The roadblock to commercialisation — Thomas Allen and Rory O’Shea

MIT Sloan Professor Thomas Allen

From Financial Times

Knowledge and innovation generated at universities can lead to the creation of high-impact spin-off businesses. Whether it is through the licensing of intellectual property, partnerships or other informal arrangements, the tech transfer process can play a critical role in shaping new industries and regional economic development.

Research by Eesley and Miller and Eesley and Roberts has demonstrated the role Stanford University has played in shaping the development of Silicon Valley and MIT’s contribution to building a world-class innovation hub in the Kendall Square district of Cambridge, Massachusetts.

Easy flights to capital — Xavier Giroud

MIT Sloan Asst. Prof. Xavier Giroud

From Xconomy 

Rather than dipping too deeply into the tax break tool box to attract new business, state and local governments might do just as well to make their local skies more friendly. Some research I’ve recently completed suggests that the easier it is for venture capitalists to travel by air, the better the companies in which they invest do.

When my colleagues (Shai Bernstein at Stanford University and Richard Townsend at Dartmouth College) and I analyzed what happened when new airline routes were introduced that reduced the travel time between venture capitalists and companies in which they had invested, we found a robust result: the travel time reduction leads to an increase in innovation as well as a greater likelihood of an IPO. Moreover, the greater the reduction in travel time, the stronger the positive effect on portfolio companies.

Our results indicate that VC involvement is an important determinant of innovation and success. Far from just sitting back to see if their investments pay off, venture capitalists tend to be active investors. They want to be up close and personal with their companies. Better flight connections that enable them to do so lead to greater company success, we found.

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Another reason not to fear inflation — Roberto Rigobon

MIT Sloan Professor Roberto Rigobon

From Bloomberg View

U.S. inflation has been accelerating in recent months, presenting the Federal Reserve with a tricky question as it decides how quickly to remove stimulus from the U.S. economy: Is the rise in prices a precursor of things to come or simply a “catching up” phase as people begin to spend again after a brutal winter?

Recent data from the U.S. Labor Department have led some to suggest that the long run of very low U.S. inflation could be ending. From Dec. 31 through May 31, the consumer price index — not seasonally adjusted — rose a cumulative 2.1 percent. That’s equivalent to an annualized inflation rate of more than 5 percent, far exceeding the Fed’s target of about 2 percent.

If this is more than a temporary phenomenon, the Fed might have to respond by raising interest rates sooner than expected — a move that would restrain economic growth and could trigger sharp declines in stock and bond markets.

Some officials at the Fed, though, reportedly do not believe that the surge in consumer prices represents the beginning of a new inflationary trend. After all, in the period just before the winter, from Sept. 30 to Dec. 31, prices actually fell by a cumulative 0.5 percent. Combine the two periods, one with an increase and one with a small drop, and you get an annualized inflation rate since September of about 2.4 percent.

Read the full post at Bloomberg View

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Bridging the knowledge gap on governments as financial institutions – Deborah Lucas

MIT Sloan Prof. Deborah Lucas

Ask most finance experts about the “world’s largest financial institutions,” and you’ll hear names like Citigroup, ICBC (China’s largest bank) and HSBC. However, governments top the list of large financial institutions, with investment and insurance operations that dwarf those of any private enterprise. For instance, last year the U.S. federal government made almost all student loans and backed over 97% of newly originated mortgages. Add to that Uncle Sam’s lending activities for agriculture, small business, energy and trade, plus its provision of insurance for private pensions and deposits, and you’ll discover it’s an $18-trillion financial institution. By comparison, JP Morgan Chase, the largest U.S. bank, had assets totaling about $2.4 trillion.

While government practices differ across countries, the basic story is much the same everywhere. As the world’s largest and most interconnected financial institutions — and through their activities as rule-makers and regulators — governments have an enormous influence on the allocation of capital and risk in society. And as financial actors they are confronted with the same critical issues as their private-sector peers: How should a government assess its cost of capital? How should its financial activities be accounted for? What are the systemic and macroeconomic effects? Are the institutions well-managed? Are its financial products well-designed?

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Is bitcoin a viable currency? It’s probably too volatile — Jonathan Parker

MIT Sloan Professor Jonathan Parker

MIT Sloan Professor Jonathan Parker

From The San Francisco Chronicle

While bitcoin remains a hot-button issue, most of the talk has centered on the technology of this virtual currency. There are lots of questions: Is bitcoin really secure? Is it truly anonymous? Can it be counterfeited? Are transaction costs actually lower?

I have a more fundamental question: Is bitcoin a viable currency?

My answer is no, and not just because of the wild fluctuations in the value but because these fluctuations are destined to continue. A good currency serves three purposes. It is:

A unit of account, used to measure and write contracts for income, wealth and goods.

A means of payment, used to avoid barter.

A store of value, held to be able to make future transactions.

Of these, the third historically has been the most important. People will be wary of accepting something that might lose lots of value, and something with a volatile price makes a bad unit of account.

Basically, bitcoin lacks a mechanism for setting the supply equal to the demand. That is needed in order for bitcoin to maintain its value.

History is replete with examples of what happens to currencies with fixed supplies. When governments tie their hands in the supply of their currencies, much like bitcoin has done, the value fluctuates.

Read the full post at SFGate

Jonathan A. Parker is the International Programs Professor in Management and a Professor of Finance at the MIT Sloan School of Management.