Publications

In March 2020, Alex Funk, Deal Team Lead at Palladium Equity Partners, LLC, a private equity firm, was grappling with what to do with the student transportation company he had purchased just weeks earlier.

When he closed the deal with American Logistics Company (ALC) to acquire its subsidiary, ALC Schools, Funk was excited about the acquisition and eager to grow the company, which provided transportation to children with special needs. Operating largely in the Pacific Northwest, ALC maintained that it had no true competitors and was the industry leader in its market niche. ALC benefitted from federal and state laws which mandated that school districts provide transportation for children with special needs. Traditional yellow buses were often not suitable, and school districts found alternative options such as taxis unaffordable, providing a wide opening for ALC.

Palladium’s due diligence had confirmed ALC Schools’ attractive profitability, impressive operational prowess, and rapidly growing, recurring revenue from long-term, evergreen contracts with school districts. Funk planned to transform ALC into an Uber-like system, establishing a nationwide footprint. The fund was so enthusiastic about ALC’s prospects that it had purchased the firm at a multiple 30-40% higher than its preferred range.

But in March of 2020, the bottom fell out. Schools across the United States were shutting down due to the COVID-19 epidemic and nobody knew when they would re-open. ALC’s revenues dropped to zero. Funk had to come up with a plan to deal with the acquisition. He knew he had three options: kill (take the loss; sell off ALC Schools’ assets and liquidate); freeze (continue funding ALC Schools at minimal levels and wait out the pandemic); or build (invest in growth opportunities despite the pandemic).

Disruptions to government contracts traditionally arise during federal shutdowns when Congress fails to appropriate necessary funding. However, recent shifts in federal real estate policy, marked by lease cancellations and non-renewals, challenge the long-standing perception of federal leases as a secure and stable investment. We investigate how federal lease cancellations impact the pricing of government contract risk premia. Using unanticipated Department of Government Efficiency (DOGE) cancellations as a shock to commercial mortgage default risk, we find that first-loss CMBS bond tranches directly linked to DOGE-notified leases experience a persistent 4% drop in price, with large, negative spillover effects to bond prices, delinquency rates, and rental cash flows tied to nearby public and private-tenant leases. These results reflect that early termination options were previously perceived by investors as a dormant clause. Applying arbitrage pricing models of commercial lease contingencies confirms the underpricing of risk associated with government tenants.

Geoeconomics is the use of a country’s economic strength to exert influence on foreign entities to achieve geopolitical or economic goals. We discuss how concepts of power in the political science and economics literature can be used to guide research on geoeconomics. Economic threats as a form of coercion have seen a recent resurgence. We show how different types of threats can be modeled using simple tools and discuss what channels their potential effectiveness is based on. We discuss important open questions for the future literature to pursue.

The rapid rise in the number of PE funds searching for acquisitions across various sectors and size ranges has greatly enhanced exit options for private owners of businesses. The pool of potential buyers now extends far beyond competitors or other corporate acquirors. Significant competition among PE firms under pressure to invest large pools of capital has increased average purchase multiples to historic highs.

Business owners should not assume, however, that heated PE competition correlates to a high probability of their own successful sale. There is much at stake for business owners in launching a process to market their company for sale. Private owners tend to underestimate the substantial time, money, and distraction involved in a transaction process and may likely overestimate the probability of success. Additionally, the investment bankers pitching their services have an inherent conflict in providing advice regarding the sale process. An investment banker's livelihood depends on earning fees contingent on the completion of a sale, and they have less at stake in convincing an owner to start a process. As a result, a private business owner may likely be inadequately informed and not fully comfortable in making this momentous decision.

The purpose of this note is to help business owners make informed decisions as they contemplate a sale process. I highlight five fundamental questions a seller should consider before initiating a sale process:

• Am I ready for this huge transition?

• Do I fit what a buyout firm wants?

• Should I launch a sale process?

• How should I prepare for a sale process?

• How do I avoid getting taken advantage of?

