Research Paper Series

Departments: Strategy & Business Policy, GREGHEC (CNRS)

Although Strategy research aims to understand how firm actions have differential effects on performance, most empirical research estimates the average effects of these actions across firms. This paper promotes Random Coefficients Models (RCMs) as an ideal empirical methodology to study firm heterogeneity in Strategy research. Specifically, we highlight and illustrate three main benefits that RCMs offer to Strategy researchers—testing firm heterogeneity, predicting firm-specific effects, and estimating trade-offs in strategy—using both synthetic and actual datasets. These examples showcase the potential uses of RCMs to test and build theory in Strategy, as well as to perform exploratory and definitive analyses of firm heterogeneity

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  • LAW-2018-1322
  • Liquidity and Information in Order Driven Markets
  • I. ROSU

Departments: Finance, GREGHEC (CNRS)

Departments: Finance, GREGHEC (CNRS)

Does a larger fraction of informed trading generate more illiquidity, as measured by the bid-ask spread? We answer this question in the negative in the context of a dynamic dealer market where the fundamental value follows a random walk, provided we consider the long run (stationary) equilibrium. More informed traders tend to generate more adverse selection and hence larger spreads, but at the same time cause faster learning by the market makers and hence smaller spreads. These two effects offset each other in the long run

Keywords: Learning, adverse selection, dynamic model, stationary distribution

Departments: Information Systems and Operations Management

Problem Definition: Project managers are responsible for setting and then revising projects' goals. As uncertainty related to project performance is resolved, a project manager is tasked with comparing ongoing costs, and potentially achieved scope, to a baseline plan. We question whether project managers can rationally anticipate and track this revision process.Academic/Practical Relevance: In practice, projects often fail to meet their goals. Typically, projects cost more than budgeted, take longer than planned, and are subject to scope changes. We consider the implications of behavioral tendencies, both at launch and at the revision points, on decisions made and on overall project performance.Methodology: Our stylized model compares a rational project manager to a behavioral one. Specifically, we offer a framework for modeling mental accounting -- which includes loss aversion and reference point updating -- and narrow framing. We use the model to explore how project-level decisions are made.Results: We show that mental accounting results in insufficient adjustments of project scope and cost during revisions, and prevents abandoning projects even when doing so is optimal. In addition, narrow framing discourages launching projects. Ultimately, mental accounting and narrow framing decrease projects' net benefits.Managerial Implications: We offer practical prescriptions for mitigating harmful effects of loss aversion, reference-point updating, and narrow framing. Beyond training, hiring less loss averse project managers, and practicing scenario planning, we show that using a "cost-based revision" approach helps maintain the reference points constant and equal to the budgeted cost and initial scope, and induces overall better decisions.

Keywords: project management, behavioral operations, mental accounting, planning fallacy, earned value analysis

Departments: Tax & Law, GREGHEC (CNRS)

This article examines what difference – if any – the renewed EU Better Regulation Agenda has made for the EU Commission in terms of its own accountability and policy outcomes. Emboldened by the Spitzenkandidaten process – which established for the first time a link between the outcome of the EU elections and the presidency of the EU Commission –, the Juncker Commission emerged as the most political yet. To shrug off the label of technocratic institution – historically insulated from citizens’ preferences –, the new Commission asked EU citizens to judge its operation by its ability ‘to deliver solutions to the big issues that cannot be addressed by the Member States alone’. By embracing such a panem et circenses approach to EU democracy – as such not too dissimilar from the Santer’s and Barroso’s previous administrations – the Juncker Commission raised new expectations. This is true not only in terms of output legitimacy – which was meant to become the privileged benchmark against which to measure the Commission’s success –, but also in terms of its own democratic and political accountability vis-à-vis EU citizens. Indeed, although unintelligible to the many, the Spitzenkandidaten logic entails that EU citizens contributed for the first time with their vote to shape the political orientation of this Commission and – as a result – could hold it accountable. While the very notion of political accountability is foreign to the EU constitutional setting – as citizens don’t have the possibility to replace the Commission if this does not meet their hopes –, the Juncker Commission has strived to frame its mandate as if such an oversight existed. This article concludes that at the very same time the Juncker Commission has been striving to develop its own, autonomous democratic credentials, its choice to embrace a set of well-defined institutional mechanisms that reward expert judgment over political adjudication appears at odds with its newly-acquired political nature.

