Information will be updated throughout the summer and fall.

Accounting & Management

Shelley Xin Li

Boss, Cut Me Some Slack – Employee-initiated Innovation and Execution Task Time Constraints
Prior literature in motivating innovation has largely ignored the problem of motivating innovation in the presence of existing execution tasks - a typical problem in real-world organizations. Looking inside the “black box” of a firm, this paper examines the conditions under which loosely enforcing time constraints on execution tasks is associated with a higher probability of employees initiating bottom-up innovations. Using archival data from a software company, I find that loosely enforcing the time constraints on execution tasks is significantly associated with a higher probability of self-initiated innovation at the employee level after controlling for project and individual characteristics. Consistent with the economic theory of relational contract, this effect is more positive when: (1) the looser enforcement of time constraints is likely to be anticipated by employees; (2) the supervisor values innovation; (3) the employee has a pre-existing preference for innovation. I find no statistically significant association between loosely enforcing time constraints on execution tasks and self-initiated innovation in the absence of the above conditions. Together, these findings suggest the important role of informal management control mechanisms in facilitating innovation.
Faculty Advisor(s): D. CampbellS. Datar, and V. Narayanan

Sa-Pyung (Sean) Shin

Takeover Defenses in the Era of Shareholder Activism
This paper examines the interplay between takeover defenses and shareholder activism. Using a comprehensive sample of shareholder activism events between 2006 and 2014, I find that a poison pill in place attracts activism whereas firms with a staggered board or a dual-class structure are less likely to become targets. In terms of demands, activists are more likely to demand removal of takeover defense measures and/or sale of the target firm if the firm has a staggered board or a poison pill in place, suggesting that when takeover defenses block the market for corporate control, activists promote changes through their interventions. I also find that target firms with takeover defenses are more likely to remove those defenses and more likely to be acquired following activism, which suggests that activism can act as an antidote to takeover defenses. Finally, while many target firms adopt a poison pill in response to activist approach, it does not turn out to make for an effective defense.
Faculty Advisor(s): S. SrinivasanP. Healy, and I. Gow

Business Economics

Elizabeth Cook-Stuntz

Daughters of Rosie the Riveter: Intergenerational Shocks to Labor Force Participation
World War II had a great impact on the United States, affecting even those Americans left at home during the war. Women were drawn into the workforce in unprecedented numbers and into atypical occupations before returning home to raise the Baby Boomers. The daughters born after World War II became the Quiet Revolution, women who changed the face of the female labor force by pursuing higher education and careers, as opposed to jobs. My research analyzes whether cultural changes during World War II helped to create this trend in Baby Boomer employment. I use data on war manufacturing infrastructure and draft rates to predict whether a woman's mother was affected by World War II's altered labor force. My analysis shows that these pre-war variables increased Baby Boomer women's education but not their labor force participation. The primary effect is on the attainment of a college degree, which is consistent with the Quiet Revolution. I also construct a measure of predicted WWII plants using pre-war infrastructure in order to remove any issues regarding war plants’ possibly endogenous decisions to locate where women were particularly amenable to work. Analysis comparing the effects of parent’s WWII experiences shows that only mothers and mother-in-laws have a significantly positive effect on a woman’s education decisions.
Faculty Advisor(s): C.GoldinJ. Green, and N.Nunn

