Based on research Jeff Fleming (Rice Business), Barbara Bennett (Rice Business) and Chris Kirby (Clemson University)

Key takeaways:

• Researchers have long struggled to parse the separate roles of information and human trading activity in causing market price fluctuations.
• Unlike most financial markets, which are affected by a news cycle that follows the flow of the business day, weather-sensitive commodity markets are buffeted by important information flow 24/7.
• Taking advantage of this trait in weather-sensitive markets, researchers have discovered that information plays a big role in price fluctuations.

Market volatility has long perplexed business and economics researchers. According to basic economic principles, prices should reflect available information. Thus, price changes ought to reflect the news. But two complications make it hard to test this idea.

The first difficulty is that much of the news goes unobserved: It doesn’t show up in headlines or even in a tweet. The second is that prices only change when there is trading – and traders trade for many reasons.

In most markets, most news happens during the trading day. As a result, researchers struggle to discern how much price fluctuations are due to the news and how much they’re due to traders over- or under-reacting to the news. And then there’s the question of how much the fluctuations are related to trading activity that’s not linked to the news at all.

Weather-sensitive commodity markets give researchers a chance to make this distinction. In contrast to equities and currencies, weather-sensitive commodities are affected by information that changes randomly over a 24 hour cycle. In addition, the importance of weather news varies across the year. This means researchers can study the changing contribution of information flow throughout the year.

According to groundbreaking research coauthored by Jeff Fleming and Barbara Ostdiek, both finance professors at Rice Business, weather news influences price fluctuations of weather-sensitive commodity markets in ways that can’t be chalked up merely to trading.

Fleming and Ostdiek measured price variations in the corn, soybean, wheat, natural gas and frozen concentrated orange juice markets during the trading day and overnight, when the markets were closed. They then analyzed the overnight share of volatility in comparison to the trading day share of volatility. They found that the share of price fluctuation that took place overnight versus that occurring during the day was much greater than in the U.S. stock market. The finding is consistent with the idea that information about the weather is a substantial factor in moving prices.

The researchers also found that the importance of weather news varies throughout the year. For instance, the weather-sensitive season for wheat runs from March 15, when the crop begins sprouting, to August 31, when 75 percent of the wheat likely has been harvested. Wheat prices are far less sensitive to weather when no crops are in the ground. As a result, the share of volatility occurring overnight falls dramatically in the off-season.

Using traditional equity and currency markets as benchmarks, the researchers found commodity markets depend on weather and their unique news cycles in key ways.

According to past research, stock market returns during the open trading period are more variable than returns from the weekend and overnight. Some researchers have theorized this is because traders are more likely to be informed of, and act on, private information during the day. Other researchers have linked the discrepancy to the large amount of public information that’s at hand when trading is taking place.

In contrast to equity markets, currency markets are open 24/7 and benefit from a never-ending information flow as the news cycle moves around the globe. Compared to stocks, the variability of currency markets during U.S. trading hours is much closer to its variability during non-trading hours. This is consistent with a link between price volatility and information flow.

The takeaway: Irrational trading activity can’t explain these variations, but the unique patterns of the information flow in the different markets can.

Contrary to previous findings, the scholars discovered a strong link between price fluctuations and information flow – a link that can’t be explained by pricing errors or trading activity.

Not only does this information flow affect market volatility, the researchers found it also influences the interactions between different commodities. Returns on corn, wheat and soybean commodities were more strongly connected to each other during the weather-sensitive season – both during the trading day and overnight – which is consistent with the idea that weather information is a primary driver of price fluctuations in weather-sensitive commodity markets.

Fleming, Ostdiek, and Kirby (2006). “Information, Trading and Volatility: Evidence From Weather-Sensitive Markets,” Journal of Finance.

Based on research by Brian Akins (Rice Business), Lynn Li (Boston University), Jeff Ng (Singapore Management University), and Tjomme Rusticus (London Business
School)

Key takeaways:

• Low levels of competition in the banking industry make it likelier that banks will engage in riskier activities — and, ultimately, collapse.
• States with lower levels of banking industry competition saw greater housing price inflation during the 2007-2008 financial crisis.
• In states with higher levels of competition, housing price fluctuations were mitigated.

When banks become “too big to fail,” does their size empower them to take risks smaller banks wouldn’t? 

It’s easy for Monday-morning quarterbacks to blame the economic collapse of 2007-2008 on bloated financial institutions who lacked rivals to keep them on their toes. But research co-authored by Brian Akins, a professor at Rice Business, applies classic economic measures of competition to determine whether oversized banks and limited competition played a key role in the building — and bursting — of the housing bubble.

Akins’ research does, in fact, link a lack of competition in the banking industry with riskier bank investments, a higher level of regulatory intervention, and, ultimately, bank failure. It also associates low levels of banking industry competition with housing price inflation and steeper housing price declines during the 2007-2008 financial crisis.

While the results may seem intuitive — especially in hindsight — several economic theories actually predict the opposite. For example, the charter value hypothesis presumes that large banks have correspondingly large charter values, and hence have more to lose in case of failure. The theory predicts that larger banks are therefore motivated to counter the potentially massive potential for failure by engaging in lower-risk activities. An increase in competition, the theory holds, would lower the bank’s charter value and free it to engage in riskier investments.

