General Research Fund Research Articles

Dynamic Contract Design in the Presence of Double Moral Hazard

We consider a stylized incentive management problem over an infinite time horizon, where the principal hires an agent to provide services to customers. Customers request service in one of two ways: either via an online or a traditional offline channel. The principal does not observe the offline customers’ arrivals, nor does she observe whether the agent exerts (costly) effort that can increase the arrival rate of customers. This creates an opportunity for the agent (i) to divert cash (that is, to under-report the number of offline customers and pocket respective revenues) and also (ii) to shirk (that is, not to exert effort), thus leading to a novel and thus far unexplored double moral hazard problem. To address this problem, we formulate a constrained, continuous-time, stochastic optimal control problem and derive an optimal contract with a simple intuitive structure that includes a payment scheme and a potential termination time of the agent. We enrich the model to allow the principal to either (i) dynamically adjust the prices for the services in both channels or (ii) monitor the agent. Both tools help the principal to alleviate the double moral hazard problem. We derive respective optimal strategies for using those tools that guarantee the highest profits. We show that the worse the agent’s past performance is, the lower the prices should be set and the more the principal should monitor the agent. This paper was accepted by Ilia Tsetlin, behavioral economics and decision analysis. Funding: The work of F. Tian is financially supported by the Hong Kong RGC Funding [RGC General Research Fund 2023/24 17502023], HKU Seed Fund for Basic Research for New Staff (2022), and the HKU Business School Shenzhen Research Institute [SZRI2023-BRF-04]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.01169 .

Director Liability Protection and the Quality of Independent Directors

We study whether legal liability protection helps companies to recruit and retain high-quality independent directors. We conduct difference-in-differences analyses exploiting the 1999 Ninth Circuit Court of Appeals Ruling on the Silicon Graphics case, which substantially raised the bar for filing securities class action (SCA) lawsuits as a shock. We document supporting evidence for the talent attraction hypothesis by showing improvements in newly recruited independent director quality following the ruling, but only for candidates who are previously not exposed to SCA litigation risk. The effects are stronger for firms facing greater litigation risk ex ante or smaller local supplies of director candidates. Results are more evident for experience-based quality dimensions. We also analyze a sample of voluntary independent director departures and find little support for the talent retention hypothesis, suggesting that more complex factors enter into a director’s continuation decision once a director is already exposed to SCA litigation risk. A policy implication is that liability protection can be useful in attracting more unexposed high-quality candidates to the pool of public boards but does little to attract high-quality candidates who are already in the pool of public firms. This paper was accepted by Gustavo Manso, finance. Funding: H. Zou acknowledges the financial support from a competitive General Research Fund (GRF) grant from the Research Grants Council of the Hong Kong Special Administrative Region, China [Project No. HKU 17513816]. S. Shen acknowledges the financial support from the National Natural Science Foundation of China [Grants 72202164 and 72332003]. The work was partially carried out while R. W. Masulis visited the University of Hong Kong as an FBE visiting researcher, and he thanks the Faculty of Business and Economics of the University of Hong Kong for its sponsorship. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2020.03743 .

Stochastic Control Problems with State Reflections Arising from Relaxed Benchmark Tracking

This paper studies stochastic control problems motivated by optimal consumption with wealth benchmark tracking. The benchmark process is modeled by a combination of a geometric Brownian motion and a running maximum process, indicating its increasing trend in the long run. We consider a relaxed tracking formulation such that the wealth compensated by the injected capital always dominates the benchmark process. The stochastic control problem is to maximize the expected utility of consumption deducted by the cost of the capital injection under the dynamic floor constraint. By introducing two auxiliary state processes with reflections, an equivalent auxiliary control problem is formulated and studied, which leads to the Hamilton-Jacobi-Bellman equation with two Neumann boundary conditions. We establish the existence of a unique classical solution to the dual partial differential equation using some novel probabilistic representations involving the local time of some dual processes together with a tailor-made decomposition-homogenization technique. The proof of the verification theorem on the optimal feedback control can be carried out by some stochastic flow analysis and technical estimations of the optimal control. Funding: L. Bo and Y. Huang are supported by the National Natural Science Foundation of China [Grant 12471451], the Natural Science Basic Research Program of Shaanxi [Grant 2023-JC-JQ-05], the Shaanxi Fundamental Science Research Project for Mathematics and Physics [Grant 23JSZ010], and Fundamental Research Funds for the Central Universities [Grant 20199235177]. X. Yu is supported by the Hong Kong RGC General Research Fund (GRF) [Grant 15304122] and the Research Centre for Quantitative Finance at the Hong Kong Polytechnic University [Grant P0042708].

