October 05, 2026
| by Deborah Lynn Blumberg, Dave Gilson, Sara Harrison, Aimee Levitt, Seb MurrayWelcome to Paper Cuts, a roundup of recent stories highlighting innovative, impactful, and just plain interesting research from Stanford Graduate School of Business faculty. To read many more stories like these, head over to Insights by Stanford Business.
Shrinking the Fed’s Balance Sheet Is Easier Said Than Done
At his Senate confirmation hearing in April, Federal Reserve Chairman Kevin Warsh reiterated his desire to shrink the central bank’s holdings. Yet slimming the Fed’s $6.7 trillion balance sheet is easier said than done.
Draft Picks
Five recent papers by GSB faculty
1. A retrospective review of venture capitalists finds that fewer than 40% of VCs participate in a successful investment and just 5% generate 90% of all industry profits. Ilya Strebulaev, the David S. Lobel Professor of Private Equity; “Human Capital in Venture Capital: Evidence from 100,000 Venture Capitalists”
2. An examination of historical and contemporary evidence establishes that public hierarchies of trust allow societies to scale cooperation by using seniority as an incentive system. Susan Athey, the Economics of Technology Professor, and Saumitra Jha, associate professor of political economy; “Hierarchy and the Scaling of Trust”
3. A belief that women are secretly devious and manipulative coexists with their warm public image, driving workplace biases such as the persistent distrust of successful women. Francis Flynn, the Paul E. Holden Professor of Organizational Behavior, and Ashley Martin, associate professor of organizational behavior; “Behind Closed Doors: The Uncommunal Feminine Stereotype”
4. U.S. mutual fund holdings of renminbi-denominated bonds have fallen sharply since peaking in 2021, driven primarily by investors leaving the market even as international investors return. Matteo Maggiori, the Moghadam Family Professor of Finance; “American Investment in Chinese Renminbi”
5. A detailed look at the finances of affluent older American households finds that 15% have liquid savings that amount to less than half of their monthly income, leaving them vulnerable to large spending shocks. Christopher Tonetti, associate professor of economics; “The Wealth of Wealthholders”
In a recent paper, Darrell Duffie, the Adams Distinguished Professor of Management and Professor of Finance, Emeritus, details several ways the Fed could proceed. “Even though I don’t say the Fed should reduce its balance sheet, I do say that it should have the tools that would allow it to reduce its balance sheet if it were to need to,” he says.
Two decades ago, the Fed held about $900 billion in assets. Then came the 2008 financial crisis. In rounds of quantitative easing, the Fed bought up bonds to stabilize the economy. Its assets continued to grow, peaking in 2022 at $8.9 trillion. It paid for these assets by creating more reserve balances, which are deposits held at the Fed by commercial banks.
Big banks have come to depend on these reserves, which currently stand at $3 trillion. “Reserves are like the Swiss Army Knife of finance: They’re good for everything and they pay interest. So what’s not to like?” Duffie says.
He outlines some cautious ways to slim the Fed’s reserves, but emphasizes the need for further research before taking action. “The U.S. banking system is very complicated,” he says. “I’m reticent about putting a number on these [proposals]. The Fed hasn’t yet done the research necessary to put a solid number on that.” — Dave Gilson
Getting Food and Volunteers Where They’re Needed Most
More than a quarter of Americans participate in formal volunteer programs, creating more than $160 billion in economic value annually. Many of them connect with volunteer opportunities through VolunteerMatch, an online tool that introduces potential volunteers to nearby nonprofits, including food banks that are part of Feeding America, one of the largest hunger relief programs in the country.
VolunteerMatch and Feeding America use online platforms that employ algorithms to place volunteers and distribute food. Both try to be equitable and efficient, serving their partners fairly while making sure that neither volunteer opportunities nor food goes to waste. Yet under real-life constraints, it doesn’t always work out that way. Some organizations are inundated with potential volunteers, while others struggle to find people. Larger food banks may have an easier time securing donations than smaller ones.