But this theory’s detractors argue that it ignores the effect of bank competition on borrowers’ behavior. According to a counter theory, as the lending market becomes more concentrated, banks use their market power to charge higher loan rates, leading to an increase in their interest margin. Higher loan rates increase the probability of bankruptcy for borrowers — and the increased likelihood that they’ll default on their loans reduces bank stability.

Akins and his colleagues set out to conduct a comprehensive examination of the relationship between banking industry competition and financial stability in the United States — specifically, the impact of competition on individual bank outcomes and on the housing and mortgage market within states.

Their first round of analysis demonstrated that just before the 2008 crisis, more competition was associated with lower interest margins, a less risky portfolio of assets, lower profitability and lower liquidity. During the crisis, more competition was associated with less risk-taking, and, consequently, a lower likelihood of enforcement actions and bank closure.

In a second layer of analysis, the researchers examined the relationship between competition and changes in housing prices before and during the crisis. They found that greater competition led to higher mortgage rejection rates, especially for the highest-risk mortgages. More competition, the authors concluded, seemed to have a disciplinary effect that mitigated the housing price inflation before the crisis and the deflation afterward.

So the Monday-morning quarterbacks are right — and Akins’ study provides the data to prove it. A lack of competition, these results suggest, fueled the hyperinflation of housing prices, their subsequent collapse, and the devastating effects for the U.S. financial system and economy that still linger a decade later.

“Bank Competition and Financial Stability: Evidence From the Financial Crisis,” Journal of Financial and Quantitative Analysis (2014).

By William M. Arnold 

This article by Bill Arnold, the late professor in the practice of energy management at Rice Business, originated as an interview with Pipeline & Gas Journal, November 10, 2016.

Deciphering a political candidate’s policies is never simple. A party’s platform may be used to give voice to supporters (especially the potentially disaffected) rather than reflect a candidate’s real intentions. Candidates can always claim that “circumstances have changed” once they are in office. Of course, it is easier to make a judgment about someone who has held office and built a track record. In the case of Donald Trump it may seem as though we are dealing with a blank sheet.

But maybe not.

In the case of President-elect Trump, his “America First” position and goal of restoring well-paid jobs provide a basis to project his actions in a number of areas. This is not a data-driven approach but is more like the scenario planning that is used widely in the energy industry. What are some plausible energy policies in a Trump administration?

Admittedly, energy was not a prominent point in the presidential debates, because voters are relatively content with low prices for gasoline, natural gas and home heating oil. The producing states may have suffered hundreds of thousands of job losses, but the rest of the country is unsympathetic. Still, energy policy is a crucial part of government, and Trump will bring a new perspective on energy. It will be in sharp contrast to the policies of the Obama administration.

The tools he will have to implement his policies include the Republican majorities in the Senate and House of Representatives. A caveat: This is never as simple as it sounds, given the increasing independence of members of Congress and the bruises inflicted over the past year. At some point there will be pushback.

Presidential appointments will put Trump’s people in senior positions throughout the bureaucracy, and not just at the Cabinet level. Trump’s team will place about 3,500 people across the administration. Several hundred require Senate confirmation, but another 3,000 are discretionary. The latter includes scores of deputy assistant secretaries in every department from defense to agriculture.

Some of Trump’s actions will be part and parcel of broader initiatives. Until being pushed aside recently, Chris Christie quietly led the transition team in consultation with Newt Gingrich and Rudy Giuliani. Undoubtedly they have compiled a long list of Obama executive orders that will be cancelled on day one.

On climate change, Trump’s supporters apparently run from skeptics to deniers. This will have a big impact for the Environmental Protection Agency, the Department of Energy, the Department of the Interior and the new administration’s response to last December’s Paris Agreement (COP-21). The administration will almost certainly:

• Clean house at EPA and energy, replacing advocates of aggressive climate policies with officials who have an agenda friendlier to fossil fuels.
• Declare an end of the Obama administration’s war on coal. Trump owes Pennsylvania and the region that gave him an Electoral College majority.
• Leave the regulation of fracking with the states.
• Open more public land to energy development.

Trump has advocated that Fortune 100 companies “come back to America” (especially bringing back profits held overseas). One fairly easy step in this process would be to encourage energy companies to invest in energy development in the U.S. instead of overseas. They already are doing that, but Trump could take some credit with supportive policies.

Trump’s political philosophy is unclear. But conservatives in his inner circle will insist that market forces, rather than executive orders and regulatory mandates, determine the allocation of coal, natural gas and nuclear for use in power plants. This is already happening. Cheap and abundant natural gas is forcing coal out of power generation, and nuclear plants are shutting in quick succession because of obsolescence and economics.

Trump’s philosophy will also show itself in his response to the Paris Agreement. Through the substitution of natural gas for coal, CO₂ emissions from U.S. power plants have reached a 20-year low. Energy efficiency and related measures mean improved energy intensity in this country. By contrast, Germany’s CO₂ emissions are increasing despite two decades of focus on renewables. Chancellor Angela Merkel closed about half of her country’s nuclear power plants in response to the disaster at Fukushima, with no ready backup. So Germany resorted to lignite coal.

In a Trump administration U.S. subsidies for wind and solar will be under increased scrutiny, just as costs have come down to sometimes competitive levels. Expect a vibrant debate.

The linkage between Supreme Court nominations and energy policy is most apparent in the Obama administration’s Clean Power Plan. The late Justice Antonin Scalia tipped the 5-4 vote to suspend implementation because costs were not adequately considered. It is in limbo now.