In collaboration with VolunteerMatch (VM)---the world's largest online platform for connecting volunteers with nonprofits---we designed and implemented a new display ranking algorithm. VM's original ranking algorithm was intended to maximize efficiency (i.e., the total number of connections), but as a consequence it repeatedly displayed the same few opportunities at the top of its ranking, effectively limiting access to volunteers for the other opportunities. To incorporate VM's desire for equity (defined as the weekly number of opportunities with at least one connection) along with efficiency, we propose a modeling framework for online display ranking in settings where it is important to manage the trade-off between the total number of connections and the equitable allocation of these connections. We take an adversarial approach in evaluating the performance of online algorithms and show that a class of algorithms that applies a penalty to opportunities after each connection provides a strong (and, in certain regimes, optimal) performance guarantee. Inspired by our theoretical results yet mindful of practical considerations on VM's platform, we propose SmartSort, a simple score-based ranking algorithm which enjoys comparable guarantees in many regimes. We implemented SmartSort in two experiments, covering Dallas-Fort Worth and all of Southern California. Using a difference-in-differences analysis, we find that the implementation of SmartSort led to a 8-9% increase in the weekly average number of opportunities with at least one connection (consistent across both experiments) without any meaningful decrease in the total number of connections, implying a Pareto improvement for VM. Based on the success of our experiments, SmartSort has now been deployed nationwide. If SmartSort has a similar distributional effect on a national scale, every year, an additional 30,000 connections will go to opportunities that would have otherwise lacked access to volunteers.

A common-sense moral intuition is that bad acts should be condemned according to severity. Yet seven experiments (N = 6,075 U.S. adults) show that the extent to which people differentiate between transgressions hinges on the direction of comparison. When scaling up from a less severe transgression to a more severe one, people readily express stronger condemnation of the worse transgression. But when scaling down from a more severe transgression to a less severe one, they differentiate less, often condemning the lesser transgression just as strongly as one that is transparently worse. Indicating that one transgression is less bad than another can be construed as downplaying such transgressions, signaling bad moral character. Supporting this account, the asymmetry is larger for judgments that implicate moral character and for transgressions that seem especially important to condemn. Observers’ moral-character judgments reveal a similar pattern, suggesting that the asymmetry is reinforced by social incentives.

Over the first two decades of the 21st century, Rio Tinto, a 150-year-old global mining leader, faced significant volatility as it navigated an increasingly globalized and financialized economy. Mining companies, heavily reliant on commodity prices, struggled after the 2008 Great Recession, leading to cost-cutting measures and changes in how they managed their global operations.

In May 2020, Rio Tinto legally blasted two sacred, 46,000-year-old caves at Juukan Gorge in Western Australia to access $135 million worth of iron ore. The decision deeply distressed the Traditional Owners, who had long opposed the action, and sparked widespread criticism from the government, investors and communities. The fallout led to the resignation of Rio Tinto’s CEO, two senior executives, and the board chair. Jakob Stausholm, formerly CFO, became CEO in January 2021. This case provides background and traces the events that precipitated Rio Tinto’s decision to blow the Juukan Gorge caves—and the ensuing stakeholder backlash.

Online platforms are rife with racial discrimination, but current interventions focus on employers, rather than customers. We propose a customer-facing solution: changing to a two-point rating scale (dichotomization). Compared with the ubiquitous five-star scale, we argue that dichotomization reduces modern racial discrimination by focusing evaluators on the distinction between ‘good’ and ‘bad’ performance, thereby reducing how personal beliefs shape customer assessments. Study 1 is a quasi-natural experiment on a home-services labour platform (n = 69,971) in which the company exogenously changed from a five-star scale to a dichotomous scale (thumbs up or thumbs down). Dichotomization eliminated customers’ racial discrimination whereby non-white workers received lower ratings and earned 91 cents for each US dollar paid to white workers for the same work. A pre-registered experiment (study 2, n = 652) found that the equalizing effect of dichotomization is most prevalent among evaluators holding modern racist beliefs. Further experiments (study 3, n = 1,435; study 4, n = 528) provide evidence of the proposed mechanism, and eight supplementary studies support measurement and design choices. Our research offers a promising intervention for reducing customers’ subtle racial discrimination in a large section of the economy and contributes to the interdisciplinary literature on evaluation processes and racial inequality.

We characterize profit-maximizing menus in screening settings in which the agent has one of two privately-known types. We assume that utilities are quasi- linear but impose no other restrictions (such as increasing differences) on the agent’s utility or the set of alternatives. Our characterization clarifies the role of increasing differences in the standard setting and shows when random menus are beneficial. We describe applications to vertical and horizontal differentiation and multi-product bundling.

How should the federal government respond to the collapse of the Silicon Valley Bank (SVB), the 16th largest bank in the United States?

