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Price Coherence and Adverse Intermediation

April 23, 2014 Comments off

Price Coherence and Adverse Intermediation
Source: Harvard Business School Working Papers (via SSRN)

Suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary’s technology. We develop a model to show that the intermediary will want to restrict sellers from charging buyers more for transactions it intermediates. We show that this restriction can reduce consumer surplus and welfare, sometimes to such an extent that the existence of the intermediary can be harmful. Specifically, lower consumer surplus and welfare result from inflated retail prices, over-investment in providing benefits to buyers, and excessive adoption of the intermediaries’ services. Competition among intermediaries intensifies these problems by increasing the magnitude of their effects and broadening the circumstances in which they arise. We show similar results arise when intermediaries provide matching benefits, namely recommendations of sellers to buy from. We discuss applications to travel reservation systems, payment card systems, marketplaces, rebate services, search engine advertising, and various types of brokers and agencies.

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Poverty and Crime: Evidence from Rainfall and Trade Shocks in India

April 21, 2014 Comments off

Poverty and Crime: Evidence from Rainfall and Trade Shocks in India
Source: Harvard Business School Working Papers

Does poverty lead to crime? We shed light on this question using two independent and exogenous shocks to household income in rural India: the dramatic reduction in import tariffs in the early 1990s and rainfall variations. We find that trade shocks, previously shown to raise relative poverty, also increased the incidence of violent crimes and property crimes. The relationship between trade shocks and crime is similar to the observed relationship between rainfall shocks and crime. Our results thus identify a causal effect of poverty on crime. They also lend credence to a large literature on the effects of weather shocks on crime and conflict, which has usually assumed that the income channel is the most relevant one.

Stepping Stone, Stopping Point, or Slippery Slope? Negotiating the Next Iran Deal

April 21, 2014 Comments off

Stepping Stone, Stopping Point, or Slippery Slope? Negotiating the Next Iran Deal
Source: Harvard Business School Working Papers

The November 2013 “interim” nuclear deal between Iran and the “P5 1” — the United States, Russia, China, Britain, France, and Germany — raises challenging questions. Will the initial deal function as a stepping stone toward a more comprehensive deal? Or will it drift into becoming a stopping point that leaves Iran dangerously close to nuclear weapons capability with the sanctions regime in decline? Or will it devolve to a slippery slope that would end up requiring a painful choice for key players between either acquiescing in a nuclear-capable Iran or attacking Iran’s nuclear facilities? With the Iran and the P5 1 each splintered into contending factions, a successful stepping stone strategy requires converting enough “persuadable skeptics” on each side to forge a “winning coalition” on behalf of the a more comprehensive nuclear deal. This supportive group must be strong enough to overcome the potent “blocking coalition” that will oppose virtually any larger, next-stage agreement. The best chance for the interim accord to become a stepping stone to a more valuable deal calls for a two-prong negotiating strategy with both value-enhancing and cost-imposing elements. The first prong of this strategy should strive to craft the most valuable possible next deal that credibly offers Iran a range of benefits, not limited to sanctions relief, that are greater and much more salient than those available from the interim agreement. The second prong should significantly worsen the consequences of failing to reach the next nuclear deal by a strong public U.S. Presidential commitment to sign a bill, prenegotiated with the Congress and P5 1 allies, imposing enhanced sanctions if negotiations toward an acceptable, but relatively narrow, agreement denying Iran an “exercisable nuclear option” do not succeed by the reasonable but firm deadline no later than twelve months from the start of the interim talks.

