Learning to forecast business conditions – Evidence from German reunification

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Corporate provision of public goods

Milton Friedman famously suggested that firms ought not divert profits toward public goods because shareholders can better make these contributions themselves. Despite this, activist shareholders are increasingly successful in persuading firms to be “socially responsible.” We study firm behavior when shareholders care about public goods as well as profits and when managerial contracts reflect these concerns. Under these ideal conditions, managers redirect more profits toward public goods than shareholders would when acting separately—shareholders are poorer but happier. Further, so long as the public good is sufficiently desirable, the manager selects the socially optimal level of output, despite the mismatch between shareholder preferences and those of society at large

Resolving Globular Cluster Formation within a Cosmological Context

We place constraints on the formation redshifts for blue globular clusters (BGCs), independent of the details of hydrodynamics and population III star formation. The observed radial distribution of BGCs in the Milky Way Galaxy suggests that they formed in biased dark matter halos at high redshift. As a result, simulations of a ~1 Mpc box up to z~10 must resolve BGC formation in LCDM. We find that most halo stars could be produced from destroyed BGCs and other low-mass clusters that formed at high redshift. We present a proof-of-concept simulation that captures the formation of globular-like star clusters.Comment: Accepted for publication in ApJ

The James Webb Space Telescope Mission

Twenty-six years ago a small committee report, building on earlier studies, expounded a compelling and poetic vision for the future of astronomy, calling for an infrared-optimized space telescope with an aperture of at least $4m$. With the support of their governments in the US, Europe, and Canada, 20,000 people realized that vision as the $6.5m$ James Webb Space Telescope. A generation of astronomers will celebrate their accomplishments for the life of the mission, potentially as long as 20 years, and beyond. This report and the scientific discoveries that follow are extended thank-you notes to the 20,000 team members. The telescope is working perfectly, with much better image quality than expected. In this and accompanying papers, we give a brief history, describe the observatory, outline its objectives and current observing program, and discuss the inventions and people who made it possible. We cite detailed reports on the design and the measured performance on orbit.Comment: Accepted by PASP for the special issue on The James Webb Space Telescope Overview, 29 pages, 4 figure

