Archive
What Do I Need to Vote? Bias in Information Provision by Local Election Officials
What Do I Need to Vote? Bias in Information Provision by Local Election Officials
Source: Harvard University
The adoption of voter identification (ID) requirements has raised concerns that these laws differentially reduce turnout among minorities. We use a field experiment to investigate one mechanism by which these laws could reduce turnout: differential in- formation provision about voting requirements to minorities. We contact over 7,000 local election administrators in 48 states and observe that they provide different in- formation about ID requirements to voters of different putative ethnicities. Emails sent from Latino aliases are significantly less likely to receive any response from local election offi cials than non-Latino white aliases and receive responses of lower quality. This raises concerns about the effect of voter ID laws on access to the franchise and about bias in the provision of information by local bureaucrats more generally.
The Dangers of Surveillance
Source: Harvard Law Review (via SSRN)
From the Fourth Amendment to George Orwell’s Nineteen Eighty-Four, our law and literature are full of warnings about state scrutiny of our lives. These warnings are commonplace, but they are rarely very specific. Other than the vague threat of an Orwellian dystopia, as a society we don’t really know why surveillance is bad, and why we should be wary of it. To the extent the answer has something to do with “privacy,” we lack an understanding of what “privacy” means in this context, and why it matters. Developments in government and corporate practices, however, have made this problem more urgent. Although we have laws that protect us against government surveillance, secret government programs cannot be challenged until they are discovered. And even when they are, courts frequently dismiss challenges to such programs for lack of standing, under the theory that mere surveillance creates no tangible harms, as the Supreme Court did recently in the case of Clapper v. Amnesty International. We need a better account of the dangers of surveillance.
This article offers such an account. Drawing on law, history, literature, and the work of scholars in the emerging interdisciplinary field of “surveillance studies,” I explain what those harms are and why they matter. At the level of theory, I explain when surveillance is particularly dangerous, and when it is not. Surveillance is harmful because it can chill the exercise of our civil liberties, especially our intellectual privacy. It is also gives the watcher power over the watched, creating the the risk of a variety of other harms, such as discrimination, coercion, and the threat of selective enforcement, where critics of the government can be prosecuted or blackmailed for wrongdoing unrelated to the purpose of the surveillance.
At a practical level, I propose a set of four principles that should guide the future development of surveillance law, allowing for a more appropriate balance between the costs and benefits of government surveillance. First, we must recognize that surveillance transcends the public-private divide. Even if we are ultimately more concerned with government surveillance, any solution must grapple with the complex relationships between government and corporate watchers. Second, we must recognize that secret surveillance is illegitimate, and prohibit the creation of any domestic surveillance programs whose existence is secret. Third, we should recognize that total surveillance is illegitimate and reject the idea that it is acceptable for the government to record all Internet activity without authorization. Fourth, we must recognize that surveillance is harmful. Surveillance menaces intellectual privacy and increases the risk of blackmail, coercion, and discrimination; accordingly, we must recognize surveillance as a harm in constitutional standing doctrine.
A New Harvard Report Probes Security Risks of Extreme Weather and Climate Change
A New Harvard Report Probes Security Risks of Extreme Weather and Climate Change
Source: Harvard University Center for the Environment
Increasingly frequent extreme weather events such as droughts, floods, severe storms, and heat waves have focused the attention of climate scientists on the connections between greenhouse warming and extreme weather. Because of the potential threat to U.S. national security, a new study was conducted to explore the forces driving extreme weather events and their impacts over the next decade, specifically with regard to their implications for national security planning. The report finds that the early ramifications of climate extremes resulting from climate change are already upon us and will continue to be felt over the next decade, directly impacting U.S. national security interests. “Lessons from the past are no longer of great value as a guide to the future,” said co-lead author Michael McElroy, Gilbert Butler Professor of Environmental Studies at Harvard University. “Unexpected changes in regional weather are likely to define the new climate normal, and we are not prepared.”