President-elect Trump’s clear position on “America First” will translate into a focus on energy security and affordability. Germans and the British pay about two times what we do for electricity and gasoline.

Low cost natural gas has given rise to tens of billions of dollars of investment in the Houston area’s petrochemical and refining industries even as the upstream industry suffers job losses and capital investment cuts.

Pipelines are the literal backbone of the American economy. They link consumers and industry to abundant North American resources. They also enable exports of natural gas and oil, supporting our balance of payments. But they are often resisted by local communities and national organizations. For safety and environmental reasons pipelines are clearly better than rail and trucking to take oil from North Dakota.

Those who try to block pipelines want to “keep it in the ground.” “It” means hydrocarbons. Advocates of this position believe that limiting infrastructure will minimize production and open more opportunities for renewables.

President-elect Trump may support the Keystone XL Pipeline, but that raises the question of whether TransCanada will want to invest now that oil prices are low and the cost of oil sands is still higher than other available sources. Was the opportunity for thousands of jobs missed or deferred?

A complex issue may be gas exports to Mexico — and not only because of other well-known political issues involving Mexico. Exports are big now and pipeline projects will grow in the medium term. This would seem to be uncontroversial for the new administration — more U.S. oil patch jobs, improved balance of payments, etc. But gas exports to Mexico might be viewed negatively if Mexico uses cheap U.S. natural gas for industrial development that competes with the U.S. heartland. There has even been talk about using this gas for LNG export facilities on Mexico’s west coast or Baja California in competition with Corpus Christi and Sabine Pass, Louisiana. This could result in calls for an export tax on natural gas.

Finally, energy will not be at the top of President Trump’s agenda. Pressing issues of national security, terrorism, restoring good jobs and replacing the Affordable Care Act will have his attention.

William Arnold was a professor in the practice of energy management at the Jones Graduate School of Business at Rice University.

MBA program moves up 11 in Bloomberg Businessweek’s national ranking

The Master of Business Administration program at Rice University’s Jones Graduate School of Business is ranked No. 8 (up from No. 19 in 2015) in Bloomberg Businessweek’s new analysis of the best full-time MBA programs in the nation. This marks the MBA program’s first top 10 ranking.

The designation places Rice Business among the nation’s most distinguished business schools, including those at Harvard, Stanford, Duke, Chicago, Dartmouth, Pennsylvania and MIT. The rankings include 87 full-time U.S. schools.

To determine which business schools offer the strongest education and best prepare MBAs for their careers, Bloomberg Businessweek ranked the full-time MBA programs on five measures: a survey of employers who hire the school’s graduates (35 percent of the ranking); a survey of program alumni satisfaction (30 percent); a survey of current student satisfaction (15 percent); the Class of 2015 placement rate three months after graduation (10 percent); and the starting compensation for the Class of 2015 (10 percent).

The biggest contributor to Rice Business’s rise in the overall full-time ranking was the positive assessment by employers, current students and alumni; alumni ranked the program No. 4 and employers and students ranked it No. 14.

Rice’s full-time MBA program gives students a comprehensive learning experience that mixes specialized coursework and real-world experience. The program features innovative classes, expert faculty and diverse classmates who become lifetime colleagues.

Rice Business is consistently recognized by several rankings publications for its programs, including the Rice MBA, Rice MBA for Executives and Rice MBA for Professionals. The school is internationally known for the research and thought leadership of its faculty. For more information on Rice MBA programs, visit http://business.rice.edu.

To view the complete Bloomberg Businessweek rankings and methodology information, visit http://Bloomberg.com/bestbschools2016.

For more information about and insights from Rice Business faculty research, visit the school’s Rice Business Wisdom website, http://ricebusinesswisdom.com.

After a stint in the U.S. Army, Patrick Hamel '16 majored in mathematics/operations research at West Point, graduating in 2004. He stayed in the service for a decade more, completing assignments in Iraq and Afghanistan.

“Operations research is essentially optimization and problem solving of complex systems in a quantitative manner,” he said. “For example, modern portfolio theory is based on a mean-variance optimization problem of selecting the optimal mix of securities to maximize returns with the lowest level of volatility. In other words, how can you maximize return while minimizing portfolio variance?”

The work intrigued him so much, he decided to learn about investing which, to him, seemed similar. He left the Army and decided to earn a coordinated MBA/ME degree.

“I’d applied to the University of Chicago as well,” he said. “I knew I wanted a rigorous program that would give me a great deal of depth into the topic. My wife [Melanie Lunsford ’08] received her Ph.D. in psychology at Rice, so we were familiar with the school.”

The coordinated-degree program allowed Hamel to tackle both theoretical and real-world applications. On the MBA side of the equation, he worked in teams on projects and developed quantitative solutions to projections. And while studying statistics, he was able to achieve more in-depth qualitative analysis to modeling and predictions.

“All of my statistics classes focused on investing in some way,” he said. “And that gave me a tremendous foundational knowledge that I didn’t have before.”

Hamel is now an investment specialist at JPMorgan Chase & Co., a position he started in July. Right from the start, he said he’s seen his coordinated degree pay big dividends. His role with the company is helping clients develop investment strategies, constructing portfolios using equity, fixed income, alternative investments, currencies and derivatives.

“I can’t overstate how much the MBA/ME program prepared me,” he said. “From understanding the mechanics behind derivatives pricing, quantitative portfolio construction, and fundamental, bottom-up equity analysis, I had the opportunity at school to take courses covering all aspects of markets, from economics, business and statistics, to Ph.D.-level finance courses. And I was able to participate in the student-managed investment fund and quantitative portfolio competitions.”