Facts and Figuring: An Experimental Investigation of Network Structure and Performance in Information and Solution Spaces

April 18, 2014 Comments off

Facts and Figuring: An Experimental Investigation of Network Structure and Performance in Information and Solution Spaces
Source: Harvard Business School Working Papers

Using data from a novel laboratory experiment on complex problem solving in which we varied the network structure of 16-person organizations, we investigate how an organization’s network structure shapes performance in problem-solving tasks. Problem solving, we argue, involves both search for information and search for solutions. Our results show that the effect of network structure is opposite for these two important and complementary forms of search. Dense clustering encourages members of a network to generate more diverse information but discourages them from generating diverse theories: in the language of March (1991), clustering promotes exploration in information space but decreases exploration in solution space. Previous research, generally focusing on only one of those two spaces at a time, has produced inconsistent conclusions about the value of network clustering. By adopting an experimental platform on which information was measured separately from solutions, we were able to reconcile past contradictions and clarify the effects of network clustering on problem-solving performance. The finding both provides a sharper tool for structuring organizations for knowledge work and reveals the challenges inherent in manipulating network structure to enhance performance, as the communication structure that helps one antecedent of successful problem solving may harm the other.

Information and Incentives in Online Affiliate Marketing

April 10, 2014 Comments off

Information and Incentives in Online Affiliate Marketing (PDF)
Source: Harvard Business School Working Papers

We examine online affiliate marketing programs in which merchants oversee thousands of affiliates they have never met. Some merchants hire outside specialists to set and enforce policies for affiliates, while other merchants ask their ordinary marketing staff to perform these functions. For clear violations of applicable rules, we find that outside specialists are most effective at excluding the responsible affiliates, which we interpret as a benefit of specialization. However, in-house staff are more successful at identifying and excluding affiliates whose practices are viewed as “borderline” (albeit still contrary to merchants’ interests), foregoing the efficiencies of specialization in favor of the better incentives of a company’s staff. We consider the implications for marketing of online affiliate programs and for online marketing more generally.

Speaking of Corporate Social Responsibility

March 24, 2014 Comments off

Speaking of Corporate Social Responsibility
Source: Harvard Business School Working Papers

We argue that the language spoken by corporate decision makers influences their firms’ social responsibility and sustainability practices. Linguists suggest that obligatory future-time-reference (FTR) in a language reduces the psychological importance of the future. Prior research has shown that speakers of strong FTR languages (such as English, French, and Spanish) exhibit less future-oriented behavior (Chen, 2013). Yet, research has not established how this mechanism may affect the future-oriented activities of corporations. We theorize that companies with strong-FTR languages as their official/working language would have less of a future orientation and so perform worse in future-oriented activities such as corporate social responsibility (CSR) compared to those in weak-FTR language environments. Examining thousands of global companies across 59 countries from 1999 to 2011, we find support for our theory and further that the negative association between FTR and CSR performance is weaker for firms that have greater exposure to diverse global languages as a result of (a) being headquartered in countries with a higher degree of globalization, (b) having a higher degree of internationalization, and (c) having a CEO with more international experience. Our results suggest that language use by corporations is a key cultural variable that is a strong predictor of CSR and sustainability.

Return Migration and Geography of Innovation in MNEs: A Natural Experiment of On-the-Job Learning of Knowledge Production by Local Workers Reporting to Return Migrants

March 20, 2014 Comments off

Return Migration and Geography of Innovation in MNEs: A Natural Experiment of On-the-Job Learning of Knowledge Production by Local Workers Reporting to Return Migrants
Source: Harvard Business School Working Papers

I study whether return migrants and their direct reports facilitate knowledge production and transfer across borders for multinationals. Using unique personnel and patenting data for 1,315 inventors at an emerging market R&D center for a Fortune 50 technology firm, I exploit a natural experiment where the assignment of managers for newly hired college graduates is mandated by rigid HR rules and is uncorrelated to observable characteristics of the graduates. Given this assignment protocol, I find that local employees who report to return migrants file disproportionately more US patents. I also find evidence that return migration facilitates knowledge transfer across borders.

The Atlas of Economic Complexity

March 14, 2014 Comments off

The Atlas of Economic Complexity
Source: Harvard Center for International Development

The Atlas online is a powerful interactive tool that enables users to visualize a country’s total trade, track how these dynamics change over time and explore growth opportunities for more than a hundred countries worldwide.

The Atlas is used by investors, entrepreneurs, policymakers, students and the general public to better understand the competitive landscape of countries around the globe. For any given country, The Atlas shows which products are produced and exported; The Atlas can then use this information to suggest products a country could begin manufacturing in order to fuel economic growth. As a dynamic resource, The Atlas is continually evolving with new data and features to help analyze economic growth and development.