Changes in extremes include more record high temperatures; fewer but stronger tropical cyclones; wider areas of drought and increases in precipitation; increased climate variability; Arctic warming and attendant impacts; and continued sea level rise as greenhouse warming continues and even accelerates. These changes will affect water and food availability, energy decisions, the design of critical infrastructure, use of the global commons such as the oceans and the Arctic region, and critical ecosystem resources. They will affect both underdeveloped and industrialized countries with large costs in terms of economic and human security. The study identifies specific regional climate impacts—droughts and desertification in Mexico, Southwest Asia, and the Eastern Mediterranean, and increased flooding in South Asia—that are of particular strategic importance to the United States.
The report concludes that the risks related to extreme weather require that the U.S. sustain and augment its scientific and technical capacity to observe key indicators, monitor unfolding events, and forewarn of impending security threats as nations adapt to a changing climate. The study recommends a national strategy for strategic observations and monitoring— including greenhouse gas and aerosol emissions, ocean temperatures, and satellite observations of the Arctic—and improved forecast models. “Our critical observational infrastructure is at risk from declining funding,” added co-lead author D. James Baker, Director of the Global Carbon Measurement Program at the William J. Clinton Foundation and former Administrator of the National Oceanic and Atmospheric Administration (NOAA). “Without that knowledge, the needs of civil society and national security for mitigation and adaptation will go unmet.”
Why Has Regional Income Convergence in the U.S. Stopped?
Why Has Regional Income Convergence in the U.S. Stopped? (PDF)
Source: Harvard University (via Journalist’s Resource)
The past thirty years have seen a dramatic decrease in the rate of income convergence across states and in population flows to wealthy places. We develop a model where migration drives convergence and its disappearance. The model predicts that increases in housing prices in rich areas generate (1) a divergence in the skill-specific returns to productive places, (2) a redirection of low-skilled migration, (3) diminished human capital convergence, and (4) continued convergence among places with unconstrained housing supply. Using a new panel measure of housing-supply regulations, we confirm these predictions and the role of housing in the end of convergence.
Reinforcing Regulatory Regimes: How States, Civil Society, and Codes of Conduct Promote Adherence to Global Labor Standards
Reinforcing Regulatory Regimes: How States, Civil Society, and Codes of Conduct Promote Adherence to Global Labor Standards
Source: Harvard Business School Working Papers
In response to pressure from various stakeholders, many transnational businesses have developed codes of conduct and monitoring systems to ensure that working conditions in their supply chain factories meet global labor standards. Many observers have questioned whether these codes of conduct have any impact on working conditions or are merely a marketing tool to deflect criticism of valuable global brands. Using a proprietary dataset from one of the world’s largest social auditors, containing audit-level data for 31,915 audits of 14,922 establishments in 43 countries on behalf of 689 clients in 33 countries, we conduct one of the first large-scale comparative studies of adherence to labor codes of conduct to determine what combination of institutional conditions promotes compliance with the global labor standards embodied in codes. We find that these private transnational governance tools are most effective when they are embedded in states that have made binding domestic and international legal commitments to protect workers’ rights and that have high levels of press freedom and nongovernmental organization activity. Taken together, these findings suggest the importance of multiple, robust, overlapping, and reinforcing governance regimes to meaningful transnational regulation.
An Outside-Inside Evolution in Gender and Professional Work
An Outside-Inside Evolution in Gender and Professional Work
Source: Harvard Business School Working Papers
We study the process by which a professional service firm reshaped its activities and beliefs over nearly two decades as it adapted to shifts in the social discourse regarding gender and work. Analyzing archival data from the firm over eighteen years and representations of gender and work from the business press over the corresponding two decades, we find that the firm internalized the broader social discourse through iterated cycles of analysis and action, punctuated by evolving beliefs about gender and work. Outside experts and shifting social understandings played pivotal roles in changing beliefs and activities inside the firm. We conclude with an internalization model depicting organizational adaptation to evolving social institutions.
