Faculty Thought Leadership

Professor Nancy Wallace

Monitoring Economic Risk in Real Estate

Having studied real estate price dynamics for more than two decades, Professor Nancy Wallace warned of the real estate bubble long before it popped. In the aftermath of the financial crisis, she has been a key figure in monitoring economic risk for the Federal Reserve and U.S. Treasury. Recently, Wallace, the Lisle and Roslyn Payne Professor of Real Estate and Capital Markets, was named chair of the Fed’s Model Validation Council to develop better models for stress-testing financial institutions. At Treasury, Wallace is serving on the Financial Research Advisory Council to develop new strategies for measuring aggregate risk in the mortgage market. She’s also part of the Liquidity Working Group to identify markets where new products and new organizational structures could induce liquidity threats. She and her Haas colleagues at the Fisher Center’s new Real Estate and Financial Markets Laboratory are compiling and analyzing huge datasets on mortgages, employment, and house prices over the past 15 years to create new network-based risk metrics for the mortgage market and a more effective housing-price index that can provide better warning of future bubbles.

Professor Nancy Wallace, who’s chair of the Federal Reserve’s Model Validation Council, has been a key figure in monitoring economic risk for the Fed and U.S. Treasury.

professor Terry Hendershott

Influencing a Major Government Investigation

In 2014, the U.S. Commodity Futures Trading Commission (CFTC) had a tip from a whistleblower that a trader named Navinder Singh Sarao might have been responsible for the stock market “flash crash” that roiled stock markets on May 6, 2010. To find out if that was true, the CFTC retained Haas Finance Professor Terry Hendershott, whose research focuses on high-frequency trading, to analyze Sarao’s trading. Hendershott, who holds the Cheryl and Christian Valentine Chair, found that the trader had been placing huge buy and sell orders, up to US$200 million, only to cancel them as they got close to being executed. Hendershott showed that Sarao’s orders made no business sense and had the effect of spoofing the markets—in essence creating order imbalances that preceded the flash market crash. In April 2015, the CFTC announced that British authorities had arrested Sarao, at the request of the U.S. Department of Justice, for unlawful manipulation of the stock market.

Professor Terry Hendershott, whose work focuses on high- frequency trading, helped authorities nab a criminal whose actions may have helped cause the 2010 flash crash.

professor Terry Hendershott

Making Government the Optimal Partner of Business

Identifying strategies for strengthening the integrity and effectiveness of public institutions is a common goal in Professor Ernesto Dal Bó’s work, which sheds light on how economic forces shape and are shaped by the health of political and social institutions. Dal Bó, the Phillips Girgich Professor of Business in the Business and Public Policy Group, has studied a host of issues, including corruption and coercion in government, political dynasties in the U.S. Congress, the potential for sudden increases in wealth to fuel social conflict, and the impact of moral beliefs and self-esteem on the integrity of civil servants. His research increasingly attracts the interest and active collaboration of governments around the world. Since July 2014, for example, Dal Bó and Associate Prof. Frederico Finan have led a workshop on reducing corruption for top public officials from India. With the Mexican government, Dal Bó examined whether higher wages attract better public servants (they do).

Professor Ernesto Dal Bó, whose research focuses on how politics and economics inform and influence one another, attracts the interest and active collaboration of governments around the world.

Professor Laura Tyson

Blending Business With Social Change

Professor Laura Tyson has long advanced economic public policy discussions both nationally and globally. She is a member of the World Economic Forum’s Council on Gender Parity and is the co-author of its annual “Global Gender Gap Report.” In March, she began work with the UN Secretary-General’s High-Level Panel on Women’s Economic Empowerment. Tyson will serve as lead author of the panel’s two reports, which will provide action-oriented recommendations to hasten improved economic outcomes for women. As a member of the Fair Shake Commission on Inequality in California, Tyson is providing advice on legislative and ballot strategies to overcome economic insecurity. She’s also helping to develop state and national policies to foster educational equity and social mobility as a board member of the Opportunity Institute. During the Obama administration, Tyson served as a member of the President’s Council on Jobs and Competitiveness and the President’s Economic Recovery Advisory Board and as a member of the Foreign Policy Advisory Board for Secretary of State Hillary Clinton. Earlier in her career, Tyson was a key architect of President Bill Clinton’s domestic and international economic policy agenda in her roles as the chair of the Council of Economic Advisers (1993–95) and director of the National Economic Council (1995–96).