Colonial Legacy and Informal Finance

An influential line of research emphasizes that colonial legacy plays a key role in formal financial development. Can colonial legacy also shape informal finance? We investigate the impact of colonial legacy on informal financial development using a manually georeferenced data set within a credible empirical framework. In the 19th century, Europeans arbitrarily designed colonial borders that partitioned many ethnicities across multiple countries in Africa. Leveraging several spatial regression discontinuity designs across national borders and within British-French–partitioned Cameroon and a unique natural experiment where the same former British colony is compared with two otherwise similar areas with different exposures to French colonization, we discover that former British colonies today have better informal financial development than former French colonies. Exploring the channels, we find that places with a British colonial legacy maintain a style of social control that facilitates information flow, supports private enforcement and market interactions, and promotes strong legal cultures. This paper was accepted by Kay Giesecke, finance. Funding: C. Lin acknowledges the Research Grants Council of Hong Kong for financial support [Grant AoE/B-704/22-R]. J. An acknowledges the general financial support from The University of Hong Kong Start-up Fund for New Professoriate Staff. M. Tai acknowledges the Research Grants Council of Hong Kong for financial support [General Research Fund No. 17500722]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.01856 .

Social Learning and Content Quality Under Polarization

Problem definition: This paper studies how polarization influences content consumption and production on digital platforms that monetize consumer engagement. Specifically, we consider a content that advocates a particular position on a divisive issue. Consumers with polarized preferences toward the content’s position are sequentially exposed to the content. Initially, consumers are uncertain about the content quality, but they have the opportunity to learn about it using aggregate consumption metrics and other informative signals provided by the platform. Methodology/results: Using a stylized model, we find that under polarization, social learning based on consumption metrics can mislead consumers to perceive low-quality content as higher quality, even in the long run. Consequently, content providers may decrease their effort to improve content quality. These effects are amplified for more polarizing issues, especially when the content’s position is “mainstream” (i.e., aligned with the majority of the population). Our results thus provide a potential explanation for the proliferation of low-quality, polarizing content on platforms. Managerial implications: We offer normative guidance for content platforms seeking to enhance content quality, including offering consumers information to aid the social learning mechanism and appropriately selecting audience to mitigate the echo-chamber effect. Additionally, we propose payment schemes based on content popularity as an effective means to encourage content providers to improve quality. Funding: This work was supported by the Hong Kong Research Grants Council [General Research Fund 16502920]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.0533 .

Penny Wise and Pound Foolish: Does Striving to Meet Earnings Expectations by Manipulating Real Activities Trigger Product Recalls?

We examine whether managers’ activities in striving to reach earnings targets through real earnings manipulation affect their firms’ product recalls. Our evidence implies that firms suspected of manipulating real activities in trying to meet earnings benchmarks exhibit a higher likelihood and frequency of product recalls. In cross-sectional results consistent with expectations, we find that the impact of exploiting real activities to attain earnings benchmarks on product recalls intensifies for firms whose managers have stronger incentives to manage earnings and subsides for firms subject to greater customer power and firms with more growth opportunities. Additional analysis shows that lowering product quality to meet or beat earnings expectations undermines firms’ future performance. This paper was accepted by Ranjani Krishnan, accounting. Funding: Y. Chen acknowledges the General Research Fund of the Research Grants Council of Hong Kong [Project 15504219] for financial support. L. Ma acknowledges financial support from the Ministry of Education Project of Humanities and Social Sciences [Project 22YJC630099] and the Young Scholars Grant Program of the University of International Business and Economics [Project 20YQ06]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.04035 .