The Atlas can answer questions such as:

  • What does a country import and export?
  • How has its trade evolved over time?
  • What are the drivers of export growth?
  • Which new industries are likely to emerge in a given geography? Which are likely to disappear?
  • What are the GDP growth prospects of a given country in the next 5-10 years, based on its productive capabilities?

BYOB: How Bringing your Own Shopping Bags Leads to Treating Yourself, and the Environment

March 3, 2014 Comments off

BYOB: How Bringing your Own Shopping Bags Leads to Treating Yourself, and the Environment (PDF)
Source: Harvard Business School Working Papers

As concerns about climate change and resource availability become more central in public discourse, using reusable grocery bags has been strongly promoted as an environmentally and socially conscious virtue. In parallel, firms have joined policy makers in using a variety of initiatives to reduce the use of plastic bags. However, little is known about how adopting reusable bags might alter consumers’ in-store behavior. Using scanner panel data from a single California location of a major grocery chain, and completely controlling for consumer heterogeneity, we demonstrate that bringing your own bags simultaneously increases your purchases of environmentally conscious and indul gent (hedonic) items. Supporting these effects, we use experimental methods to demonstrate that participants who imag ned shopping with their own bags are more likely to spontaneously consider purchasing chips or dessert items, and indicate relatively higher willingness to pay for foods in these categories, as well as for organic foods. Furthermore, we show that the impact on organic and indulgent items is dissociable in a manner dependent on the consumers’ motivatio n for bringing bags. These findings have implications for decisions related to product pricing, placement and assortment, store layout, and the choice of strategies to increase the use of reusable bags.

The Diseconomies of Queue Pooling: An Empirical Investigation of Emergency Department Length of Stay

February 28, 2014 Comments off

The Diseconomies of Queue Pooling: An Empirical Investigation of Emergency Department Length of Stay
Source: Harvard Business School Working Paper

We conduct an empirical investigation of the impact of two different queue management systems on throughput times. Using an Emergency Department’s (ED) patient-level data (N = 231,081) from 2007 to 2010, we find that patients’ lengths of stay (LOS) were longer when physicians were assigned patients under a pooled queuing system, compared to when each physician operated under a dedicated queuing system. The dedicated queuing system resulted in a 10 percent decrease in LOS-a 32-minute reduction in LOS for an average patient of medium severity in this ED. We propose that the dedicated queuing system yielded shorter throughput times because it provided physicians with greater ability and incentive to manage their patients’ flow through the ED from arrival to discharge. Consistent with social loafing theory, our analysis shows that patients were treated and discharged at a faster rate in the dedicated queuing system than in the pooled queuing system. We conduct additional analyses to rule out alternate explanations, such as stinting on care and decreased quality of care. Our paper has implications for health care organizations and others seeking to reduce throughput time, resource utilization, and costs.

Digital Discrimination: The Case of Airbnb.com

February 26, 2014 Comments off

Digital Discrimination: The Case of Airbnb.com
Source: Harvard Business School Working Papers

Online marketplaces often contain information not only about products, but also about the people selling the products. In an effort to facilitate trust, many platforms encourage sellers to provide personal profiles and even to post pictures of themselves. However, these features may also facilitate discrimination based on sellers’ race, gender, age, or other aspects of appearance. In this paper, we test for racial discrimination against landlords in the online rental marketplace Airbnb.com. Using a new data set combining pictures of all New York City landlords on Airbnb with their rental prices and information about quality of the rentals, we show that non-black hosts charge approximately 12% more than black hosts for the equivalent rental. These effects are robust when controlling for all information visible in the Airbnb marketplace. These findings highlight the prevalence of discrimination in online marketplaces, suggesting an important unintended consequence of a seemingly routine mechanism for building trust.

