Working Papers Archives

Green Subsidies with Demand Distortions

Standard Pigouvian theory predicts that externalities should be corrected at the margin. However, demand distortions such as credit constraints or behavioral biases create a wedge between marginal benefit and marginal cost. While these distortions can lower aggregate abatement, they can increase the efficiency of green subsidy spending. In theory, this happens through two channels: by shifting the marginal adopter toward higher private and social benefits and by increasing demand elasticity. We test these predictions by cross-randomizing fixed cost subsidies, marginal cost subsidies, and loan access for an induction stove among 2,134 charcoal users in Kenya. Marginal cost subsidies that lower electricity costs by up to 75% have a precise zero effect on both adoption and usage. Fixed cost subsidies abate at just US$13 per ton of CO2e, and demand distortions are responsible for making this cost low: reducing credit constraints raises abatement costs to US$22 per tCO2e. These efficiency gains operate through the two hypothesized channels: demand distortions increase the marginal positive externality by 19% and lower the subsidy cost per marginal abatement by 30%. We estimate the model to generate counterfactual simulations and find that, without any distortions, abatement costs would reach US$122 per tCO2e. The social welfare gain would be US$3.1 per subsidy dollar; demand distortions increase this to US$20. These results suggest that contexts with larger demand distortions, including many low- and middle-income economies, could generate some of the lowest-cost opportunities on the abatement cost curve.…Read More

When Spouses Cofound: Evidence from a Field Experiment on Startup Hiring

Spousal cofounding teams are common, yet we know little about how they affect startups’ ability to attract new hires. While prior work highlights internal advantages of spousal teams, such as trust, cohesion, and resilience, we propose that they may trigger concerns among external audiences by blurring professional and personal roles. Focusing on prospective employees, we predict that startups led by spousal cofounders face an “illegitimacy discount” in hiring, attracting fewer applicants, especially when the lead founder is male. We test these claims using a preregistered field experiment embedded in a live early-stage recruitment process. We find that candidates are less likely to apply to a startup cofounded by spouses and that this penalty is asymmetric: it is pronounced when the lead founder is male but weaker when the lead founder is female. Analysis of the Panel Study of Entrepreneurial Dynamics II (PSED II) corroborates external validity: spousal cofounding teams are prevalent but hire less than comparable non- spousal teams. Together, the results extend research on founding team composition and gender disparities in entrepreneurship by showing how spousal cofounding affects talent attraction and how gendered expectations condition perceptions of legitimacy in early startup hiring.…Read More

Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market

The pharmaceutical market has experienced a massive wave of vertical integration between pharmacy benefit managers (PBMs) and health insurers in recent years. Using a unique dataset on insurer-PBM contracts, we document increasing vertical integration in Medicare Part D–vertically integrated insurers’ market share increased from about 30% to 80% between 2010 and 2018.…Read More

Disagreement Is a Short-Hand for Poor Listening: Why Speakers Evaluate Others’ Listening Quality Based on whether Others Agree with Them

Listening to the other side is essential for communication and conflict resolution. However, even when a listener listens well, the speaker may still exclaim, “You are not listening to me!” We reason this occurs because speakers think someone who disagrees with them simply has not listened.…Read More

The Efficiency of Dynamic Electricity Prices

The marginal cost of electricity fluctuates hour-by-hour, yet retail customers typically face flat prices. Using data from all seven US wholesale markets and a new method to evaluate alternative rates set in advance that accounts for equilibrium price effects, we estimate efficiency gains from time-varying price schedules that better align price with cost. We have three main results. First, time-of-use rates and critical-peak pricing, the two most common time-varying rate plans, each correct about 10% of mispricing. Second, complex rate structures based on historical prices often backfire. Third, real-time pricing with price ceilings can capture most potential efficiency gains while limiting customer risk.…Read More

Financial Reporting and Consumer Behavior

We show that financial reporting spurs consumer behavior. Using granular GPS data, we show that foot-traffic to firms’ commerce locations significantly increases in the days following their earnings announcements.…Read More

Multi-Channel Healthcare Operations: The Impact of Video Visits on the Usage of In-Person Care

Healthcare organizations have increasingly adopted video visits as an alternative care channel that offers higher convenience and holds promise for improving patients’ access to care. Despite the growing use, the impact of a new digital channel on care demand within existing physical channels has not been thoroughly investigated, especially in the primary care context of a traditional healthcare organization.…Read More

The Role of Large Language Models in Educational Simulations

Mack Institute Research Assistant Lennart Meincke and Wharton Associate Professor of Management Andrew Carton have released a new working paper in our series of working papers on ChatGPT spearheaded by Mack Faculty Director Christian Terwiesch. The new paper, entitled “Beyond Multiple Choice: The Role of Large Language Models in Educational…Read More

Increasing AI Idea Variance

Hands arranging blank sticky notes on a dark surface, with one hand holding a marker.

