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Study Finds Moral Costs in Over-pricing for Essentials

ilseu — Tue, 04 Nov 2025 22:21:48 +0000

Study Finds Moral Costs in Over-pricing for Essentials ilseu Tue, 11/04/2025 - 14:21 More News David Danelski (david.danelski@ucr.edu) | UCR News November 05, 2025

When companies hike prices on essentials like food, medicine, or medical devices, the financial rewards may be immediate—but the reputational damage may linger and ultimately cost more in the long run.

Margaret "Meg" C. Campbell

That’s the finding of a study led by UC Riverside School of Business professor Margaret C. Campbell. Consumers, the research shows, judge prices for essential goods and services not just through the lens of supply and demand, but also through their sense of morality.

“If companies are perceived as taking advantage of vulnerable people—like the elderly or the uninsured—they may make short-term profits but suffer long-term damage to their brand,” said Campbell, an associate dean, chair of the marketing department, and Anderson Presidential Chair.

“People stop wanting to do business with companies they see as acting unfairly,” she said.

The study, however, also found this moral judgment doesn’t apply to goods and services seen as non-essential for consumers. If not being able to afford the product doesn’t cause harm, fairness isn’t a real concern.

Published in the Journal of Consumer Research, Campbell’s study introduces what she and her co-authors call the “moral harm model of price fairness.” Drawing on eight controlled experiments with more than 3,000 participants, the researchers examined how people perceive price fairness not just economically, but ethically.

Their findings suggest a simple price tag can provoke complex reactions—especially when the product is important for consumer well-being.

“We found that consumers perceive harm when prices restrict access to a necessary product,” Campbell said. “And when people perceive harm, they judge the pricing as immoral—even if the price follows basic supply and demand.”

For instance, a high price on hearing aids can be seen as far more unfair than a similar price on diamond earrings. The difference? Hearing aids are often necessary for basic functioning and social connection, whereas forgoing jewelry doesn’t cause harm.

To quantify the hidden costs of high prices for essential products or to vulnerable consumers, the research team developed a novel metric called “inferred harm.” This measure captures the psychological and welfare loss consumers infer from a price perceived as unfair.

The study also found that consumers perceive unfairness not just in price hikes, but in static pricing when production costs fall. Companies were often seen as acting immorally by failing to lower prices when they could.

In one experiment, participants were told about prices for eyeglasses. When they learned that a firm providing glasses kept the same prices when their costs decreased, many participants thought this pricing was unfair.

“People think it is unfair to keep the same price when costs decrease for products like eyeglasses that are important for consumer well-being because the firm could afford to charge a lower price,” Campbell said.

A follow-up experiment found that participants perceived the optometry firm’s decision to keep prices the same—despite reduced production costs—as even more harmful when the firm served financially vulnerable customers in a low-income community.

Another experiment placed participants in the role of retailers and found they were willing to lower prices for more vulnerable customers, even at the expense of their own profits. In yet another experiment, participants judged it fair to offer lower prices specifically to vulnerable groups—such as through senior citizen discounts—even when that meant charging higher prices to other consumers, including themselves.

The researchers argue that moral perceptions of pricing can lead to serious consequences, including reputational harm, reduced customer loyalty, and even government intervention. In some cases, legislation has been proposed in response to prices perceived as excessively high for essential goods.

“There’s a real risk for companies that ignore this,” she said. “Beyond losing customers, they may also invite regulatory scrutiny.”

Interestingly, the research also found that lowering prices on harmful or addictive goods—such as alcohol or tobacco—can backfire if seen as encouraging overuse in vulnerable communities.

“Promoting high-alcohol beverages in low-income neighborhoods doesn’t come across as generous,” Campbell said. “It comes across as harmful.”

Campbell said real-world controversies partly inspired the research—such as the pricing of insulin, hearing aids, and the EpiPen, a medical device used to treat life-threatening allergic reactions. The pharmaceutical company Mylan (now part of Viatris Inc.) sparked national outrage in 2016 when it raised the price of a two-pack of EpiPens from $100 to $600.

That backlash led to congressional hearings, lawsuits, and hundreds of millions of dollars in settlements. Mylan later released a generic version at a much lower cost to quell the controversy.

Titled “Painful prices: the moral harm model of price fairness,” the study was co-authored by Justin Pomerance of the University of New Hampshire and Erin Percival Carter of the University of Maine.

So, what should companies take away from this?

“If your customers feel you’re harming people—or failing to help them when you could—they’ll turn away,” Campbell said. “Fairness is about more than numbers. It’s about values.”