SVB collapsed on Friday, March 10, 2023, after an unprecedented run on deposit during which customers requested $42 billion of withdrawals in a single day. The value of SVB’s securities portfolio had declined severely. The bank had bet on long-term government securities, and when the Fed raised interest rates, the mark-to-market value of this asset had dropped precipitously. Ninety-Four percent of the bank’s deposits were uninsured, so customers reacted quickly when rumors spread that the bank might be insolvent.

The Federal Deposit Insurance Corporation (FDIC) had taken the unusual action of closing the bank on a Friday morning. Now, the Biden administration, the Federal Reserve and the FDIC had the weekend to decide what to do and coordinate a response. SVB’s collapse had sent shock waves through the banking sector. A few other banks with a large percentage of uninsured deposits and exposure to the hike in interest rates were rumored to be in trouble. Financial pundits were raising the question of whether this might lead to a financial crisis as occurred  after the failure of Lehman Brothers in 2008. There were also the SVB depositors who had not been able to get their money out of the bank in time – many of them tech start-ups that were a major driver of the economy.

Senior policymakers at the Treasury, the Fed, and the FDIC faced decisions that were politically fraught. Obviously, a recession would be politically unpopular. But the decision in 2008 to provide subsidies to banks had also proved contentious. Both the left and right had decried what they perceived to be “bank bailouts.”

Policymakers knew they had to react quickly. Before them, they had a number of options that could limit the fallout from SVB’s collapse. They also had to devise a communications strategy that calmed the markets and the public. Finally, they had to start the long process of examining what went wrong at SVB in order to ensure that it did not happen again.  

Operations research, originating during World War II, is the scientific study of operations aimed at improving decision-making and organizational performance. Initially focused on military logistics, its scope has expanded to address diverse operational problems in business, government, and non-profit sectors. These include scheduling, capacity planning, routing, and resource allocation. Through mathematical modeling and analysis, operations research seeks not just to describe but to optimize operations by aligning them with organizational goals such as maximizing profit, minimizing costs, or enhancing effectiveness. The field has evolved from simple problem identification to complex mathematical modeling, emphasizing the importance of framing the right problem within a well-understood system context. Applied operations research assumes that the identified problem can be modeled mathematically, that the models and assumptions are valid, and that organizational objectives and constraints are clearly defined and quantifiable. The ultimate aim is actionable recommendations that improve real-world decision-making. Grounded in the belief in mathematical rigor, operations research integrates objectives and constraints to deliver feasible solutions. By leveraging analytical tools, it supports better decision-making, ensuring that operations are not only efficient but also aligned with strategic priorities, making it a practical and impactful discipline across sectors.

Firms' diversity, equity, and inclusion (DEI) policies have received significant scrutiny in recent years, including their efficacy and role in long-term value creation. We provide new evidence on these issues by studying what is arguably the most important group of firms-those with identified problems. We find that in the wake of DEI controversies, firms shift their hiring practices toward recruiting diverse employees to presumably improve public perception of their DEI profiles. However, these effects are economically small and largely superficial. Despite these limited firm responses, we find these controversies have important negative stock price implications, which are largely offset when firms make more meaningful DEI investments. Our findings suggest firms currently often do little to address public concerns regarding their DEI activities, despite their significant value implications.

The world has seen a stunning rise in the willingness of great powers to use their trade and financial relationships for geopo- litical ends. This rise of “Geoeconomics” has the potential to reshape the interna- tional trade and financial system. Geoe- conomic policies include not only sanctions but also the strategic use of export controls, efforts to reshape supply chains for secu- rity purposes, the provision of foreign aid to secure political alignment, and the en- couragement or pressure on domestic and foreign firms to alter their business rela- tionships. While the foundation of a na- tion’s geoeconomic power is its economic strength, size and connections alone do not automatically translate into geoeconomic power. Instead, governments seeking to project geoeconomic power abroad need to be able to credibly co-opt or coerce their do- mestic firms and citizens, and perhaps crit- ical foreign allies, to take part in this power projection. Achieving this involves navigat- ing a range of political economy constraints at home, including legal restrictions, do- mestic political objectives, interest groups and other forces that limit a government’s ability to exert its influence. An important question for geoeconomic power projection is how far a government can push its own firms or allies to act against their private interests in pursuit of the country’s geopo- litical goals.