Armed with that experience, Hamel knows he’s ready to take the next steps in his career.

This article by Holly Beretto originally appeared in Rice Engineering, Fall 2016.

Based on research Utpal Dholakia and Leona Tam (University of Wollongong)

Key takeaways:

• Americans who based their savings on a cyclical time orientation had a 78% higher savings rate than those who followed a more traditional Western orientation.
• A cyclical world view encourages savings in part because it offers less optimism about the future.
• A cyclical orientation could help financial and retirement planners better advise their clients.

Western culture tends to view life as a line. Plan now, we’re taught, to better control what lies down the road. Other cultures, though, particularly those in Asia, see life as a circle. The change of seasons, the wheeling of planets above, all are echoed in human lives. We start as babies, then grow old and helpless again. We live, die and replaced by our children. It’s a world view expressed by the lunar calendar, in contrast to the Western calendar with its linear march of weeks, and months.

Adopting the cyclical view, it turns out, would change more than just our perspective. According to Utpal M. Dholakia, a marketing professor at Rice Business, it could improve personal finance. In a recent paper, Dholakia and coauthor Leona Tam of the University of Wollongong, propose that Westerners can improve savings by thinking circularly.

Definitely, some new direction is called for: Americans’ personal savings rate has hovered near five percent for much of the past decade, far below the amount needed to retire comfortably. In contrast, savings rates of 20 percent and more are the norm throughout Asia. Maybe, Dholakia and his coauthor proposed, a different concept of time might turn things around.

Most Western savings plans look at time linearly. Advisors urge setting goals, moving on from mistakes and planning systematically for the future. In Asia, however time is not seen as racing down a line toward a future. Instead, life goes round in circles, reliably presenting opportunities, problems and risks, month after month.

To test if these views influenced savings, the researchers randomly assigned American subjects to two groups and instructed them to save based on two sets of advice. The “cyclical” group was told to view life as large and small cycles, and to expect the future eventually to look a lot like the present. If they performed a savings action in right now, they were told, they would be more likely to perform it in the next time cycle.

The “linear” group was told to see time as a road. Its length would be marked by completed goals and benchmarks. If they took action to save now, these subjects were told, they’d be better prepared for the future. On the other hand, if they didn’t act now to save, they would have to catch up.

Metaphysical as it sounds, this varied guidance created tangibly different outcomes. The subjects who saved based on the cyclical model saved a full 78 percent more than did the subjects following the linear model.

A second study gave insight into the savings process. In this research, Dholakia and Tam found, a less optimistic world view actually was preferable: People who were optimistic about the future put off saving until some imagined future time when they expected to have more money and more control of their financial life. Gloomier subjects saved aggressively, because they expected little or no improvement in life as it was.

Needless to say, much in these findings defies U.S. conventional wisdom. Seeing life as a road and the future as the chance for a do-ever, this thinking goes, inspire us to save. Instead, the evidence suggests, that thinking is magical. It still begs the question: How likely is it that Western financial planners, retirement counselors, and families will rethink the concept of time? It’s not impossible, as research increases and Asian immigrants become more part of the American mainstream. There’s nothing like 78% more in the bank to focus the mind.

“Saving in Cycles: How To Get People To Save More Money,” Psychological Science (2014).

By Sarah Viren

This article first appeared in Fall 2016 Rice Business magazine. Sarah Viren is a professor at Arizona State University and author of the book MINE.

When Chris Bolding took her family to Panama on a recent vacation, she made sure they stopped by the famous canal. But after that, she, her husband and their three teenage kids did their best to stay off the beaten path. They traveled through the mangroves with local guides, wandered into a bat cave where the water went up to their chests, visited a little-known coffee plantation, and spent a long weekend on a remote island without any cars that they could see or—as they soon learned—ATM machines. At one point, Bolding’s husband embarked on a four-hour boat ride to another island to get cash, but even that inconvenience was worth it, says Bolding, a Rice Business graduate (’98) with more than 18 years of experience working in the travel industry.

Though Bolding probably wouldn’t have classified her vacation as such at that time, her Panama trip is a good example of a relatively new tourist trend known as “slow travel.” Rather than flying in and out of a tourist hot spot for a rushed week of must-see sites, slow travelers try to live by that age-old adage about the journey trumping the destination or experience being more important than acquisition. They advocate taking the scenic train through the Alps, spending a month walking the Appalachian Trail, or renting a house in the French countryside for a week and getting to know the locals and local cuisine.

Or as Bolding, now director of business development at Sabre Travel Network, likes to tell her children, “The fact that you saw the Sistine Chapel or the Panama Canal might get one mention in a conversation, but those stories about the people you met or the food you ate or the experiences you had are the ones you’ll tell again and again.”

As a movement, slow travel has its origins in the slow food revolution, which began in the late-1980s in Italy in response to the first McDonald's opening up in Piazza di Spagna, Rome. Slow foodies believe in local farming, in preserving traditional food preparation customs and cuisines, and in eating communal meals. Their fervor has since ignited a whole host of similarly “slow” movements: slow cities, slow parenting, slow art and even slow sex.

The driving force behind much of this is a sense that, as we’ve become more time-efficient and technology-drive, we’ve also lost track of what makes us happy, healthy and—well—human. In Carl Honoré’s book, In Praise of Slowness: Challenging the Cult of Speed, the self-declared “globetrotting ambassador for the Slow Movement” describes his own awakening as the moment when he found himself almost buying a collection of one-minute bedtime stories to read to his children at night.

