Darden Ideas to Action Winter 2017 by Darden School of Business

FACULTY RESEARCH FROM THE UNIVERSITY OF VIRGINIA DARDEN SCHOOL OF BUSINESS

FROM ARTTO

SCIENCE

Marketing ROI With Paul W. Farris

WINTER 2017

INSIDE Marketing ROI: From Art to Science

The JOBS Act: A Mixed Picture

Strategy Beyond Markets: The Intersection of Business, Public Policy and Ethics

Active vs. Passive Funds: The Mutual Fund Shell Game

The Economics of Water: A Global Perspective

WHY “IDEAS TO ACTION”? THAT’S A GOOD QUESTION. The answer: Because research at the University of Virginia Darden School of Business is practical. Whether that means offering applicable insights for the workplace or recommendations for public policy, the ideas the School’s faculty generate are actionable. It starts with asking the right questions. In Darden Ideas to Action, we talk to Darden professors who are asking — and answering — big questions. Questions like: Is the world running out of fresh water? Peter Debaere, an expert on the global economics of water, investigates the real problems behind water scarcity. What resources should you commit to your company’s marketing? Paul Farris studies the science of marketing and how managers can make better decisions by quantifying marketing ROI. Is the JOBS Act doing what it’s meant to? Susan Chaplinsky looks at the JOBS Act to see if it really did spur more IPOs, important drivers of the economy. How broadly should companies think about strategy? Michael Lenox takes an interdisciplinary look at strategy, beyond the core market issues of supply, demand and competition. What kind of service are you really getting with your mutual funds? Pedro Matos’ research is the first to examine active versus passive management of mutual funds on a global scale. For more important questions, answers and actionable ideas, please visit this publication’s companion website, ideas.darden.virginia.edu.

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TABLE OF CONTENTS 4 MARKETING ROI: FROM ART TO SCIENCE with Paul W. Farris

8 THE JOBS ACT: A MIXED PICTURE with Susan Chaplinsky

12 STRATEGY BEYOND MARKETS: THE INTERSECTION OF BUSINESS, PUBLIC POLICY AND ETHICS with Michael Lenox

16 ACTIVE VS. PASSIVE FUNDS: THE MUTUAL FUND SHELL GAME with Pedro Matos

20 THE ECONOMICS OF WATER: A GLOBAL PERSPECTIVE with Peter Debaere

MARKETING

4 DARDEN IDEAS TO ACTION

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Did your marketing campaign allow you to acquire customers faster or more cheaply? Build a pipeline of leads? Burnish your brandâ&#x20AC;&#x2122;s reputation? Or something else entirely? WINTER 2017

6 DARDEN IDEAS TO ACTION

In recent decades, marketing efforts have grown in sophistication, speed and expense. Now the field’s metrics need to catch up, so that marketers can effectively assess what a campaign did — or failed to do. “We’re seeing an overall move to make marketing more accountable,” says Paul Farris, Darden’s Landmark Communications Professor of Business Administration and co-author of Marketing Metrics: 50+ Metrics Every Executive Should Master. Farris is co-leader of marketingdictionary.org, an effort to standardize marketing metrics that’s endorsed by the American Marketing Association and other industry groups. “More and more, companies are asking marketers to show their estimated return on investment (ROI) before they make decisions.” Farris believes that marketing return on investment, or MROI, is the field’s most powerful metric — and also one of its most misunderstood. MROI can measure marketing gains that are total, incremental or marginal. It can account for the scope of spending, the valuation method and the time period for the returns. “As a term, MROI rolls up so much of what marketers do,” says Farris. Finally, MROI is “valuable as it recognizes marketing spending as investment and imposes rigorous cri-

