Research Paper Series

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Departments: Informations Systems and Operations Management, GREGHEC (CNRS)

Energy efficiency projects are often executed by specialized entities, namely energy service companies (ESCOs). A typical ESCO's core business is conducted using performance-based contracts, whereby payment terms depend on the energy savings achieved. Despite their success in public, commercial, and industrial sectors, ESCOs in the residential sector are involved in fewer projects and face several challenges. First, an energy efficiency project often leads to changed consumption behavior; hence it is more difficult to evaluate the energy savings that are due to the project itself. The second challenge is that residential clients are more risk averse and, thus, less willing to contract for projects whose outcomes are uncertain. Third, a lack of monitoring protocols leads to ESCO's moral hazard problems. This paper studies ESCO contract design issues, focusing primarily on the residential market for energy efficiency. As opposed to other sectors, coordinating contracts do not exist. We show, however, that simple piecewise linear contracts work reasonably well. To improve their profitability, ESCOs can reduce uncertainty about the technology employed and/or develop ways of verifying post-project energy efficiency. Since policy makers are understandably keen to promote energy efficiency, we show also how regulations and monetary incentives can reduce inefficiencies in ESCOs' relationships and thereby maximize environmental benefits

Keywords: Sustainable Energy, Energy Efficiency, Performance-Based Contracts, Double Moral Hazard

Departments: Strategy & Business Policy, GREGHEC (CNRS)

In this paper, we build on research on the microfoundations of strategy and learning processes to study the individual underpinnings of organizational learning. We argue that once an individual has accumulated a certain amount of experience with a task, the benefit of accumulating additional experience is inferior to the benefit of deliberately articulating and codifying the experience accumulated in the past. We explain the superior performance outcomes associated with such deliberate learning efforts using both a cognitive (improved task understanding) and an emotional (increased self-efficacy) mechanism. We study the proposed framework by means of a mixed-method experimental design that combines the reach and relevance of a field experiment with the precision of two laboratory experiments. Our results support the proposed theoretical framework and bear important implications from both a theoretical and practical viewpoint.

Keywords: learning, codification, knowledge, self-efficacy, causal ambiguity, field experiment

Departments: Accounting & Management Control

Exit theory predicts a governance role of non-managerial blockholders’ exit threats; but this role could be ineffective if the managers’ potential private benefits exceed their loss in stock-price declines caused by non-managerial blockholders’ exit. We test this prediction using the Split-Share Structure Reform (SSSR) in China, which provided a large, exogenous, and permanent shock to the cost for non-managerial blockholders to exit. Using a difference-in-differences design combined with propensity-score matching, we find that firms whose non-managerial blockholders experience an increase in exit threat have a greater improvement in performance than those whose non-managerial blockholders experience no increase. The improvement is as much as 37.2% of the average pre-SSSR treatment sample operating performance. Moreover, the governance effect of exit threats becomes ineffective in the group of firms with the highest concern for private benefits of control. Finally, a battery of theory-motivated tests show that the documented effects are unlikely explained by non-managerial blockholder intervention or some well-known intended effects of SSSR.

Keywords: Exit-Threat Theory, Private Benefits of Control, Liquidity, China, Split-Share Structure Reform, Operating Performance, Quasi-Experiment

Departments: Accounting & Management Control, GREGHEC (CNRS)

This study examines how a firm’s business relationship with the U.S. government, in particular, sales to the government, impacts its loan contract terms and how the effect is different from that of major corporate customers. We find that firms with major government customers have a lower number of covenants and are less likely to have performance pricing provisions in their loan contracts than other firms, whereas major corporate customers do not have such impacts. We do not find evidence that major government customers affect the supplier firm’s loan spread, security, or maturity. We conjecture that lenders benefit from the strict monitoring activities of the government customer and reduce the use of covenants and performance pricing in loan contracts when the borrowing firm has a government customer.

Keywords: Government Customers, Loan Contract Terms

Departments: Strategy & Business Policy, GREGHEC (CNRS)

We investigate the mechanisms that shape social comparison in organizations and generate social comparison costs. In particular, we focus on heterogeneity in the strength and type of incentives and argue that, from an efficient design perspective, such variance in rewards is a double-edged sword. While the sorting and incentive effects that result may increase productivity, the social comparison processes that arise may dampen it. We posit that the mechanisms underlying these behavioral costs are shaped not only by the magnitude of reward variance, but by the formal and informal design elements shaping the distance of advantaged peers. In other words, the more proximate socially, structurally or geographically are those to whom one socially compares, the larger the behavioral response. Empirically, we use an unanticipated event during which outlets of a bank, previously operating under essentially homogenous incentives, were assigned to tournament groups with differing ex ante probabilities of winning a prize—an event that increases variance in awards and hence generates an impetus for social comparison. We find that units with more socially, geographically, and structurally proximate peers assigned to ‘advantaged’ tournament groups decreased their productivity. We discuss implications of these results for organizational design and boundaries.

