Passion and vision in business are overrated – Charles Kiefer

MIT Sloan Lecturer Charles Kiefer

MIT Sloan Lecturer Charles Kiefer

From Forbes

If you are like a lot of people, your New Year’s Resolution list includes one or more ventures that you’ve been stalling on. Likely you’ve postponed working on this item due to some lack of clarity or perhaps you fear that you haven’t the proper passion for the topic or sector or a compelling vision to start a business. Indeed, how many times have you heard this advice given to people thinking of starting a company: “You’ve got to be passionate about it. You gotta love what you do.” But guess what?

Read More »

Let 2016 be the year we agree tipping is terrible for both workers and customers — Oz Shy

MIT Sloan Senior Lecturer Oz Shy

MIT Sloan Senior Lecturer Oz Shy

From Quartz

What’s an acceptable percentage to tip? The amount has been accelerating without any clear economic force driving it, and with unclear benefits for all parties involved. In the 19th century and during the first half of the 20th century, a 10% tip was common. By the 1980s, 15% tips had become the standard. Now we observe 18%, 20%, and even 25% tipping rates.

Perhaps as a result, tipping is a constant source of tension and debate, and a favorite topic for social and economic critique. And, like any controversial subject, it has its own little-understood rules and oddities.


Read More »

As systems collapse, citizens rise — Otto Scharmer

MIT Sloan Senior Lecturer Otto Scharmer

MIT Sloan Senior Lecturer Otto Scharmer

From The Huffington Post

As we see pictures of German citizens cheering tens of thousands refugees arriving from Syria and other war zones, we may be witnessing an emerging pattern of the years to come: bureaucracy is failing (EU), systems collapsing (millions of Asylum seeking refugees in urgent need of helping hands) — AND: citizens rising to the occasion!

In the context of ever increasing national egoism and political hypocrisy on the side of many EU (and non-EU) politicians, the outpouring of solidarity from citizens of Munich, Frankfurt, Berlin and elsewhere is a profound sign of hope. If the EU is going to break down in the years to come, it will not be because of the millions of refugees now beginning to streaming in. It will result instead from a cold-hearted response to a humanitarian crisis that makes all the EU declarations look like a stream of empty phrases and hypocritical statements. At the moment, we see this is exemplified by the cynical policies of Hungary’s Prime Minister Viktor Orban, designed to increase refugees’ suffering and thereby deter additional refugees from seeking Asylum in EU countries or by the governments of Poland and the Baltic States that declared that they would only accept refugees of Christian faith (putting Europe back almost 400 years to the time prior to the Peace of Westphalia).

Read More »

What to say to constituents about potentially cutting the corporate tax rate? — Michelle Hanlon

MIT Sloan Professor Michelle Hanlon

MIT Sloan Professor Michelle Hanlon

From The Hill

I recently testified at a Ways and Means Committee hearing about tax reform. While there is broad agreement about the need to reduce the U.S. corporate tax rate, which is now highest among the world’s advanced economies, Committee members asked how they could explain this to constituents.  Would this be perceived as fair?

When businesses choose their legal form for tax purposes in the United States they have several options. The simplest option is that the owner can operate the business without a separate legal entity in which case the income is taxed directly to the individual on their tax return. This is known as a sole proprietorship. An alternative is a pass-through entity, which is not taxed at the entity level (generally) but instead “flows through” income to the owner(s) who are taxed on their individual income tax returns. These entities include partnerships, LLCs, and S-corporations.

The other common type of organizational form is the C-corporation, which is subject to an entity level tax. In addition, when dividends are paid, the shareholders are taxed on the dividend income. Thus, the C-corporation form of business organization may result in double taxation. Almost all publicly traded businesses are taxed as C-corporations, while many small business are organized as pass-through entities.

Read More »

‘Health care loans’ for Hep C cure — Andrew Lo and David Weinstock

MIT Sloan Professor Andrew Lo

MIT Sloan Professor Andrew Lo

From Boston Globe

A new class of medications was recently approved that cures more than 95 percent of people with Hepatitis C in only six weeks at a cost of about $84,000 per person, and new therapies with price tags that are likely to exceed $1 million per person are now available or coming soon. How can patients possibly afford them?

In an article published in the journal Science Translation Medicine, we outline a feasible market-based solution that could immediately expand access to transformative medications, including cures for Hepatitis C and cancer. The basic concept is to convert a large upfront medical expense into a series of more affordable payments, akin to getting a mortgage when buying a house. The challenge of curative medications that only require a short course of therapy is that the whole price is paid upfront — how many homeowners could buy their houses using only cash? Instead, most home buyers get a mortgage and make monthly payments for as long as they benefit from owning the house or until the full amount is paid. We propose the same solution to overcome the liquidity problem that prevents access to curative medications, which we call “health care loans,” or HCLs.

The second problem with upfront payment is the possibility of buying a “lemon.” Patients could unexpectedly relapse, die, or suffer a terrible side effect, in which case there’s no opportunity to recoup a portion of the upfront payment. Therefore, we propose that amortized payments stop if the benefit stops (i.e., if the “cure” doesn’t cure), thereby linking payment more closely to therapeutic value.

There are, of course, many complex ethical considerations and social ramifications related to the pricing of highly effective therapies above a threshold that permits universal access. Price gouging — like the recent 5,000 percent increase for a generic medication by Turing Pharmaceuticals — is a concern. To address this, some politicians and advocacy groups have proposed that prices be capped by legislation. Capping prices would stifle innovation and disincentivize drug development, the exact opposite of what we need.

Our HCL proposal has many advantages over price caps. It incentivizes (rather than disincentivizes) the development of highly effective therapies, because the greater the benefit, the greater the payment. And it can be implemented immediately. Our calculations indicate that bonds with competitive return characteristics could be raised to support HCLs across a range of financial scenarios. The creation of a large and liquid market for HCLs would give payers and lenders greater negotiating leverage with drug makers to get better pricing. Linking payment to value would establish a paradigm in which medications that offer very little benefit, like many of the recently approved cancer therapies, could not have exorbitant prices.

Read More »