Optimal Aggregation of Consumer Ratings: An Application to Yelp.com
Optimal Aggregation of Consumer Ratings: An Application to Yelp.com
Source: Harvard Business School Working Papers
Consumer review websites such as Yelp.com leverage the wisdom of the crowd, with each product being reviewed many times (some with more than 1000 reviews). Because of this, the way in which information is aggregated is a central decision faced by consumer review websites. Given a set of reviews, what is the optimal way to construct an average rating? We offer a structural approach to answering this question, allowing for (1) reviewers to vary in stringency (some reviewers tend to leave worse reviews on average) and accuracy (some reviewers are more erratic than others), (2) reviewers to be influenced by existing reviews, and (3) product quality to change over time. We apply this approach to reviews from Yelp.com to derive optimal ratings for each restaurant (in contrast with the arithmetic average displayed by Yelp). Because we have the history of reviews for each restaurant and many reviews left by each reviewer, we are able to identify these factors using variation in ratings within and across reviewers and restaurants. Using our estimated parameters, we construct optimal ratings for all restaurants on Yelp, and compare them to the arithmetic averages displayed by Yelp. As of the end of our sample, a conservative finding is that roughly 25-27% of restaurants are more than 0.15 stars away from the optimal rating, and 8-10% of restaurants are more than 0.25 stars away from the optimal rating. This suggests that large gains could be made by implementing optimal ratings. Much of the gains come from our method responding more quickly to changes in a restaurant’s quality. Our algorithm can be flexibly applied to many different review settings.
Active Vs. Passive Decisions And Crowd-out In Retirement Savings Accounts
Active Vs. Passive Decisions And Crowd-out In Retirement Savings Accounts
Source: Harvard University
From Executive Summary (PDF):
Subsidies for retirement savings are among the largest tax expenditures in the United States and other developed economies. This fiscal year, the estimated cash-flow expenditure on retirement savings accounts such as 401(k)’s and IRA’s exceeded $100 billion in the U.S. (JCT 2012). The goal of these subsidies is to increase national saving and income security in retirement. Our study evaluates whether these subsidies accomplish this goal. Do tax subsidies encourage families to save more or do they induce them to shift money they would have saved anyway into tax-advantaged retirement accounts, with no net increase in savings?
Despite extensive research over the past three decades, we do not have a conclusive answer to this question because of a lack of high quality data on household wealth in the U.S. (Bernheim 2002). We therefore turn to data from Denmark, where we obtain 45 million observations on household balance sheets from administrative tax records. The Danish data provide useful insights for policy in the U.S. for two reasons. First, the structure of retirement savings plans in Denmark is broadly similar to the U.S. Second, savings decisions within retirement accounts – where good data are available in the U.S. – are similar across the two countries. Hence, we expect savings decisions outside retirement accounts – where the Danish data are of much higher quality – to be similar as well.
We begin by studying a reform in 1999 that sharply reduced the tax subsidy for contributing to retirement accounts for those in the top income tax bracket in Denmark. We find that the subsidy change had small impacts on total savings for two reasons. First, only 15% of individuals reduced retirement savings when the subsidy was reduced; the remaining 85% of individuals did not change their pension contributions at all. Second, the 15% who reduce pension contributions shifted nearly all the money they withdrew from pensions to other non-retirement accounts. Combining these two effects, we estimate that each $1 of government tax expenditure on retirement savings raises total national saving by 1 cent.
If subsidies have little impact on retirement saving, are there other policies that are more effective? Recent studies have shown that “nudges” such as automatic enrollment or defaults – which have no fiscal cost to the government – increase pension contributions (e.g., Madrian and Shea 2001, Thaler and Sunstein 2008). Again, however, it is unclear whether automatic contributions raise total savings or just induce individuals to save more in pensions while running down their balances in non-retirement accounts, leaving total saving unchanged.
We study the impacts of automatic contributions on total savings using two quasi-experimental approaches. First, we track individuals’ savings rates when they switch to jobs with higher or lower employer retirement contributions. These contributions are automatic in that they require no active choices by individuals. We find that increases in employer contributions substantially increase total savings: most individuals do not change their savings in non-retirement accounts at all when their employers contribute more to their pensions. Second, we study the impacts of a mandatory government savings plan that required everyone to automatically contribute 1% of their earnings to a retirement savings account from 1998-2003. Again, we find that this policy raised total pension savings and did not reduce savings in other accounts.
