Time to Exit: Rational, Behavioral, and Organizational Delays

(forthcoming, Strategic Management Journal)

Managerial Insight: Existing studies of exit delay typically focus on rational, behavioral, or organizational explanations in isolation. We integrate these different theoretical explanations, develop testable hypotheses for each, and examine them using the population of US banks between 1984 and 1997. Banks’ exit behavior is not consistent with theories emphasizing the option value of avoiding re-entry costs. Patterns of exit do, however, support models of rational delay under ability uncertainty. Controlling for this source of rational delay, we find evidence of delay due to behavioral bias – firms discount negative signals of profitability relative to positive signals – and organizational considerations – delay increases with the separation of ownership and control. These results demonstrate that all three sets of theories are necessary to describe exit behavior.

Market Structure, Reputation, and the Value of Quality Certification

(forthcoming, AEJ: Microeconomics)

Managerial Insight: Quality certification programs help consumers identify high-quality products or sellers in markets with information asymmetries. Using data from eBay UK’s online marketplace, we study how certification’s impact on demand varies with market- and seller-level attributes, exploiting variation in sellers’ certification status among groups of near-identical listings. The positive effects of eBay’s “top rated seller” certification are stronger for categories with few other certified sellers, in more competitive markets, and for sellers with shorter records of past performance. These findings indicate certification provides more value when certification is rare, the product space is crowded, and for sellers lacking established reputations.

What is a Relationship Worth? Repeated Exchange and the Development and Deployment of Relational Capital

(2014, Organization Science)

Managerial Insight: Repeated exchange leads to the development of relational capital between buyers and suppliers, raising buyers’ willingness-to-pay for certain suppliers. Relational capital only forms when the technology used by the suppliers is relatively stable, and thus both parties have expectations they are likely to do business together again in the future. Relational capital also forms more readily when the costs of engaging in social interactions are lower. Relational capital becomes more valuable when suppliers must invest in relationship specific assets.

Charity as a substitute for reputation: Evidence from an online marketplace

(2012, Review of Economic Studies)

Managerial Insight: When performance is uncertain, consumers respond positively to products tied to charity, inferring that charitable sellers are more trustworthy than non-charitable sellers. The effect of tying products to donations is significantly greater for new, small sellers than for sellers that have an established track-record of performance.

The Small Firm Effect and the Entrepreneurial Spawning of Scientists and Engineers

(2010, Management Science)

Managerial Insight: Employees at small firms leave paid employment to become entrepreneurs at a much higher rate than employees at large firms. Using a dataset of U.S.-trained science and engineering graduates, we explore the origins of this small firm effect on entrepreneurship. We find evidence that the small firm effect results from several factors: (a) workers in small firms are more likely to have pre-existing preferences for entrepreneurship, (b) small firms attract high-ability scientists and engineers, who are most likely to enter entrepreneurship to maximize their earnings, and (c) workers in small firms, particularly those of high ability, may develop entrepreneurial human capital that makes them more effective entrepreneurs.

A Greater Price for a Greater Good? Evidence that Consumers Pay More for Charity-Linked Products

(2010, AEJ: Economic Policy)

Managerial Insight: Tying products with charitable donations can raise buyers’ willingness-to-pay. The effect is greater in online auctions, where some bidders engage in strategic bidding to drive up the final price, consistent with caring about the charitable donation. The overall impact of donations on willingness-to-pay, however, is limited by consumers’ ability to donate directly to charity. In most cases, this will make it difficult for sellers to raise prices more than the value of the donation.

Last Minute Bidding in eBay Charity Auctions

(2010, Economics Letters)

Managerial Insight: “Bid sniping” – last second bidding to try to capture an item at a low price is prevalent in online auction sites. Online charity auctions, however, are significantly less likely to attract “bid sniping” than equivalent non-charity auctions. The results indicate that the impact of charity ties on consumer willingness-to-pay depends on the sale format (auction, fixed price, or negotiation).

Publications, Patents, and the Market for University Inventions

(2007, Journal of Economic Behavior and Organization)

Managerial Insight: University inventors’ prior academic output is positively correlated with the likelihood that their new technologies will be licensed, but is uncorrelated with the payments specified by the license contract or the returns of the technology to the university. This suggests that inventors’ academic status attracts the attention of potential licensees, but does not necessarily change their inferences about the quality of technologies for sale. Additionally, patent grants are associated with significant increases in the rate at which technologies are licensed and are most important for inexperienced inventors.

Exclusivity, Contingent Control Rights and the Design of Internet Portal Alliances

(2012, Journal of Law, Economics and Organization)

Managerial Insight: Exclusivity provisions in contracts can foster relationship-specific investments. When the business environment is uncertain, however, the more valuable it becomes to include performance contingencies in a contract that prevent the exclusivity-bound to modify or exit the relationship.

Ownership and Control Rights in Internet Portal Alliances

(2003, RAND Journal of Economics)

Managerial Insight: Unforeseen contingencies, legal fees, and the cost of enforcing contracts, prevent firms from writing complete contacts, especially in new industries where key performance measures have yet to become widely agreed upon. In these settings, asset ownership and control rights provide critical incentives to the contracting parties. When one party has much more bargaining power than the other, however, too many control rights (and assets) may be allocated to the powerful party, limiting the effectiveness of the agreement.