Lucy White
Associate Professor of Business Administration
Lucy White joined the finance group at Harvard Business School in 2002. She has taught the two required finance courses in the first year of the M.B.A. programme, and currently teaches the optional second-year advanced corporate finance course “Corporate Financial Management.” Professor White received her B.A. in Philosophy, Politics and Economics, and her M.Phil. in Economics, from the University of Oxford; and a D.E.E.Q.A. (European Diploma in Economics) from the University of Toulouse. She gained a doctorate in economics from the University of Oxford in 1999 for her research on Strategic Behaviour under Uncertainty; and a doctorate in finance from the University of Toulouse in 2001 for her Essais en Finance d'Entreprise.
Professor White's research interests are wide-ranging within micro-economic theory, including auctions, bargaining, industrial organisation, banking and corporate finance. Her most recent work focuses on the impact of deposit insurance and capital requirements on risk-taking by banks, especially in light of the new Basel regulations. Her work has been published in top finance and economics journals, such as the Journal of Finance, Econometrica, American Economic Review and the RAND Journal of Economics. Professor White is a Research Fellow of the Centre for Economic Policy Research. She has also consulted part-time for NERA on anti-trust matters.
Lucy White joined the finance group at Harvard Business School in 2002. She has taught the two required finance courses in the first year of the M.B.A. programme, and currently teaches the optional second-year advanced corporate finance course “Corporate Financial Management.” Professor White received her B.A. in Philosophy, Politics and Economics, and her M.Phil. in Economics, from the University of Oxford; and a D.E.E.Q.A. (European Diploma in Economics) from the University of Toulouse. She gained a doctorate in economics from the University of Oxford in 1999 for her research on Strategic Behaviour under Uncertainty; and a doctorate in finance from the University of Toulouse in 2001 for her Essais en Finance d'Entreprise.
Professor White's research interests are wide-ranging within micro-economic theory, including auctions, bargaining, industrial organisation, banking and corporate finance. Her most recent work focuses on the impact of deposit insurance and capital requirements on risk-taking by banks, especially in light of the new Basel regulations. Her work has been published in top finance and economics journals, such as the Journal of Finance, Econometrica, American Economic Review and the RAND Journal of Economics. Professor White is a Research Fellow of the Centre for Economic Policy Research. She has also consulted part-time for NERA on anti-trust matters.
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Article
| Journal of Banking & Finance
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Deposit Insurance and Subsidized Recapitalizations
Lucy White and Alan Morrison
The 2007–2009 financial crisis saw a vast expansion in deposit insurance guarantees around the world and yet our understanding of the design and consequences of deposit insurance schemes is in its infancy. We provide a new rationale for the provision of deposit insurance. In our model the banking sector exhibits both adverse selection and moral hazard, which implies that the social benefits of bank monitoring must for incentive reasons be shared between depositors and banks. Consequently, socially too few deposits are made in equilibrium. Deposit insurance—or, equivalently, bank recapitalization—corrects this market failure. We find that deposit insurance should be funded not by banks or depositors but out of general taxation. The optimal level of deposit insurance varies inversely with the quality of the banking system. Hence, when the soundness of the financial sector is uncertain, governments should consider supporting deposit insurance schemes and undertaking subsidized recapitalizations.
Keywords: Financial Crisis;
Banks and Banking;
Insurance;
Taxation;
Business and Government Relations;
Banking Industry;
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Article
| RAND Journal of Economics
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Competition for Scarce Resources
Peter Eso, Volker Nocke and Lucy White
We model a downstream industry where firms compete to buy capacity in an upstream market that allocates capacity efficiently. Although downstream firms have symmetric production technologies, we show that industry structure is symmetric only if capacity is sufficiently scarce. Otherwise it is asymmetric, with one large, "fat," capacity-hoarding firm and a fringe of smaller, "lean," capacity-constrained firms. As demand varies, the industry switches between symmetric and asymmetric phases, generating predictions for firm size and costs across the business cycle. Surprisingly, increasing available capacity can cause a reduction in output and consumer surplus by resulting in such a switch.
Keywords: Competitive Strategy;
Natural Environment;
Technology;
Production;
Business Cycles;
Forecasting and Prediction;
Cost;
Demand and Consumers;
Industry Structures;
Performance Capacity;
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Article
| International Journal of Industrial Organization
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Vertical Merger, Collusion, and Disruptive Buyers
Volker Nocke and Lucy White
In a repeated game setting of a vertically related industry, we study the collusive effects of vertical mergers. We show that any vertical merger facilitates upstream collusion, no matter how large (in terms of capacity or size of product portfolio) the integrated downstream buyer. But a vertical merger with a larger buyer helps more to facilitate upstream collusion than a similar merger with a smaller buyer. This formalizes the idea expressed in the U.S. and EU Non-Horizontal Merger Guidelines that some downstream buyers may be more "disruptive" of collusive schemes than others.