Keywords: Incentives, Social Comparison, Envy, Productivity, Organization Design

Departments: Marketing, GREGHEC (CNRS)

Engaging in risky consumption behaviors (cigarettes, alcohol, etc.) is an acute societal problem that can have severe consequences for adolescents, and businesses in particular have been accused of making such consumption particularly appealing and accessible. However, the causes of risky behaviors are not well understood and research on the causes has been mixed. In this research, we investigate the effects of loneliness on adolescents’ adoption of risky behaviors. We test the proposition that adolescent loneliness affects the adoption of risky behaviors, but that this effect depends on the strategies that adolescents adopt to cope with their loneliness. In a large-scale study (n = 409) of adolescents (ages 13-18), we show support for a sequential mediation model in which active and passive coping strategies both mediate the effect of loneliness on risky behaviors, but with opposite effects. Active coping strategies reduce the adoption of risky behaviors, whereas passive coping strategies increase the adoption of risky behaviors. In addition, we show that active and passive coping strategies can be executed through consumption practices. Active coping strategies are positively associated with the sharing of possessions, whereas passive coping strategies are positively associated with product acquisition. We shed new light on both the bright and dark sides of materialism and risky behaviors, and provide practical implications for research on loneliness and business ethics.

Keywords: Loneliness, Coping strategies, Risky Behaviors, Adolescent consumers, Materialism, Sharing

Departments: Strategy & Business Policy, GREGHEC (CNRS)

Limited attention has been paid to the crucial role of individuals’ motivation and social interactions in capability development. Building on literature in social psychology and behavioral economics that links heterogeneity in individual social motives to social interactions, we explain how the variation, selection, and retention processes underlying a group’s deliberate capability development are affected by the composition of the group in terms of individuals’ social motives in interplay with the organizational-level motivational levers designed by managers. Our multilevel theoretical model suggests that individual-level heterogeneity leads to the development of capabilities along different paths. For practice, this implies that, according to the composition of the group in terms of social motives, capabilities are more or less technically and evolutionary adequate and source of business process performance.

Keywords: Deliberate Capability Development, Motivational Microfoundations, Social Interactions, Business Process Performance, Multilevel

Departments: Strategy & Business Policy, GREGHEC (CNRS)

A long tradition in social science research emphasizes the potential for knowledge to flow among firms co-located in dense areas. Scholars have suggested numerous modes for these flows, including the voluntary transfer of private knowledge from one firm to another. Why would the holder of valuable private knowledge willingly transfer it to a potential and closely proximate competitor? In this paper, we argue that geographic concentration has an effect on the expected compliance with norms governing the use of transferred knowledge. The increased expected compliance favors trust and initiates a process of reciprocal exchange. To test our theory, we use a scenario-based field experiment in gourmet cuisine, an industry in which property rights do not effectively protect knowledge and geographic concentration is common. Our results confirm our conjecture by showing that the expectation that a potential co-located firm will abide by norms mediates the relationship between geographic concentration and the willingness to transfer private knowledge.

Keywords: Geographic Concentration, Density, Knowledge Transfer, Social Norms, Field Experiment, Hospitality Industry

Departments: Strategy & Business Policy, GREGHEC (CNRS)

Why would market organizations engage in symbolic and material acts conveying appreciation and respect to other organizations that confirm their inferior position in an established hierarchy? Deference, we argue, is the price outsider organizations pay to pass categorical and symbolic boundaries, and gain acceptance in contexts where insiders regard them as impure. Because not all organizations can or are willing to pay the price, deference varies according to positional, dispositional, and interactional characteristics. We examine and find support for the view of organizational deference as strategic behavior using empirical evidence on market finance organizations investing in film production in France over two decades. Our analysis expands research on non-conflictual interactions and symbolic boundaries in market settings.

Departments: Marketing, GREGHEC (CNRS)

After having made a purchase decision, consumers often revisit their choice and ponder forgone alternatives. This tendency can cause regret and lower satisfaction with the selected alternative, especially when choices are difficult. This paper introduces the concept of choice closure, defined as the psychological process by which consumers come to perceive a decision to be final. Choice closure inhibits consumers’ propensity to reconsider the decision process after a choice has been made and to engage in unfavorable comparisons between the chosen and the forgone options. Four studies show that physical acts that are metaphorically associated with the concept of closure — such as covering or turning a page on the rejected alternatives — trigger choice closure for choices made from large sets and result in greater satisfaction. These findings suggest that subtle cues, which do not alter the actual choice context, can improve consumers’ satisfaction with a difficult decision.