From Crowds to Collaborators: Initiating Effort and Catalyzing Interactions Among Online Creative Workers

February 24, 2014 Comments off

From Crowds to Collaborators: Initiating Effort and Catalyzing Interactions Among Online Creative Workers
Source: Harvard Business School Working Paper

Online collaborative platforms have emerged as a complementary approach to traditional organizations for coordinating the collective efforts of creative workers. However, it is surprising that they result in any productive output as individuals often work without direct monetary incentives while collaborating with unknown others. In this paper, we distinguish the conditions necessary for eliciting effort from those affecting the quality of interdependent teamwork. We consider the role of incentives versus social processes in catalyzing collaboration. We test our hypotheses using a unique data set of 260 individuals randomly assigned to 52 teams tasked with developing working solutions to a complex innovation problem over 10 days, with varying monetary incentives. We find that levels of effort are driven by cash incentives and the presence of other interacting teammates. The level of collaboration, by contrast, was not sensitive to cash incentives. Instead, individuals increased their communication if teammates were also actively participating. Additionally, team performance is uniquely driven by the level of emergent interdependence, as indexed by the diversity of topics discussed and the temporal coordination of activity in short focused time periods. Our results contribute to the literature on how alternative organizational forms can be designed to solve complex innovation tasks.

Management Practices, Relational Contracts, and the Decline of General Motors

February 20, 2014 Comments off

Management Practices, Relational Contracts, and the Decline of General Motors
Source: Harvard Business School Working Paper

General Motors was once regarded as one of the best managed and most successful firms in the world, but between 1980 and 2009 its share of the U.S. market fell from 62.6% to 19.8%, and in 2009 the firm went bankrupt. In this paper we argue that the conventional explanation for this decline-namely high legacy labor and health care costs-is seriously incomplete, and that GM’s share collapsed for many of the same reasons that many of the other highly successful American firms of the 50s, 60s, and 70s were forced from the market, including a failure to understand the nature of the competition they faced and an inability to respond effectively once they did. We focus particularly on the problems GM encountered in developing the relational contracts essential to modern design and manufacturing. We discuss a number of possible causes for these difficulties: including GM’s historical practice of treating both its suppliers and its blue collar workforce as homogeneous, interchangeable entities, and its view that expertise could be partitioned so that there was minimal overlap of knowledge amongst functions or levels in the organizational hierarchy and decisions could be made using well-defined financial criteria. We suggest that this dynamic may have important implications for our understanding of the role of management in the modern, knowledge-based firm, and for the potential revival of manufacturing in the United States.

Standard-Essential Patents

January 27, 2014 Comments off

Standard-Essential Patents (PDF)
Source: Harvard Business School Working Papers

A major policy issue in standard setting is that patents that are ex-ante not that important may, by being included into the standard, become standard-essential patents (SEPs). In an attempt to curb the monopoly power that they create, most standard-setting organizations require the owners of patents covered by the standard to make a loose commitment to grant licenses on reasonable terms. Such commitments unsurprisingly are conducive to intense litigation activity. This paper builds a framework for the analysis of SEPs, identifies several types of inefficiencies attached to the lack of price commitment, shows how structured price commitments restore competition, and analyzes whether price commitments are likely to emerge in the marketplace.

Skilled Immigration and the Employment Structures of US Firms

January 23, 2014 Comments off

Skilled Immigration and the Employment Structures of US Firms
Source: Harvard Business School Working Papers

We study the impact of skilled immigrants on the employment structures of United States firms using matched employer-employee data. Unlike most previous work, we use the firm as the lens of analysis to account for a greater level of heterogeneity and the fact that many skilled immigrant admissions are driven by firms themselves (e.g., the H-1B visa). OLS and IV specifications find rising overall employment of skilled workers with increased skilled immigrant employment by firm. Employment expansion is greater for younger natives than their older counterparts, and departure rates for older workers appear higher for those in STEM occupations compared to younger workers.

Is The United States Still a Land Of Opportunity? Recent Trends in Intergenerational Mobility

January 23, 2014 Comments off

Is The United States Still a Land Of Opportunity? Recent Trends in Intergenerational Mobility
Source: Harvard University/University of California-Berkeley (Equality of Opportunity Project)

Is America the “Land of Opportunity”? In two recent studies, we find that: (1) Upward income mobility varies substantially within the U.S. Areas with greater mobility tend to have five characteristics: less segregation, less income inequality, better schools, greater social capital, and more stable families. (2) Contrary to popular perception, economic mobility has not changed significantly over time; however, it is consistently lower in the U.S. than in most developed countries.

