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How Generative AI is transforming hiring in organizations: Key issues and research questions
Full text linkThis essay examines how generative AI is transforming organizational hiring processes. It maps out key issues and proposes research questions to strengthen our understanding of AI’s impact on hiring. By conceptualizing hiring as a multi-stage funnel, the essay highlights generative AI’s influence on decisions about which roles to hire for, how candidates are sorted into pools, and how applicants are selected. It underscores the interplay between organizational decisions and candidate behaviors, examining how AI can shape outcomes at each stage. The article also highlights opportunities and challenges that generative AI presents for individuals, organizations, and policymakers
Asset Pricing and Risk-Sharing Implications of Alternative Pension Plan Systems
Full text linkWe show that incorporating defined benefit pension funds in an incomplete markets asset pricing model improves its ability to match the historical equity premium and riskless rate and has important risk-sharing implications. We document the importance of the pension fund's size and asset demands, and a new risk channel arising from fluctuations in the fund's returns. We use our calibrated model to study the implications of a shift to an economy with defined contribution plans. The new steady state is characterized by a higher riskless rate and a lower equity premium. Consumption volatility increases for retirees but decreases for workers
TRIPS and knowledge diffusion from low‐ and middle‐income countries
Full text linkResearch Summary: We examine a significant yet underappreciated effect of IPR implementation: the dissemination after TRIPS implementation of established scientific knowledge from low‐ and middle‐income countries (LMICs) into the global scientific system of pharmaceutical development. The staggered implementation of the policy allows identification of increased diffusion of pre‐existing LMIC knowledge on global diseases into the global corporate invention pipeline. For neglected diseases, the uptake remains in academic science. Other results demonstrate institutional effects in the scientific communities in LMICs through increases in scientific productivity, cross‐border collaborations, and scientist mobility. These and other results recast TRIPS’ impact as sensitive to the incentives of global corporations and institutionally significant for LMICs. We discuss implications for research on innovation strategy. Managerial Summary: The implementation in an LMIC of an intellectual‐property system (e.g., of patents) carries implications for dissemination of pre‐existing scientific knowledge from the implementing country into the global scientific system. Corporate invention more intensively incorporates pre‐existing LMIC knowledge when the subject is global diseases such as cardiovascular conditions and cancer. However, when the subject is neglected diseases such as infectious conditions, the significant uptake remains in academic science. Overall, this research suggests that the implementation of patent and other intellectual‐property protections influences the integration of LMIC science into the global system differentially based on the relevance for global commercialization
Optimizing the Path Towards Plastic-Free Oceans
Full text linkIncreasing ocean plastic pollution is irreversibly harming ecosystems and human economic activities. We partner with a non-profit organization and use optimization to help clean up oceans from plastic faster. Specifically, we optimize the route of their plastic collection system in the ocean to maximize the quantity of plastic collected over time. We formulate the problem as a longest path problem in a well-structured graph. However, since collection directly impacts future plastic density, the corresponding edge lengths are non-linear polynomials. After analyzing the structural properties of the edge lengths, we propose a search-and bound method, which leverages a relaxation of the problem solvable via dynamic programming and clustering, to efficiently find high-quality solutions (within 6%-optimal in practice), and develop a tailored branch-and-bound strategy to solve it to provable optimality. On one-year of ocean data, our optimization-based routing approach increases the quantity of plastic collected by over 60% compared with their current routing strategy, hence speeding up the progress towards plastic-free oceans.
Supplemental Material: All supplemental materials, including the code, data, and files required to reproduce the results were reviewed and are available at [https://doi.org/10.1287/opre.2023.0515](https://doi.org/10.1287/opre.2023.0515
Universal Owners and Climate Change
Full text linkUniversal ownership theory proposes that widely diversified investors have a financial self interest at the portfolio level in reducing market-wide risks relating to environmental or social (ES) issues. This paper sets out a double test for determining when universal owner theory justifies investor action and applies these tests to the case of climate change. When applied to the commonly adopted goal of limiting global warming to 1.5C, universal owner theory runs into problems on both tests. First, it is uncertain whether this goal is financially optimal at the portfolio level. Second, even if it were optimal, investors have limited efficacy to achieve this outcome. We consider goals a climate-concerned investor might set and the actions they could take that would be consistent with our tests. Actions best supported by evidence involves four areas of focus. First, engagement with investee companies based on realistic goals. Second, positive engagement on policy. Third, modest and bounded impact investments that can credibly be considered as reducing climate risk. Fourth, working to ensure that transition and physical risks are fully incorporated into investment models. Through targeting a more modest set of ambitions, climate-concerned investors can be more impactful while avoiding conflicts with fiduciary duties to clients
Explaining the Great Moderation Exchange Rate Volatility Puzzle
No full textWe study how macroeconomic volatility relates to trends in exchange rate volatility through the prism of the Great Moderation hypothesis. We find significant heterogeneity in exchange rate volatility trends across advanced economy currencies against the USD. Financial centers currencies became less volatile over a 50-year history, while commodity currencies became more volatile. This occurred despite decreases in the volatility of macroeconomic variables, particularly expected interest rate differentials. Instead, trends in the volatility of non-macro (currency risk premium) exchange rate components were a main driver of patterns in exchange rate volatility. However, the behavior of macroeconomic variables still mattered greatly for explaining the rise in commodity currency volatility. We document that a meaningful part of this increasing volatility can be tied to less negative co-movements over time between changes in expectations of relative interest rates and changes in expectations of excess returns – a pattern that is consistent with a weakening or even disappearance of the Fama puzzle for commodity currencies
Strategic arbitrage in segmented markets
Full text linkWe propose a model in which arbitrageurs act strategically in markets with entry costs. In a repeated game, arbitrageurs choose to specialize in some markets, which leads to the highest combined profits. We present evidence consistent with our theory from the options market, in which suboptimally unexercised options create arbitrage opportunities for intermediaries. We use transaction-level data to identify the corresponding arbitrage trades. Consistent with the model, only 57% of these opportunities attract entry by arbitrageurs. Of those that do, 49% attract only one arbitrageur. Finally, we detail how market participants circumvent a regulation devised to curtail this arbitrage strategy
Learnings From 1,000 Rejections
Full text linkThe Review of Finance aimed to significantly increase its standards over my 6 years as Managing Editor and 1 year as Editor. To comply with these new standards, I had to reject nearly 1,000 manuscripts. This article aims to use these rejections constructively by distilling common reasons for rejection to guide future research. They are divided into three categories: contribution, execution, and exposition. Beyond extracts from decision letters that give reasons for rejection, this article also shares excerpts that shed light on the editorial process, such as how an editor weighs up feedback to reach a decision, as well as emails to authors outside formal letters in response to queries on the process
When Form Leads to Function: Network Closure & Social Identity Threat Among Women Entrepreneurs
Full text linkWe contend that the degree of closure in women entrepreneurs’ social networks affects how concerned they feel about being judged through the lens of negative gender stereotypes (i.e., their experience of social identity threat). Using data from a survey of entrepreneurs in Study 1, we observe that women (but not men) entrepreneurs who report more closure in their social networks experience less social identity threat. Study 2 shows that the trust that is inherent in closed social networks accounts for our effects. Using an experimental design, we find that a field sample of entrepreneurs who are assigned to develop a closed (versus open) network experience more trust, which is associated with reduced social identity threat for women (but not men). Our findings suggest that a closed social network may inoculate women against the risk of being derailed by negative stereotypes in the venture creation process. We conclude by discussing the theoretical and practical implications of our findings