Keywords: European Union, European Commission, Spitzenkandidaten, Juncker, Accountability, Transparency, Regulatory Impact Assessment, Regulatory Reform, Better Regulation, Regulatory Scrutiny Board, Impact Assessment, REFIT, CBA, Comparative Institutional Analysis

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

Problem definition: Process innovation is commonly claimed to be a major source of competitive advantage for firms. Despite this perceived influence it has received substantially less attention than product innovation and much uncertainty remains about its true association with firm performance. We investigate the relationship between a pharmaceutical manufacturing firm's process-innovation portfolio and its economic performance.Academic/Practical relevance: Our study uniquely conducts a multi-dimensional evaluation of a firm's portfolio of process innovations at the product level. This allows a quantitative evaluation of both the relative benefit of the different dimensions of a portfolio as well as the potential complementarities between these.Methodology: Through a collaboration with expert patent attorneys we develop a unique longitudinal dataset that combines secondary data and evaluations of a firm's portfolio of process patents along three key dimensions: novelty, scope, and locus. We conduct econometric analyses for a large-scale sample of drugs open to competition from generics, where process innovation is the main source of competitive advantage.Results: We find a positive association between overall process innovation and firm performance. When differentiating between dimensions of process innovation, results further suggest that high novelty is beneficial, and complemented by a broad scope, but only for patents applying to the later phase of the pharmaceutical manufacturing process.Managerial Implications: Our results provide important practical insights that can inform process-related R&D investments in the pharmaceutical sector. In particular, it may not be economically beneficial to invest in high-novelty process innovations in early production stages, which are characterized by numerous opportunities to innovate with potentially higher but less predictable economic payoffs. On the other hand, at later stages of the production process, where the opportunities to innovate are less numerous with potentially lower but more predictable economic payoffs, portfolios that are jointly characterized by high novelty and high scope could be more valuable.

Departments: Information Systems and Operations Management

Problem definition: Contrary to classic applications of matching theory, in most contemporary on-demand service platforms, matches can not be enforced because workers are flexible – they choose their tasks. Such flexibility makes it difficult to manage workers while keeping customers satisfied. We build a framework to compare platform matching policies with less flexible and more flexible workers, and empirically quantify by how much worker flexibility hurts customer satisfaction and customer equity.Academic/Practical relevance: In academic literature, there is no established framework that allows for the comparison of matching policies in on-demand platforms. Further, the link between worker flexibility and customer satisfaction is understudied.Methodology: We propose a tripartite framework for empirical evaluation and comparison of the operational policies with different degrees of worker flexibility. Step 1: Predictive modeling of customer satisfaction based on estimation of individual unobservable characteristics: customer difficulty and worker ability (item-response theory model). Step 2: Evaluation of the effect of matching policy (under a given level of flexibility) on customer satisfaction (bipartite matching). Step 3: Quantification of the associated monetary impact (customer lifetime value model).Results: We apply our framework to the dataset of one of the world's largest on-demand platforms for residential cleanings. We find that customer difficulty and cleaner ability are good predictors of customer satisfaction. Granting full flexibility to workers reduces customer satisfaction by 3% and customer lifetime revenue by 0.2%. We propose a family of matching policies that provide sufficient flexibility to workers, while alleviating 75% of the detrimental effect of worker flexibility on customer satisfaction.Managerial implications: Our results suggest that, in platforms with flexible workforce, the presence of worker and customer heterogeneity reduces customer satisfaction through matching inefficiency. Our empirical framework helps practitioners to decide on the right level of worker flexibility and the means for achieving it.

Keywords: workforce flexibility, decentralization, customer satisfaction, service operations, labor management, labor platforms, customer relationship management, business analytics

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

We examine the impact of a new mobile-based, dockless bike-sharing service on public transportation. In contrast to traditional rental bikes that are parked at fixed stations, the dockless bikes can be picked up and returned at literally anywhere. This dockless feature of the shared bikes likely provides a solution to the last mile problem, potentially making it a complement to public transportation. Assembling a unique panel data of shared-bike rides and subway traffic, we estimate the relationship between shared-bike ridership and public transportation. Our results show that increases in shared-bike rides lead to increases in subway traffic. This positive effect is stronger for peak hours during weekdays and non-peak hours during weekends. We argue this effect is most likely driven by shared bikes promoting public transportation use and substituting for private cars (substitution effect) and also stimulating new travel (stimulating effect). Overall, we find that dockless shared bikes, in contrast to most of the other sharing economy phenomenon, acts as a complement rather than a substitute for public transportation. In addition, increased use of dockless shared bikes has a positive societal impact, leading to less urban congestion and better environmental protection.

Keywords: bike-sharing, public transportation, complement, last mile problem

Departments: Finance, GREGHEC (CNRS)

This paper studies the investment decisions and price impact of non-resident foreigners in the Paris housing market, employing unique micro-level transaction data over the period 1992–2016. We find that these “out-of-country” buyers generally purchase relatively small but high-quality properties in desirable neighborhoods and in areas with high ratios of compatriots. Ceteris paribus, they pay higher prices, hold for longer, and realize lower capital gains, highlighting the importance of information asymmetries and search costs in residential real estate. Crucially, however, out-of-country buyers’ quality-controlled purchase prices are also positively affected by home-country economic conditions, which suggests that global variation in the willingness-to-pay for real estate affects pricing in hotspots such as Paris. When instrumenting out-of-country demand, we find that it has pushed up prices of ex ante less valuable properties that have nonetheless been exposed to such demand.

Keywords: foreign home buyers; secondary residences; search costs; private valuations

  • MOSI-2018-1310
  • Practices of Distributed Knowledge Collaboration

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

  • MOSI-2018-1309
  • Task Novelty and Knowledge Transformation Processes in Distributed Work

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