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Positive and Normative Judgments Implicit in US Tax Policy and the Costs of Unequal Growth and Recessions

July 17, 2014 Comments off

Positive and Normative Judgments Implicit in US Tax Policy and the Costs of Unequal Growth and Recessions
Source: Harvard Business School Working Papers

We use official data and standard optimal tax conditions to infer the positive and normative judgments implicit in U.S. tax policy since 1979. We find that explanations within this framework for the time path of U.S. policy require central parameters of the model, namely the elasticity of taxable income or the marginal social welfare weights on top earners, to take unconventional values. We use inferred social preferences to provide novel estimates of the welfare costs of unequal growth and recessions and find that they are sensitive to the assumed distortionary costs of taxation and the year from which preferences are derived. We explore several possible explanations for our findings with available data.

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Unhappy Cities

July 15, 2014 Comments off

Unhappy Cities (PDF)
Source: Harvard University (Glaeser et al)

There are persistent differences in self-reported subjective well-being across U.S. metropolitan areas, and residents of declining cities appear less happy than other Americans. Newer residents of these cities appear to be as unhappy as longer term residents, and yet some people continue to move to these areas. While the historical data on happiness are limited, the available facts suggest that cities that are now declining were also unhappy in their more prosperous past. One interpretation of these facts is that individuals do not aim to maximize self-reported well-being, or happiness, as measured in surveys, and they willingly endure less happiness in exchange for higher incomes or lower housing costs. In this view, subjective well-being is better viewed as one of many arguments of the utility function, rather than the utility function itself, and individuals make trade-offs among competing objectives, including but not limited to happiness.

Activist Directors: Determinants and Consequences

July 11, 2014 Comments off

Activist Directors: Determinants and Consequences
Source: Harvard Business School Working Papers

This paper examines the determinants and consequences of hedge fund activism with a focus on activist directors, i.e., those directors appointed in response to demands by activists. Using a sample of 1,969 activism events over the period 2004-2012, we identify 824 activist directors. We find that activists are more likely to gain board seats at smaller firms and those with weaker stock price performance. Activists remain as shareholders longer when they have board seats, with holding periods consistent with conventional notions of “long-term” institutional investors. As in prior research, we find positive announcement-period returns of around 4% to 5% when a firm is targeted by activists and a 2% increase in return on assets over the subsequent one to five years. We find that activist directors are associated with significant strategic and operational actions by firms. We find evidence of increased divestiture, decreased acquisition activity, higher probability of being acquired, lower cash balances, higher payout, greater leverage, higher CEO turnover, lower CEO compensation, and reduced investment. With the exception of the probability of being acquired, these estimated effects are generally greater when activists obtain board representation, consistent with board representation being an important mechanism for bringing about the kinds of changes that activists often demand.

The Burden of Stress in America

July 8, 2014 Comments off

The Burden of Stress in America (PDF)
Source: NPR/Robert Wood Johnson Foundation/Harvard School of Public Health

The NPR/Robert Wood Johnson Foundation/Harvard School of Public Health Burden of Stress in America Survey was conducted from March 5 to April 8, 2014 with a sample of 2,505 respondents. The survey examines the role stress plays in different aspects of Americans’ lives, including the public’s personal experiences of stress in the past month and year, the perceived effects of their stress and causes of that stress, their methods of stress management and their general attitudes about effects of stress in people’s lives.

Does Planning Regulation Protect Independent Retailers?

July 8, 2014 Comments off

Does Planning Regulation Protect Independent Retailers? (PDF)
Source: Harvard Business School Working Papers

Regulations aimed at curbing the entry of large retail stores have been introduced in many countries to protect independent retailers. Analyzing a planning reform launched in the United Kingdom in the 1990s, I show that independent retailers were actually harmed by the creation of entry barriers against large stores. Instead of simply reducing the number of new large stores entering a market, the entry barriers created the incentive for large retail chains to invest in smaller and more centrally located formats, which competed more directly with independents and accelerated their decline. Overall, these findings suggest that restricting the entry of large stores does not necessarily lead to a world with fewer stores, but one with different stores, with uncertain competitive effects on independent retailers.

See: Banning Big-box Stores Can Hurt Local Businesses

New Research Report: The Children We Mean to Raise

July 1, 2014 Comments off

New Research Report: The Children We Mean to Raise
Source: Harvard Graduate School of Education

Our youth’s values appear to be awry, and the messages that we’re unintentionally sending as adults may be at the heart of the problem.

According to our recent national survey, a large majority of youth across a wide spectrum of races, cultures, and classes appear to value aspects of personal success—achievement and happiness—over concern for others. At the root of this problem may be a rhetoric/reality gap, a gap between what parents say are their top priorities and the real messages they convey in their behavior day to day.