Physician Adoption of AI Assistant

Problem definition: Artificial intelligence (AI) assistants—software agents that can perform tasks or services for individuals—are among the most promising AI applications. However, little is known about the adoption of AI assistants by service providers (i.e., physicians) in a real-world healthcare setting. In this paper, we investigate the impact of the AI smartness (i.e., whether the AI assistant is powered by machine learning intelligence) and the impact of AI transparency (i.e., whether physicians are informed of the AI assistant). Methodology/results: We collaborate with a leading healthcare platform to run a field experiment in which we compare physicians’ adoption behavior, that is, adoption rate and adoption timing, of smart and automated AI assistants under transparent and non-transparent conditions. We find that the smartness can increase the adoption rate and shorten the adoption timing, whereas the transparency can only shorten the adoption timing. Moreover, the impact of AI transparency on the adoption rate is contingent on the smartness level of the AI assistant: the transparency increases the adoption rate only when the AI assistant is not equipped with smart algorithms and fails to do so when the AI assistant is smart. Managerial implications: Our study can guide platforms in designing their AI strategies. Platforms should improve the smartness of AI assistants. If such an improvement is too costly, the platform should transparentize the AI assistant, especially when it is not smart. Funding: This research was supported by a Behavioral Research Assistance Grant from the C. T. Bauer College of Business, University of Houston. H. Zhao acknowledges support from Hong Kong General Research Fund [9043593]. Y. (R.) Tan acknowledges generous support from CEIBS Research [Grant AG24QCS]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2023.0093 .

Disclosing Delivery Performance Information When Consumers Are Sensitive to Promised Delivery Time, Delivery Reliability, and Price

Problem definition: We investigate how the characteristics of consumers and a service firm influence the firm’s optimal pricing and promised delivery-time decisions as well as the optimal investment in the quality of delivery reliability information available to consumers. Methodology/results: We use utility, queuing, and choice modeling theories to model consumers’ behavior and to find solutions to the firm’s profit maximization problem. Managerial implications: The optimal strategy is to disclose either error-free delivery reliability information or no information at all. We also delineate conditions for each of the two strategies to dominate. Funding: This research was supported by the General Research Fund (GRF) of the Hong Kong Research Grants Council under Research Project LU13500822. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2023.0223 .

The Bullwhip Effect in Servitized Manufacturers

The shift to a service-oriented economy has driven traditional product-oriented manufacturing firms to integrate various services into their businesses. This study aims to provide empirical evidence on how manufacturers’ service offerings impact demand variability and intrafirm bullwhip effects. Through “bag-of-words” text mining on 10-K filings of U.S.-listed manufacturing firms, we propose a novel measurement to identify annual services offered. We validate the measurement’s statistical and economic significance and verify its consistency with the results obtained using the large language model (i.e., GPT-4). Services are categorized as complementing product sales (e.g., maintenance and repair) or substituting product sales entirely (e.g., machine hours). Utilizing difference-in-difference techniques, we find robust evidence that manufacturers’ service offerings reduce the bullwhip effect in two steps: basic complementing services decrease demand variability, whereas advanced substituting services mitigate intrafirm bullwhip. Moreover, servitization mainly minimizes demand variability through information channels, whereas increased production efficiency decreases intrafirm bullwhip. Our findings contribute to understanding manufacturers’ business model innovations by demonstrating that servitization can smooth demand and mitigate intrafirm bullwhip. This paper was accepted by Karan Girotra, operations management. Funding: This work was supported by the National Natural Science Foundation of China [Grants 71931007, 72091214] and General Research Fund by Hong Kong Research Grants Council [Grant 14505320]. Supplemental Material: The data and the online appendix are available at https://doi.org/10.1287/mnsc.2023.01026 .