MROI = www.ideas.darden.virginia.edu

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INCREMENTAL FINANCIAL VALUE GENERATED BY MARKETING

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teria for accountability,” Farris and colleagues write in their paper “Marketing Return on Investment: Seeking Clarity for Concept and Measurement.” Yet there’s evidence the metric’s value is poorly understood. Farris’ research has shown that more than three-quarters of executives and managers believe that traditional ROI is a useful performance metric, but less than half said calculating marketing-specific ROI was valuable to them. That’s despite a 2013 study from Louisiana State University that showed applying marketing ROI metrics significantly improved business performance. “Continued confusion could undermine MROI and make people reluctant to use it or reluctant to make decisions based on it,” Farris says. “It’s important that when marketers present MROI, they articulate what’s behind the measure and how it was derived.” Farris defines MROI as “the net after-marketing profit impact of a given marketing effort or campaign, calculated as a percentage of the money spent for that effort or campaign.” As an equation, that’s:

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COST OF MARKETING

For instance, in a scenario Farris outlines in his paper, a technology company spends $80,000 on an integrated marketing campaign to promote a software package. They calculate the campaign produced 190 additional unit sales over what would have been expected without marketing. Each sale netted $522, for a $99,180 incremental profit. Applying the MROI formula, (99,180 – 80,000) ÷ 80,000, the MROI is 24 percent. MROI can also be used to calculate performance gains that come as cost savings. In another scenario, an Internet retailer spends $1,000 on improving its site’s search ranking, which increases the number of organic clicks and decreases the costs of paid search. This saves the retailer $2,000 per year. Applying the MROI formula (2,000 – $1,000) ÷ $1,000 = 100 percent, MROI for the website upgrade would be 100 percent. Farris cautions executives against getting giddy when they calculate MROI. “Often MROI can be a rather large number, given these estimates tend to only look at the impact of the marketing spend,” without tabulating the costs “of the infrastructure that often make the delivery feasible,” the paper notes. If a marketing campaign requires new people be hired, or a significant new asset purchased, then those expenses should be reflected in the overall calculation. Farris also emphasizes that, in many (but not all) cases, marketers will need to calculate a baseline sales performance in order to estimate MROI. “Any time we wish to assess the ROI of a marketing activity, we need to know what would have happened (to sales and any metrics derived from sales) if said marketing activity had not taken place,” the paper notes. That can be done through A/B testing — test marketing with a control group — or by comparing the results of a campaign to historical data. Finally, when executives use MROI to set future strategy, they need to consider their firm’s “hurdle rate,” or the minimum level of returns in order for the marketing investment to be considered valid, Farris says. A startup company might set its hurdle rate at 20 percent or higher, whereas a large, established company, because of the scale of business, might fund an effort that has a small percentage return. “Breaking even is not enough,” Farris and his colleagues write. “But how much more is largely a function of the company’s strategic stance

toward a market, the depth of its pockets and perceived risk.” As marketing grows in sophistication and cost, expectations are rising. “At this point, the job of marketing is not to spend money, but to constantly look for ways to spend it more efficiently and effectively,” Farris notes. Given this, it’s important for marketing executives to calculate and apply MROI in standardized ways. “It’s important that definitional ambiguity does not plague the already-difficult job of assessing marketing’s contributions to the firm’s health and profitability,” says Farris. — Katherine Bowers

Paul W. Farris, Landmark Communications Professor of Business Administration, is co-author of “Marketing Return on Investment: Seeking Clarity for Concept and Measurement,” published as a Marketing Science Institute working paper (Series 2014, Report No. 14–108), with Dominique M. Hanssens, James D. Lenskold and David J. Reibstein.

...THE JOB OF MARKETING IS NOT TO SPEND MONEY, BUT TO CONSTANTLY LOOK FOR WAYS TO SPEND IT MORE EFFICIENTLY AND EFFECTIVELY.

