and Social Security Benefits Indexing

January 29, 2015 Comments off

Seesaws and Social Security Benefits Indexing
Source: Harvard Business School Working Papers

The price indexation of Social Security benefit payments has emerged in recent years as a flashpoint of debate in the United States. I characterize the direct effects that changes in that price index would have on retirees who differ in their initial wealth at retirement and mortality rates after retirement. I propose a simple but flexible theoretical framework that converts benefits reform first into changes to retirees’ consumption paths and then into a net effect on social welfare. I calibrate that framework using recently produced data on Social Security beneficiaries by lifetime income decile and both existing and new survey evidence on the normative priorities Americans have for Social Security. The results suggest that the value retirees place on protection against longevity risk is an important caveat to the widespread enthusiasm for a switch to a slower-growing price index such as the chained CPI-U.

The Decoupling Effect of Digital Disruptors

January 7, 2015 Comments off

The Decoupling Effect of Digital Disruptors (PDF)
Source: Harvard Business School Working Papers

While the Internet’s first wave of disruption was marked by the unbundling of digital content, the second wave, decoupling, promises to generate more casualties in an even broader array of industries. Digital start-ups are disrupting traditional businesses by inserting themselves at every juncture in the customer’s consumption chain. By decoupling-the act of separating activities that people are used to co-consuming-new digital businesses are disrupting retailing, telecom, and other industries. Decoupling allows consumers to benefit from the value created at a lower cost or effort compared to what is delivered by traditional businesses. For those companies, the only solutions are to either recouple activities or rebalance to create and capture value (i.e., revenues) from both activities separately. Here, digital technologies can be seen as an instrument that will both disrupt traditional business models and potentially preserve them.

Leveraging Market Power Through Tying: Does Google Behave Anti-Competitively?

December 23, 2014 Comments off

Leveraging Market Power Through Tying: Does Google Behave Anti-Competitively? (PDF)
Source: Harvard Business School Working Papers

I examine Google’s pattern and practice of tying to leverage its dominance into new sectors. In particular, I show how Google used these tactics to enter numerous markets, to compel usage of its services, and often to dominate competing offerings. I explore the technical and commercial implementations of these practices and then identify their effects on competition. I conclude that Google’s tying tactics are suspect under antitrust law.

Measuring Illegal and Legal Corruption in American States: Some Results from the Edmond J. Safra Center for Ethics Corruption in America Survey

December 16, 2014 Comments off

Measuring Illegal and Legal Corruption in American States: Some Results from the Edmond J. Safra Center for Ethics Corruption in America Survey
Source: Harvard University (Edmond J. Safra Center for Ethics)

Although corruption is not endemic in America as it is in several other countries, it does exist. According to the Justice Department, in the last two decades more than 20,000 public officials and private individuals were convicted for crimes related to corruption and more than 5,000 are awaiting trial, the overwhelming majority of cases having originated in state and local governments.1 Understanding the causes and the consequences of corruption and designing the policies in the fight against it starts with measuring corruption itself. How do we measure corruption, an activity that requires secrecy? The most commonly used measure of corruption in American states comes from the Justice Department’s “Report to Congress on the Activities and Operations of the Public Integrity Section.” These data cover a broad range of crimes from election fraud to wire fraud. The measure, based on the Justice Department data, suffers from several significant problems, however.

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