Rohan Kekre

Unemployment Insurance in Macroeconomic Stabilization
Does the generosity of unemployment insurance (UI) have a role to play in macroeconomic stabilization? When inefficient fluctuations can be traced to nominal rigidities and constraints on monetary policy, I demonstrate that it does, owing to the interaction between UI and aggregate demand. From a positive perspective, a marginal increase in UI generosity affects macroeconomic aggregates through the effect of redistribution on aggregate demand, which is sufficient to characterize the effect on output in an important benchmark case. From a normative perspective, two forces determine optimal UI generosity beyond the classic trade-off between insurance and incentives: an aggregate demand externality and the effect of low aggregate demand on the incentive cost of UI. The redistribution effect and aggregate demand externality are governed by the same statistic: the difference in marginal propensities to consume between the unemployed and employed. Quantitatively, a calibrated model with search frictions, incomplete markets, and a binding zero lower bound suggests that the 2008-13 UI benefit extensions in the U.S. had important stabilization effects through these channels. Compared to counterfactual benefit durations capped at 9 months in the calibrated model, the extensions to 22 months prevent a 2-5 percentage point rise in the unemployment rate and generate a strict Pareto improvement. Does the generosity of unemployment insurance (UI) have a role to play in macroeconomic stabilization? When inefficient fluctuations arise from nominal rigidities and constraints on monetary policy, I demonstrate that it does, owing to the interaction between UI and aggregate demand. From a positive perspective, a marginal increase in UI generosity affects output and employment through a redistribution effect on aggregate demand. From a normative perspective, two forces determine optimal generosity beyond the classic trade-off between insurance and incentives: an aggregate demand externality and an effect of low aggregate demand on the social cost of disincentives. The aggregate demand externality summarizes the welfare impact of the redistribution effect when the economy is slack; both are governed by the difference in marginal propensities to consume between the unemployed and employed. Quantitatively, a calibrated model with search frictions, incomplete markets, and a binding zero lower bound suggests that the 2008–13 UI benefit extensions in the U.S. had important stabilization effects through these channels. Compared to counterfactual benefit durations capped at 9 months in the calibrated model, the extensions to 22 months prevent a 2-5 percentage point rise in the unemployment rate and generate a strict Pareto improvement.
Faculty Advisor(s): E. FarhiG.Gopinath R.Chetty, and G.Chodorow-Reich

Benjamin Lockwood

Present Bias and the Optimal Taxation of Low Incomes
Labor effort often entails up-front costs in exchange for delayed benefits: pay periods are intermittent, effort may be verifiable only after time, and on-the-job training may raise future productivity. Such delays imply that present biased individuals may be tempted to work too little. Sophisticated individuals can mitigate this temptation by entering labor commitment contracts with employers, e.g., by promising to work 40 hours per week. This paper presents a model in which individuals sign such contracts with employers, and in which a social planner can employ a nonlinear income tax to improve welfare. Under general conditions, labor commitment contracts can be sustained only if a worker’s outside option (job loss) is sufficiently unattractive relative to employment. As a result, workers with low wages or high risk of job turnover may be unable to sustain their private optimum. A guaranteed basic income, of the kind deemed optimal in standard redistributive tax models, exacerbates this problem. In this environment, a stark result emerges: negative marginal tax rates are optimal at low incomes. This result provides a rationale for work subsidies such as the Earned Income Tax Credit, and may provide guidance about how to structure redistribution in the face of growing wage inequality. A calibrated model of the US economy gives rise to an optimal tax schedule with negative marginal tax rates on low incomes which are comparable to the EITC.
Faculty Advisor(s): R. ChettyN. HendrenD. Laibson, and M. Weinzierl

Filippo Mezzanotti

Roadblock to Innovation: The Role of Patent Litigation in Corporate R&D
The recent spike in patent litigation raises concerns about the ability of the current intellectual property system to effectively promote innovation. Using a difference-in-difference design around the 2006 Supreme Court decision “eBay vs. MercExchange,” I examine how patent enforcement can reduce the negative effects of litigation on firms’ innovation. This ruling was intended to curb abusive patent lawsuits by providing more flexibility in the way courts remedy patent violations. I estimate the causal impact of the decision by comparing firms that were differentially affected by the shock, measured by exogenous firm-level exposure to patent litigation before 2006. Across a large sample of innovative firms, the decision led to an increase in the quality and quantity of patenting and, for public firms, in R&D investment. Then, I show that patent litigation reduces investment in innovation by lowering the returns from R&D and by exacerbating financing constraints. This evidence confirms that patent litigation plays an important role in hindering innovation, and therefore that adjustments in the enforcement of patent law can have sizable effects on R&D.
Faculty Advisor(s): J. LernerD. ScharfsteinA.Shleifer, and J. Stein

