This edition of Research Roundup highlights a paper by Amalia R. Miller and Catherine Tucker on the risks of publicized data breaches in the health sector. Miller and Tucker perform one of the first empirical analyses of the medical sector by looking at how hospitals have adopted encryption software over time. They find that “the use of encryption software does not reduce overall instances of publicized data loss. Instead, its installation is associated with an increase in the likelihood of publicized data loss due to fraud or loss of computer equipment.” (p 3) The authors speculate that focusing on encryption software may be to the detriment of implementing effective internal access controls and lead to employee carelessness. In other words, without human-based company processes that complement encryption’s effectiveness, the risks for data losses could increase with the software’s implementation.

(Click through to the full post to see the abstract and link to this paper and 11 others on topics from privacy to copyright policy)

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In this edition of the Research Roundup we highlight a paper by Julie Holland Mortimer and Chris Nosko of Harvard and Alan Sorensen of Stanford GSB that analyzes music file-sharing as it relates to a well-known off-line complement: concert performances.  The authors observe that

“Redistribution of the digital good [music downloads] may increase demand for the complementary good [concert tickets], partially offsetting the losses due to illegal redistribution of the digital good. The implication… is that public policy aimed at promoting innovation should not ignore the impact of an innovation on goods or assets that are complementary to it.” (p 2)

The team undertakes to investigate such a relationship in the recent collapse of recorded music sales and concurrent boom in the demand for live music, depicted in their Figure 1, which is reproduced below.

Their study concludes that

“sales of recorded music declined precipitously with the entry of Napster and large-scale file-sharing. While file-sharing may have substantially displaced album sales, it also facilitated a broader distribution of music, which appears to have expanded awareness of smaller artists and increased demand for their live concert performances. Concert revenues for large artists, however, appear to have been largely unaffected by file-sharing.” (p 19)

These conclusions may be somewhat shaky.  For example, the analysis employs little data on actual file-sharing activity (except in one ancillary point of analysis); Mortimer, Nosko, and Sorensen instead estimate the effect of file-sharing through regression with a “Napster” indicator marking whether observations are from “years following the entry of Napster (i.e., 2000 to 2002)” (p 15).  This analysis is odd in that the authors themselves warn “time trends alone cannot establish any causal link” (p 10) , and since they do not identify and account for fixed effects (other than the intercept).  Their attempt to estimate results with an eye for variation in broadband penetration is promising; unfortunately the data are too coarse for the tests to yield meaningful results.

In spite of any shortcomings, the work is a commendable attempt at understanding the early period of a trend that is often discussed but rarely studied.  Still, for right policymaking we should require clearer conclusions.

(Click through to the full post to see the abstract and link for this paper and others in the Roundup.)

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If you only have time for one article from today’s Research Roundup—and especially if you don’t have the patience for something technical—make it the framework for thinking about entrepreneurship laid out by Henrekson and Sanandaji in the introductory chapter to Institutional Entrepreneurship (2011).  Here the editors set up a taxonomy that hinges on whether entrepreneurial activities actually create wealth (are “productive”), as well as whether they adhere to, evade, or alter prevailing institutions.  The definitions are rich enough to classify Washington insiders (including some who might frequent this blog) as “entrepreneurs” whose innovations include not business models but “altering” political contributions (read: lobbying) for destructive rent-seeking or broad social benefit.  Hanrekson and Sanandaji illustrate their framework with a diverse group of articles discussing archetypical “productive abiding entrepreneurs” (think Silicon Valley), the oligarchs of Russia, and even the Sicilian mafia.  We look forward to the release of their volume.

Another paper on entrepreneurship, from Temple’s Delgado, Harvard’s Porter, and Northwestern’s Stern, dives into the impact of geographic/industry clusters on the level of new business creation and start-up employment.  And a wealth of papers—ranging from the highly theoretical to a concrete discussion of the Oracle/Sun decision in the European Union—tackle competition.  Click through to the full post to see the set of abstracts on these and other topics.

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In Washington, pretty much everyone agrees that private sector job growth comes mostly from small businesses.  Every president since Ronald Reagan has echoed this proposition in a major speech, supported by literature showing an inverse relationship between job growth and firm size dating back to 1979.  However, according to Haltiwanger, Jarmin, and Miranda, this popular maxim of economic policy just isn’t true.  The authors employ a novel dataset from the Census Bureau to find that when controlling for firm age there is “no systematic relationship between net growth rates and firm size.”  For the visual learners among us, the adjustment looks like this:

Source: Haltiwanger, Jarmin, & Miranda (2010) p. 39

The pink and green lines plot results that might be expected from popular wisdom, while the red and blue lines are gleaned from regressions incorporating a variable for firm age.  The results differ based on whether firms are classed by their size in a base year or by the current-year average (we’ll spare you the full methodology but note that the authors prefer the latter). Under either classification the famed inverse relationship is upended upon factoring in age.

As TPI’s Scott Wallsten points out in a recent commentary, measurement difficulties confound economic analysis of high tech markets.  Haltiwanger, Jarmin, and Miranda show that even metrics as banal as firm age can cast orthodox understandings across all business sectors into doubt when better data become available.

(Click through to the full post to see the abstract and link for this paper and over 30 others on green tech, the developing world, cyber security, and more.) (more…)