Economics Insights @ CBS

Active investors provide entrepreneurs with risk-sharing and value-adding effort, e.g., in form of advising, networking and monitoring. However, holdup problems may create a conflict between two key objectives for high-quality entrepreneurs: to elicit investor effort and to credibly signal their firm type by retaining shares. As a result, pooling of startup firms of different types may arise, in particular when investor effort is essential. More established firms, with access to multiple signals, can always realize both of these objectives.

In this paper, we measure the extent to which subjective and objective evaluations of new teachers in New York City can predict their future impacts on student achievement. Specifically, we examine evaluations of applicants to an alternative certification program, evaluations of new teachers by mentors that work with them during their first year, and evaluations based on student achievement data from their first year of teaching. We use a large sample, relative to prior work, and, unlike other studies (with the exception of John H. Tyler et al.

The fields of statistics and econometrics have developed powerful methods for testing the validity (specification) of a model based on its fit to underlying data. Unlike statisticians, managers are typically more interested in the performance of a decision rather than the statistical validity of the underlying model. We propose a framework and a statistical test that incorporates decision performance into a measure of statistical validity. Under general conditions on the objective function, asymptotic behavior of our test admits a sharp and simple characterization.