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FINANCE

THE MIXED

JOBS PICTURE

ACT with Susan Chaplinsky

B 10 DARDEN IDEAS TO ACTION

Because they spur the creation of jobs, IPOs have historically been important drivers of growth for the U.S. economy. But in the mid-2000s, going public lost some of its luster. The earlier dot-com correction, Enron collapse and wave of corporate financial scandals triggered a regulatory cascade of new protections, which imposed more stringent standards on public companies. Small company IPOs declined precipitously in the U.S.; some American companies even chose to list on financial markets abroad, rather than at home. In 2012, concerned about the downtrend, Congress passed the Jumpstart Our Business Startups Act. With its bipartisan support and a politically catchy name — the “JOBS Act” — the legislation aimed to reduce the costs of going public and provide “on ramps” whereby newly public firms could gradually adjust to the higher reporting and governance standards of being a public company. “IPOs have always been an important means for emerging companies to access capital. When you look at the evidence of how jobs are added in the U.S., it’s companies that go public. In the first five to 10 years, they add considerably to employment,” notes Susan Chaplinsky, Darden’s Tipton R. Snavely Professor of Business Administration. With colleagues from Lehigh University and the University of Colorado, Chaplinsky studied the JOBS Act’s impact in its first three years as law. The team analyzed more than 300 IPO prospectuses, filed from April 2012 through April 2015. So has JOBS worked as intended? Chaplinsky says that her research — which she emphasizes is a first look at the Act — shows a mixed picture. Many of the intended benefits, such as increased IPO volume and lower costs, have not conclusively materialized. Yet some of the “de-risking” provi-

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sions aimed at reducing the uncertainty of the IPO process have been favorable to issuers. The JOBS Act aims to reduce the costs of going public and the ongoing compliance costs of being a public company for the first five years a company is public. Issuers qualify for the Act if they are “emerging growth companies” (EGCs), which have less than $1 billion in revenue in their last fiscal year. Because of the high revenue cutoff, the vast majority of IPO issuers can qualify for the Act. EGCs can opt to report two years, rather than three years, of audited financial statements. They can also choose to provide limited information on top executives’ compensation. Post-IPO issuers can delay compliance with Sarbanes-Oxley and Dodd-Frank governance requirements. In theory, firms that opt for these “reduced disclosure” options have less information to compile and hence should spend less on legal, accounting and underwriting services. But in reality, when Chaplinsky compared average costs for issuers before and after the Act’s passage, she “didn’t find any evidence that the JOBS Act reduced the direct costs of issue [underwriting, accounting and legal fees].” Nor did companies seem to move through the IPO preparatory phase any faster — the number of days spent in registration stayed consistent. In addition, Chaplinsky found evidence that when companies opted to disclose less, their indirect costs actually rose. “Issuers left more money on the table, through greater underpricing of shares,” Chaplinsky says. “It shows that investors value transparency and have some skepticism about reduced disclosure.”

In other words, companies that opted to disclose less information didn’t save on the direct costs of issue and paid a higher cost of capital through greater underpricing. So what about the JOBS Act’s other major goal: to reduce risk for the issuer? Here Chaplinsky believes the Act has been more successful. The JOBS Act has two provisions that allow issuers to reduce the uncertainty of the IPO process. First, it allows issuers to “test the waters” and reach out to accredited investors before filing to judge their interest in a potential IPO. Second, it allows companies to file a confidential draft registration with the Securities and Exchange Commission. If the SEC’s comments are unfavorable or the company isn’t approved, the draft registration statement remains private. (In the past, any registration statement automatically became public, tipping off competitors about the issuer’s revenues, strategy and anticipated risks.) Both provisions help reduce the chances and costs of an unsuccessful offering to the issuer. “We saw investors value the confidential filing and their ability to keep information private,” Chaplinsky says, noting that confidential filings jumped to more than 90 percent of issues following the passage of the JOBS Act. She found no evidence that investors penalized companies for filing confidentially. Finally, does the JOBS Act succeed in its stated goal: spurring more companies to file IPOs? It’s too soon to tell conclusively, says Chaplinsky. Controlling for market conditions, she found no significant increase in IPOs, apart from a roughly 24-month increase in filings from the biotech and pharmaceutical sector. These companies, she notes, typically had few options other than an IPO for getting funding — many having disclosed in their prospectus that profitability might be a decade away. But as for widespread, renewed eagerness to pursue IPOs? Chaplinsky doesn’t see it. “It used to be quite a status symbol to be listed on an exchange,” says Chaplinsky. “Right now, there are many deep-pocketed companies looking to acquire growth through startup companies, and the majority of entrepreneurs would rather sell out than go public.” — Katherine Bowers