Zooming In: A Practical Manual for Identifying Geographic Clusters

January 10, 2014 Comments off

Zooming In: A Practical Manual for Identifying Geographic Clusters
Source: Harvard Business School Working Knowledge

This paper takes a close look at the reasons, procedures, and results of cluster identification methods. Despite being a popular research topic in strategy, economics, and sociology, geographic clusters are often studied with little consideration given to the underlying economic activities, the unique cluster boundaries, or the appropriate benchmark of economic concentration. Our goal is to increase awareness of the complexities behind cluster identification and to provide concrete insights and methodologies applicable to various empirical settings. The organic cluster identification methodology we propose is especially useful when researchers work in global settings where data available at different geographic units complicates comparisons across countries.

Harvard Business School Working Knowledge — Most Popular Articles of 2013

January 3, 2014 Comments off

Most Popular Articles of 2013
Source: Harvard Business School

What topics intrigued Harvard Business School Working Knowledge readers in 2013? Read our Top 10 list of most-read stories and faculty working papers…

Organizational Factors that Contribute to Operational Failures in Hospitals

November 1, 2013 Comments off

Organizational Factors that Contribute to Operational Failures in Hospitals
Source: Harvard Business School Working Papers

The performance gap between hospital spending and outcomes is indicative of inefficient care delivery. Operational failures—breakdowns in internal supply chains that prevent work from being completed—contribute to inefficiency by consuming 10% of nurses’ time (Hendrich et al. 2008, Tucker 2004). This paper seeks to identify organizational factors associated with operational failures with a goal of providing insight into effective strategies for removal. We observed nurses on medical/surgical units at two hospitals, shadowed support staff who provided materials, and interviewed employees about their internal supply chain’s performance. These activities created a database of 120 operational failures and the organizational factors that contributed to them. We found that employees believed their department’s performance was satisfactory, but poorly trained employees in other departments caused the failures. However, only 14% of the operational failures arose from errors or training. They stemmed instead from multiple organizationally driven factors: insufficient workspace (29%), poor process design (23%), and a lack of integration in the internal supply chains (23%). Our findings thus suggest that employees are unlikely to discern the role that their department’s routines play in operational failures, which hinders solution efforts. Furthermore, in contrast to the “Pareto Principle,” which advocates addressing “large” problems that contribute a disproportionate share of the cumulative negative impact of problems, the failures and causes were dispersed over a wide range of factors. Thus, removing failures will require deliberate cross-functional efforts to redesign workspaces and processes so they are better integrated with patients’ needs.

Imperfect Information, Patent Publication, and the Market for Ideas

October 31, 2013 Comments off

Imperfect Information, Patent Publication, and the Market for Ideas
Source: Harvard Business School Working Papers

In this study, we investigate the role of an important information-disclosure mechanism-patent publication-in facilitating transactions in the market for ideas. We do so by analyzing the effects of the American Inventor’s Protection Act (AIPA) of 1999, which required, as of November 29, 2000, that U.S. patent applications be published 18 months after their filing rather than at the time of patent grant. We develop a simple theoretical framework that yields predictions about the effects of AIPA on the timing of licensing. We then test the predictions using a sample of 339 licenses of biomedical inventions protected by patent applications filed between 1995 and 2005. Consistent with the predictions, we find that post-AIPA patent applications experience a sharp increase in the probability of licensing after 18-month publication, and, on average, are 18 percentage points less likely than pre-AIPA patent applications to wait until allowance to be licensed. Even for patent applications that are not licensed until allowance, 18-month publication shortens the time to licensing. Overall, for inventors that choose to license, 18-month publication accelerates licensing by 8.5 months on average. We conclude that information disclosure through patent publications plays an important role in facilitating transactions in the market for ideas.

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