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Header image: A woman discerns prices at a grocery store (Getty Images)

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Margaret Campbell

Report: IE Warehouse Workers Make Gains Through Collective Action

cfabi002 — Tue, 14 Oct 2025 18:52:36 +0000

Report: IE Warehouse Workers Make Gains Through Collective Action cfabi002 Tue, 10/14/2025 - 11:52 More News Randy Black | UCR News October 14, 2025

Almost one in 15 of the 1.7 million people employed in Riverside and San Bernardino counties is a warehouse worker. Many earn low wages—roughly 75% of what the average worker in the region earns—while facing dangerous working conditions and setbacks in gaining union recognition.

However, this growing workforce has made historic gains in organizing and heat safety. In “State of the Unions: California Labor in 2024,” University of California, Riverside researchers offer details on the growth, salaries, ethnicities, and ongoing struggles of warehouse workers in Riverside and San Bernardino counties in the chapter “Inland Empire Warehouse Workers’ Organizing and Policy Victories in 2024.”

At the literal hub of the story is Amazon’s air cargo facility at San Bernardino International Airport, one of eight such hubs in the U.S., and the company’s largest on the West Coast. Alongside robots and ultramodern machinery, about 1,000 Amazon employees handle a stunning 18,000 shipments per hour. But unlike robots, humans get stressed in the Inland Empire heat. Enter Cal/OSHA, which ruled in favor of improved cooling interventions after Amazon workers voiced concerns and filed legal complaints, with the support of the Warehouse Workers Resource Center, during a growing worker-led organizing campaign. Amazon paid a $14,000 fine and took corrective action.

After years of organizing, initially as members of the Inland Empire Amazon Warehouse Union (IE-AWU), workers won increased wages and safer working conditions. In December 2024, the majority of Amazon warehouse workers in the San Bernardino air cargo facility authorized the Teamsters to represent them. Amazon refused to recognize Amazon Teamsters’ new unions around the country and failed to file for a union election through the National Labor Relations Board (NLRB). In response, Amazon warehouse workers and delivery drivers at nine facilities went on strike a week before Christmas. Although the strike garnered national media attention, delayed holiday deliveries, and increased pressure on Amazon, the company continues to dispute the unionization of its warehouse workers.

Workers and supporters strike outside the Amazon KSBD Air Hub in San Bernardino on December 21, 2024.

“Amazon workers in San Bernardino and across the country are organizing and winning in ways many thought were impossible,” says Jesús “Chuy” Flores, policy and strategy director of UCR’s Inland Empire Labor and Community Center (IELCC). “If Amazon recognized the Teamsters’ new union and bargained in good faith with them, we would likely see a much smoother, undisrupted holiday shopping season in 2025.”

Released on August 25, 2025 data from IELCC researchers, Flores, David Mickey-Pabello, and Ellen Reese, reveal that nearly one in 15 workers in the Inland Empire is employed in warehousing. The average non-supervisory warehouse worker earns $44,776, which is roughly 75% of the average for IE workers. Latinos constitute 42% of the IE’s workforce, but almost 62% of warehouse workers. The growth of non-managerial warehouse work has outstripped other types of labor, increasing 54.9% between 2014 and 2023, while other occupations grew 27.5%. One category of workers, hand packers and packagers, grew by 125.8%, while their average wage of $42,850 is the lowest among warehouse labor and lags well behind the IE average salary of $61,930.

“The IE appears to be growing with either high-paying or low-paying jobs, but there is no growth for middle-class jobs,” said Mickey-Pabello, research director at the IELCC. “We generally believe that a more diverse economy would greatly benefit the area, as an over-reliance on logistics could expose us to the risks associated with that industry, for example, tariffs and automation.”

The UCR chapter on Inland Empire warehouse labor begins on page 66 of the 2024 State of the Unions report.

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Private Equity Takes Airports to New Heights

ilseu — Mon, 13 Oct 2025 23:52:15 +0000

Private Equity Takes Airports to New Heights ilseu Mon, 10/13/2025 - 16:52 More News David Danelski (david.danelski@ucr.edu) | UCR News October 13, 2025

Hyeik Kim

A comprehensive study spanning two decades and four continents found that private equity ownership significantly boosts airport performance, while other forms of privatization often fall flat.

The study, conducted by UC Riverside School of Business assistant professor Hyeik Kim in collaboration with researchers at three other universities, examined ownership transitions at more than 2,400 airports across 217 countries. It found that when private equity firms take over airport operations, travelers benefit from greater efficiency, more flights, and better service.