“These days, the whole world is time-sick,” Honoré writes in the book’s introduction. “We all belong to the same cult of speed.” His solution, of course, is to slow down. And it’s a message that’s found an audience. Honoré’s book has been translated in to dozens of languages since it was first published in 2004 and was later called the Das Kapital of the Slow Movement by the Financial Times. Though the book didn’t address slow travel when it came out, Honoré later claimed that this branch of the movement was “the most exciting and, certainly for us today I think, the most relevant front in the slow revolution.”

In many ways, though, slow was always the way we traveled—at least until recently. Some of our most famous travel writers and adventurers moved slowly out of necessity. Marco Polo’s trips to China by boat and camel-back later inspired other adventurers including Christopher Columbus. Meriwether Lewis and William Clark spent more than two years, by horse and by foot, exploring the territory west of the Mississippi. In one journal entry from that exploratory trip, Lewis almost sounds like a modern-day slow traveler espousing the joys of taking one’s time while moving through the landscape.

“The buffaloe (sic) Elk and Antelope are so gentle that we pass near them while feeding, without appearing to excite any alarm among them,” he wrote. “And when we attract their attention, they frequently approach us more nearly to discover what we are.”

Things only began to change for travelers as technology advanced: The train came along and then the automobile and finally the plane, and along with these new modes of transportation came the rapid construction of highways and hotel chains and fast food restaurants, all of which has made travel more accessible to more people, and also much quicker.

Ironically, technology is also what is now allowing tourists to return to their slow traveling roots, so to speak. Bolding remembers a family vacation to France when she was in high school and her mom lugging around a big book of bed and breakfasts listings—the only way then to find accommodations with a more local touch.

Now, as Constantine Hallax, another Rice Business graduate (’01) working in the tourist industry, explains, internet upstarts like Airbnb make staying with—or getting a ride or buying a meal from—a local much easier than it was in the past.

“Everyone is seeking uniqueness in travel,” he says. “And the technology that exists today can provide you with that.”

Hallax, who previously worked for Travelocity and is now vice president of business development for TripCase, a travel application developed by Sabre Travel Network, says traveler review sites are a good example of technology aiding slow travel trends. By allowing tourists to read and share opinions about trip itinerary, sites like TripAdvisor and Gogobot can give potential travelers the confidence to go off the beaten path or stay at a nontraditional lodging that they might have avoided—out of fear or lack of knowledge—in the past.

Apps, Hallax says, are also making it easier for travelers to plan more complicated trips without the assistance of a travel agency or local contact. There are apps now to help travelers quickly figure out the exchange rate, learn key phrases in a new language, trace one’s wanderings through an unknown town or city, or coordinate lodging, food and transportation plans.

Hallax’s company recently developed an app feature called SafePoint for TripCase that allows employers to monitor world events, and if anything happens—from a terrorist attack to a flood—to locate and contact employees traveling and working abroad or domestically.

“The world is becoming more dangerous,” Hallax notes. “But technology and these other tools will help mitigate some of these concerns.”

The ecotourism movement, and environmentalism in general, has also had a hand in popularizing slow travel. As Janet Dickinson, professor of tourism at Bournemouth University, explains in her book Slow Travel and Tourism, traditional modes of “mass travel”—via airplane, staying in chain hotels, etc.—tend to leave a larger carbon footprint than embarking on a pilgrimage, say, or staying two weeks in a remote village somewhere off the beaten path. This means that slow travel can often also equal more sustainable travel.

And on this front, the slow traveler has a whole host of resources at her fingertips. Organizations like the International Ecotourism Society help evaluate and publicize legitimately ecological trips and locales while private sector companies such as Expedia are beginning to offer “green” search options for those looking to find sustainable travel or lodgings options.

Money, however, can also be a driving factor for those opting to travel slowly. Though slow travel is not always cheaper, it can be, and those on a budget might find slower forms of tourism more appealing monetarily and philosophically. The great American road trip is said to be making a comeback in recent years for that very reason.

In a recent survey by AAA, road trips were the number one vacation choice for Americans, followed next by trips to national parks. Sarah Schimmer, a spokeswoman for the organization, said the slow pace of a road trip is appealing for nostalgic reasons but added that there is also a practical side to travelers’ decisions to drive instead of fly.

“What we are seeing is that more people are taking road trips and are being inspired to take road trips because gas prices are so low,” Schimmer notes.

Slow travel is still more popular in Europe than the United States in part because the movement began there, but also, as Dickinson explains, because the infrastructure and long holiday traditions in Europe are more accommodating to the slow traveler.

“It’s not uncommon for Europeans to take a one-month holiday which enables people to take time traveling,” Dickinson notes. “It is more difficult to invest in slow travel when your holiday is shorter—it limits how far you can go.”

Still, that doesn’t mean Americans are saddled to fast travel forever. Bolding sees the recent popularity of riverboat tours—especially as an alternative to the cruise ship vacation—as one example of a slow travel trend in the United States. And, she says, the fact that many Americans are now adapting to more overlap between their work and home lives means that lots of potential travelers, herself included, are finding ways to take longer vacations—with the idea that they’ll do a little bit of work here and there while traveling.

“I just took a 16-day trip, and I said, two mornings on the trip, I’ll answer some emails; I’ll do some work.”