Professor David J. Teece

Shaping Standards Policies to Support Innovation

Professor David J. Teece launched and directs the Tusher Center for the Management of Intellectual Capital to provide the research society needs to support innovation. “The competitive advantage of the U.S. lies in innovation and creativity,” Teece said at the center’s 2015 opening. The issues surrounding intellectual property are complex, encompassing antitrust policy, international trade, business strategy and organization, science and technology policy, and communications policy. The Tusher Center works to provide the research and outreach needed to inform government standards setting. Teece, the Thomas W. Tusher Professor in Global Business, has testified at the federal, state, and international levels about the economic implications of intellectual property and antitrust law. He had a significant impact on antitrust practices in the 1990’s when he led the charge for the Justice Department and FTC to drop the “Nine No-Nos,” which were collaborative practices between companies that were deemed almost inherently anti- competitive. Teece showed that cooperation between companies can often be a force to enhance competition and innovation.

professor Terry Hendershott

Writing Health Care's Global Rules of the Road

Paul Gertler, the Li Ka Shing Foundation Chair in Health Management at Haas, is a pioneer in global policy evaluation and has worked for several ministries of finance, health, and social development. He co-led the evaluation of the Mexican government’s welfare program, Oportunidades, as well as pay-for- performance interventions to improve health care in Argentina, Peru, and Rwanda. Other research has examined the impact of computers in Honduran schools; pension reform in Mexico and Peru; improving slum housing in El Salvador, Mexico, and Uruguay; and sanitation upgrading in India. As chief economist of the World Bank’s Human Development Network (2004–06), he helped to establish a culture of rigorous impact evaluation and evidence- based policy.

Carl Shapiro

Rethinking Horizontal Mergers and Patent Law

Carl Shapiro, the Transamerica Chair in Business Strategy, served in two high-ranking positions in the Obama Administration. As a member of the President’s Council of Economic Advisers (2011–12), he analyzed myriad issues, including housing finance, energy and the environment, international trade— especially with China, as well as manufacturing, health care, and tax policy. As the chief economist in the Antitrust Division of the U.S. Department of Justice (2009–11), he played a central role in the first big update in almost 20 years of the guidelines on horizontal mergers. His recent work has focused on patent infringement litigation. In one study, he examined the alignment, or lack of alignment, between rewards provided to patent holders and their social contributions. In another study, he analyzed “reverse payment” settlements, in which a patentee pays the alleged infringer to settle and not enter the market for a period of time, and when they violate antitrust law.

Michael Katz

Navigating the World of E-Commerce

Professor Michael Katz is an expert on how electronic network economics and antitrust and regulatory policy affect the credit card, telecommunications, and other industries. In 2012, for example, he addressed Congress about how to allow consumers to safely pay for services by swiping a phone rather than a credit card. His current research has focused on the contentious issue of net neutrality (which mandates that all traffic on the Internet be treated equally) and on health care innovation. Katz has found that certain marketplace developments—notably the rise of applications, such as Netflix, that collect fees from their users—may render key elements of net neutrality regulations ineffectual. He’s also shown that certain aspects of the regulations intended to promote competition may actually have the opposite effect. Within health care, Katz explores why, in contrast to most industries, innovation is considered by experts to be a primary driver of increasing costs. At the Federal Communications Commission (FCC) in the mid-1990’s, Katz, the Sarin Chair in Strategy and Leadership, helped marshal the economic analysis that informed an important revision of cable television price regulations. From 1994 to 1996, he served as chief economist for the FCC. In the early 2000s, he served as deputy assistant attorney general for economic analysis in the U.S. Department of Justice’s antitrust division.

Janet Yellen

The Ultimate Scholar

As Chair of the Federal Reserve Board, Professor Emeritus Janet Yellen has taken her research and public policy positions to the ultimate extreme by becoming the most powerful central bank head in the world. Her scholarly work on unemployment and labor markets, monetary and fiscal policies, and international trade and investment policy inform her decisions as she seeks to maximize employment and maintain price stability for the U.S. Her public policy work began in the 1970s as an economist for the Fed’s Division of International Finance and has included chairing the President’s Council of Economic Advisors under President Clinton and serving as CEO of the Federal Reserve Bank of San Francisco.

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