Keywords: Stock Options;
Disruptive Innovation;
Five Forces Framework;
United States;
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Journal Article
| Journal of Finance
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Level Playing Fields in International Financial Regulation
Lucy White and Alan Morrison
We analyze the desirability of level playing fields in international financial regulation. In general, level playing fields impose the standards of the weakest regulator upon the best-regulated economies. However, they may be desirable when capital is mobile because they counter a cherry-picking effect that lowers the size and efficiency of banks in weaker economies. Hence, while a laissez faire policy favours the better-regulated economy, level playing fields are good for weaker regulators. We show that multinational banking mitigates the cherrypicking effect, and reduces the damage that a level playing field causes in the better-regulated economy.
Keywords: Economy;
International Finance;
Multinational Firms and Management;
Governing Rules, Regulations, and Reforms;
Standards;
Banking Industry;
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Article
| RAND Journal of Economics
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Bargaining with Imperfect Enforcement
Lucy White and Mark Williams
The game-theoretic bargaining literature insists on non-cooperative bargaining procedure but allows 'cooperative' implementation of agreements. The effect of this is to allow free-reign of bargaining power with no check upon it. In reality, courts cannot implement agreements costlessly, and parties often prefer to use 'non-cooperative' implementation. We present a bargaining model which incorporates the idea that agreements may be enforced noncooperatively. We show that this has a substantial impact in limiting the inequality of agreements, and results in a non-montonicity of the discount rate. The general need to maintain incentives for co-operation means it may appear that 'other-regarding' elements enter agents' utility functions. This helps us to understand why experimental subjects might begin negotiations anticipating 'fair' bargains. The model also explains why some parties may have incentives to deliberately write incomplete contracts which cannot be enforced in a court of law.
Keywords: Agreements and Arrangements;
Body of Literature;
Contracts;
Motivation and Incentives;
Code Law;
Game Theory;
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Article
| Games and Economic Behavior
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Prudence in Bargaining: The Effect of Uncertainty on Bargaining Outcomes
Lucy White
Keywords: Negotiation;
Risk and Uncertainty;
Outcome or Result;
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Journal Article
| American Economic Review
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Do Vertical Mergers Facilitate Upstream Collusion?
Volker Nocke and Lucy White
We investigate the impact of vertical mergers on upstream firms' ability to collude when selling to downstream firms in a repeated game. We show that vertical mergers give rise to an outlets effect: the deviation profits of cheating unintegrated firms are reduced as these firms can no longer profitably sell to the downstream affiliates of their integrated rivals. Vertical mergers also result in an opposing punishment effect: integrated firms typically make more profit in the punishment phase than unintegrated upstream firms. The net result of these effects in an unintegrated industry is to facilitate upstream collusion. We provide conditions under which further vertical integration also facilitates collusion.
Keywords: Mergers and Acquisitions;
Profit;
Game Theory;
Sales;
Vertical Integration;
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Article
| Journal of Economics & Management Strategy
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Foreclosure with Incomplete Information
Lucy White
Keywords: Behavior;
Decision Making;
Research;
Government Legislation;
Society;
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Article
| American Economic Review
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Crises and Capital Requirements in Banking
Alan Morrison and Lucy White
Keywords: Capital;
Banks and Banking;
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Article
| Econometrica
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Precautionary Bidding in Auctions
Péter Esö and Lucy White
Keywords: Bids and Bidding;
Auctions;
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Article
| Journal of Finance
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Anti-Competitive Financial Contracting: the Design of Financial Claims
Giacinta Cestone and Lucy White
Keywords: Competition;
Finance;
Design;
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Supplement
| HBS Case Collection
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2012
Aqua Bounty Courseware
Lucy White and Steve Burn-Murdoch
Valuation of a pre-revenue biotech company at IPO using probability trees and real option techniques. Company is based in Massachusetts and lists in London on AIM. Products are genetically-modified fast-growing salmon for fish farmers and disease-prevention drugs and diagnostic kits for farmed shrimp.
Keywords: IPO;
valuation;
real options;
decision tree;
biotech;
genetically modified;
salmon;
Entrepreneurship;
Finance;
Agriculture and Agribusiness Industry;
Biotechnology Industry;
North and Central America;
Europe;
South America;
Citation: White, Lucy, and Steve Burn-Murdoch. "Aqua Bounty Courseware." Harvard Business School Spreadsheet Supplement 213-701, October 2012.
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Supplement
| HBS Case Collection
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2011
British Land Spreadsheet Supplement
Lucy White
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Case
| HBS Case Collection
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2010
(Revised from original 2009 version)
Mylan Lab's Proposed Merger with King Pharmaceutical
Lucy White
Perry Capital owns shares in King and, to facilitate approval of the merger, buys shares in Mylan, whilst hedging out its economic exposure to Mylan's share price using derivatives. The price at which Mylan proposes to merge with King is generous to King shareholders, but the merger does not look likely to be approved by Mylan shareholders, who must vote upon it. If Perry can swing the voting in favor of the deal, it will gain handsomely on its King shares without facing any corresponding losses on its Mylan holdings since those are hedged. Carl Icahn, another shareholder in Mylan, opposed the deal and sued Perry for alleged vote buying.