The popularity of travel memoirs like Wild by Cheryl Strayed, which chronicles her 1,100-mile trek along the Pacific Crest Trail, and A Walk in the Woods by Bill Bryson, about traveling the Appalachian Trail, also indicate that the old-fashioned pilgrimage—a staple of slow travel—might be finding new life in the United States along America’s trails. According to the Appalachian Trail Conservancy, more than 4,000 people hiked the entire 2,180 miles of that trail in the 2010s, up from about 1,500 hikers in the 1980s. The USDA Forest Service reports that both day hiking and camping are much more popular now than they were in the 1980s, with about a third of all Americans saying they enjoy hiking and a quarter saying they’ve recently camped.

Advocates of slow travel, including the travel writer Nicky Gardener, author of the “Slow Travel Manifesto,” also point out that trips don’t have to be long or even require that much distance to count as “slow.” In her manifesto, published at the travel web site Hidden Europe, Gardener writes that one of the best ways to travel slowly is to start at home. She encourages would-be-slow travelers to walk or take a bus one day rather than driving or to check out a church or cafe they’ve noticed in their neighborhood but never had the time—or perhaps never made the time—to visit in the past.

“The key to slow travel is a state of mind,” she writes.

Based on research by Wagner Kamakura 

• “Middle class” is a vague phrase that needs precise definition.
• The middle class has advanced in income and wealth over three decades, but not nearly as much as the rich.
• While the consumption gap between the upper class and all others has widened, the poor are virtually left behind.

Is the middle class coming to an end? The eulogies come from virtually every political quarter. According to Senator Elizabeth Warren, a middle class American lifestyle is “increasingly out of reach for middle class families.” In the words of Senator Marco Rubio, American workers might “have what was a great job 10 years ago, but now...literally live one unexpected expense away from disaster.”

The reality, research shows, is a bit more nuanced. In a recent working paper, Wagner A. Kamakura, a professor of marketing at Rice Business, shows that there are indeed yawning and growing gaps between America’s socio-economic classes. But while these gaps are real, overall quality of life among the middle class has actually increased, when measured in terms of consumption. Only one group, in fact, has definitively gotten worse off: the poor.

Just who is in the middle class? There’s a remarkable lack of consensus about this, not just among scholars, but also among other Americans. In one survey, for instance, nearly a third of respondents earning more than $150,000 per year identified as middle class. So did 40 percent of respondents earning $20,000 or less. Standard U.S. government definitions, which define middle class in terms of current yearly income, are hardly more illuminating.

The confusion, in part, comes because American class hierarchy can’t really be understood only by income. In the course of one lifetime, an individual’s experiences and expectations can often include chapters of both wealth and adversity. This aggregate lifetime profile – what scholars call “permanent income” – is one way to define economic class.

But it’s not as if lifetime earnings show up on a tax return. So in order to study permanent income, Kamakura looked at a sample of 101,671 U.S. households from a spectrum of incomes between 1982 and 2010.

To estimate their permanent incomes, he included factors such as profession, education and tax payments along with financial and physical assets.

More objective than self-reporting, this method let Kamakura divide America into four economic strata: upper, two middle quartiles, and lower. He defined wealth as financial assets plus the value of an owned home.

The formula revealed stark divides in American fortunes. Over three decades, upper class wealth leaped an average of 3.5 percent per year in real terms. Middle class wealth rose 1.7 percent per year over the same period. But lower class wealth grew a mere 0.3 percent per year.

The annual growth in wealth among the upper quartile, in other words, was more than double that of the middle class. The lower quartile of Americans saw virtually no growth whatsoever.

Kamakura also uncovered generational, gender, and racial chasms. Households headed by men in their 30s to 50s did better than both younger households and households headed by men 61 and older. Households headed by men were more likely to be upper class than households led by women. White households were more likely to be middle class than those headed by African-Americans, which were more likely to be poor.

But to truly understand the middle class, Kamakura argues, you also have to know how people consume.

Even when their incomes go up, for example, many Americans struggle to make the mortgage or pay for health care – not to mention affording a nice vacation, a new car, or jewelry that seems commensurate with their standard of housing. Despite apparently healthy incomes, in other words, many theoretically middle class Americans are dogged with anxiety about their expenses.

To tackle this aspect of class, Kamakura turned to the Bureau of Labor Statistics.

Studying raw data from the bureau’s quarterly Consumer Expenditure Survey, Kamakura found that the United States lurched into a disturbing new state of inequality over three decades. Most strikingly, consumption of medical goods and services grew among the wealthy but declined everywhere else, after adjusting for price changes. The middle and lower class quartiles consumed fewer medical goods and services between 2005 and 2010 than they did between 1982 and 1985.

The gap persisted in recreation, education, family vacations, and charitable donations. Rich people consumed 37 percent more in 2005-10 than they did in 1982-85. Middle class people consumed 28 percent more. And poor people consumed only 20 percent more.

What accounts for the difference? Prices, for one thing. During the time Kamakura studied, inflation lowered the purchasing ability of both the middle class and the poor. Education costs mushroomed 500 percent. Hospital costs increased nearly 600 percent. Even protecting existing assets cost more: both motor vehicle insurance and health insurance ballooned 400 percent during the survey period.

Perhaps the most dramatic shift, though, took place between lower class Americans and everyone else. In contrast to the other groups, lower class Americans’ wealth stagnated. Disposable income for the wealthy quartile was 5.5 times that of the poorest quartile between 2006 and 2010.