Private equity ownership differs from other forms of private ownership, such as airports run by an individual, family, or company. It occurs when investors pool their money to acquire an airport, improve it, and then sell it after a set period, often five, seven, or 10 years.

“Private equity partners have an incentive to make a profit, so they invest in expanding terminals, attracting more flights to and from more destinations, and bringing in better vendors for food and other traveler services,” Kim said.

Under private equity ownership, airports experienced dramatic operational gains. After a private acquisition, passenger traffic surged by an average of 87%, and flights increased significantly. The average number of passengers per flight—a key measure of efficiency—jumped by 21%.

Interestingly, the study’s findings run contrary to other business acquisitions, in which new owners often cut staffing and customer service to increase profits. In fact, private equity-owned airports were less likely to cut staff or services, more likely to win customer satisfaction awards, and saw fewer flight cancellations.

Private equity firms also brought in more savvy management practices, such as charging airlines higher fees to use runways at peak times of day and offering discounts for off-peak hours, Kim said. For example, a coveted 9 a.m. takeoff would cost more than a late-night “red-eye” departure at 11:50 p.m.

Private equity-owned airports thrived in competitive markets. When a rival airport was nearby, private equity firms were more likely to invest and innovate to win over airlines and travelers. These improvements often expanded the overall airport market rather than simply shifting traffic between locations.

The study’s findings come at a time when governments worldwide are increasingly turning to the private sector to finance and manage public infrastructure. Since the 1980s, more than 400 airports have been privatized, including many through long-term leases or outright sales.

A British Airways flight takes off as a Virgin Atlantic aeroplane waits at Terminal 3 of Heathrow Airport in 2020 in London, England.

Because airports in the United States and China are mostly government-owned for security reasons, they served as a control group and a basis for comparing different kinds of private ownership, Kim said.

To reach their conclusions, the researchers built a robust panel dataset of airport performance metrics spanning 1996 to 2019. They used a difference-in-differences methodology, a common technique in economics that compares changes over time between a treated group and a control group.

The benefits of private equity ownership were most pronounced in countries with strong governance and low corruption. In contrast, airports sold to non-private equity firms in high-corruption countries often stagnated or performed worse.

The distinction appears to lie in incentives and oversight. Private equity firms often have reputations to uphold with global investors and face compliance requirements such as the U.S. Foreign Corrupt Practices Act. Airports with other forms of ownership, particularly in poorly regulated environments, may lack such constraints.

The study, titled “All Clear for Takeoff: Evidence from Airports on the Effects of Infrastructure Privatization,” was published by the National Bureau of Economic Research. In addition to Kim, the authors are Sabrina T. Howell of Harvard Business School, Yeejin Jang of the University of New South Wales, and Michael S. Weisbach of Ohio State University.

The researchers caution against overgeneralizing their results. Airports are unique in their economic and regulatory importance and face intense scrutiny—factors that may make them operate better under private equity ownership than other public-serving facilities, such as schools and hospitals.

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Header photo: Travelers queue for customer care service at Barajas Airport on April 28, 2025 in Madrid, Spain. (Photo by Pablo Blazquez Dominguez/Getty Images)

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UCR is again No. 1 for social mobility in U.S. News rankings

cfabi002 — Fri, 26 Sep 2025 23:03:09 +0000

UCR is again No. 1 for social mobility in U.S. News rankings cfabi002 Fri, 09/26/2025 - 16:03 More Blog Posts September 26, 2025

U.S. News & World Report has again named UC Riverside the No. 1 university in the nation for social mobility. This is the seventh year that U.S. News has featured a breakout category for social mobility. UCR has been ranked No. 1 for five of those seven years; it was No. 2 the other two years.

For the second consecutive year, UCR tied for the top ranking with Florida International University.

U.S. News released its 2026 Best Colleges list on Sept. 23. U.S. News Best Colleges is the nation’s most-watched college rankings list.

In its social mobility ranking, U.S. News aggregates two factors that assess the graduation rates of students who receive the Pell Grant, typically awarded to families earning less than $65,000 per year. The factors are Pell Grant six-year graduation rates and Pell Grant graduation rate performance. More than 45% of UCR’s undergraduates receive a Pell Grant.

UCR was No. 75 in overall rank, an improvement from No. 76 this past year. It remained No. 36 among public universities.