The transparency and control of earnings are major concerns for gig economy workers across platforms such as ride-hailing and food delivery. While workers advocate for greater transparency, platforms selectively disclose information, shaping workers' decision-making and earnings. Recently, the Federal Trade Commission (FTC) has highlighted lack of transparency as a key issue, and platforms have responded by introducing upfront pay quotes that provide pertrip compensation details for workers. Using a game-theoretic model, we analyze the strategic interactions between the platform and workers, incorporating tools from information design to examine how different transparency policies-specifically, a fixed commission rate versus upfront pay quotes-shape equilibrium outcomes. We find that greater transparency can paradoxically increase platform control, as it allows platforms to fine-tune pay structures in ways that ultimately reduce worker autonomy. Moreover, while full information benefits the platform when it has flexibility in commission setting, it can backfire under commitment constraints, leading to lower profits than a no-information policy. Our findings highlight that transparency is not inherently beneficial for workers. Instead, its effects depend on how it interacts with pay policies. In particular, simple mechanisms, such as a fixed commission rate, can provide workers with more stability and bargaining power than per-trip transparency. These insights offer important guidance for policymakers and platform designers navigating the trade-offs of transparency in the gig economy. Keywords: Platforms, transparency, queueing, gig eco

Vital Farms operated in the premium egg market. It was founded in 2007 by Matt O'Hayer, who predicted a growing market of consumers willing to pay a premium price for ethically produced foods. O'Hayer built a network of small family farms committed to strict environmental standards, ensuring humane treatment of the hens and ethical practices. The company's high quality and clever marketing led to significant growth.

O'Hayer based the organization on "Conscious Capitalism" as espoused by John Mackey, co-founder of Whole Foods Market, and Professor Raj Sisodia. Under this model, the company sought to support the interests of diverse stakeholders — including investors, farmers, employees, consumers, communities, the environment, and the hens and cows that produced Vital Farms' products. To formalize its commitment to stakeholders, Vital Farms received certification as a B Corp and reincorporated as a Delaware Public Benefit Corporation.

Initially funded by O'Hayer's resources, the company attracted private investors and impact funds aligned with its mission as it grew. In 2020, Vital Farms recognized the need for a significant capital infusion to maintain its growth trajectory. As it looked to raise capital, O'Hayer and Vital Farms CEO Russell Diez-Conseco faced the challenge of balancing its stakeholder interests against the pressures from capital markets, where investor priorities often dominated, while maintaining its commitment to conscious capitalism values. Potential options included seeking additional impact investors or venture capital, taking on debt, or considering public market offerings. Given the benefits and challenges inherent in each option, what path was best for the company, its investors, its stakeholders, and its mission?

The founders of Warby Parker had a clear vision of the kind of company they wanted to build: a novel business model that would disrupt a long-entrenched industry. The company’s values would create a culture that the founders themselves—and, they hoped, many others—would find meaningful and even fun. Their social impact mission wouldn’t be a philanthropic afterthought but an integral part of the business’s core. Purpose and profit would be pursued simultaneously, along with a commitment to building mutually beneficial relationships with customers, partners, communities, and other key stakeholders. They debated these and other critical details two years before the company was operational or even had a name.

The case examines the founders’ original business design for Warby Parker—a holistic approach that aligned and integrated purpose, a values-based culture, and business strategy with a commitment to building trusted relationships with stakeholders. The case also explores the actions taken by leadership to preserve this design as the company scaled, adapted and, ultimately, became a public corporation.

Consideration set models generalize discrete-choice models by relaxing the assumption that consumers consider all available options. Determining which options were considered has previously required either survey data or restrictions on how attributes affect consideration or utility. We provide an alternative route. In full-consideration models, choice probabilities satisfy a symmetry property analogous to Slutsky symmetry in continuous-choice models. This symmetry breaks down in consideration set models when changes in characteristics perturb consideration. We show that consideration probabilities are constructively identified from the resulting asymmetries. We validate our approach in a lab experiment where consideration sets are known and then apply our framework to study a “smart default” policy in Medicare Part D, wherein consumers are automatically reassigned to lower-cost prescription drug plans with the option of opting out. Full-consideration models imply that such a policy will be ineffective because consumers will opt out to avoid switching costs. Allowing for inattention, we find that defaulting all consumers to lower-cost options produces negligible welfare benefits on average, but defaulting only consumers who would save at least $300 produces large benefits.