A RECENT SURVEY FOUND THAT 95 PERCENT OF U.S. cities use some form of targeted financial incen-tives to attract firms. These incentive policies, such as tax holidays or outright grants, are not new. In fact, they date to the 12th century in Italy. (Alexander Ham-ilton holds the distinction of being the first known American recipient of a targeted financial incentive.)

Although these policies have been one of the most common economic development tools of cities, states and countries around the world, few have asked whether these expensive policies actually work. One of my current projects examines this question using a novel research design strategy. This project focuses on Kansas and explores how that state’s flagship economic development program, Promoting Employ-ment Across Kansas (PEAK), affects job creation.

How would we know if an incentive program helps create jobs? This is an important question because in economic development most agencies (and voters) are loath to pay firms for jobs they were going to create anyway. Instead, the goal of most incentive programs is to harness taxpayer funds to provide incentives for further job creation.

A useful way of thinking about whether incentives create jobs is to compare them to scholarships for high school students. Would we really say that giving a scholarship to a high school valedictorian caused the student to go to college? Isn’t it more plausible that this scholarship simply reduced the cost of college for the student? Although I agree that to help students choose to attend college and to reduce their college costs are laudable goals, this analogy helps us rethink our assumptions about job-creating incentives.

Evaluations of many job-incentive programs find that most of the jobs that were “created” would have appeared with or without incentives. These “redun-dant” jobs make up from two-thirds to three-fourths

of the jobs claimed to result from the incentive program. In other words, it appears many incentive programs are paying firms to do something they already intended to do.

However, there is a problem with these studies: They are often based on interviews with firms or make assumptions about the firms’ alternative investment locations. In my study, I harness data on all businesses in Kansas to compare how firms receiving PEAK incen-tives fared relative to firms that did not receive these incentives. Using matching methods (i.e., compar-ing very similar firms that received incentives with those that did not), I can analyze employment creation at the firm level over a six-year period. No matter how we parse them, the findings reveal that there is no clear pattern of job creation among the firms that received PEAK incentives. Surprisingly, most estimates indicate that PEAK firms created slightly fewer jobs than the firms without any incentives.

If these results hold over the course of my research, then the next question is why. More specifically, why would politicians champion these policies if they are so ineffective? Another research project, which I co-authored with three other professors and which appeared in International Studies Quarterly, begins to answer this question by pointing to the political logic of incentives. Survey data on how voters evaluate new investments in their district and the use of incentives

shows that the provision of incentives is a dominant strategy for politicians. By using incentives, politicians can claim extra credit for attracting investment—and they can deflect blame if an investor chooses another location. In short, it makes sense for politicians to always offer incentives, even if they are known to be 100 percent ineffective.

This research is far from complete, and I have a number of other related projects in progress as well as a co-authored book manuscript on the topic with Eddy Malesky at Duke University. If you have thoughts or suggestions related to this topic, I would be happy to hear from you.

www.business.gwu.edu

The George Washington University School of BusinessGWSBResearchFall 2014

The George Washington University School of Business has long been renowned for the quality and scope of the research performed by its faculty. Their efforts reflect GWSB’s commitment to cutting-edge, groundbreaking research aimed at expanding the depth and breadth of business knowledge. Our location in the heart of Washington, D.C., provides our faculty with rich opportunities to work across industries and sectors in a truly global capacity, and the research produced as a result is some of the best in the world.

This issue of GWSB Research highlights some excellent recent research work by our faculty:

• Wenjing Duan, associate professor of information systems & technology management, details the factors affecting consumers’ online purchasing decisions;

• Nathan M. Jensen, associate professor of international business, examines the actual effects of state-sponsored job-creation incentives;

• Elizabeth Mullen, associate professor of management, shares her research on how victim-compensation outcomes are affected by the severity of criminal penalties;

• Department of International Business Chairman Robert J. Weiner, professor of international business, public policy, and international affairs, and Anthony P. Cannizzaro, PhD candidate in international business, discuss their work on transparency in state-owned enterprises in the global energy sector; and

• John Forrer, associate research professor of strategic management & public policy and associate director of the Institute for Corporate Responsibility, sits down for a Q&A session about his recent book.

Each of these articles provides an example of the high-quality research being conducted by GWSB faculty. I am sure you will enjoy reading them.

Onward and Upward,

Linda A. LivingstoneDean

The George Washington University School of Business

MESSAGE

from the Dean

THE ECONOMICS AND POLITICS OF ATTRACTING INVESTMENT TO YOUR CITYDid You Vote For a Job Creator? By NATHAN M. JENSEN

Associate Professor of International Business

2 | www.business.gwu.edu

IN THE LAST FEW YEARS SEVERAL COUNTRIES have put forward legislation to promote transparency in the oil and mining sectors. In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act proposed a new rule that would require natural-resource companies listed on U.S. stock exchanges to make project-by-project disclosures of payments to governments.