In U.S. News’ scoring formula, 19 categories are considered. The greatest weight in U.S. News’ overall national ranking is afforded to graduation rates, which is a four-year average of six-year graduation rates (21%); graduation rate performance, which considers predicted vs. actual graduation rates (10%); and peer assessment, a reputational survey among presidents, provosts, and admissions deans (20%).

In breakout categories by program, UCR’s Marlan and Rosemary Bourns College of Engineering’s undergraduate computer science program was ranked No. 54 in the nation. UCR’s undergraduate psychology program, in the College of Humanities, Arts, and Social Sciences, climbed three places to No. 60.

In the overall list, Princeton is No. 1, MIT is No. 2, and Harvard is No. 3.

Several years ago, U.S. News made major adjustments to its formula, to the benefit of categories in which UCR performs well. In 2019, social mobility was given greater overall weight, in addition to getting its own category. Acceptance rates were eliminated, and the weight afforded for standardized test scores and high school standing was reduced.

Fall is college rankings season, with major publications across the U.S. publishing “best college” lists. UCR was recently named the No. 15 university in the nation by Washington Monthly magazine for access, meaning how well it provides access to non-wealthy students. UCR climbed 20 positions among publics, to No. 25 in the U.S.; UCR was No. 50 in the overall national rankings.

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Nostalgia is an Asset in Company Acquisitions

cfabi002 — Wed, 20 Aug 2025 21:23:02 +0000

Nostalgia is an Asset in Company Acquisitions cfabi002 Wed, 08/20/2025 - 14:23 More News David Danelski (david.danelski@ucr.edu) | UCR News August 20, 2025

Boris Maciejovsky and Jerayr Haleblian

When companies are acquired, conventional wisdom suggests that employee nostalgia for their pre-buyout days is a problem to be eliminated so workers can more quickly adapt to the new owners’ ways of doing business.

A new study published in the journal Strategic Organization led by UC Riverside School of Business professors Boris Maciejovsky and Jerayr Haleblian suggests this thinking is wrong—especially when the new owners want to retain the most talented, productive, and informed workers.

Nostalgia, they found, serves as a comforting and stabilizing force during takeover periods, when employees feel vulnerable, fear losing their jobs, status, or advancement opportunities, and are thus inclined to send out résumés.

“Rather than viewing nostalgia as living in the past, we demonstrate how it serves as a bridge between employees’ pre-acquisition identity and their post-acquisition reality,” explained Haleblian, the business school’s Anderson Presidential Chair in Business. “This temporal bridging is crucial for maintaining organizational commitment during transitions.”

Drawing from psychology research in emotion regulation, social identity, narrative identity, and attachment theories, the study shows nostalgia isn’t mere sentimentality—it’s a powerful tool that helps preserve identity and meaning during disruptive times, said Maciejovsky, an associate professor of management.

“We challenge the prevailing view that nostalgic emotions are maladaptive responses to change,” Maciejovsky said. “Our research shows that nostalgia can transform negative reactions into positive outcomes, thereby mitigating the talent loss that often jeopardizes acquisition success.”

For employees, nostalgia is often triggered by the upheaval of a corporate acquisition that replaces familiar leadership with unfamiliar faces. By understanding these emotions, the authors argue, managers can see that longing for the past is not resistance but a desire to preserve meaning and identity.

The implications are significant in today’s business climate, where acquisitions of startup companies to gain talent and innovations are commonplace—especially in the tech sector, where the strategy is called “acqui-hiring.” Yet retention is poor: in the U.S., 47% of key employees leave within the first year of an acquisition, and 75% within three years, creating a human capital gap that can reduce company value by 10–15%, according to Mentorloop.com.

The study provides practical guidance for managers, outlining two main approaches to support employees during acquisitions. The first involves identity-preserving interventions, such as maintaining familiar company symbols like names, logos, workspaces, and practices. It also includes honoring historical narratives that connect current practices to valued traditions, while ensuring that the missions of the acquiring and acquired companies remain carefully aligned.

The second approach centers on relationship-focused interventions, which emphasize building strong connections among employees through team-building activities, heritage celebrations, and shared experiences that foster a sense of social connection.

“Companies like American Airlines have successfully used heritage celebrations, featuring paint schemes from acquired airlines like TWA, to honor predecessor companies while facilitating integration,” Maciejovsky said. “These aren’t just feel-good gestures—they’re strategic interventions that tap into nostalgia’s regulatory benefits.”

The study emphasizes tailoring nostalgia interventions to different employee categories. Workers with knowledge critical to a company’s value benefit most from identity-based interventions, while “cultural carriers” can help bridge old and new organizational cultures through relationship-focused strategies.

