April 17, 2019
The Cost of Convenience: Ridehailing and Traffic Fatalities
We examine the effect of the introduction of ridehailing in U.S. cities on fatal traffic accidents. The arrival of ridehailing is associated with an increase of approximately 3% in the number of fatalities and fatal accidents, for both vehicle occupants and pedestrians. Consistent with ridehailing increasing congestion and road usage, we find that introduction is associated with an increase in arterial vehicle miles traveled, excess gas consumption, and annual hours of delay in traffic, as well as new car registrations. These effects persist over time. Back-of-the-envelope estimates of the annual cost in human lives range from $5.33B to $13.24B.
April 3, 2019
Pivoting and Performance of "Scientific" Entrepreneurs: Evidence from a Field Experiment
A classical approach to collecting and elaborating information to make entrepreneurial decisions combines search heuristics such as trial and error, effectuation, and confirmatory search. This paper develops a framework for exploring the implications of a more scientific approach to entrepreneurial decision making. The panel sample of our randomized control trial includes 116 Italian startups and 16 data points over a period of about one year. Both the treatment and control groups receive 10 sessions of general training on how to obtain feedback from the market and to gauge the feasibility of their idea. We teach the treated startups to develop frameworks for predicting the performance of their idea and to conduct rigorous tests of their hypotheses, very much as scientists do in their research. We let the firms in the control group; instead, follow their intuitions about how to assess their idea, which has typically produced fairly standard search heuristics. We find that entrepreneurs who behave like scientists perform better, pivot to a greater extent to a different idea, and do not drop out less than the control group in the early stages of the startup. These results are consistent with the main prediction of our theory: a scientific approach improves precision – it reduces the odds of pursuing projects with false positive returns, and increases the odds of pursuing projects with false negative returns.
March 27, 2019
Pivoting and Performance of "Scientific" Entrepreneurs: Evidence from a Field Experiment
Only a small share of employers in high-wage locations procure services from abroad. We document heterogeneous employer adoption of an online labor market that facilitates trade in tasks with global workers. Job vacancies posted by experienced employers who have adopted the market are twice as likely to be filled, and this difference is unrelated to the set of available job applicants or their wages. Instead, hiring demand from experienced employers shifts outward for two reasons that we identify using exogenous variation in workers’ wage bids. First, their value for hiring in the market increases—a form of learning-by-doing. Second, experienced employers omit the low-value employers who leave the market. Employers appear to learn their value for online hiring only by trying it out, and new employers’ adoption decisions are relatively insensitive to wage rates. Larger firms have lower estimated values for the market. The results suggest that employers’ willingness to fragment and outsource production at the task level, rather than the quality of the available online workforce, limits the growth of the gig economy.
March 20, 2019
Winner Take-All Dynamics Revisited: Poitive Feedback When Earlier Adopters' Influence Decays
The literature on network effects has a longstanding controversy regarding the unappealing possibility that markets may lock into an inferior technology. This controversy and confusion was triggered by Arthur’s (1989) model of winner-take-all dynamics driven by positive feedback (success begets more success) in markets with competition between incompatible technologies. In reality, however, even when positive feedback is rather apparent, incompatible technologies sometimes persist with no clear-cut winner-take-all outcome. We believe the confusion stems from an implicit assumption in Arthur’s model — the influence of adopters persists indefinitely. We shed new light on this controversy by examining the implications of influence that decays over time. Our model exhibits what statistical physicists call a “critical slowing down” in the vicinity of a critical influence decay level. Despite the existence of positive feedback, influence decay triggers a protracted period of technology competition, which provides the opportunity for the market to redress premature lock-in to an inferior technology.
October 30, 2018
Developing Novel Drugs
October 24, 2018
Firms may acquire innovative targets to discontinue the development of the targets’ innovation projects in order to preempt future competition. We call such acquisitions “killer acquisitions.” We develop a parsimonious model and provide empirical evidence for this phenomenon in drug development by tracking detailed project-level development histories of more than 35,000 drug projects. We show theoretically and empirically that acquired drug projects are less likely to be continued in the development process, and this result is particularly pronounced when the acquired project overlaps with the acquirer’s development pipeline and when the acquirer has strong incentives to protect its market power. We also document that alternative interpretations such as optimal project selection, organizational frictions, and human capital and technology redeployment do not explain our results. Conservative estimates indicate that about 7% of all acquisitions in our sample are killer acquisitions and that eliminating their adverse eﬀect on drug project development would raise the pharmaceutical industry’s aggregate drug project continuation rate by more than 5%. These ﬁndings have important implications for antitrust policy, startup exit, and the process of creative destruction.
September 12, 2018
Contracting Beyond the Market: Property Rights, Externalities, Historical Conflict, and Contractual Agreements between Firms and Nonmarket Stakeholder
Despite firms’ growing engagement of nonmarket stakeholders – such as local communities and nongovernmental organizations – little attention has been devoted to understanding the emergence of contractual agreements between firms and nonmarket actors. Considering that a very large number of such contracts are theoretically possible but only a small number exist, we seek to understand what factors explain the use of contracts to govern some firm-stakeholder relationships and not others. We ground our inquiry in transaction cost economics, which views governance as a means to infuse order into a relation where potential conflict threatens value creation. We propose that the property rights, the externalities, and the history of conflict that define the relationship between a firm and a nonmarket stakeholder influence the potential for conflict between them and therefore the probability of observing a contract to govern their relationship. Using novel data on the location and relationships between indigenous communities and mining firms in Canada, we identify a plausible exhaustive set of indigenous communities “at risk” of signing a contract with a mining firm. To measure the property rights, externalities, and historical conflict in the relationship between a firm and a local community we rely, respectively, on historically assigned property rights over a mining area, the mine-community colocation in a watershed, and archival records of protests and blockades. We find support for our propositions by examining which of the 4,414 dyads (formed by 457 indigenous communities and 85 firms) have signed 190 contracts between 1999 and 2013.
August 29, 2018
Employee Assignments to Nonprofit Partners in Emerging Markets: Diagnosing Organizational Dysfunction via Identity Strain
This paper explores the drivers of identity strain experienced by corporate employees following nonprofit assignments to emerging markets. It applies analytic induction to a combination of archival, interview and survey data tracking the ten-year partnership between global logistics provider TNT and the United Nations World Food Programme (WFP). The resulting model shows that identity strain experienced by corporate employees following such assignments can be a symptom of organizational failure to recognize the learning benefits of such endeavors, rather than a flaw inherent to this practice. It also identifies a set of corporate policies that can help firms extract the benefits from having their employees form strong links with nonprofit peers in emerging markets and avoid potential drawbacks. These results support the conception of corporate-nonprofit partnerships in emerging markets as a strategic component of firms’ activities that can help them combine social and economic value creation.