When children do not prioritize caring and fairness in relation to their self-concerns—and when they view their peers as even less likely to prioritize these values— there is a lower bar for many forms of harmful behavior, including cruelty, disrespect, dishonesty, and cheating.

The good news is that we found substantial evidence that caring and fairness still count among kids—and, according to other sources, among adults.

The solution is straightforward, if we’re all willing to work together.

The Rising Cost of Consumer Attention: Why You Should Care, and What You Can Do about It

June 23, 2014 Comments off

The Rising Cost of Consumer Attention: Why You Should Care, and What You Can Do about It (PDF)
Source: Harvard Business School Working Papers

Attention is a necessary ingredient for effective advertising. The market for consumer attention (or “eyeballs”) has become so competitive that attention can be regarded as a currency. The rising cost of this ingredient in the marketplace is causing marketers to waste money on costly attention sources or reduce their investment in promoting their brands. Instead, they should be thinking about how to “buy” cheaper attention and how to use it more effectively. Research in the emerging field of the Economics of Attention shows how this can be achieved. Here, I argue that, irrespective of the means to attain it, attention always comes at a price. I also show that the cost of attention has increased dramatically (seven‐ to nine‐fold) in the last two decades. To counteract this trend I propose novel approaches to lower its cost or use attention more efficiently by adopting multitasker‐tailored ads, Lean Advertising, and Viral Ad Symbiosis. To guide the choice of which approach to take, I propose the Attentioncontingent Advertising Strategy, a framework to match the most effective approach to the quality of attention contingently available. As the value of attention rises, marketers need to become better managers of attention. This paper is intended to help them in this regard.

Wisdom or Madness? Comparing Crowds with Expert Evaluation in Funding the Arts

June 19, 2014 Comments off

Wisdom or Madness? Comparing Crowds with Expert Evaluation in Funding the Arts
Source: Harvard Business School Working Papers

In fields as diverse as technology entrepreneurship and the arts, crowds of interested stakeholders are increasingly responsible for deciding which innovations to fund, a privilege that was previously reserved for a few experts, such as venture capitalists and grant‐making bodies. Little is known about the degree to which the crowd differs from experts in judging which ideas to fund, and, indeed, whether the crowd is even rational in making funding decisions. Drawing on a panel of national experts and comprehensive data from the largest crowdfunding site, we examine funding decisions for proposed theater projects, a category where expert and crowd preferences might be expected to differ greatly. We instead find substantial agreement between the funding decisions of crowds and experts. Where crowds and experts disagree, it is far more likely to be a case where the crowd is willing to fund projects that experts may not. Examining the outcomes of these projects, we find no quantitative or qualitative differences between projects funded by the crowd alone and those that were selected by both the crowd and experts. Our findings suggest that the democratization of entry that is facilitated by the crowdfunding has the potential to lower the incidence of “false negatives,” by allowing projects the option to receive multiple evaluations and reach out to receptive communities that may not otherwise be represented by experts.

The Shifting Landscape of LGBT Organizational Research

June 12, 2014 Comments off

The Shifting Landscape of LGBT Organizational Research (PDF)
Source: Harvard University

Over the past generation, sexual minorities—particularly lesbian, gay, bisexual, and transgendered (LGBT) persons—have gained increased visibility in the public arena. Yet organizational research has lagged behind in recognizing and studying this category of organizational members. This article offers a critical review of this growing body of research. More specifically, we identify and discuss four dominant scholarly frames that have informed LGBT organizational research from the late nineteenth century to date. The frames include a “medical abnormality,” “deviant social role,” “collective identity,” and “social distinctiveness” view of sexual minorities. We argue that these frames have profoundly shaped the scope and range of organizational scholarship devoted to sexual minorities by showing that scholars using such contrasted frames have been drawn to very different research questions with respect to sexual minorities. We document and discuss the main and contrasted questions asked within each of these frames and show how they have both enabled and constrained LGBT organizational research. We conclude by calling for more attention to the frames organizational scholars adopt when studying sexual minorities, but also for more research on both minority and majority sexual orientations in organizations.

Cohort Turnover and Productivity: The July Phenomenon in Teaching Hospitals

June 11, 2014 Comments off

Cohort Turnover and Productivity: The July Phenomenon in Teaching Hospitals
Source: Harvard Business School Working Papers

We consider the impact of cohort turnover-the planned simultaneous exit of a large number of experienced employees and a similarly sized entry of new workers-on productivity in the context of teaching hospitals. Specifically, we examine the impact of the annual July turnover of residents in American teaching hospitals on levels of resource utilization and quality relative to a control group of non-teaching hospitals. We find that, despite the anticipated nature of the cohort turnover and the supervisory structures that exist in teaching hospitals, this annual cohort turnover results in increased resource utilization (i.e., longer length of hospital stay) for both minor and major teaching hospitals and decreased quality (i.e., higher mortality rates) for major teaching hospitals. Particularly in major teaching hospitals, we find evidence of a gradual trend of decreasing performance that begins several months before the actual cohort turnover and may result from a transition of responsibilities at major teaching hospitals in anticipation of the cohort turnover.