Bryce Millett Steinberg

Drought of Opportunities: Contemporaneous and Long-Term Impacts of Rainfall Shocks on Human Capital (with Manisha Shah).
Higher wages are generally thought to increase human capital production, particularly in the developing world. We introduce a simple model of human capital production in which investments and time allocation differ by age. Using data on test scores and schooling from rural India, we show that higher wages increase human capital investment in early life (in utero to age 2) but decrease human capital from ages 5-16. Positive rainfall shocks increase wages by 2% and decrease math test scores by 2-5% of a standard deviation, school attendance by 2 percentage points, and the probability that a child is enrolled in school by 1 percentage point. These results are long-lasting; adults complete 0.2 fewer total years of schooling for each year of exposure to a positive rainfall shock from ages 11-13. We show that children are switching out of school enrollment into productive work when rainfall is higher. These results suggest that the opportunity cost of schooling, even for fairly young children, is an important factor in determining overall human capital investment.
Faculty Advisor(s): M.KremerE.Glaeser, and N. Ashraf

Thomas Powers

The Commodity Currency Puzzle
Commodity-exporting countries have persistently high real interest rates and currency excess returns. To explain this fact, I appeal to a classic idea: labor cost disease. Commodity booms raise wages in exporter countries, and thus make local goods and services less affordable, raising the cost of living (real exchange rate). Because the real exchange rate moves procyclically with commodity prices, it inherits a commodity risk premium that resolves the puzzle. Using a rare-disaster setup, I show that a stochastic, international business cycle model, with local labor used as a factor of production, can quantitatively match observed commodity currency risk premia. The model's predictions about the co-movement of commodity prices and exchange rates, the cross-section of risk premia, and the dynamics of labor costs, are also consistent with the data. Finally, to understand the impact of monetary policy, I build a New Keynesian, sticky-wage extension. Policy choices (for example, a credible peg) can reduce the risk premium on the real exchange rate, but at the cost of bigger output gaps.
Faculty Advisor(s): J.Campbell (Chair), L. ViceiraM.Maggiori, and K.Rogoff

Francisco Queiro

The Effect of Manager Education on Firm Growth
This paper shows that firm growth increases strongly with manager education using administrative data on the universe of firms and workers in Portugal. Among firms with college educated managers, the average 40-year old firm employs 12 times as many workers as the average entrant, while among firms with primary-school educated managers that ratio is below two. The same pattern holds when tracking a cohort of firms over time and sorting them by manager education at entry. Consistent with the cross-sectional findings, firms that switch to more educated managers experience a sharp increase in growth relative to comparable firms, and I present evidence that indicates the increase is driven by education itself rather than other manager characteristics correlated with education. Turning to possible mechanisms, I find that the results are stronger in high tech sectors and for managers with degrees in engineering, science, health and business. More educated managers also reduce worker turnover, increase the use of incentive pay and are more likely to report that their products and services are new and incorporate new technologies. These findings suggest that the effect operates through technology adoption and human resource management. I conclude by calibrating a model of heterogeneous firms to explore the aggregate implications of differences in manager education. Moving from the distribution of manager education in Portugal to that of the U.S. would raise aggregate productivity by about 20 percent, accounting for one third of the gap in output per capita between the two countries.
Faculty Advisor(s): A.ShleiferJ. LernerL.Katz, and A.Alesina