RIGHT NOW, THERE ARE MANY DEEP-POCKETED COMPANIES LOOKING TO ACQUIRE GROWTH THROUGH STARTUP COMPANIES, AND THE MAJORITY OF ENTREPRENEURS WOULD RATHER SELL OUT THAN GO PUBLIC.

Susan Chaplinsky, Tipton R. Snavely Professor of Business Administration, is co-author of “The JOBS Act and the Costs of Going Public” with Kathleen Weiss Hanley and S. Katie Moon.

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STRATEGY

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STR ATE GY BEY OND M X A O N R E K L E L TS AE H IC

M H IT

THE INTER

SECTION

OF BUSIN

ESS, PUB

LIC POLIC

Y AND ETH

ICS

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“We live in a world in which two people with a video camera and an Internet connection can do irreparable damage to a brand overnight; it’s no longer just the Greenpeaces of the world that a company has to worry about — it’s much more complicated than that,” says Michael Lenox, the Tayloe Murphy Professor of Business Administration as well as senior associate dean and chief strategy officer at the Darden School of Business.

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From government regulators and environmental activists to human rights watchdog organizations and other special interest groups — “non-market” forces — have proliferated in recent years, creating a need for companies to develop a careful, more proactive approach to such external factors and pressures. “Today, the average CEO spends as much if not more time on non-market issues as on the core business issues — supply, demand, competitors,” Lenox explains. “Managers in the 21st century have to cultivate strategic relationships beyond the usual stakeholders, public and private. The CEO who says, ‘These issues [environmental or otherwise] don’t matter to me’ does so at his or her own peril.” Evidence of that peril came during the Deepwater Horizon oil crisis of 2010, when, Lenox notes, the head of BP at the time was “grossly unprepared to deal with the non-market pressures and public outcry” in the wake of the spill. That CEO was quickly replaced by one “much more attuned to listening to his stakeholders.” But it’s not just oil and gas companies; all firms are dealing with these kinds of non-market pressures, Lenox says, though some more than others. Recent surveys by the World Bank and The Conference Board, for example, show CEOs feel

particularly constrained by the uncertainty of public policy — with many ranking government regulation as a greater concern above typical market threats (e.g., increased competition, supply-chain changes). In other words, the business world has awakened to the need for what Lenox and a select few strategy scholars have long focused on — “strategy beyond markets,” also the title of a book he co-edited with John M. de Figueiredo, Felix Oberholzer-Gee and Richard Vanden Bergh. Their book is the 34th volume in the Advances in Strategic Management anthology. “My interest has long been how businesses deal with issues beyond the narrow market definition, and I’m personally most interested in sustainability and the environment,” says Lenox, who earned his doctorate from the Massachusetts Institute of Technology’s Technology and Public Policy program in 1999 after obtaining bachelor’s and master’s degrees from the University of Virginia. Recognized as a top strategy and business professor by various outlets, including the Strategic Management Society, Lenox’s focus on strategy beyond markets is somewhat of an anomaly in his field. As the forthcoming book’s introduction points out, managers have come to “view strategy beyond markets as fundamental, while the community of strategic management scholars views it largely as a niche.” Lenox attributes the mismatch between scholarship and on-the-ground concerns, in part, to disciplinary boundaries. Beyond-market strategy, as opposed to market strategy, is “very interdisciplinary, involving the intersection of business with public policy, law, economics, sociology, psychology and ethics.” Lenox and his cross-disciplinary co-editors want to see more scholars coming together to focus on these critical issues. As Lenox points out, whether it’s a fast food or soft drink company