The study, titled “How Nostalgia Facilitates Post-Acquisition Target Employee Retention: An Agenda for Future Research,” was co-authored with Tim Wildschut and Constantine Sedikides of the University of Southampton, UK.

The authors call for future research to test the limits of nostalgia in organizational change, how buyouts differently affect the acquirer and target employees, and how nostalgia impacts other life changes.

“Transparency about change is important, but so is understanding how emotions like nostalgia can be strategically managed,” Maciejovsky said. “Like any powerful tool, nostalgia can have unintended consequences if we don’t use it wisely—but when applied thoughtfully, it can transform acquisition challenges into retention advantages.”

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UCR Joins Council of Global Business Schools

ilseu — Tue, 15 Jul 2025 22:52:54 +0000

UCR Joins Council of Global Business Schools ilseu Tue, 07/15/2025 - 15:52 More News David Danelski (david.danelski@ucr.edu) | UCR News July 17, 2025

UC Riverside’s School of Business has been accepted into the Graduate Management Admission Council, or GMAC, a prestigious global association of leading graduate business schools. The announcement, made jointly by UCR and GMAC this week, marks a major milestone for the university and affirms its standing among top business education institutions worldwide.

UCR School of Business Dean Yunzeng Wang

“This is an extraordinary honor and an important step forward for the School of Business,” said Yunzeng Wang, dean of UCR’s business school. “Joining GMAC affirms our commitment to excellence and connects us to a global network focused on innovation, ethical practices, and academic rigor in graduate management education.”

Joy Jones, CEO of GMAC, said UCR’s “fresh perspectives and insights will strengthen GMAC’s work and help us continue contributing to the invaluable development of cross-culturally competent and globally aware business leaders of tomorrow.”

Such perspectives, she said, are especially needed during “one of the most dynamic and fast-changing times we’ve seen, with big shifts in talent mobility, technological advancement, and renewed emphasis on skill development reshaping global business education.”

GMAC is best known for administering the Graduate Management Admission Test™ , a widely used entrance exam for MBA and business master’s programs. But its role extends far beyond testing. The council provides member schools with access to industry research, global conferences, recruiting tools, and digital platforms that guide prospective students in finding programs that match their aspirations.

With its inclusion, the UCR School of Business, home of the A. Gary Anderson School of Management, becomes the 228th member of the influential nonprofit group.

The membership comes at a pivotal time for UCR’s School of Business. Last September, the school opened the doors to its $87 million, 63,400-square-foot building — a state-of-the-art facility designed to foster collaboration among students, faculty, and industry leaders.

Located on the south side of campus, the four-story building features high-tech classrooms with hybrid teaching capabilities, a finance lab equipped with Bloomberg terminals, and an executive boardroom offering expansive views of the campus and surrounding mountains.

Also last year, the business school jumped 20 positions in a U.S. News & World Report 2024 graduate school rankings.

New UCR School of Business Building

GMAC Membership is highly selective. UCR’s application process began in 2022 and required extensive documentation of the school’s graduate program offerings, faculty credentials, and institutional commitment to ethical and inclusive practices.

“It took a dedicated team effort across the school to meet the high bar GMAC set,” said Patrick Latimer, associate director of graduate admissions, who helped coordinate the application.

The announcement followed the opening session of GMAC’s annual conference late last month, where UC Riverside was formally recognized. A commemorative plaque was presented by GMAC leadership to UCR representatives during the ceremony.

As the UCR School of Business continues its upward trajectory, leaders see GMAC membership as a springboard for expanded national and international engagement.

“This validates the quality of what we offer,” Wang said. “And it positions us to be an even stronger force in shaping the next generation of business leaders.”

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Header image: Maribel Segura and Patrick Latimer of the UCR Business Graduate Admissions team accept an engraved commemorative membership award from GMAC CEO Joy Jones during the 2025 GMAC Annual Conference in Kansas City, Missouri.

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UCR Scholar Reimagines Student Engagement

ilseu — Tue, 08 Jul 2025 21:21:04 +0000

UCR Scholar Reimagines Student Engagement ilseu Tue, 07/08/2025 - 14:21 More News David Danelski (david.danelski@ucr.edu) | UCR News July 07, 2025

Prof. Kyle Ingram

One way to really learn a topic is to try to master it well enough to explain it to others.

Kyle Ingram, an assistant professor of teaching in the School of Business at UC Riverside, takes this strategy to new heights with a college teaching method he developed called “Carry the Class.” It empowers students by having them lead class discussions, explain reading assignments, or contribute critical perspectives, among other leadership roles.

