Rational Versus Intuitive Gatekeeping: Escalation of Commitment in the Front End of NPD

The unwillingness of a gatekeeper to let go of a fruitless new product development (NPD) project wastes valuable resources and hampers NPD performance. The onset of such escalation of commitment is likely to occur already in the front end of NPD, where high ambiguity and complexity make it hard to distinguish fruitless from potentially successful projects. This study investigates if a gatekeeper’s thinking style—whether they think rationally or whether they follow their intuition—can prevent escalation of commitment in the front end. Theory on cognition provides arguments for and against either thinking style’s influence on escalation of commitment, but empirical evidence on this matter is lacking. Our study demonstrates that gatekeepers who think rationally are less likely to escalate their commitment than those who follow their intuition. This result holds both in a correlational study of dispositional thinking styles, as well as in an individual‐level randomized experiment in which the thinking style of experienced practitioners before they take gate decisions is induced. Our findings provide ample opportunities for improving existing front end gate review practices, such as allocating candidates for gatekeeper positions based on their thinking style, training gatekeepers to think rationally, and increasing the use of gate‐decision rules and templates.     

New development: Eloquent silence—civil service career development in the EU financial assistance programmes conditionality

ABSTRACT

This article examines how civil servants’ career development was treated in the loan-driven EU reform recommendations for Greece, Portugal, Cyprus, Ireland and Spain in the aftermath of the 2007–2008 global financial crisis. Neither the European Commission (EC), nor the ‘Troika’, made any proposals for reforming the career development of those countries’ civil services. This omission is dysfunctional given the otherwise ambitious reform agenda the EC required from these countries in order to grant them financial support.     

Peer‐to‐Peer File Sharing and the Market for Digital Information Goods

We study competitive interaction between two alternative models of digital content distribution over the Internet: peer‐to‐peer (p2p) file sharing and centralized client–server distribution. We present microfoundations for a stylized model of p2p file sharing where all peers are endowed with standard preferences and show that the endogenous structure of the network is conducive to sharing by a significant number of peers, even if sharing is costlier than freeriding. We build on this model of p2p to analyze the optimal strategy of a profit‐maximizing firm, such as Apple, that offers content available at positive prices. We characterize the size of the p2p network as a function of the firm's pricing strategy, and show that the firm may be better off setting high prices, allowing the network to survive, and that the p2p network may work more efficiently in the presence of the firm than in its absence.     

Money is an experience good: Competition and trust in the private provision of money

The interplay between competition and trust as efficiency-enhancing mechanisms in the private provision of money is studied. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a bound on efficiency. Stationary inflation must be non-negative and, therefore, the Friedman rule cannot be achieved. The quality of money can be observed only after its purchasing capacity is realized. In this sense, money is an experience good.     

Households' Willingness to Pay for "Green" Goods: Evidence from Patagonia's Introduction of Organic Cotton Sportswear

To shed light on individuals' willingness to pay for "green" goods (i.e., goods that are supposed to have lower adverse environmental impacts either in production or in use), we study data from the introduction by Patagonia, Inc., of organic cotton sportswear in the mid-1990s. Patagonia, a maker of high-end outdoor wear, substituted organic cotton for conventionally grown cotton in all of its sportswear (i.e., casual clothing for travel and leisure) in 1996. We find that customers were willing to pay significant premiums for organic cotton garments although the organic cotton provided no demonstrable private incremental benefits to the customer.     

Imperfect Intersectoral Labor Mobility and Monetary Shocks in a Small Open Economy

In this paper, we model the assumption of imperfect labor mobility across sectors in the New Open-Economy Macroeconomics framework to assess its impact on output, inflation, and welfare. Following a permanent home monetary expansion in a small open economy, we find that the above-mentioned assumption leads to: (i) less expansionary effects on (traded) output in the short term, although also less contractionary in the long term; (ii) lower short-term inflation but higher in the long term; and (iii) less intertemporal welfare, with even a ??beggar thyself?? problem being possible.     

A discrete choice model of dividend reinvestment plans: classification and prediction

We use a discrete choice recursive model to classify companies with and without dividend reinvestment plans (DRIPs). Our model classifies 72.0% of companies correctly. We interpret misclassified companies as being likely to switch their plan status. For example, if financial data erroneously suggest that a company should have a DRIP then we expect that it would be more likely to institute a plan than other companies in the sample. Our results support this conjecture. Companies that add DRIPs tend to have more extreme levels of variables that control for management entrenchment, higher levels of variables that control for the ability to pay dividends and higher payout ratios. Copyright © 2011 John Wiley & Sons, Ltd.     

Capital forbearance and thrifts: Examining the costs of regulatory gambling

This article estimates losses embedded in the capital positions of the 996 FSLIC-insured savings and loan institutions that did not meet capital standards on December 31, 1979. We compare the estimated cost of resolving the insolvencies of these institutions in 1980 with the actual failure-resolution costs for those that were closed by August 31, 1994. Our most conservative estimates, considering only the direct costs associated with delayed closure of only the 372 thrifts that were subsequently closed as independent institutions, show that these costs exceed estimates of the cost of prompt resolution by over 16 billion 1979-dollars.R. P. DeGennaro is an Associate Professor and the 1996–1997 Tennessee Banker's Association Scholar, and J. B. Thomson is Vice President and Director of Financial Services Research.University of TennesseeFederal Reserve Bank of Cleveland     

Takeover Waves

Horizontal takeovers often occur in waves. A sequence of takeovers is obtained in a Cournot setting with cost asymmetries. They are motivated by two different reasons: (1) a low realization of demand increases the profitability of takeovers; (2) takeovers raise the profitability of future takeovers. A possible explanation of merger races is also obtained by showing that firms buying in the first place pay a lower price for their targets.