Keywords: Mergers and Acquisitions;
Voting;
Ethics;
Stock Shares;
Investment;
Lawsuits and Litigation;
Ownership Stake;
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Supplement
| HBS Case Collection
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2009
AXA MONY (CW)
Lucy White
Citation: White, Lucy. " AXA MONY (CW)." Harvard Business School Spreadsheet Supplement 209-721, February 2009.
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Teaching Note
| HBS Case Collection
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2007
British Land (TN)
Lucy White
Citation: White, Lucy. " British Land (TN)." Harvard Business School Teaching Note 208-065, November 2007.
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Teaching Note
| HBS Case Collection
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2007
AXA MONY (TN)
Lucy White
Citation: White, Lucy. " AXA MONY (TN)." Harvard Business School Teaching Note 208-063, November 2007.
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Case
| HBS Case Collection
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2007
AXA MONY
Lucy White and Andre F. Perold
AXA's friendly bid for MONY is contested by activist hedge funds suspicious of management's generous change in control contracts. Votes trade after the record date. AXA financed the bid using an unusual conditionally convertible bond which may have affected incentives to trade and vote MONY shares.
Keywords: Bonds;
Ethics;
Bids and Bidding;
Citation: White, Lucy, and Andre F. Perold. " AXA MONY." Harvard Business School Case 208-062, November 2007.
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Case
| HBS Case Collection
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2007
British Land
Lucy White
British Land's shares traded below NAV. Laxey investments tried to force British Land into share buybacks and criticized its corporate governance. Laxey voted borrowed shares at the AGM.
Keywords: Stock Shares;
Valuation;
Property;
Investment;
Corporate Governance;
Real Estate Industry;
London;
Citation: White, Lucy. " British Land." Harvard Business School Case 208-064, November 2007.
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Background Note
| HBS Case Collection
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2006
(Revised from original 2006 version)
Introduction to Valuation Multiples
Robin Greenwood and Lucy White
Outlines the definition and applicability of financial multiples and their relationship to discounted cash flow analysis.
Keywords: Cash Flow;
Valuation;
Citation: Greenwood, Robin, and Lucy White. " Introduction to Valuation Multiples." Harvard Business School Background Note 206-095, October 2006. (Revised from original February 2006 version.)
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Background Note
| HBS Case Collection
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2006
(Revised from original 2004 version)
Decision Trees
Robin Greenwood and Lucy White
This case introduces decision analysis. Using a simple example, it illustrates the use of probability trees and decision trees as tools for solving business problems.
Keywords: Decision Making;
Citation: Greenwood, Robin, and Lucy White. " Decision Trees." Harvard Business School Background Note 205-060, March 2006. (Revised from original December 2004 version.)
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Background Note
| HBS Case Collection
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2004
Subscriber Models
Mihir A. Desai, Robin Greenwood and Lucy White
Introduces the subscriber model as an alternative valuation framework for firms whose revenues can be traced to repeated transactions with customers.
Citation: Desai, Mihir A., Robin Greenwood, and Lucy White. " Subscriber Models." Harvard Business School Background Note 205-061, December 2004.
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Other Unpublished Work
Notes on the Impact of Wealth in Bargaining
Lucy White, Chen-Ying Huang and Alan Morrison
Keywords: Negotiation;
Wealth;
Citation: White, Lucy, Chen-Ying Huang, and Alan Morrison. "Notes on the Impact of Wealth in Bargaining."
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Other Unpublished Work
Inflation Uncertainty and the Wage Bargain
Lucy White and Hans-Joachim Voth
Keywords: Inflation and Deflation;
Risk and Uncertainty;
Wages;
Labor and Management Relations;
Negotiation;
Citation: White, Lucy, and Hans-Joachim Voth. "Inflation Uncertainty and the Wage Bargain."
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Other Unpublished Work
| 2011
Good Cop, Bad Cop: Monitoring and Liquidation Incentives in Corporate Finance
Lucy White and Alexander Guembel
In this paper we examine how the quantity of information generated about firm prospects can be improved by splitting a firm's cash flow into a `safe' claim (debt) and a `risky' claim (equity). The former, being relatively insensitive to upside risk, provides a commitment to shut down the firm in the absence of good news. This commitment provides the latter a greater incentive to collect information than a monitor holding the aggregate claim would have. Thus debt and equity are shown to be complementary instruments in firm finance. We show that stock markets can play a useful role in transmitting information from equity to debt holders. This provides a novel argument as to why information contained in stock prices affects the real value of a corporation. It also allows us to make empirical predictions regarding the relation between shareholder dispersion, market liquidity and capital structure.
Keywords: Borrowing and Debt;
Capital Structure;
Cash Flow;
Equity;
Financial Liquidity;
Financial Markets;
Information;
Motivation and Incentives;
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Other Unpublished Work
| 2007
When the Punishment Must Fit the Crime: Remarks on the Failure of Simple Penal Codes in Extensive-Form Games.
Lucy White, George J. Mailath and Volker Nocke
Keywords: Game Theory;
Law Enforcement;
Failure;
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