Winter 2006

In Brief

New Faculty Bring Fresh Ideas to Haas

Five new faculty members joined the school in fall 2005, which brings the number of ladder-track faculty to 73. This is part of a growth plan to increase ladder faculty from 60 to 90.

Deciphering Purchasing Contracts

Everywhere Associate Professor Steven Tadelis looks he sees procurement -- from signing construction contracts to buying milk -- and these transactions are the driving force of his research. In his research he has studied the benefits of both fixed-price contracts and cost-plus contracts, which require payment for time and materials and a small profit above that amount.

Crunching five years of data from private sector building contracts in northern California, Tadelis, who joined Haas from Stanford University, found that competitive bidding isn’t the best option when projects are complex, when there are few bidders, or when the contractual design of a project is incomplete. Negotiation is the better way to ensure communication between buyers and sellers.

Tadelis is in the Business and Public Policy group. He holds a Ph.D. in economics from Harvard University and an MS in economics from Techion in Haifa, Israel.

Seeing Stock Bubbles

Assistant Professor Johan Walden’s fascination with major shifts in stock markets has lead him to create an economic model that explains some of the most precipitous drops in US markets -- from the 1929 crash to the bursting of the NASDAQ bubble in 2000-2002.

Walden’s model explains both overpriced stocks and large price movements without information to justify those movements. "Investors in the model cannot predict these very rare events of market failure even though they are triggered from within the system and thereby, in principle, possible to predict," says Walden, who is in the Finance Group. "Investors understand the stock market on a local, day-to-day basis but not on global basis, which would require knowledge about stock prices for all stocks in all states of the world at all times into the infinite future."

Walden holds a Ph.D. in financial economics from Yale University as well as a Ph.D. in applied mathematics from Uppsala University in Sweden.

Power and Self-Perception

Assistant Professor Cameron Anderson researches the disparity between how people in power view themselves and how they are viewed by others in the organization.

Anderson conducted interviews with undergraduate students, MBA candidates, and corporate employees to gather data on group dynamics. He found that individuals who form an over-inflated sense of status and influence within a group are quickly ostracized and alienated by fellow group members. Most people tend to underestimate their status and how much regard they have in groups. Even though most of the individuals Anderson surveyed downplayed their status, he found that they showed narcissism in other ways. For one, they overestimated how well liked they are, he says.

Anderson, who came to Haas from the Stern School of Business at New York University, holds a Ph.D. in social/personality psychology form UC Berkeley. He is in the Organizational Behavior and Industrial Relations group at Haas.

Can Stock Repricing Improve Performance?

Companies often reprice employee stock options after their stock price declines in hopes of improving performance and morale, but the strategy only works with executives, according to research by Assistant Professor Nicole Bastian Johnson.

Repricing is a great boon to employees holding options that have lost value due to their company’s stock price declining, but according to Johnson, such a strategy generally does not translate into financial benefits for the company. In her research she found that when firms repriced executives’ options, the company performed better over the five-year period than similar firms that didn’t reprice. Firms repricing non-executive options reported only a small boost in performance during the first year and little improvement afterward.

A member of the Accounting Group, Johnson, earned her Ph.D. in accounting from Stanford University.

The Power of Market Structures

Once a small niche market of the stock trade, limit order markets have allowed more and more individual investors to trade stocks directly with each other. As a result, they have provided Christine Parlour, assistant professor in finance, with many opportunities to study just how prices are set in these new markets.

Parlour, who comes to Haas after nine years on the faculty of the Tepper School of Business at Carnegie Mellon, explains that in this type of market, investors trade directly with each other instead of putting their orders through a market maker. In her research, she is trying to determine whether limit order markets will become the dominant trading platform for equities and what effect competition between the markets will have on these markets.

Parlour holds a Ph.D. in economics from Queen’s University at Kingston.

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