Essays in Team Economics

This dissertation addresses teamwork with the tools of economics in three specialized settings--I examine (1) how teams form under discrimination, (2) what shareholders can accomplish for themselves and society when operating as group that they cannot as individuals, and (3) ethnicity's role in the performance of pairings between venture capitalists and entrepreneurs.Adverse Selection in Team Formation under DiscriminationThe decision to be an entrepreneur or an employee is among the most consequential any individual will ever face. Does race or gender influence that choice? Could discrimination affect occupational performance? Several empirical studies on occupational segregation suggest (1) minorities are more likely to choose (or be chosen for) occupations in which teamwork plays a minimal role and (2) that minorities excel in these individualistic positions. Teamwork and discrimination are fundamentally linked because while teamwork can be synergistic, it obscures team members' individual contributions: managers can try to infer unobservable individual contribution from observable characteristics like race or sex. Thus, a talented minority worker should choose entrepreneurship or other occupation where his individual accomplishments cannot easily be attributed to others, if doing so will make him better off. Could this self-selection sustain discrimination even if managers paid workers proportional to their expected ability; that is, according to their merit? This paper shows that it can. Furthermore, among those choosing to work as entrepreneurs or in other individualistic occupations, discrimination victims outperform beneficiaries. Since beliefs about discrimination influence which teams forms, discriminatory equilibria may be more productive than egalitarianism--the implications are discussed. The model presented here distinguishes itself in a rich literature on statistical discrimination, by explaining empirically observed behavior that has not yet been addressed, elucidating why the prescriptions derived from extant model have had limited success, and by enabling the analysis of additional forms of discrimination.Social Responsibility of Firms beyond ProfitsCorporate social responsibility (CSR) expenditures are often seen as a perquisite of the manager at shareholder expense or an indirect form of profit maximization. The former explanation creates an agency puzzle and ethical dilemma--who should/do managers work for? Empirical support for the latter explanation is mixed, at best. I highlight another possibility consistent with recent findings that absentee managed plants in the US emit more toxins, on average, than other plants (Grant, Jones and Trautner 2010). I develop a model in which a manager who maximizes shareholder welfare will optimally engage in CSR that leaves shareholders with less money. Furthermore, no behavioral motives, such as "warm glow" are required--instead, the familiar public economics framework of pure altruism is used; i.e. shareholders care only about their own private material consumption and their own private benefit from public goods, like clean air. In this framework, (1) a manager will provision more public goods, say by supporting environmental causes, from the profits of the firm than if the manager distributed all profits to shareholders as dividends and left shareholders to contribute in a decentralized manner on their own. (2) If the firm generates negative externalities, like pollution, the firm always produces less than the profit maximizing output. (3) If shareholders would have their manager contribute anything at all to the public good at the socially optimal level of production, the firm will, in fact, produce the socially optimal quantity and provision the public good, without intervention by a social planner. Thus, when this condition holds, government regulation to control the quantity produced by firms can do no better for society than a manager who works only on behalf of her shareholders. Reasons why this condition may be expected to hold in many real world settings are discussed. (4) Finally, when this condition holds, decreasing marginal production costs increase public goods as much as decreasing marginal externalities. This neutrality result implies that government subsidization of technology, which improves the cost-effectiveness of production, may yield cleaner air than subsidization of less polluting technology, if the former is cheaper to develop. The model also yields a number of distinct empirically testable hypotheses, including that, all else being equal, more widely held firms will engage in greater CSR than more closely held firms. At a broader level, the model reveals not only a novel explanation for costly CSR but that making managers more accountable to shareholders confers a social benefit.Can Birds of a Feather Fly Together?--Evidence for the Economic Payoffs of Ethnic HomophilyHow do ethnic networks influence venture capitalists' choice of companies to invest in, and the performance of the investments? We investigate this question by using data on the ethnic origins of over 22,000 U.S.-based V.C. partners and the 98,000 top-level executives of the startup companies they invested in during the years 1991-2010. We construct measures of "ethnic distance" for each potential VC-company pair and find that after controlling for the sorting of ethnic groups into certain industries and geographic areas, a 1% decrease in ethnic distance for the pair increases the probability of investment by up to 0.05%. Evidence for the influence of ethnicity is particularly strong during early-rounds of investment when information costs of the relationship are high, and for ethnic populations associated with "collectivist" cultures such as Japanese, Korean and Chinese. Conditional on investment, a 1% increase in ethnic closeness increases the probability that the portfolio company advances to successive rounds (the effect being strongest for the early rounds), and the probability of successful exits through IPO by 0.6-1.2%. This translates to a striking estimated ex ante increase in IRR between 7% and 15% for the average VC. We conclude that co-ethnic networks have a profound economic influence on venture investments

Does experience improve acquisition performance? – It’s complicated, and that is when it helps most

Across social science the observation that experience in X increases performance in X is broadly established. The empirical literature on quantifying the effect of acquisition experience on the performance of future acquisitions is an anomaly—only half the studies published in top management journals report such a positive association. We meta-analyze this literature. Our study contributes three primary discoveries: (1) We robustly establish the positive relationship between acquirer experience and performance after accounting for the statistical quality of each study. Just as this result is non-obvious to academic observers of this conversation, it is also apparently non-obvious to investors—the effect size from studies using stock market reaction as a proxy for performance is indistinguishable from zero in all specifications and significantly less than from those using accounting-based measures. (2) The positive association of experience to performance strengthens in study settings is characterized by a moderator previously explored among industrial workers: Complexity. In particular, experience is more positively associated with performance in cross-border and multi-industry settings as well as those where the performance metrics reflect information more available to insiders than outsiders. (3) We document the considerable discord in this literature and highlight its probable sources and remedies

Information frictions and entrepreneurship

Why do individuals become entrepreneurs? Why do some succeed? We propose two theories in which information frictions play a central role in answering these questions. Empirical analysis of longitudinal samples from the U.S. and the U.K. reveal the following patterns: (i) entrepreneurs have higher cognitive ability than employees with comparable education, (ii) employees have better education than equally able entrepreneurs, and (iii) entrepreneurs' earnings are higher and exhibit greater variance than employees with similar education. These, and other empirical tests support our asymmetric information theory of entrepreneurship that when information frictions cause firms to undervalue workers lacking traditional credentials, workers' quest to maximize their private returns drives the most able into successful entrepreneurship