The results go well beyond student presenters mastering a particular concept. Ingram found that involving students in instruction changed classroom dynamics by fostering a sense of ownership and encouraging more meaningful social interactions among students and faculty.

What’s more, the instruction is structured in ways that allow all students to be heard, validated, and valued—creating a sense of community and shared purpose, Ingram has found. These methods are detailed in a paper titled “Carry the Class: A Strategic Approach to Designing Engagement Around Student Needs,” published in the journal Management Teaching Review.

Ingram’s approach is rooted in a methodology that blends theory, reflective practice, and attention to equity. He draws not only on established scholarship but also on patterns he’s observed firsthand over years of teaching and course redesign.

For example, he noticed years ago that small groups of students often helped teach the class—though unintentionally. They’re the ones who speak up regularly, keep discussions moving, and answer the instructor’s questions. While these discussions are helpful, the social dynamic is inequitable. The students who stay silent may be doing so because they are new to college, managing outside responsibilities, or unsure if they’re welcome in the conversation. Many who opt out do so not out of apathy but because of caution.

“The students who are struggling the most are often the ones whose silence is interpreted as disengagement,” he said.

Students engaging in Kyle Ingram's class

His student-centered model strives to address the dynamic, diverse, and often different needs of undergraduates. Classes can be structured for equity by identifying which students tend to carry the burden of classroom engagement—and then redistributing that load thoughtfully to all students.

“When instructors know which students are most likely to carry the class, they can decide whether to support them or reduce their load,” Ingram explained. “When instructors know who is least likely to engage, they can design ways to activate that group.”

Professors using the Carry the Class method assign each student specific dates to lead class discussions, using a shared spreadsheet so all students can see who is responsible for which segment of the course content. Students receive clear instructions that outline expectations for their facilitation, which is limited to roughly one-fourth of the class time. The professor helps prepare the students by providing readings, discussion prompts, and examples of effective facilitation. Each student is expected to critically analyze the material, identify key themes, and guide a class discussion that promotes peer interaction and critical thinking.

During the discussion, the professor observes and evaluates student performance using a detailed rubric, offering feedback to support improvement. Weekly support and check-ins are offered to ensure preparedness and uphold the reciprocal nature of the method. Ultimately, Ingram’s work points to a profound shift in how we view student success.

“Students oftentimes don’t have the opportunity to say exactly what they want,” Ingram said. “Carry the Class gives them ownership of their contribution.

“They are also coming out of it with a good feeling and gaining some skills that aren’t really part of the class, like public speaking. It’s such a simple way to instill a skill that will aid in their career path, regardless of what they’re studying.”

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Method Predicts Optimal Prices in Uncertain Times

ilseu — Tue, 07 Jan 2025 17:26:29 +0000

Method Predicts Optimal Prices in Uncertain Times ilseu Tue, 01/07/2025 - 09:26 More News David Danelski | UCR News January 03, 2025

Setting the right price for goods or services is essential for just about any business. Prices that are too low can reduce profits. Prices that are too high can drive away customers and lead to losses.

Artificial intelligence (AI) deep learning models can help businesses find the elusive sweet spot by extrapolating prices from historical sales data, which generally show that sales go down as prices go up. But these predictions become unreliable when circumstances differ from the time the source data was generated, such as when the COVID-19 pandemic disrupted manufacturing supply chains and drastically altered consumer demands.

Mingyu “Max” Joo and Hai Che

In a recent study, UC Riverside School of Business professors Mingyu “Max” Joo and Hai Che and their collaborators from Baruch College and Ohio State University have solved this problem by developing a deep learning model that considers both historical sales data and the economic theory of demand. Economic theory of demand accounts for factors such as income levels, consumer preferences, and consumption patterns under various circumstances such as holidays or extreme events like pandemics and natural disasters.

Such a combination allows AI to quantify the unpredictable aspects of how prices affect consumer behavior during unprecedented circumstances, explained Joo, an associate professor of marketing.

“With the help of economic theory, we could better identify demand fluctuations driven by external factors, like a pandemic or holiday fever, versus pure price responses,” Joo said. “This differentiation is crucial for making more reliable predictions.”

For example, traveler demands for hotel rooms are higher during the peak summer months despite higher rates. A standard AI model may mis-predict that higher prices are associated only with higher demands. However, the higher demands are driven by better weather or work schedule constraints, and consumers’ affordability limitations and sense of price fairness will still limit how much they are willing to pay. Such factors are difficult to gauge during uncertain times, Joo said.