Such measures aim to alleviate the resource curse, a phenomenon by which countries blessed with an

abundance of natural resources are often plagued with corruption, weak institutions and poor economic development. Many policymakers and civil society groups consider transparency a pivotal first step towards combating these ills.

However, these laws have generated heated debates among regulators and oil-industry executives. In the United States, the latter successfully halted the implementation of the Dodd-Frank disclosure rule. Their argument? Rules that force private enterprises to disclose proprietary information create an uneven playing field between U.S. firms and foreign oil compa-nies, many of which are state owned.

This debate raises a more general question: How much information do multi-national enterprises (MNEs) and state-owned enterprises (SOEs) already disclose? While state capitalism has become an emerging theme in inter-national business research, scholarship has not examined the effects of state ownership on corporate transparency.

We attempt to address this oversight in our paper, “Loose-Lipped Leviathan? Transparency in Private and State-Owned Multinationals.” Comparing voluntary investment disclosures by private MNEs to those of state-owned petroleum companies, we find that SOEs reveal far less about their investments.

However, not all SOEs are alike. We show that who owns the SOE matters. SOEs that are partially listed

on public stock exchanges behave more like private firms. Further, SOEs controlled by states in which institutions allow citizens to demand greater account-ability from their politicians are more transparent.

Our study also reveals that MNEs’ willingness to disclose information about their investments depends on the political environment of the country in which the investment is located. MNEs tend to disclose less when entering politically risky countries. However, we

find that SOEs are less sensitive to political risks abroad than are private firms, making them more likely to disclose informa-tion in riskier environments.

Our findings have direct implications for the afore-mentioned policy debate. Our results suggest that publicly listed firms already choose to be

far more transparent than state-owned competitors. However, disclosure choices are negatively related to the political risks of the country in which a firm is investing—an effect that is exacerbated when the host country controls a state-owned enterprise of its own. The result is that private firm disclosures are most problematic in the very countries with the greatest need for transparency.

WHAT FACTORS DRIVE ONLINE SHOPPING DECISIONS? What types of online behaviors lead to sales? How do consumers go from “surfing the ’net” to clicking the “buy” button? Fortunately, metrics are available to help online retailers answer such questions.

The emergence of “Big Data” collection, processing and analysis has changed the way both companies and users generate and obtain information. For example, shopping websites can now track visitors based on many types of collected infor-mation, including their purchase history, their demographic characteristics and how they arrived at the site. They do the latter by watching use of search engines, social media recommendations or clicks on ads or links in e-mail promotions.

With the shift from product-centered thinking to customer-centered think-ing in both research and practice, the means for reaching consumers, monitoring customer behavior and tracking a customer’s online footprint have expanded enormously. The latest Big Data technologies and techniques permit the measure-ment of every user touch-point along the purchase trail. However, companies must sift through a massive amount of data to understand which metrics truly matter to their bottom line.

The availability of such a large amount of detailed customer data has drawn the interest of both practitioners and academics. Researchers are paying close atten-tion to online customer behavior, tracking interactions with different channels during the search-and-purchase journey.

My research in this area has focused on the predictive power of various online referral channels, their relative importance and interrelatedness, and the dynamics of the relationship between different referral channels and e-commerce website sales performance. To the best of my knowledge, this is the first study to examine multiple referral and advertising channels and their relative importance, interrelat-edness and competitive effect.

The research made extensive use of measurement tools from comScore, the Internet analytics firm that has accumulated detailed data on the browsing habits

of approximately 100,000 households whose Internet surf-ing and purchasing behavior was recorded over time. The results suggest that, to vary-ing degrees, referral channels can be used to predict consumer purchase amount, volume and conver-sion rates.

This research makes clear that managers should prioritize and appropriately allocate IT and marketing bud-gets according to vari-ous platforms’ ability to channel customers to the final point of sales. Furthermore, the time-series models developed through this research— to gauge the short-term, long-term and cumulative effects of various referral paths—show that a focus on merely the short-term effect neglects the enduring influences and differences of referral paths in a company’s own website, as well as those in competitors’ sites. Big Data analytics research should, therefore, pay more attention to time-series modeling techniques and the long-term effects of advertis-ing campaigns and media channels.

By ROBERT J. WEINER, Professor of International Business, Public Policy, and International Affairs

and ANTHONY P. CANNIZZARO, PhD Candidate in International Business

By WENJING DUANAssociate Professor of Information Systems & Technology Management

IT’S MORE THAN THE LAST CLICKInvestigating the Impact of Referral Channels in the Online Customer Journey

in the Global Petroleum Industry

State Ownershipand Transparency

“The result is that private firm disclosures are most problematic in the very

countries with the greatest need for transparency.”

www.business.gwu.edu | 3

WHY ARE CRIME VICTIMS often denied adequate compensation? According to new research I conducted in collaboration with Gabrielle Adams, assistant professor of organizational behavior at the London Business School, individuals’ desires for retribution may some-times prevent victims from getting the help they need and deserve.

