Research

Working Papers

If you had only one shot: Scale and herding in innovation experiments
With Ashish Arora and Sharique Hasan
NBER #33682 Github Repo

Abstract: Solving complex problems --- in medicine, engineering, and other technological domains --- often requires exploring multiple approaches, particularly when significant uncertainty exists about which one will lead to success. Conventional wisdom assumes that having many experimenters independently decide which approaches to pursue increases diversity and, thus also, the chances of finding a solution. However, if experimenters herd toward the most promising approach, this convergence may reduce diversity and thus the likelihood of solving the problem. In this paper, we develop a simple model to show that, holding the total number of experiments constant, markets dominated by a few large-scale experimenters---firms conducting multiple experiments---explore more diverse approaches than markets with many single-shot experimenters. Single-shot experimenters tend to converge on the most promising approach, while multi-experimenters are more likely to diversify to avoid the correlation inherent in pursuing multiple experiments within the same approach. We test our model's predictions using data from pharmaceutical R&D. Our analysis shows that increasing the average number of experiments per firm by one unit raises target diversity by over three standard deviations. In turn, a one-standard deviation increase from the mean in target diversity boosts the likelihood of at least one experiment reaching Phase 1 clinical trials by 25.9 percentage points. Our findings highlight the need for technology policies that optimize experiment allocation across firms to maximize approach diversity and market-level success.

Under Review

Blockbusters, Sequels, and the Nature of Innovation
With Wesley M. Cohen, Matthew J. Higgins, and Yoko Shibuya
NBER #33957 SSRN

Abstract: Using detailed product- and invention-level data from the pharmaceutical industry, we demonstrate that firms with particularly high-selling “blockbuster” products concentrate their development efforts on new products that both target the same customer segments and are more likely to be technically similar to existing blockbuster products. This behavior, driven by an expectation of the stickiness of demand for existing product offerings, limits firms' incentives to invest in entirely new products targeting different customer segments. Our findings offer insights into how blockbuster products shape firms' customer segment and innovation choices, with implications for understanding the dynamics of technological change in R&D-intensive industries.

Opinion Trumps Fact: Entrepreneurship and Competition in Political News
With Ronnie Chatterji, Sharique Hasan, and Dror Shvadron
SSRN

Abstract: Market entry plays a critical role in shaping industries, driving innovation and introducing new types of products that address unmet needs. New entrants not only compete with incumbent firms but can also compel them to adapt their strategies, creating ripple effects for the industry and society at large. This paper examines how entrepreneurial entrants influence the strategies of incumbents, focusing on the American political news business from 2014 to 2021. We find that new entrants produced news content that was significantly more opinionated than that of incumbents, featuring more editorializing and persuasive language. This increased competition-particularly from opinionated entrants-prompted incumbents to adopt similar content strategies. On social media, these shifts triggered more posts containing hate speech and expressions of anger. Yet, this content strategy failed to improve a key performance metric: website traffic. Our findings reveal the unintended consequences of media entrepreneurship. While entrants disrupted the traditional news business by amplifying opinionated content and increasing polarization, they did not deliver better business results.

From Founders to Funders: Generalized Reciprocity and Embeddedness in Founders’ Transition to Angel Investing With Alessandro Piazza

Abstract: This study examines the transition of entrepreneurs to angel investors through the lens of generalized reciprocity and embeddedness. We theorize that for founders, receiving funding from individual angel investors, rather than exclusively from venture capital sources, makes the transition to angel investing more likely. Furthermore, we posit that embeddedness between the entrepreneur and angel investor amplifies this effect. Drawing on social exchange theory and the notion of embeddedness, we develop hypotheses that we then test through an archival study of venture-backed founders and a vignette experiment. Our findings support the role of both generalized reciprocity and embeddedness in shaping the likelihood of entrepreneurs becoming angel investors. Entrepreneurs who received angel funding were more likely to become angel investors themselves, with this effect intensified when they shared educational, professional, or geographic ties with their angel investors. These results enrich our understanding of reciprocity dynamics in entrepreneurial ecosystems, highlighting the importance of interpersonal connections in capital flows. Our study also contributes to the literature on generalized reciprocity and embeddedness while underscoring the prosocial dimension of angel investing and its unique role in venture financing, with relevant implications for fostering self- sustaining entrepreneurial ecosystems.