The new model bridges a gap between standard AI models and the real-world complexities that businesses face when setting prices, particularly in unprecedented scenarios such as economic shocks and extreme price fluctuations.

To validate their model, the researchers analyzed pre- and post-COVID-19 retail data for breakfast cereals, which had a sales surge during the beginning of the pandemic, but later returned to a pattern of historic sales declines. They compared their new model combining economic theory with standard deep learning and log-linear models and evaluated their ability to predict demand changes as prices fluctuated beyond historical ranges.

The results were compelling. While standard models performed well with data within the known range, their predictions deviated when confronted with post-pandemic price levels. The researchers’ model, however, retained high accuracy, demonstrating a substantial improvement over other methods by reducing generalization errors by up to 50% in some cases. Such errors occur when a model trained on a specific dataset does not perfectly capture the underlying patterns or relationships that hold in different contexts.

“The pandemic was a perfect stress test for our model,” Joo said. “The price and demand patterns during COVID-19 differed significantly from any prior period. This was exactly the type of scenario where typical AI models would struggle to produce accurate forecasts.”

While most AI models that rely heavily on past price data falter when circumstances change, the new model’s ability to utilize economic theory gave it an edge, Joo said.

“We’re combining the best of both worlds—advanced AI techniques and established economic principles—to create a system that’s both intelligent and adaptable,” Joo said. “The future of AI in business isn’t just about exploiting more data; it’s also about leveraging human knowledge from various domains to build smarter, more reliable tools.”

The model is detailed in a paper titled “Theory-Regularized Deep Learning for Demand-Curve Estimation and Prediction.” In addition to Joo and Che, the authors are Chul Kim of the Zicklin School of Business at Baruch College, CUNY; and Dong Soo Kim of the Fisher College of Business at Ohio State University.

It was presented last year at the Proceedings of the IEEE International Conference on AI for Business in Laguna Hills.

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Industry Experience Pays Off in Corporate Audits

ilseu — Fri, 13 Dec 2024 00:13:39 +0000

Industry Experience Pays Off in Corporate Audits ilseu Thu, 12/12/2024 - 16:13 More News David Danelski (david.danelski@ucr.edu) | UCR News December 12, 2024

Corporations that partner with auditors who specialize in the company’s industry reap cost savings and get a better picture of their finances, which boosts investor confidence, a new study has found.

Birendra Mishra and Theodore Mock

Co-authored by professors Birendra Mishra and Theodore Mock from UC Riverside’s School of Business, the study examines how the industry experience of auditors can influence audit fees and quality.

The findings are based on a comprehensive analysis of 32,000 audit engagements in India—which has corporate finance rules like those in the U.S. They reveal that audit partners with extensive industry experience deliver higher-quality audits while also offering cost savings to clients in their initial engagements. In the study, auditors are referred to as “partners” with their client companies.

“Expertise matters. An experienced audit partner in your industry can navigate complexities more efficiently, saving costs while ensuring better quality," said Mishra, a professor of accounting. "Think of an audit partner like a skilled surgeon—the more experience they have, the quicker and more precise they are, and that efficiency translates to savings for clients."

The study also found that companies should avoid auditors who “low-ball” their fees to compensate for a lack of experience. These auditors offer low prices during the first year but then hike fees in subsequent years to make up for the earlier discounts. The companies then wind up with higher costs and lower-quality audits.

"Audit partners with more industry experience don’t rely on low-balling,” Mishra said. “Their efficiency allows them to offer competitive initial pricing without the need for large fee hikes later. Low-balling can compromise audit quality because the focus shifts to recovering costs rather than delivering a thorough and accurate audit."

The research utilized audit data from India, where regulations have long mandated the disclosure of lead auditors in financial reports. This dataset enabled researchers to track the industry-specific experience of individual auditors.

The team developed a novel metric, which they called “INDEXP_PTNR.” It measures an auditor’s cumulative years of industry experience. The researchers also employed statistical models to assess the impact of this experience on initial-year pricing, subsequent fee adjustments, and audit quality.

"The Indian auditing standards are remarkably similar to those in the U.S., making the findings highly applicable internationally," Mishra noted.

The study’s insights could transform how companies select audit partners and reshape regulatory perspectives in the U.S. and beyond. In the U.S., publicly traded corporations are required by law to undergo annual audits that detail their costs, revenues, profits, and losses. Audit costs range from hundreds of thousands of dollars to tens of millions of dollars, depending on the size and type of company.