Why are automatic contributions so much more effective at raising savings than price subsidies? We find that there are two types of people in the economy: 15% are “active” savers who plan for retirement and respond to incentives, while 85% are “passive” savers who are not focused on their retirement savings and do not pay attention to policy changes. Price subsidies induce active savers to shift assets across accounts but have no impact on passive savers’ behavior. In contrast, automatic contributions raise the savings of passive savers. Passive savers tend to be less wealthy and financially prepared than active savers. As a result, automatic contributions not only have larger effects on aggregate savings than price subsidies, but also do more to increase the savings rates of those who are least prepared for retirement.
In sum, the findings of our study call into question whether tax subsidies are the most effective policy to increase retirement savings. Automatic enrollment or default policies that nudge individuals to save more could have larger impacts on national saving at lower fiscal cost.
The Effect of Market Leadership in Business Process Innovation: The Case(s) of E-Business Adoption
The Effect of Market Leadership in Business Process Innovation: The Case(s) of E-Business Adoption
Source: Harvard Business School Working Papers
This paper investigates the relationship between market position and the adoption of IT-enabled process innovations. Prior research has focused overwhelmingly on product innovation and garnered mixed empirical support. I extend the literature into the understudied area of business process innovation, developing a framework for classifying innovations based on the complexity, interdependence, and customer impact of the underlying business process. I test the framework’s predictions in the context of e-buying and e-selling adoption. Leveraging detailed U. Census data, I find robust evidence that market leaders were significantly more likely to adopt the incremental innovation of e-buying but commensurately less likely to adopt the more radical practice of e-selling. The findings highlight the strategic significance of adjustment costs and co-invention capabilities in technology adoption, particularly as businesses grow more dependent on new technologies for their operational and competitive performance.
The Cost of Friendship
The Cost of Friendship
Source: Harvard Business School Working Papers
This paper explores two broad questions on collaboration between individuals. First, we investigate what personal characteristics affect people’s desire to work together. Second, given the influence of these personal characteristics, we analyze whether this attraction enhances or detracts from performance. Addressing these problems in the venture capital syndication setting, we show that venture capitalists exhibit strong detrimental homophily in their co-investment decisions. We find that individual venture capitalists choose to collaborate with other venture capitalists for both ability-based characteristics (e.g., whether both individuals in a dyad obtained a degree from a top university) and affinity-based characteristics (e.g., whether individuals in a pair share the same ethnic background, attended the same school, or worked for the same employer previously). Moreover, frequent collaborators in syndication are those venture capitalists who display a high level of mutual affinity. We find that while collaborating for ability-based characteristics enhances investment performance, collaborating for affinity-based characteristics dramatically reduces the probability of investment success. A variety of tests show that the cost of affinity is not driven by selection into inferior deals; the effect is most likely attributable to poor decision making by high-affinity syndicates post investment. Taken together, our results suggest that non-ability-based “birds-of-a-feather-flock-together” effects in collaboration can be costly.
The Need for (Long) Chains in Kidney Exchange
The Need for (Long) Chains in Kidney Exchange
Source: Harvard Business School Working Papers
It is illegal in the U.S. and in most of the world to buy or sell organs for transplantation. Kidney exchange arises because a healthy person has two kidneys and can donate one to a person in need of a transplant. But a donor and his or her intended recipient may be incompatible. An incompatible patient-donor pair can exchange with another pair, or with more than one other pair, in a cycle of exchanges among patient-donor pairs that allows each patient to receive a kidney from a compatible donor. In addition, sometimes exchange can be initiated by an altruistic donor who does not designate a particular intended patient, and in that case a chain of exchanges need not form a closed cycle. This paper seeks to understand why such longer chains have become increasingly important in practical kidney exchange. The answer has to do with the growing percentage of patients for whom finding a compatible donor is difficult. These “highly sensitized” patients are those for whom finding a transplantable kidney is difficult, even from a donor with the same blood type, because of tissue-type incompatibilities. This paper shows that highly sensitized patients are the ones to benefit from longer cycles and chains, and that this does not harm low-sensitized patients. Key concepts include:
- As long as there is such a high percentage of highly sensitized patients, long chains will help by increasing the number of these patients who can receive transplants, and each altruistic donor can have a big effect.
