This year the Wisconsin School of Business' Marketing Department is inviting doctoral candidates to come and present their research to our school. 

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Cheng He, Doctoral Student, Georgia Institute of Technology

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The End of the Express Road for Hybrid Vehicles: Can Governments' Green Product Incentives Backfire?

Synopsis

In response to growing environmental concerns, governments have promoted products that are less harmful to the environment—green products—through various incentives. We empirically study the impact of a commonly used non-monetary incentive, namely the single-occupancy permission to high-occupancy vehicle (HOV) lanes, on green and non-green product demand in the U.S. automobile industry. The HOV incentive could increase unit sales of green vehicles by enhancing their functional value through time-saving. On the other hand, the incentive may prove counterproductive if it reduces the symbolic value (i.e., signaling a pro-environmental image) consumers derive from green vehicles. Assessing the effectiveness of green-product incentives is challenging given the endogenous nature of governments' incentive provisions. To identify the effect of the HOV incentive on unit sales of green and non-green vehicles, we take advantage of incentive changes at the county level, and we employ a multitude of quasi-experimental methods, including difference-in-differences with Coarsened Exact Matching, border strategy, and regression discontinuity in time. Unlike previous studies that only examine the launch of the HOV incentive and find an insignificant association between incentive launch and green vehicle demand, we concentrate on its termination. We find that the termination of the HOV incentive decreases unit sales of vehicles covered by the incentive by 14.4%. We provide suggestive evidence that this significant negative effect of HOV incentive termination is due to the elimination of the functional value the incentive provides: time-saving. Specifically, we find that the negative effect is more pronounced in counties where consumers value time-saving more (i.e., counties with a longer commute to work and higher income). Additionally, in line with prior literature, the launch of the HOV incentive is not found to have a significant effect on green vehicle sales. Combined, our findings reveal that the effect of termination is not simply the opposite of that of launch, implying that governments' green product incentives could backfire.

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The good, The Bad and The Picky: Consumer Heterogeneity and The Reversal of Movie Ratings

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We explore the consequences of consumer heterogeneity on online word of mouth. Consumers differ in their experience, which has two effects. First, experience is instrumental to choice: experts purchase and review better products than non-experts. Second, because of their superior choices, experts endogenously form higher expectations, and thus post more stringent ratings given quality. Combined, these two forces imply that the better the product, the higher the standard it is held to, the more stringent its rating. Thus, relative ratings are biased: low quality products enjoy unfairly high ratings compared to their superior alternatives. When this bias gets large, reputation needs not be increasing in quality. The bias needs not disappear, and can worsen, over time: products with unfairly high ratings mostly attract unexperienced consumers, reinforcing their advantage. We test our theory by scraping data from a well known movie ratings website. We find strong evidence for both of our hypotheses, and that this bias is quantitatively important. We then debias the ratings, and find that the new ones better correlate with the opinions of external critics.

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