Eliciting Taxpayer Preferences Increases Tax Compliance

June 5, 2014 Comments off

Eliciting Taxpayer Preferences Increases Tax Compliance
Source: Harvard Business School Working Paper

Two experiments show that eliciting taxpayer preferences on government spending—providing taxpayer agency—increases tax compliance. We first create an income and taxation environment in a laboratory setting to test for compliance with a “lab tax.” Allowing a treatment group to express non-binding preferences over tax spending priorities leads to a 16 percent increase in tax compliance. A follow-up online study tests this treatment with a simulation of paying US federal taxes. Allowing taxpayers to signal their preferences on the distribution of government spending results in a 15 percent reduction in the stated take-up rate of a questionable tax loophole. Providing taxpayer agency recouples tax payments with the public services obtained in return, reduces general anti-tax sentiment, and holds satisfaction with tax payment stable despite increased compliance with tax dues. With tax noncompliance costing the US government $385 billion annually, providing taxpayer agency could have meaningful economic impact. At the same time, giving taxpayers a voice may act as a two-way “nudge,” transforming tax payment from a passive experience to a channel of communication between taxpayers and government.

New Report on Media Credentialing in the United States

June 5, 2014 Comments off

New Report on Media Credentialing in the United States
Source: Digital Media Law Project (Harvard)

The Digital Media Law Project at Harvard University’s Berkman Center for Internet & Society and the Journalist’s Resource project at Harvard’s Shorenstein Center on Media, Politics and Public Policy are pleased to release a new report: Who Gets a Press Pass? Media Credentialing Practices in the United States.

Media credentials have long played a critical role in newsgathering in the United States, allowing journalists to gain special access to places and events denied to the general public. There are, however, many inconsistencies among regulatory standards for the issuance of credentials, and many circumstances where the decision of whether and how to issue credentials is left up to individual agencies with no regulatory guidance at all. Moreover, upheaval in the journalism industry has introduced new actors in the journalism ecosystem, complicating decisions by government agencies and private gatekeepers about who should be entitled to special access.

Who Gets a Press Pass? presents a first-of-its-kind analysis of this complex environment, exploring media credentialing practices in the United States through a nationwide survey of more than 1,300 newsgatherers.

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

May 30, 2014 Comments off

Leveraging Market Power Through Tying and Bundling: Does Google Behave Anti-Competitively?
Source: Harvard Business School Working Papers

This paper presents a series of incidents in which Google used tying and bundling to expand its dominance in a number of online markets and into additional markets. The author assesses whether these incidents raise concerns under antitrust law, and concludes that they do. Based on case law of technology companies that have engaged in tying and/or bundling and subsequently been subject to antitrust scrutiny, most notably Microsoft, it appears that Google’s tying and bundling practices could face strong criticism for foreclosing competition. Such scrutiny is particularly important in light of Google’s dominance in a number of online markets. The author also examines both current ties as well as ties Google used historically. The author concludes that Google’s use of tying portends a future of reduced choice, slower innovation, lower quality, and higher prices. Key concepts include:

  • Google’s strategic use of tying and bundling has allowed it to expand its dominance to numerous sectors adjacent to its current strongholds.
  • By tying its new products to its dominant products, Google can effectively compel use of its new products-even if consumers or advertisers prefer alternatives.
  • Google appears to impose rules that are significantly more intrusive than prior Microsoft requirements.

Principals and their Car Dealers; what do Targets tell about their Relation?

May 29, 2014 Comments off

Principals and their Car Dealers; what do Targets tell about their Relation? (PDF)
Source: Harvard Business School Working Papers

In this study we describe target setting and target achievements for a car dealership. Car dealers are eligible for a discount on the purchase price conditional on their achieving the sales targets set by the franchisor. We show that car dealers (franchisees) who exclusively deal in cars of the brand offered by the franchisor receive easier targets and are more likely to exert effort in achieving their targets compared to dealers who also acquire brands outside of the franchise network. As a consequence the exclusive dealers receive a relatively bigger cut of the total amount of discounts that dealers are offered conditional on their achieving sales targets set by the franchisor. We explain these results in terms of how much franchisors and franchisees believe that their relations will last or will be intensified in the future. We leverage on relational-contracts theory to develop our predictions and interpret our findings.