dealing with a national nutrition campaign or a technology company (think: Apple) facing sudden government intrusion, these issues “are not just asides; they’re central.” “To adapt a phrase from Stanislaw Ulam, the term ‘non-market strategy’ is a bit like ‘non-elephant zoology,’” Lenox adds. “You only need to look at the front page of The Wall Street Journal to see that these non-market issues actually have a much larger overall effect than the traditional market concerns.” The challenge is the complexity of the issues. Strategy Beyond Markets tackles this complexity from many directions, in three categories: • Private politics: firms’ interactions with nongovernmental organizations and other special interest groups to preempt unfavorable policy choices, react to crises and develop socially responsible strategies • Public politics: firms’ use of campaign funding, lobbying, committee participation and other instruments to influence local, national and international political environments • Integrated political strategy: firms’ internal organization to manage and monitor nonmarket concerns The material, Lenox says, “addresses questions like, ‘When is a business likely to be targeted by an activist campaign?’ and ‘What are the viable strategies for addressing these issues when they arrive?’ Do you fight? Do you accommodate? Do you work around them some other way?” “The world today is much different than it was in the ’80s and ’90s, because of technology and changes in how business is done,” Lenox adds. “Companies know they can’t just turn a blind eye or take a position of mere legal compliance anymore — they need to be much more strategic. This book, and my research as a whole, is aimed at helping them know how.” — Jenny M. Abel

Michael Lenox, Tayloe Murphy Professor of Business Administration and senior associate dean and chief strategy officer, is co-editor of the book Strategy Beyond Markets (Emerald Group Publishing, 2016) with John M. de Figueiredo, Felix Oberholzer-Gee and Richard Vanden Bergh.

THE CEO WHO SAYS, ‘THESE ISSUES [ENVIRONMENTAL OR OTHERWISE] DON’T MATTER TO ME’ DOES SO AT HIS OR HER OWN PERIL.

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FINANCE

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ACTIVE VS. PASSIVE FUNDS The Mutual Fund Shell Game with Pedro Matos

Are the fees for actively managed mutual funds worth the cost?

18 DARDEN IDEAS TO ACTION

he longstanding debate between active versus passive management has largely focused on the U.S. mutual fund industry — understandably, since it is the largest in the world.

And although that debate is far from settled, the consensus on which option an investor should choose seems to be “it depends” — on an investor’s goals, time horizon and risk tolerance. Research by Darden School of Business Professor Pedro Matos and colleagues suggests the manager is, in fact, one of the most critical factors in choosing between an active versus a passive fund, particularly in international markets. Matos is academic director of Darden’s Richard A. Mayo Center for Asset Management. The researchers’ paper, “Indexing and Active Fund Management: International Evidence,” published in the Journal of Financial Economics in June, won a second place honorable mention in the S&P Dow Jones Indices SPIVA Research Awards. The research is the first to examine the active versus passive management question on a global scale. Using two robust databases (Lipper and FactSet/LionShares), the study encompassed 24,492 mutual funds in 32 countries, with combined total net assets of more than $9.8 trillion, over the period 2002–10. The findings revealed that as much as 20 percent of the world’s mutual funds are categorized as “active” but, in reality, yield results comparable to those of passive funds (i.e., index funds and exchange-traded funds). This generally frowned-upon practice of “hugging” the benchmark while charging active-management fees is known as “closet indexing.” “It’s the same problem as mis-selling or mislabeling a product,” Matos says. “The customer needs to know what’s really in the product. We knew this was a concern, and has been for a couple decades, but our work shows closet indexing is more com-

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mon than many perhaps thought — and more so outside the United States.” Ultimately, this means “many investors are not getting what they pay for, and many managers are not doing the jobs they’re paid to do,” Matos explains. The study defined a closet index fund as a fund labeled active but which had a less than 60 percent portfolio “active share,” or percentage of holdings that differ from the benchmark portfolio weights. Besides revealing the prevalence of closet indexing, the research showed that in markets with more mutual funds explicitly labeled as index funds, those lower-cost alternatives drove down active fund fees and “put competitive pressure on them to be truly active.”