Rainmakers: Why Bad Weather Means Good Productivity
Rainmakers: Why Bad Weather Means Good Productivity (PDF)
Source: Harvard Business School Working Paper
People believe that weather conditions influence their everyday work life, but to date, little is known about how weather affects individual productivity. Most people believe that bad weather conditions reduce productivity. In this research, we predict and find just the opposite. Drawing on cognitive psychology research, we propose that bad weather increases individual productivity by eliminating potential cognitive distractions resulting from good weather. When the weather is bad, individuals may focus more on their work rather than thinking about activities they could engage in outside of work. We tested our hypotheses using both field and lab data. First, we use field data on employees’ productivity from a mid-size bank in Japan, which we then match with daily weather data to investigate the effect of bad weather conditions (in terms of precipitation, visibility, and temperature) on productivity. Second, we use a laboratory experiment to examine the psychological mechanism explaining the relationship between bad weather and increased productivity. Our findings support our proposed model and suggest that worker productivity is higher on bad rather than good weather days. We discuss the implications of our findings for workers and managers.
Looking Up and Looking Out: Career Mobility Effects of Demographic Similarity among Professionals
Looking Up and Looking Out: Career Mobility Effects of Demographic Similarity among Professionals
Source: Harvard Business School Working Paper
While women and racial minorities have increasingly crossed the threshold into professional service organizations, the path to the top remains elusive. Why do inequalities persist? McGinn and Milkman study processes of cohesion, competition, and comparison by looking at career mobility in a single up-or-out professional service organization. Findings show that higher proportions of same-sex and same-race superiors enhanced the career mobility of junior professionals. On the flip side, however, higher proportions of same-sex or same-race peers increased the likelihood of women’s and men’s exit and generally decreased their chances of promotion. This research highlights how important it is to look at both cooperative and competitive effects of demographic similarity when trying to address the problem of persistent underrepresentation of women and minorities at the highest levels in organizations. Key concepts include:
- Social comparisons lead to measurable effects on individuals’ careers, in turn shaping the demographic composition at the top of professional service organizations.
- Organizations should attend to the ways in which policies and practices invoke competition and comparison within demographic categories.
- Clustering same-race or same-sex junior employees to provide an increased sense of community may have the opposite effect of that desired, unless accompanied by senior professionals’ active sponsorship of juniors across demographic lines.
- Attempts to design employment practices that are blind to the demographics of candidates are likely to succeed only if all candidates perceive and receive equal mentoring, sponsorship, and peer support regardless of their race and gender.
- Among peers, the potentially positive role for social cohesion could be compromised by minimal interaction in day-to-day work, while limited opportunities for choice assignments and promotion lend a distinctly competitive edge to the work environment. Junior professionals perceive that they are easily replaced by peers.
When Performance Trumps Gender Bias: Joint versus Separate Evaluation
When Performance Trumps Gender Bias: Joint versus Separate Evaluation (PDF)
Source: Harvard Business School Working Papers
We examine a new intervention to overcome gender biases in hiring, promotion, and job assignments: an “evaluation nudge,” in which people are evaluated jointly rather than separately regarding their future performance. Evaluators are more likely to focus on individual performance in joint than in separate evaluation and on group stereotypes in separate than in joint evaluation, making joint evaluation the money-maximizing evaluation procedure. Our findings are compatible with a behavioral model of information processing and with the System 1/System 2 distinction in behavioral decision research where people have two distinct modes of thinking that are activated under certain conditions.