John Zhou

Sophisticated Trading and Market Efficiency: Evidence from Macroeconomic News Announcements
This paper studies how the views of sophisticated traders are impounded into stocks and bonds around macroeconomic news announcements. I find evidence that sophisticated traders trade on predictions of macroeconomic news reports before announcements and obtain their informational advantage using public information. Specifically, consensus forecasts of upcoming data releases suffer from anchoring bias and overweight past data releases. By correcting this bias, sophisticated traders can predict news reports. The results suggest that stock and bond markets are inefficient in this setting. Over time, there is a late trading puzzle: sophisticated traders can predict news reports days before announcements but appear to trade these predictions into stock and bond prices just hours before announcements. Across assets there is a related puzzle: the predictable component of news reports is eventually fully impounded into bonds but only partially impounded into stocks. Stocks but not bonds react to announcements of the predictable component and display return momentum. Using a model, I argue that market inefficiency can arise when unsophisticated traders neglect public information that predicts news reports, and risk management concerns deter sophisticated traders from acting on their informational edge. Trading earlier and trading riskier assets such as stocks exposes sophisticated traders to greater risk. As a result, sophisticated traders wait to trade and trade safer assets such as bonds.
Faculty Advisor(s): J.CampbellR. GreenwoodJ. Stein, and O.Lamont

Health Policy (Management)

Hummy Song

Public Relative Performance Feedback in Complex Service Systems: Improving Productivity through the Adoption of Best Practices
Managers of service organizations seek to improve productivity without eroding service quality. We explore whether privately versus publicly disclosing relative performance feedback (RPF) about individual workers’ processing times can help achieve this goal. Using three years of patient encounter data from two emergency departments, one of which changed from privately to publicly disclosing RPF to physicians, we find an 8.6% improvement in productivity and no significant reduction in quality associated with implementing public RPF. This benefit is greater when workers are carrying out unstandardized, rather than standardized, tasks. We conduct further analyses that suggest the benefit of public RPF may primarily stem from the identification and diffusion of best practices around workflow, rather than from the motivation to be top-ranked or the shame of being bottom-ranked. Thus, our results suggest public RPF can foster the sharing and adoption of strategies for improving the management of workflow.
Faculty Advisor(s): R. Huckman (Co-Chair), A. Tucker (Co-Chair), R. Buell, and S.Singer


Patricia Satterstrom

Using Multi-disciplinary Teams to Renegotiate Power in Hierarchical Organizations
Power hierarchies are ubiquitous and difficult to change, reinforced by conscious and unconscious factors as well as social-structural systems. There is evidence that power structures can change, yet we know little about the micro-processes that unfold over time that help create such change. My dissertation is based on a 31-month longitudinal inductive study of “change teams” in primary health care clinics. These teams were specifically charged with moving their organization from a hierarchical structure to a more team-based structure. Through close observation of their weekly team meetings, coupled with extensive interviews and examination of archival data, I identify the in situ moments in a team’s life when members provide information that could, over time, undermine taken-for-granted assumptions about power distribution. I induce a process theory of how small openings, which I call microwedges, allow the team to form a different understanding of how they can engage with each other and their work, relying less on hierarchy and more on individuals’ skills, experience, and interests. My dissertation extends and generates theory about power, empowerment, and heterarchy (power transitions) in teams. It also has practical implications for how team members experience and engage with power differences, how they alter power structures in their own teams, and how they can help their organizations engage more fluidly with power.
Faculty Advisor(s): J. Polzer (Chair), L. PerlowA. KnightH.Gardner, and S. Singer