Good auditing can potentially boost a company’s value. "High-quality audits strengthen the link between earnings and stock prices, boosting investor confidence in your company," Mishra said.

The study— “The Effects of Audit Partner Industry Experience on Lowballing, Subsequent Audit Fees, and Audit Quality”—was recently published in the journal Auditing: A Journal of Practice & Theory. Mishra and Mock collaborated with researchers Naman Desai of the Indian Institute of Management in Ahmedabad, India, and Siddharth Purohit of University College in Dublin, Ireland.

"If you're selecting an auditor, go for someone with lots of industry-specific experience. They’ll deliver better results and keep audit costs down over the long term, and are likely to give your stock a boost," Mishra said.

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After Repeals: Plastic Bag Bans' Impacts Linger

ilseu — Mon, 18 Nov 2024 17:58:31 +0000

After Repeals: Plastic Bag Bans' Impacts Linger ilseu Mon, 11/18/2024 - 09:58 More News David Danelski (david.danelski@ucr.edu) | UCR News November 18, 2024

Hai Che

Regulations imposed to protect the environment may continue to have impacts even after they are repealed. And those lingering impacts include some that run contrary to the goals of the policies.

Such are the findings of a study published in the Journal of Marketing Research co-authored by UC Riverside marketing professor Hai Che that examined policies to curtail the use of single-use plastic bags in grocery stores and other retail outlets in Austin and Dallas, Texas—policies that were later repealed.

Significantly, the behaviors spurred by the plastic bag rules continued after the rules were no longer in place. And some impacts were not beneficial to the environment.

Che and his coauthors found an increase in sales of plastic bags after the cities prohibited stores from giving away free plastic bags for carrying home groceries. They quantified plastic bag sales by analyzing barcode scanner data on consumer purchases.

“We were hoping for positive spillover effects, like customers will be more environmentally conscious and consume less one-time use plastic or paper products,” said Che, an associate professor at UCR’s School of Business. “But that’s not what happened in the data. People wound up buying more plastic.”

Che added store customer had been repurposing the free grocery bags as liners for household trash bins.”

The bag rules, however, most likely changed consumer behavior in positive ways as well, such as people getting in the habit of using reusable canvas or burlap bags for everyday shopping, although such data wasn’t available to the researchers, Che said.

The study found that the longer a policy is in place, the longer the behaviors spurred by the policy lingered on.

The Dallas City Council had imposed a 5-cent fee for single-use bags for five months in 2015 before repealing the fee when the city faced lawsuits from plastic bag manufacturers. When free bags became available again, plastic bag sales initially declined sharply and returned to pre-policy levels after 13 months.

The Austin City Council banned single-use carryout bags in 2013, and the policy remained in place for five years until 2018 when the Texas Supreme Court struck down such bans statewide when it ruled on a case about a similar bag ban in Lerado. After the repeal, the carryover effect of plastic bag purchases declined gradually and did not revert to the pre-policy baseline after 18 months, which was the end of the researchers’ analysis time frame. In fact, the carryover effect remained 38.6% above the baseline even at the end of the analysis

Bans on free plastic bags for groceries are designed to encourage use of reusable canvas or burlap bags which reduce plastic waste in the environment.

To assess the net environmental impact, the research team conducted a “break-even analysis” to determine if the plastic bag policy, despite the negative spillover effects, ultimately reduced plastic waste. They calculated how many fewer single-use grocery bags consumers would need to use to offset the additional trash bags purchased due to the policy. In Dallas, consumers would need to use one less grocery bag every seven trips, while in Austin, it would be one less bag every five trips to break even in terms of environmental impact.

“Interestingly, even a slight reduction in grocery bag use can offset the increased plastic consumption from trash bags,” Che said. “This suggests that these policies might still benefit the environment overall, even when repealed.”

The study’s title is “Are We Worse Off After Policy Repeals? Evidence from Two Green Policies.” In addition to Che, the authors are Dinesh Puranam of the Marshall School of Business at the University of Southern California, Sungjin Kim of Rutgers Business School at Rutgers University, and Jihoon Hong at W.P. Carey School of Business at Arizona State University.

The study contributes to a growing body of knowledge on the unintended consequences of environmental policies and offers insights applicable beyond plastic bag usage, Che said.

“While our study focused on plastic bags, similar spillover effects have been documented in policies targeting sugary drinks, energy efficiency, and health incentives,” Che said. “In each case, behaviors that weren’t directly targeted by the policy—like purchasing more sugary snacks when soda is taxed—can offset or even undermine the policy’s primary goals.”

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