Signs of a Turnaround in the U.S. Housing Market: 2012 State of the Nation’s Housing Report Released
Signs of a Turnaround in the U.S. Housing Market: 2012 State of the Nation’s Housing Report Released
Source: Joint Center for Housing Studies, Harvard University
From press release (PDF):
Housing markets are showing signs of reviving, concludes The State of the Nation’s Housing report released today by the Joint Center for Housing Studies of Harvard University. “While still in the early innings of a housing recovery, rental markets have turned the corner, home sales are strengthening, and a floor is beginning to form under home prices,” says Eric S. Belsky, Managing Director of the Joint Center for Housing Studies. “With new home inventories at record lows, unless the broader economy goes into a tailspin, stronger sales should further stabilize prices and pave the way for a pickup in single-family housing construction over the course of 2012.”
Rental markets are on the mend thanks to sharp drops in construction and an increase of over 4.4 million renters since 2005. Rental vacancy rates are falling, rents are increasing, and multifamily construction is up solidly. In contrast, the nation’s homeownership rate continues to slide.
“Surveys consistently find that the overwhelming majority of young adults plan to own a home in the future, but many would-be buyers have stayed on the sidelines waiting for the job outlook to improve and house prices to stop falling,” says Belsky. “But as markets tighten, these fence-sitters may begin to take advantage of today’s lower home prices and unusually low mortgage rates. With rents up, home prices sharply down, and mortgage interest rates at record lows, monthly mortgage costs relative to monthly rents haven’t been this favorable since the early 1970s.”
While gaining ground, the homeowner market still faces a number of challenges, the Harvard report cautions. The backlog of roughly two million homes in the foreclosure process will keep distressed sales elevated and could keep price increases in check in places hardest hit by foreclosures. At the same time, growth may remain muted due to the more than 11 million homeowners who owe more on their mortgages than their homes are worth. These owners cannot sell without incurring a loss and have no home equity to borrow against to fund major remodels.
“What the housing sector needs is a sustained increase in jobs to bring household growth back to its long-term pace and spur demand,” says Chris Herbert, Director of Research at the Joint Center for Housing Studies. “The country has seen new household formations fall well below expected long-run rates due to a falloff in young adults being able to move out on their own and a slowdown in net immigration. Even in 2011, fewer than 700,000 households were added and that’s well below the 1.2 million or more annual trend expected under more normal economic conditions.”
Corporate Social Responsibility and Access to Finance
Corporate Social Responsibility and Access to Finance (PDF)
Source: Harvard Business School Working Papers
In this paper, we investigate whether superior performance on corporate social responsibility (CSR) strategies leads to better access to finance. We hypothesize that better access to finance can be attributed to a) reduced agency costs due to enhanced stakeholder engagement and b) reduced informational asymmetry due to increased transparency. Using a large cross-section of firms, we find that firms with better CSR performance face significantly lower capital constraints. Moreover, we provide evidence that both of the hypothesized mechanisms, better stakeholder engagement and transparency around CSR performance, are important in reducing capital constraints. The results are further confirmed using an instrumental variables and a simultaneous equations approach. Finally, we show that the relation is driven by both the social and the environmental dimension of CSR.
Isolated Capital Cities, Accountability and Corruption: Evidence from US States
We show that isolated capital cities are robustly associated with greater levels of corruption across US states. In particular, this is the case when we use the variation induced by the exogenous location of a state’s centroid to instrument for the concentration of population around the capital city. We then show that different mechanisms for holding state politicians accountable are also affected by the spatial distribution of population: newspapers provide greater coverage of state politics when their audiences are more concentrated around the capital, and voter turnout in state elections is greater in places that are closer to the capital. Consistent with lower accountability, there is also evidence that there is more money in state-level political campaigns in those states with isolated capitals. We find that the role of media accountability helps explain the connection between isolated capitals and corruption. In addition, we provide some evidence that this pattern is also associated with lower levels of public good spending and outcomes.