Luciana Silvestri

Trajectories in Identity and Organization
My dissertation explores the microfoundations of organizing in fast-paced industries. In particular, it examines the co-evolution between role identity and organizational structure through a 2-year longitudinal, qualitative-inductive, multi-level study conducted at a leading social media company. In my first paper, I seek to explain how an evolving sense of who I am (alternatively,who we are) becoming in a role shapes the structural mechanisms that make enacting the role possible. I analyze how individuals’ role identity trajectories enable the discovery of new tasks, interdependencies, and linkages over time, and how these trajectories help co-construct the units’ identity and area of influence in the organization. In the second paper, I examine how the threat of a reorganization prompts units to surface hidden tasks, interdependencies, and linkages, and to seek legitimacy for enhanced roles and role identities from different audiences within the organization. Lastly, in the third paper I analyze how individuals attempt to reorient their identity trajectories when a reorganization irreversibly alters the structural conditions that support their role. I examine how reorganizations make individuals’ role identity trajectories in the role salient (who have I / who have we become thus far in this role?) and raise concerns regarding the continuity of one’s sense of self at work (who will I / who will we become as the role changes?).
Faculty Advisor(s): R. Gulati (Chair), M. Tushman, and R. Ely


Kate Barasz

Pseudo-Set Framing
Five studies demonstrate that arbitrarily grouping items or tasks together as part of an apparent “set” motivates people to reach perceived completion points: to finish a pseudo-set. We use both verbal (e.g., “there are four tasks in every set”) and visual cues (e.g., a four-slice pie chart that “fills in” as tasks are completed) to show that pseudo-set framing affects task completion patterns. Specifically, pseudo-set framing alters perceptions of completeness, making intermediate progress (e.g., “3 of 4 tasks done”) seem less complete; in turn, this feeling of incompleteness motivates people to persist until the pseudo-set has been fulfilled. Pseudo-set framing changes giving behavior (Studies 1 and 5), effort (Studies 2 and 3), and gambling (Study 4). The effects persist in the absence of any reward, when a cost must be incurred, and even when participants are explicitly informed that set size is completely arbitrary.
Faculty Advisor(s): M. Norton (Chair), L. John, and J. Gourville

Pavel Kireyev

Prize Allocation and Entry in Ideation Contests
Contests are a popular mechanism for the procurement of creative innovation. In marketing, firms often organize contests online, offering prizes to encourage competition and solicit high-quality ideas for ads, new products, and even marketing strategies from participants. I empirically investigate the impact of the number of prizes, prize amount and submission limit on participation and quality outcomes in ideation contests using data from a popular marketing crowdsourcing platform. I develop a structural model of participant entry and sponsor choice in contests with multiple prizes and heterogeneous participants. Counterfactual simulations reveal the impact of design parameters on participation and quality outcomes: multiple prizes discourage stronger participants and encourage weaker participants but do not have a substantial impact on outcomes in contests that attract a large number of submissions; a larger prize increases expected maximum, total and average idea quality but may not substantially increase participation; a submission limit increases the number of entrants but reduces expected maximum and total idea quality. The results provide guidance for the optimal design of ideation contests.
Faculty Advisor(s): E. OfekS. Gupta, and A. Pakes

Bhavya Mohan

Lifting the Veil: The Benefits of Cost Transparency
A firm’s costs are typically tightly-guarded secrets. However, across a field study and six laboratory experiments we identify when and why firms benefit from revealing unit cost information to consumers. A natural field experiment conducted with an online retailer suggests that cost transparency boosts sales. Six subsequent controlled lab experiments replicate this basic effect (Studies 2-6) and provide evidence for why it occurs: just as interpersonal disclosure of intimate information increases attraction, cost transparency by a firm increases brand attraction, in turn boosting consumer purchase interest. This relationship persists even after controlling for perceptions of price fairness and product quality (Study 3). Study 4 suggests that the beneficial effect of cost transparency holds when firms spend more on “less desirable” costs relative to “more desirable” costs. Studies 5-6 show that the effect of cost transparency weakens when high profit margins are made salient. Finally, Study 7 shows that the beneficial effect reverses (i.e. cost transparency backfires) when it is revealed that a firm’s profit margins are high relative to those of its competitors.
Faculty Advisor(s): R. Deshpande (Chair), R. Buell, and L. John