Our research paper, “Punishing the Perpetrator Decreases Compensation for Victims,” published in Social Psychological and Personality Science, reveals that indi-viduals’ sense of justice is restored when they know that perpetrators received punishment. This, in turn,

makes individuals less disposed to compensate victims. In contrast, learning that victims have been compensated has little impact on the desire to punish.

These effects were demonstrated in three studies. In the first study, all participants read about a transgression, and then half the

participants were asked how much they wanted to punish the perpetrator before they were asked about compensation. The remaining participants were asked how much they wanted to compensate the victim before indicating their desire for pun-ishment. As predicted, those who first considered punishment wanted to compen-sate victims less than those who were first asked about compensation. In contrast, participants punished perpetrators to the same degree regardless of whether they

were first asked about compensa-tion. We replicated these results in a second study where a third-party administered the initial punishment or compensation.

In a third study, we simulated the decisions that jurors and judges make by asking participants to decide upon the actual amounts of money that they would be willing to fine perpetrators and award victims. All participants read about a transgression involving a perpetrator assaulting a co-worker. In one condition, participants learned that the perpetrator received either a very small punishment or no punishment before they were asked how much compensation they wanted to award the victim. In a second condition, participants learned that the victim received a little or no compensation (from a third-party) before they were asked their punishment recommendations..

We found that even token third-party punishment increased people’s beliefs that justice had been restored, leading participants to compensate victims less generously. However, participants punished the perpetrator by the same degree, regardless of the amount of victim compensation. These results were particularly striking because even small, symbolic amounts of punishment increased the perception that justice had been served and decreased the desire to award compensation.

Our research highlights that punishment and compensation are not mutually substitutable responses to injustice. In many countries, crimes are brought before the criminal courts before victims can receive compensation in civil courts. This research suggests that focusing on punishment first may lead victims’ needs to be neglected.

What is the book about?New models of cross-sector collaboration (e.g. busi-ness, government, nonprofit) have been emerging to fill in a growing “governance gap” regarding public policy problems. The book focuses on four types of collaborations—collaborative contracting, partner-ships, networks and independent public services providers (IPSPs)—and it describes the advantages, disadvantages and trade-offs of using each one.

Why are public/private/nonprofit-sector partnerships necessary?Businesses, NGOs and government agencies are all facing pressures to improve their performance with limited resources. Effective collaborations allow participants to leverage funds, re-allocate risks among partners and share valuable information. Most importantly, collaborations spawn innovative problem solving that benefits everyone involved.

What are the challenges inherent in such collaborations?Bringing business, government and nonprofits together often means a clash of cultures. The three sectors are so different in their approaches to design-ing and implementing programs, they have a difficult time understanding what the other participants want to accomplish and why it matters. It is especially the

case that most government and NGO executives understand very little about businesses—how they operate and why they make the decisions they do.

Are there examples of successful cross-sector collaborations?The book describes several. Examples include Community Care of North Carolina, Joint-Venture: Silicon Valley, Global Alliance on Improved Nutrition (GAIN), the Small Communities Environmental Infrastructure Group (SCEIG), the San Diego County Office of Education (SDCOE), the Fairfax County Department of Systems Management for Human Services (DSMHS), The Global Fund and the Port of Miami Tunnel (POMT). There are many others.

How about an example where cross-sector collaboration did not work well?The response to Hurricane Katrina is the poster-child of a cross-sector collaboration that went from bad to worse. The Federal Emergency Management Agency (FEMA) had no idea how to effectively coordinate its work with businesses and NGOs that were willing to help. Responses to natural disasters—or epidemics like Ebola—are most in need of effective cross-sector collaboration but too often fall short in that effort.

What is necessary for business to have successful collaborations with government and NGOs?First is patience, lots of it. Governments and NGOs are much more risk-adverse than most businesses. Second is insisting on concrete, measureable outcomes. Third is making sure the creation and capture of public value (e.g. achieving program goals) and private value are co-dependent. Successful collaborations are “win-win-win.” Fourth is establishing “trusted-partner” relationships within the collaboration as opposed to the more traditional “transactional relationships.”

John Forrer, associate research professor of strategic management and public policy and associate director of the Institute for Corporate Responsibility, discusses his recent book, Governing Cross-Sector Collaboration.

By ELIZABETH MULLEN Associate Professor of Management

New Research Reveals the Bias That Costs Victims of Crime Their Compensation

VICTIMS OF CRIME LOSE OUT TO OUR DESIRE TO PUNISH

Individuals’ sense of justice is restored when they know that

perpetrators received punishment. This, in turn, makes individuals less

disposed to compensate victims.

JOHN FORRER, Associate Research Professor of Strategic Management and Public Policy and Associate Director of the Institute for Corporate Responsibility

Spotlight:Faculty AuthorJohn Forrer

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