See: Researchers Find Link Between Isolated State Capitals, Corruption (NPR)
Clear and Present Danger: Planning and New Venture Survival Amid Political and Civil Violence
Clear and Present Danger: Planning and New Venture Survival Amid Political and Civil Violence
Source: Harvard Business School
Strategy theory often takes for granted the role of state institutions in providing stable, predictable environments in which new firms are founded. Yet, many states around the world (such as Iraq, Sudan, South Sudan, Syria, and the Democratic Republic of Congo) lack political institutions of sufficient strength to ensure personal safety and public order, thereby creating environments where civil and political violence can ferment. This paper explores the impact of such violence on new venture processes. Results show that comprehensive planning was negatively correlated with venture survival in such environments. While there are implications for strategy theory, the study is also relevant to entrepreneurs and organizations promoting new venture planning in less-developed countries, particularly those experiencing political and civil turmoil. Currently, prospective entrepreneurs are taught the importance of business planning by both universities and non-governmental organizations that offer entrepreneurial training. But this study suggests that such training will have mixed effects on new venture survival, depending on the extent to which these entrepreneurs pursue ventures in violent and uncertain environments. In such contexts where governments fail to maintain public safety and order, these training programs may actually increase the likelihood of new venture failure. Key concepts include:
- This paper theorizes and tests how contexts characterized by weak political institutions and ensuing high levels of violence create uncertain and unpredictable environments that alter entrepreneurial behavior and disrupt resource flows and organizational routines, thereby increasing new venture failure rates.
- In contexts of high uncertainty as a result of violence, the benefits of comprehensive planning vanish as prior predictions become obsolete and even harmful to venture survival.
- Strategy theories often assume specific types of environments. But it is important to consider carefully the macro institutional factors.
+ Full Paper (PDF)
Competition and Illicit Quality
Competition and Illicit Quality
Source: Harvard Business School Working Papers
Competition is typically thought to generate many positive outcomes including lower prices and higher productivity. But competition can also lead firms to increase quality for their customers in ways that are both illegal and socially costly. This paper examines the impact of competition on the vehicle emissions testing market, and finds that firm misconduct increases with competitive pressure and the threat of losing customers to rival firms. These results have serious implications for policy makers and managers. This paper is among the first to empirically demonstrate that increased competition can motivate firms to provide illicit quality to avoid losing business. Key concepts include:
- Firms seeking to enforce legal and ethical conduct among managers and employees must be especially vigilant when operating in highly competitive markets.
- Increased competition within markets may encourage competitors to cross legal boundaries in ways that threaten the profits of legally compliant firms.
- In the absence of effective monitoring by government institutions, firms may benefit from privately monitoring their competitors’ behavior to ensure that rivals do not maintain a competitive advantage through illicit actions.
- Policy makers must carefully consider the optimal market structure for industries in which illicit actions yield cost reductions or are demanded by customers. While competition may yield lower prices and better choice for customers, it may also bring the increased social costs of illegal behavior by firms.
- Since managers may be under considerable pressure to cross legal and ethical lines when market competition is high, avoiding government sanctions requires top managers and owners to strengthen monitoring and governance mechanisms to ensure legal compliance.
- Managers must understand that government policy, firm decisions, or exogenous factors that increase market rivalry may necessitate the monitoring of competitors’ behavior. The failure to do so may allow these rivals to gain advantage through illicit strategies, particularly under institutional regimes where regulatory monitoring or enforcement is weak.
+ Full Paper (PDF)
HBS — Most Popular Articles of 2011
You, our readers, are especially hungry for information about individual leadership, according to a tally of the most-read feature stories and faculty working papers over the past year, half of which focused either on how to be a better leader or on the factors that lead some leaders to behave badly. Other apparent areas of interest in the last 12 months included corporate social responsibility, marketing techniques, and, of course, the ubiquitous Lady Gaga.
Here are the Top 10 most-read articles and 10 most-read working papers that appeared in HBS Working Knowledge in 2011. As you reflect on the trends of yesteryear, we ask that you also turn your thoughts to 2012. What do you think will be the top areas of concern for managers in the coming months? Please share your thoughts in the comments section, and have a happy new year!