That stagnation was reflected in spending. Between 2005 and 2010, the poorest Americans spent 32 percent less annually on medical goods and services than they had between 1982 and 1985. Overall, in fact, they consumed less in real terms than they had three decades earlier.

The figures are stunning, considering that per capita gross domestic product increased by 48 percent during these decades.

Most Americans say they expect to live middle class lives. Kamakura’s findings, however, show that since 1982 it has become harder and harder to stay in the middle lane. It’s cold comfort indeed that the economic class right behind hasn’t moved down the highway at all.

Wagner Kamakura was the Jesse H. Jones Professor of Marketing at the Jones Graduate School of Business at Rice University.

To learn more, please see: Kamakura, Wagner A. (2014). What Happened to the American “Middle” Class? Class and Consumption in America. Class and Consumption in America, Social Science Research Network.

By Lynn Gosnell

This article by Lynn Gosnell originally appeared in Rice Business, Fall 2016.

Scott Sonenshein’s academic curiosity has led him to study banks, booksellers, entrepreneurs, environmentalists, fashion, and most recently, the complex social identities coalescing around food truck ownership. The Henry Gardiner Symonds Professor of Management at Rice Business, Sonenshein applies qualitative and generative methods to his research questions, heading into the field to collect data via interviews, careful observation and participation (think: hanging out). It’s a hands-on approach that marries the tools of social science and ethnographic methods to understand how businesses work. The data often points to counter-intuitive, but important, research questions.

In the case of his recent foray into Houston’s food truck scene, Sonenshein was curious, at first, about the special relationship between owner-chefs and their customers. But the data soon revealed extraordinarily collaborative relationships. His findings from the multiyear project teach us some surprising ways that competitors help each other out.

During a recent conversation in his McNair Hall office, Sonenshein talked about the evolving nature of qualitative field research, the precariousness of food truck life, and how he recently lost the 15 pounds he gained in the name of research.

Curiosity and coincidence

Several years ago, I was reading [a Houston magazine], and there was a review of a couple of local food trucks. I was curious. You don’t think of the restaurant review column as a place where you would see food trucks reviewed. I searched around a little and learned that they’re big business. Wow, I thought, here’s a nascent field that’s trying to establish legitimacy, and you’re seeing some of the early signs of that through getting reviews.

A couple weeks later, I was reading the Wall Street Journal, and there was this story about the University of Washington kicking food trucks off its campus. Their food services company decided that they wanted to get in on the business. They came back with their own food trucks that looked independent, but they were really owned by a large food services company. Why would this multi-billion dollar conglomerate be worried about mom-and-pop businesses?

How qualitative research works

What you do with this type of method is you start off with a question that motivates your research, but you let the data lead you to what’s most interesting. It’s called “grounded theory.” … Almost every time, I have what I think is a really interesting research question that turns out either not to be the most interesting question I should be asking or turns out not to be at all related to what I’m finding in the data. In general, these are multi-year projects that are very iterative.

Finding the right questions

A lot of my early interest was on the relationship between the food truck owner and the customer. Was there some type of special relationship or almost intimacy that forms when the same person who is cooking your food is also handing it to you in the window? But on my very first visit to a food truck, I realized what a terrible question to be asking.

If you’ve ever been to a food truck, you see that those windows are high up, and they have plexiglass on them. The mode of interaction is you reaching your hand up toward the window, so especially for a guy like me who’s not very tall — that question didn’t pan out! But what did turn out was [hearing about] the relationship with other food truckers. One said, “We’re really friendly. We get along, we hang out. This is very social.” That’s where the research started to morph into studying these dynamics between competition and collaboration.

Food truck life

My [informants] would elaborate on all the remarkable things they do to help each other out, like tweeting to raise awareness of each other, fixing each other’s trucks, running errands, volunteering, sharing parking spots at food truck venues, etc. (Parking spots are a big issue, because the market has exploded recently.) One person put it this way: "It’s a constant cycle of just helping each other out.”

The power of a shared identity

We found that these food truck operators share a strong social or collective identity that belies traditional notions of competition and the many competitive pressures of, to put it succinctly, food truck life. That sense of identity leads to lots of cooperation, banding trucks together to survive and make the market stronger and more welcoming. In the case of my research, it comes down to the collective identity: By forming a collective identity, you view the success of the group as your own success.

What about the exceptions?

Some people truly embody and embrace the collective and that’s what motivates all these helpful behaviors. There are others that don’t want to be part of the group — this is more the exception. The group imposes sanctions against these trucks, and they generally struggle.

Raising reputations one meal at a time

There are over 1,000 mobile food units in the Houston area. I was particularly interested in the gourmet segment of food trucks, which is experiencing rapid growth. You’ll find people using artisanal ingredients, more chef-driven-type menus, lots of creativity in terms of the product, premium ingredients and so on. Because food trucks already had an identity — namely, cheap, inexpensive, noncreative food — they struggled for customers at first. So, another question is, “How do [gourmet food trucks] band together to create a different identity?”

Focusing on Korean Mexican fusion and dessert trucks

People who know me tell me I focused on dessert trucks because I love dessert. That’s true – I do love dessert. But the reality is dessert trucks (along with Korean Mexican fusion) were one of the more concentrated segments of the market where there were people selling very similar products. So the idea to test the ideas in the paper is to locate those areas where you might not expect a theory to hold up. That’s why we oversampled on those.