Commission — the Canadian equivalent to the U.S. Securities and Exchange Commission — launched an investigation into the practice, as reported by The Globe and Mail on 2 March: “OSC to Examine Actively Managed Funds.” “When only a few large banks dominate the market and are also a ‘one stop shop’ for customers’ financial services, there’s no incentive to introduce low-fee index funds,” he says. “By contrast, in the U.S., there’s been more separation of the commercial bank and mutual fund industries as a result of the 1933 Glass-Steagall Banking Act — and therefore, more competition.” Consequently, Matos adds, “U.S. mutual funds remain some of the cheapest and best investments in the world, and closet indexing exists but is less

IN THE PROSPECTUS OR MARKETING MATERIALS, MUTUAL FUND COMPANIES SHOULD HAVE TO GIVE INFORMATION ABOUT ACTIVE SHARE ALONGSIDE FEES. This study has potentially significant implications for the mutual fund industry and how it’s regulated. Accordingly, it’s garnered significant media attention worldwide, including headlines like “Closet Tracking: Gigantic Mis-Selling Phenomenon” (Financial Times, November 2015). In February 2016, the study was also quoted in European Securities and Markets Authority (ESMA) supervisory work on potential closet index tracking in Europe. The research ignited special interest in Sweden — with a mutual fund industry that may consist of 56 percent closet indexers — where a group of smaller investors filed a class-action lawsuit against one of the country’s main mutual fund sellers. Matos believes this research could put new pressure on the Swedish mutual fund industry and others like it; similar to many European counterparts, it suffers from too much coziness with commercial banking, he explains, making it difficult for low-fee passive funds to enter the market and increase competition. Canada is another country that sees some of the most closet indexing, which comprises about 37 percent of its mutual funds. The Ontario Securities

common,” comprising about 15 percent of the mutual fund market. What’s the answer? “Increasing disclosure requirements” is the most obvious solution, Matos says. The reason closet indexers fly largely under the radar is because of the unavailability of this information to investors. “In the prospectus or marketing materials, mutual fund companies should have to give information about active share alongside fees,” Matos says. In this way, closet indexers will be more easily spotted, and the practice can be edged out of the industry. The purpose of this study, Matos explains, was to survey and “shine a light” on the situation, which he compares to the pharmaceutical industry. “Index funds are like generic drugs, and if there’s good evidence that they perform as well as the brand drug — active funds — in certain cases, investors should strongly consider switching to the generic,” he says. Of course, some active funds truly are active and produce superior performance. “The key is telling the difference,” Matos says. — Jenny M. Abel

Pedro Matos, associate professor of business administration and academic director of Darden’s Richard A. Mayo Center for Asset Management, is co-author of “Indexing and Active Fund Management: International Evidence,” published in the Journal of Financial Economics (Volume 120, No.3, 2016), with Martijn Cremers, Miguel A. Ferreira and Laura T. Starks.

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GLOBAL ECONOMIES AND MARKETS