Daniela Saban, an associate professor of operations, information, and technology who studies online marketplaces, has been working with both VolunteerMatch and Feeding America to improve their systems. Saban thinks that other nonprofits that match people and services can learn from the results of her recent projects. “In general,” she says, “we tend to think that there’s a tradeoff between equity and efficiency. But sometimes that’s not necessarily the case. There can be a way of improving equity without much harm to efficiency.” — Aimee Levitt
Bankruptcy Audits Reveal Deception — and Confusion
More than half a million Americans file for bankruptcy each year. In a recent paper, assistant professor of accounting Fabian Nagel looked at random audits of Chapter 7 bankruptcy filings to see how many filers are telling the truth.
In a sample of audited bankruptcy filings, he found that between 20% and 30% contained at least one material misstatement. Nagel wanted to figure out whether filers were lying or simply thrown off by complicated paperwork. “There’s a lot of confusion among people who are just in a pretty turbulent financial state,” he says. Yet the audit data suggested more than just innocent confusion. Income misreporting was low when filers didn’t have the capacity to repay, but climbed above 30% among those who appeared able to pay something back.
However, among those who understated their income below the eligibility threshold, 44% turned out to be genuinely confused: Even after auditors corrected their numbers, their income still fell below the cutoff. The rest were acting strategically; their corrected incomes crossed the line, suggesting they knew they would face higher hurdles to obtain debt relief had they reported truthfully.
Nagel estimates that increasing the audit rate by 1 percentage point (about 6,500 more audits per year) would reduce improperly discharged debt by roughly $33 million. But he notes that aggressive audits impose an administrative burden on filers. “They are working in that they flag misstatements,” he says. “But many misstatements are just too small to matter.” — Deborah Lynn Blumberg
Small Retailers Need More Than Tech to Adopt Digital Payments
In 2018, a Mexican government program handed out thousands of free digital payment devices to small retailers. Six months later, barely 12% were still using them. Recent research by Sridhar Narayanan, the Sebastian S. Kresge Professor of Marketing, suggests that the barrier to adoption was not the upfront cost of the new system, but whether people could set it up and use it properly.
“What limits merchants from adopting these systems isn’t the big economic calculus,” Narayanan says, “it’s relatively simple, practical problems: whether the system actually works in the store, whether the bank account is linked, whether employees know how to use it. Those small things turn out to matter most.”
Narayanan frames the problem as one affecting developing economies more broadly and links it to financial inclusion globally. “Around the world, we tend to focus on the cost of technology as the main barrier to its adoption. But what often determines whether it succeeds is how well it’s implemented.”
The research identifies several bottlenecks for small retailers adopting digital payments. Many merchants never fully installed the system, which required 17 separate steps. Those who did often struggled to get customers to use it. “It’s not enough for the merchant to have the device,” Narayanan says. “Customers have to know the business accepts digital payments and be willing and interested to use something other than cash.” — Seb Murray
Lower-Class Employees Face a “Double Bind” When Negotiating Salaries
In a recent paper in the Proceedings of the National Academy of Sciences, Michele Gelfand finds that people from lower socioeconomic classes are not only less likely to negotiate their salaries but also more likely to be punished if they do ask for more money. “This study is showing not only that there is a difference in who gets to the negotiating table, but also that when they do negotiate there seems to be more backlash,” says Gelfand, the John H. Scully Professor in Cross-Cultural Management and Professor of Organizational Behavior.
In one of several studies, Gelfand and her coauthors set up a negotiation exercise in which job offers were given to more than 600 recent MBA graduates from a top U.S. business school. Although all the graduates had received the same education and professional training, lower-class graduates were more likely to accept the salary they were offered. Many said they didn’t negotiate for more pay because they didn’t want to “damage this new relationship.”
Upper-class graduates generally negotiated a slight pay bump — about $6,450 higher than their fellow alums. It’s not a lot, but over the next four decades, that difference compounds. By the time they retire, those who negotiated would earn nearly $800,000 more than their counterparts.
In their final study, the researchers examined whether fears about backlash to negotiation are grounded in reality. They found that human resources professionals viewed lower-class negotiators as less cooperative and less hireable. Gelfand describes this outcome as a “double bind.” If lower-class applicants don’t stand up for themselves, they won’t get the same pay as their higher-class peers. “But speaking up carries a higher social penalty,” she says. — Sara Harrison
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