Faculty & Research

• HBS Book

Business transactions take widely varying forms—from multibillion-dollar corporate mergers to patent licenses to the signing of an all-star quarterback. Yet every deal shares the same goal, or at least should: to maximize the joint value created and to distribute that value among the parties. Building on decades of experience teaching and advising on business deals, Michael Klausner and Guhan Subramanian show how to accomplish this goal through rigorous attention to designing incentives, conveying information, and specifying parties’ rights and obligations.

• Management Science 70, no. 6 (June 2024): 3923–3950

When experience goods compete, consuming one product can be informative about value for similar untried products. We study a two-period model of duopoly competition in markets that have this feature and where firms can price discriminate between consumers based on purchasing history. Price dynamics, firm profits, and consumer surplus depend on how information spillovers shape demand from the consumers who have trialed the rival product—the potential switchers. In the first period, rather than competing intensely for all future profits, firms compete only for the difference in future profits between repeat and switching consumers. Demand-side information spillovers offer an explanation of how competing firms in new product markets can be profitable in all periods even when selling products that are indistinguishable ex ante.

• Race, Gender, & Equity Initiative

We explore how feedback shapes, and perpetuates, gender gaps in self-assessments. Participants in our experiment take tests of their ability across different domains. We elicit their beliefs of their performance before and after feedback. We find that, even after the provision of highly informative feedback, gender stereotypes influence posterior beliefs, beyond what a Bayesian model would predict. This is primarily because both men and women update their beliefs more positively in response to good news when it arrives in a more gender congruent domain (i.e., more male-typed domains for men, more female-typed domains for women), fueling persistence in gender gaps.

• Featured Case

This case study explores how the VINCI Group, a French multinational operating in concessions, energy, and construction, bolstered awareness and adoption rates of new technologies within the organization. Through its separate innovation hub, Leonard, VINCI aimed to foster learning, creation, and experimentation to improve the group's day-to-day activities. However, while the company's highly decentralized structure encouraged entrepreneurial innovation, some argued it hindered collaboration by fostering internal competition instead. Were there opportunities being overlooked because of this structure? And how could Leonard continue to promote innovation in such a large group?

• Featured Case

This case study explores the opportunities and challenges of the digital transformation journey of French wine and spirits company Pernod Ricard. As part of the transformation, the company launched four key digital programs (KDPs) aimed at using data and artificial intelligence to automate processes and drive data-driven decision-making. The case primarily focused on two of these: D-STAR, a sales recommendation system, and Matrix, a tool that optimized the allocation of advertising spend across brands. The company’s future direction with the KDPs depended on addressing resistance, providing effective training and support, aligning with strategic goals, and overcoming logistical and data-related hurdles. The company needed to find a way to expand the KDPs further into new markets while reinforcing adoption where the KDPs had already been launched, and the decisions made would shape the path forward.

• HBS Working Paper

We study the consequences of state-level price (rate) regulation for U.S. homeowners' insurance, a $15 trillion market that provides households protection against climate losses. Using two distinct identification strategies and novel data on regulatory filings and ZIP code level rates, we find that insurers in more regulated states adjust rates less frequently and by a lower magnitude after experiencing losses. Importantly, they overcome these rate-setting frictions by adjusting rates in less regulated states, consistent with insurers cross-subsidizing across states. In the long-run, these behaviors lead to a decoupling of rates from risks, implying distortions in risk sharing across states.

• Working Paper

We introduce a framework to understand and quantify a form of liquidity risk that we dub Liquidity After Solvency Hedging or “LASH” risk. Financial institutions take LASH risk when they hedge against losses, using strategies that lead to liquidity needs when the value of the hedge falls, even as solvency improves. We focus on LASH risk relating to interest rate movements. Our framework implies that institutions with longer duration liabilities than assets—e.g. pension funds and insurers—take more LASH risk as interest rates fall, because solvency concerns rise in a low rate environment. Using UK regulatory data from 2019-22 on the universe of sterling repo and swap transactions, we measure, in real time and at the institution level, LASH risk.for the non-bank sector. We find that at peak LASH risk, a 100bps increase in interest rates would have led to liquidity needs close to the cash holdings of the pension fund and insurance sector