Automatic Stabilizers in a Low-Rate Environment. Lawrence Summers, February 2020, Paper, “Until the 2008–09 financial crisis, macroeconomic stabilization policy focused nearly exclusively on monetary policy. It made good sense. In terms of theory, if nominal rigidities are at the core of inefficient output fluctuations, monetary policy is exactly the right instrument to counter their adverse effects. In terms of practice, monetary policy is nimble and, by institutional design, largely protected from political winds. In terms of outcomes, the Great Moderation—the stability of output and inflation over more than 20 years (from the mid-1980s to 2007)— seemed to confirm the wisdom of that choice.Link

Tags: , , , ,

Nominal and Opportunity Effects of Managerial Discretion. Susanna Gallani, 2020, Paper, “We examine the performance consequences of managerial discretion when compensation payoffs are interdependent; that is, when rewards or penalties given to some employees cause others not to get them. Using proprietary data from a company that gives monthly rewards and penalties based on a combination of objective metrics and subjective performance assessments, we document both a nominal and an opportunity effect of managerial discretion. The former refers to performance consequences associated with workers who receive rewards or penalties due to managerial discretion (actual recipients). The latter refers to performance consequences associated with workers who would have received rewards or penalties had there been no managerial discretion (would-be recipients). Our study is, to our knowledge, the first to provide empirical evidence of performance consequences associated with the opportunity effect of managerial discretion. In additional tests, we explore theory-consistent explanations of our results. Our findings contribute to the literature on subjectivity in performance evaluations and have important practical implications for the design of incentive systems.Link

Tags: , , , , ,

New Firms for a New Era. Dani Rodrik, February 12, 2020, Opinion, “In recent years, large corporations have become increasingly aware that they must be sensitive not only to the financial bottom line, but also to the social and environmental effects of their activities. But societies should not allow firms’ owners and their agents to drive the discussion about reforming corporate governance.Link

Tags: , , , ,

Prepared Testimony for the Hearing “The Disappearing Corporate Income Tax”. Jason Furman, February 11, 2020, Paper, “In my testimony today I will make four points: 1. Corporate tax collections are very low both in historical perspective and compared with other countries. This contributes to the overall low level of revenue. 2. The 2017 tax law (Public Law 115-97) is a major reason for this revenue loss, with its total cost likely to be even larger than was estimated when the law originally passed. 3. There is no evidence that the 2017 tax law has made a substantial contribution to investment or longer-term economic growth. In fact, business investment growth has slowed to nearly a halt while economic growth has been propped up by increases in government spending. 4. Going forward, a well-designed business tax reform could both increase revenue and encourage more investment and innovation.Link

Tags: , , , ,

Tackling Climate Change Requires Organizational Purpose. Rebecca Henderson, George Serafeim, 2020, Paper, “Unchecked climate change presents a profound threat to economic growth and political stability but despite widespread public concern about the issue, global emissions of greenhouse gases (GHGs) have not declined. Indeed current “business as usual” predictions imply that average global temperatures will rise by more than 4⁰C by 2100, with potentially catastrophic results. In this paper, we argue that while putting in place an effective regime for pricing GHG emissions is more essential than ever, it is unlikely to be sufficient. It is in this context that we hypothesize that increasing the fraction of commercial firms who are “authentically purpose-driven” might have a very significant effect on the problem of climate change.Link

Tags: , , , , , , , , ,

Chain stability in trading networks. Scott Duke Kominers, 2020, Paper, “In a general model of trading networks with bilateral contracts, we propose a suitably adapted chain stability concept that plays the same role as pairwise stability in two-sided settings. We show that chain stability is equivalent to stability if all agents’ preferences are jointly fully substitutable and satisfy the Laws of Aggregate Supply and Demand. In the special case of trading networks with transferable utility, an outcome is consistent with competitive equilibrium if and only if it is chain stable.Link

Tags: , , ,

Recovering the Logic of Double Effect for Business: Intentions, Proportionality, and Impermissible Harms. Nien-hê Hsieh, 2020, Paper, “Business actors often act in ways that may harm other parties. While the law aims to restrict harmful behavior and to provide remedies, legal systems do not anticipate all contingencies and legal regulations are not always well-enforced. This article argues that the logic of double effect (LDE), which has been developed and deployed in other areas of practical ethics, can be useful in helping business actors decide whether or not to pursue potentially harmful activities in commonplace business activity. The article illustrates how LDE helps to explain the exploitative nature of payday lending, the distinction between permissible and impermissible forms of market competition, and the potential wrong of imposing risk of harm on others. The article also addresses foundational debates about LDE itself. We offer the article as an illustration of the sort of “midlevel” theorizing that can address directly the needs of practitioners.Link

Tags: , ,

Advance Market Commitments: Insights from Theory and Experience. Michael Kremer, February 9, 2020, Paper, “Ten years ago, donors committed $1.5 billion to a pilot Advance Market Commitment (AMC) to help purchase pneumococcal vaccine for low-income countries. The AMC aimed to encourage the development of such vaccines, ensure distribution to children in low-income countries, and pilot the AMC mechanism for possible future use. Three vaccines have been developed and more than 150 million children immunized, saving an estimated 700,000 lives. This paper reviews the economic logic behind AMCs, the experience with the pilot, and key issues for future AMCs.Link

Tags: , , , , , , ,

Automatic stabilizers in a low-rate environment. Lawrence Summers, 2020, Paper, “With interest rates persistently low or even negative in advanced countries, policymakers have barely any room to ease monetary policy when the next recession hits. Fiscal policy will have to play a major and likely dominant role in stimulating the economy, requiring policymakers to fundamentally reconsider fiscal policy. Blanchard and Summers argue for the introduction of what they call “semiautomatic” stabilizers. Unlike purely automatic stabilizers (mechanisms built into government budgets that automatically—without discretionary government action or explicit triggers—increase spending or decrease taxes when the economy slows or enters a recession), semiautomatic stabilizers are targeted tax or spending measures that are triggered if, say, the output growth rate declines or the unemployment rate increases beyond a specified threshold. The authors argue that the trigger should be changes in unemployment rather than changes in output, and the design of semiautomatic stabilizers, whether they focus on mechanisms that rely primarily on income or on intertemporal substitution effects (changing the timing of consumption), depends crucially on the design of discretionary policy.Link

Tags: , , , , ,

A Preliminary Framework for Product Impact-Weighted Accounts. George Serafeim, February 7, 2020, Paper, “While there has been significant progress in the measurement of an organization’s environmental and social performance, metrics to evaluate the impact of products once they come to market lag far behind. In this paper we provide a framework for systematic measurement of product impact in monetary terms and delve into the rationale for the framework’s seven elements. We then apply the whole framework to two competitor companies and elements of the framework across companies in different sectors of the economy to show the feasibility of measuring product impact and the actionability of the framework. Not only does this application demonstrate feasibility, it also indicates the value of impact-weighted financial statement analysis. We see our results as a first step, rather than a definitive answer, towards more systematic measurement of product impact in monetary terms that can then be reflected in financial statements with the purpose of creating impact-weighted financial accounts.Link

Tags: , , , , , , ,