with Peter Debaere

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THE ECONOMICS OF WATER: A GLOBAL PERSPECTIVE WINTER 2017

22 DARDEN IDEAS TO ACTION

he scarcity of fresh water will be a major challenge to the 21st century, says Peter Debaere, associate professor of business administration at the Darden School of Business. “Population growth, pollution, rising standards of living, and the diet and lifestyle changes they imply will continue to increase the demand for water and strain available water resources,” says Debaere, an international economist. One-fifth of the world’s population is currently suffering from water scarcity, he says. Debaere should know. He is Darden’s resident water expert, who is leading a group of scholars trying to build a global water center at the school and the university. He is studying water as a source of comparative advantage and also investigating whether countries use water efficiently on a global scale. Debaere is approaching these critical water issues with a world view. “It’s important to approach water from a global perspective, because oftentimes when water issues arise, people tend to focus on local circumstances. We have water scarcity, so how can I get more water, they ask. The better question may be: Are you producing what you should be producing, given your water availability? This is relevant. At one point, Saudi Arabia was exporting wheat. Can you imagine?” “I am basically trying to see to what extent water determines what a country in a global economy produces and what it exports and imports,” he says. His research was published in the American Economic Journal: Applied Economics, titled “The Global Economics of Water: Is Water a Source of Comparative Advantage?”

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What his research found is that though the availability of water determines the types of goods that countries produce, the “role of water is not as key as that of human and physical capital. And because of that, my research also suggests that variations in availability of water due to climate change will not especially affect more advanced economies, as many people would believe. I’m not saying climate change is not important, but it matters what country you are as to the extent of the impact.” Climate change includes significant changes in temperature and precipitation, among other effects. Agrarian countries and those with emerging economies, such as India or China, will feel the effects of climate change more than developed countries, says Debaere. “Think of the U.S. We’re rich, not because of the relative abundance of water, but because of skilled labor and capital that is available here. Having water is not a sufficient condition for being well-off. The drivers are the human and physical capital you have.” “Water is important for agriculture,” he adds. “But in the U.S., agriculture is a small percent of GDP. So it matters, but perhaps not so much as people want to believe.” From 1997 to 2009, Australia sustained one of its worst droughts on record — named the Big Dry. “It was terrible,” says Debaere. “But look at how well Australia’s economy performed anyway. The U.S. was in a recession in 2008 due to the financial crisis. Australia was not. The Big Dry did have an impact on Australia’s GDP, but it’s not like it cracked or killed the entire economy.” Despite fears about an impending water crisis, the world is not running out of water; there is more than enough fresh water on earth to satisfy the growing demand. The problem is water distribution, he says. “That is the key thing to note. Basically, it’s not that we don’t have enough water, but that water is distributed across the world in a very uneven fashion. It’s because of this uneven distribution that you have to allocate what you produce where, in a fashion that’s consistent with what you have.” “How could Saudi Arabia be exporting wheat? It’s because water is often mispriced,” Debaere says. “If water is not priced to its relative scarcity, then

BASICALLY, IT’S NOT THAT WE DON’T HAVE ENOUGH WATER, BUT THAT WATER IS DISTRIBUTED ACROSS THE WORLD IN A VERY UNEVEN FASHION. you have misallocation of resources. By producing the goods you should be producing, you might save water. Saudi Arabia producing wheat is not a good thing from an economist’s point of view.” Debaere is now studying water markets where land titles and water titles are separate. He’s also investigating water use in the U.S. Since 1980, water consumption has stayed the same or gone down, even as the country’s population and GDP has increased. As for the proposed global water center, Debaere wants to bring scholars from different disciplines together to focus on how societies can “navigate the competing water uses of agriculture, cities and the environment, given that economies grow, populations grow and the climate changes.” — Carlos Santos Peter Debaere, associate professor of business administration, is author of “The Global Economics of Water: Is Water a Source of Comparative Advantage?” published in American Economic Journal: Applied Economics (Volume 6, No. 5, 2014).

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ÂŠ 2017 University of Virginia Darden School of Business Darden Ideas to Action is published by the University of Virginia Darden School of Business Office of Communication & Marketing P.O. Box 7225 Charlottesville, Virginia 22906-7225 USA communication@darden.virginia.edu Executive Director of Communication & Marketing Juliet Daum Editor Catherine Burton Art Director Susan Wormington Graphic Design Convoy Photographer Stephanie Gross Writers Katherine Bowers, Jenny M. Abel and Carlos Santos

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