The hard road of food truck life

Everyone has a profit motive; this is not simply just I want to do this because it’s cool. Some are doing quite well, some were not at the time of the study, and some went out of business.

Informants use the term “food truck life” to refer to the major challenges in operating a gourmet food truck. It’s a very hard industry of course — equipment breaks down, the weather turns bad, the city puts in place restrictive regulations. These are very resilient people who work incredibly long hours. As glamorous as it might seem on TV, my sense is that most of us would not last very long doing it.

What’s important from a research perspective?

It’s another way of characterizing a market. We don’t tend to talk about markets as being shaped by a collective identity, so it gives us a potent window into thinking about how relationships and markets might unfold a little differently when a large chunk of firms within that market share a collective identity and redirect competition away from price and towards group status. It’s also refreshing to see them help each other out, not necessarily for personal gain, but because they embrace and embody the collective. To me that’s a pretty powerful idea.

This interview has been edited for space and clarity. It is based on research conducted by Scott Sonenshein.

Based on research by Duane Windsor 

Key takeaways:

• Companies need to cultivate “moral champions” — employees who defend key values within the organization.
• Companies also need to weed out “moral sinners and neutrals” — employees who know right from wrong but don’t act on it.
• Businesses should seek out employees who demonstrate company values and model these values for other employees.

It’s not unrealistic to look for moral paragons in business. In fact, moral champions can play a critical role in successful firms, argues Duane Windsor, a management professor at Rice Business. Ethics researchers, however, just need to grasp that the business world entails different constraints and opportunities than do some other spheres.

In a recent book chapter, Windsor took a close look at moral leadership models in business. Among his main questions: Are heroes and saints, as defined in other spheres, even desirable there?

To find answers, Windsor crafted a typology categorizing different sorts of moral exemplars. His methodology included original conceptual models combined with brief case summaries from available literature. (Windsor noted that his analysis did not provide a systematic survey of literature on the topic, but rather a citation of key selected publications, and that the development of a typology was based on both conceptual development and case study analysis.)

In the resulting pantheon of moral business exemplars, Windsor identified what he termed heroes, saints and moral champions. The moral hero, he writes, typically faces a dangerous, even life-threatening crisis and responds with moral courage. Rwandan hotel manager Paul Rusesabagina provides an example. During his country’s genocide in the 1990s, Rusesabagina reportedly managed to save 1,200 people from being murdered by Hutu militants.

Unsurprisingly, however, there are few candidates for this level of heroism in business. After all, it is not common to encounter the kind of danger that can summon courage like Rusesabagina’s.

“Saints,” meanwhile, show a different kind of initiative: going beyond legal requirements or common ethical standards to defend a particular, humanistic value.

Mohammed Yunus, who in 1976 began experimenting with making credit available to the landless poor, would fall into this category. In 1983, Yunus established the Grameen Bank to make loans available to those unable to get credit from other sources. He received the 2006 Nobel Peace Prize for his innovative concepts of microcredit and microfinance. Windsor categorized Yunus, a Vanderbilt Ph.D., as a “saint,” because Yunus built an enterprise promoting a single ethical value, in this case, helping the poor.

Windsor’s third type of moral leader, a champion, may sacrifice less personally, but defends important ethical standards. William O’Rourke falls into this category. As chief executive of Alcoa Russia in 2005, O’Rourke demanded zero company tolerance for corruption. Under pressure from threatening officials, and again when police robbed him at a local ATM, O’Rourke refused to pay bribes of any sort. 

In the same era when Siemens engaged in a global strategy of bribery, and Wal-Mart had to launch an inquiry into corruption payments by employees around the world, O’Rourke fended off threats of possible harm from government officials wanting the same type of payoffs. Even when local police stopped transport of a valuable furnace for his firm, O’Rourke refused to submit. With that type of backbone, Windsor wrote, if O’Rourke had faced much more physical danger, he might be classified as a hero.

Then there are the “moral neutrals” and sinners. Windsor created the first label for employees who know right from wrong but don’t act on it. Moral sinners, in this lexicon, are employees who know right from wrong but do not care. Both, Windsor argued, need actively to be weeded from business. Yet moral saints are not always an asset in for-profit firms, or for those who depend on them. A saint, he points out, prioritizes a single, non-financial value to the exclusion of all others — so, not ideal for shareholders or employees who need their paychecks.

Windsor also distinguished among the moral qualities of businesses themselves. This typology included a framework that distinguished between private and public businesses, and between harm avoidance and positive social benefit. To identify these types, Windsor used a classic series of definitions by Adam Smith. The difference between harm and contribution, for instance, echoes Smith’s distinction between citizenship as compliance and good citizenship as concern for social welfare. As Smith put it, a citizen obeys laws and rules. A good citizen strives for others’ well-being.

Businesses that merely refrain from harm, in other words, are mere citizens. But businesses that actively promote social good are good citizens. There is a paradox here, however. In a 15-year panel dataset of nearly 3,000 public companies in the U.S. by other scholars, businesses that did the most harm were also among those most actively doing some good.

Of the three types of moral leader, Windsor concluded, it is really the moral champions that companies need the most. Saints, uplifting as they sound, seldom are financially good for business. Heroes, meanwhile, are rarely called for. Moral champions, however, can be positive and powerful — and nearly as hard to find.

“A Typology of Moral Exemplars in Business: Moral Saints and Moral Exemplars,” Research in Ethical Issues in Organizations (2014).