Firms and the Economics of Skilled Immigration

May 19, 2014 Comments off

Firms and the Economics of Skilled Immigration
Source: Harvard Business School Working Papers

Firms play a central role in the selection, sponsorship, and employment of skilled immigrants entering the United States for work through programs like the H-1B visa. This role has not been widely recognized in the literature, and the data to better understand it have only recently become available. This paper discusses the evidence that has been assembled to date in understanding the impact of high-skilled immigration from the perspective of the firm and the open areas that call for more research. Since much of the U.S. immigration process for skilled workers rests in the hands of employer firms, a stronger understanding of these implications is essential for future policy analysis, particularly for issues relating to fostering innovation.

Morality Rebooted: Exploring Simple Fixes to Our Moral Bugs

May 15, 2014 Comments off

Morality Rebooted: Exploring Simple Fixes to Our Moral Bugs
Source: Harvard Business School Working Papers

Ethics research developed partly in response to calls from organizations to understand and solve unethical behavior. Departing from prior work that has mainly focused on examining the antecedents and consequences of dishonesty, we examine two approaches to mitigating unethical behavior: (1) values-oriented approaches that broadly appeal to individuals’ preferences to be more moral and (2) structure-oriented approaches that redesign specific incentives, tasks, and decisions to reduce temptations to cheat in the environment. This paper explores how these approaches can change behavior. We argue that integrating both approaches while avoiding incompatible strategies can reduce the risk of adverse effects that arise from taking a single approach.

Learning By Thinking: How Reflection Improves Performance

May 7, 2014 Comments off

Learning By Thinking: How Reflection Improves Performance
Source: Harvard Business School Working Papers

Research on learning has primarily focused on the role of doing (experience) in fostering progress over time. In this paper, we propose that one of the critical components of learning is reflection, or the intentional attempt to synthesize, abstract, and articulate the key lessons taught by experience. Drawing on dual-process theory, we focus on the reflective dimension of the learning process and propose that learning can be augmented by deliberately focusing on thinking about what one has been doing. We test the resulting dual-process learning model experimentally, using a mixed-method design that combines two laboratory experiments with a field experiment conducted in a large business process outsourcing company in India. We find a performance differential when comparing learning-by-doing alone to learning-by-doing coupled with reflection. Further, we hypothesize and find that the effect of reflection on learning is mediated by greater perceived self-efficacy. Together, our results shed light on the role of reflection as a powerful mechanism behind learning.

Comparing the Cash Policies of Public and Private Firms

May 2, 2014 Comments off

Comparing the Cash Policies of Public and Private Firms
Source: Harvard Business School Working Papers (via SSRN)

I document that public U.S. firms hold twice as much cash as large privately held firms, a surprising finding that is robust to three alternative identification strategies: matching, within-firm variation, and instrumental variable. Public firms’ greater access to capital accounts for about one-quarter of the difference. The remainder can be explained by differences in the extent to which public and private firms engage in market timing in response to misvaluation shocks. I show that the risk of misvaluation induces public firms to raise capital and accumulate cash reserves when they perceive their equity to be overvalued, resulting in greater demand for precautionary cash holdings.

High School Curriculum and Financial Outcomes: The Impact of Mandated Personal Finance and Mathematics Courses

April 29, 2014 Comments off

High School Curriculum and Financial Outcomes: The Impact of Mandated Personal Finance and Mathematics Courses (PDF)
Source: Harvard Business School Working Papers

Financial literacy and cognitive capabilities are convincingly linked to the quality of financial decision-making. Yet, there is little evidence that education intended to improve financial decision-making is successful. Using plausibly exogenous variation in exposure to state-mandated personal finance and mathematics high school courses, affecting millions of students, this paper answers the question “Can good financial behavior be taught in high school?” It can, though not via traditional personal finance courses, which we find have no effect on financial outcomes. Instead, we find additional mathematics training leads to greater financial market participation, investment income, and better credit management, including fewer foreclosures.

Private Equity, Jobs, and Productivity

April 25, 2014 Comments off

Private Equity, Jobs, and Productivity
Source: Harvard Business School Working Papers

Private equity critics claim that leveraged buyouts bring huge job losses. To investigate this claim, we construct and analyze a new dataset that covers U.S. private equity transactions from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing outcomes to controls similar in terms of industry, size, age, and prior growth. Relative to controls, employment at target establishments declines 3% over two years post buyout and 6% over five years. The job losses are concentrated among public-to-private buyouts and transactions involving firms in the service and retail sectors. But target firms also create more new jobs at new establishments, and they acquire and divest establishments more rapidly. When we consider these additional adjustment margins, net relative job losses at target firms are less than 1% of initial employment. In contrast, the sum of gross job creation and destruction at target firms exceeds that of controls by 13% of employment over two years. In short, private equity buyouts catalyze the creative destruction process in the labor market, with only a modest net impact on employment. The creative destruction response mainly involves a more rapid reallocation of jobs across establishments within target firms.

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