Mack Institute Research Assistant Lennart Meincke, Wharton Professor Ethan Mollick and Mack Institute Co-Director and Wharton Professor Christian Terwiesch have published the next in Terwiesch’s series of working papers on ChatGPT. The new paper evaluates how LLMs can be used for idea generation and explores methods to increase the novelty,…Read More

Will EFTs Drive Mutual Funds Extinct?

I study investors’ trade-off between ETFs and open-ended mutual funds in the presence of idiosyncratic liquidity risk and aggregate uncertainty. Based on a portfolio choice model, I show that ETFs and mutual funds provide liquidity at different maturities. Mutual funds (ETFs) are preferred by investors facing high (low) idiosyncratic liquidity risk and shorter (longer) investment horizons. In equilibrium, the pooling of investors into fund types based on their expected investment horizon directly emerges from the differential frictions of ETFs and mutual funds. Over the long-term, payoff complementarities in mutual funds dilute investors fund holdings and generate underperformance vis-à-vis ETFs. Yet, in the short-run, ETFs can be mispriced due to intermediary arbitrage constraints. The optimal size of the mutual fund sector relative to ETFs decreases in the illiquidity of portfolio assets but increases in the proportion of mutual fund shares held via retirement accounts.…Read More

A Strategic Multiplexity Perspective on Innovation Diffusion

We apply a strategic multiplexity perspective to analyze how the simultaneous consideration of multiple types of ties in a network can sharpen our understanding of innovation diffusion in that network. While prior research suggests that multiplex ties increase information flow and thereby facilitate innovation uptake in networks, this prediction may not hold when conflicts exist among some of these ties.…Read More

Back to the familiar? How attention and rare experiences overcome local search in external technology sourcing.

In this paper, we develop and test a theoretical framework that considers how established firms forming partnerships with startups may be subject to spatial and temporal myopia and how these tendencies are moderated by the established firms’ histories of experiencing essential failures and successes in solving R&D problems. …Read More

Capability-Enhancing Foreign Investments, and Evolution of Corporate Scope In Software Services Offshore Outsourcing: Market Reactions and Implications for Competitive Advantage

How does the stock market react to competitive actions by firms and their rivals? In this study we empirically explore capability-seeking investments by firms from different strategic groups within an industry and examine their impact on rival firms in the competitive context of global software services.…Read More

Learning from Patients: The Impact of Using Patient Narratives on Patient Experience Scores

Many healthcare organizations struggle to improve their patient experience scores despite significant effort. Enthusiasm has grown about the potential for patient narratives stories about care experiences in patients’ own words to provide insights that advance organizational learning about care and thus how to improve it. However, there is no evidence establishing an association between narrative use and organizational performance…Read More

Online Learning with Randomized Neural Networks

This project adapts online learning techniques to unstructured data, focusing on neural networks. We posit a non-parametric multi-armed bandit algorithm with context that uses a neural network for its underlying function approximation. We theoretically analyze and prove guarantees on the regret under this algorithm…Read More

Implications of Revenue Models and Technology for Content Moderation Strategies

This paper develops a theoretical model to study the economic incentives for a social media platform to moderate user-generated content. We show that a self-interested platform can use content moderation as an effective marketing tool to expand its installed user base, to increase the utility of its users, and to achieve its positioning as a moderate or extreme content platform.…Read More

The Peril of Pay Variability: Determinants of Worker Aversion to Variable Compensation in Lower-Wage Jobs

Uber. Upwork. TaskRabbit. The world of work is transforming and my research agenda attempts to identify and explain 1) how work is changing and 2) how these changes affect workers, especially those who are marginalized or vulnerable.…Read More

Towards a Causal Theory and Test of Network Effects: Structural Holes, Alliance-Network Externalities, and Organizational Innovation

We investigate whether the effect of network position on innovation is causal or spurious. Although empirical evidence demonstrates that certain structural positions in alliance networks (e.g. structural holes) affect firm innovation, it is hard to disentangle the factors allowing a firm to put itself in a certain position from the innovation outcomes that stem from being in that position.…Read More

When Should the Off-grid Sun Shine at Night? Optimum Renewable Generation and Energy Storage Investments

Globally, 1.5 billion people live off the grid, their only access to electricity often limited to operationally-expensive fossil fuel generators. Solar power has risen as a sustainable and less expensive option, but its generation is variable during the day and non-existent at night.…Read More

Productivity Gains From Labor Outsourcing: The Role of Trade Secrets

I quantify the impact of trade secret protection on labor outsourcing, and consequently, on aggregate productivity.…Read More