Lingling Zhang

The Two Faces of Size: An Analysis of Price Bargaining and Platform Competition in the US Daily Deal Market
The platform—a business model that creates value by connecting groups of users—is increasingly popular in many industries. Extant papers largely assume that platforms dominate the pricing decision, whereas in practice, prices in business-to-business transactions are often determined by a bargaining process. We study how the relative bargaining power of business partners affects pricing and competition in a two-sided market. We compile a unique and comprehensive dataset using sales data from the US daily deal market and specify a structural model based on Nash bargaining solutions. We find that Groupon, the larger deal platform, has more price-bargaining power than LivingSocial and that larger and chain merchants have more bargaining power than smaller and independent merchants. The difference in bargaining power between different types of merchant, interestingly, is more substantial on LivingSocial than on Groupon. Therefore, the size of a platform plays a double-edged role: while a larger customer base helps attract merchants, the platform’s bargaining power may motivate some merchants to also work with its smaller competitors, over which they have more influence on price setting. Our counterfactual results show that the allocation of price-bargaining power plays an important role in the daily deal markets and that the merchants are significantly worse off if the platforms dominate the pricing decision. We also estimate how much a platform might overspend on acquiring a merchant if the platform’s salesforce assumes it has more bargaining power than it actually does.
Faculty Advisor(s): D. Chung (Co-Chair), A. Elberse (Co-Chair), and S. Gupta


Megan Lawrence

Re-learning to Restock: The Impact of Prior Experience on Learning-by-Doing
Abstract forthcoming.
Faculty Advisor(s): F. Oberholzer-Gee (Chair), J. AlcacerV. Bennett, and J. Rivkin

Sarah Wolfolds

Competing Business Models, Profit Status, and Regulatory Change: An Empirical Analysis of Microfinance in Latin America
Using the unique setting of microfinance where non-profits and for-profits directly compete in the same industry, this paper investigates how different business models coexist and evolve over time. First, I model the potential objectives of microfinance organizations to develop the hypotheses and motivate the empirical work. Then, using self-reported financial and organizational data from microfinance organizations, this paper utilizes clustering analysis where I find distinct business models, characterized by differences in internal and external organizational and operational choices and outcomes. My results indicate that profit status remains an important characteristic even after clustering on these characteristics, as non-profits are not as capable of transitioning to compete “like a for-profit” following a regulatory change which incentivizes this more profit-oriented business model. The joint use of business model and profit status sheds light on both the business model literature, as profit status is an easily identifiable source of organizational variation to exploit, and on the non-profit literature, as the coexistence of for-profits and non-profits in this industry is less puzzling when one considers the use of distinct business models within an industry.
Faculty Advisor(s): D. Yao (Chair), H. Luo, and J.Siegel

Technology & Operations Management

Budhaditya Gupta

A Recombination Based Internationalization Model: Perspectives from Narayana Health’s Journey from India to the Cayman Islands
In this paper we present a longitudinal study of the expansion of Narayana Health, a healthcare provider, within India and its subsequent development of a tertiary care hospital in the Cayman Islands. Contrary to past research that suggests that the alignment of a firm’s knowledge and practices to the home country context can make internationalization difficult, we explain how the Cayman project benefited from NH’s experiences within India. First, NH sensed how the external context affects its operations and developed context based design capabilities while responding to, and shaping, the institutional context and designing multiple operating models for the different market segments in India. These, in turn, informed and enabled the Cayman project. Second, NH could selectively recombine the select practices and knowledge elements associated with the different models in India while setting up the Cayman hospital. Building on these findings, we develop a recombination-based process model of internationalization that builds on (1) the acquisition of deep understanding of context and a diverse set of knowledge and practices while adapting to the home country context, (2) retention of these elements in organizational memory and finally (3) intelligent retrieval and recombination of select home country elements in the host country. The proposed model is significant as it suggests an effective alternative to the much discussed replication versus adaptation balancing act while developing an operating model in the host country.
Faculty Advisor(s): T. Khanna (Co-Chair), S. Thomke (Co-Chair), and R. McDonald