Online Advertisement Allocation Under Customer Choices and Algorithmic Fairness

Advertising is a crucial revenue source for e-commerce platforms and a vital online marketing tool for their sellers. In this paper, we explore dynamic ad allocation with limited slots upon each customer’s arrival for an e-commerce platform, where customers follow a choice model when clicking the ads. Motivated by the recent advocacy for the algorithmic fairness of online ad delivery, we adjust the value from advertising by a general fairness metric evaluated with the click-throughs of different ads and customer types. The original online ad-allocation problem is intractable, so we propose a novel stochastic program framework (called two-stage target-debt) that first decides the click-through targets and then devises an ad-allocation policy to satisfy these targets in the second stage. We show the asymptotic equivalence between the original problem, the relaxed click-through target optimization, and the fluid-approximation ( Fluid ) convex program. We also design a debt-weighted offer-set algorithm and demonstrate that, as long as the problem size scales to infinity, this algorithm is (asymptotically) optimal under the optimal first-stage click-through target. Compared with the Fluid heuristic and its resolving variants, our approach has better scalability and can deplete the ad budgets more smoothly throughout the horizon, which is highly desirable for the online advertising business in practice. Finally, our proposed model and algorithm help substantially improve the fairness of ad allocation for an online e-commerce platform without significantly compromising efficiency. This paper was accepted by Jeannette Song, operations management. Funding: Y. Rong is supported by the National Natural Science Foundation of China [Grants 72025201, 72331006, and 72221001]. R. Zhang is grateful for the financial support from the Hong Kong Research Grants Council General Research Fund [Grants 14502722 and 14504123] and the National Natural Science Foundation of China [Grants 72293560 and 72293565]. H. Zheng is supported by the National Natural Science Foundation of China [Grants 72231003, 72325003, and 72221001]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.04091 .

Abstract 5520: β2 adrenergic receptor signaling promotes colorectal cancer liver metastasis

Abstract Liver is the most common site for cancer metastases, which may be attributed to the hepatic immunosuppressive microenvironment. Recent studies have highlighted the immunomodulatory and tumor-supportive roles of neurotransmitter-receptor signals in various cancers. Given that various neurotransmitter receptors are expressed in the liver, we aimed to investigate their possible involvement in the metastatic-prone liver microenvironment. Single-cell RNA sequencing analysis identified ADRB2, which encodes β2-adrenergic receptor (β2-AR), as the top-upregulated neurotransmitter receptor gene in colorectal cancer (CRC) and liver metastasis in patients with CRC liver metastasis (CRLM). Co-immunofluorescence (co-IF) staining confirmed the colocalization of β2-AR with myeloid cell marker CD11b instead of T cell marker CD3 and NK cell marker CD56 in patients with CRLM. Consistently, we observed the upregulation of CD11b/β2-AR double-positive cells in the liver tissues from mice bearing CRC or CRLM compared to naïve mice through co-IF staining. High-dimensional flow cytometry analysis further revealed that β2-AR was mainly expressed in macrophages and myeloid-derived suppressor cells (MDSCs). Treatment of CRC-tumor bearing mice with pan β-AR inhibitor propranolol and β2-AR specific inhibitor showed a potential to reduce liver metastatic incidence without suppressing primary CRC. Mechanistically, β2-AR activation may upregulate the expression of S100a8/9 to enhance the immunosuppressive activity of macrophages and MDSCs, thereby promoting CRC liver metastasis. Taken together, our findings reveal the potential of targeting β2-AR signaling for the prevention and treatment of liver metastasis. This project is supported by the Hong Kong University Grants Committee through the General Research Fund (14104820, 14107622, 24110323) and the Strategic Seed Funding for Collaborative Research Scheme (SSFCRS) from the Chinese University of Hong Kong. Conflict of interest: The authors declare no conflict of interest. Citation Format: Yixuan Zhang, Jintian Chen, Thomas Ting Hei Chan, Huanyu Wang, Jiahuan Lu, Jingqing Li, Jingying Zhou. β2 adrenergic receptor signaling promotes colorectal cancer liver metastasis [abstract]. In: Proceedings of the American Association for Cancer Research Annual Meeting 2024; Part 1 (Regular Abstracts); 2024 Apr 5-10; San Diego, CA. Philadelphia (PA): AACR; Cancer Res 2024;84(6_Suppl):Abstract nr 5520.

Abstract 5545: FADD activation renders hepatocellular carcinoma sensitive to immune checkpoint blockade by turning cold tumors hot

Abstract The heterogenicity of hepatocellular carcinoma (HCC) remains a key obstacle in turning the majority of ‘immune-cold’ tumors ‘hot’ for effective immune checkpoint blockade (ICB) therapy. Through studying the naturally-existed ‘hot’ HCC variant lymphoepithelioma-like (LEL)-HCC by RNA and whole exome sequencing analysis, we identified fas-associated death domain (FADD) as one of the top differentially expressed genes that associated with high tumoral CD8+T cell abundance. Of note, FADD upregulation was also observed in HCC patients with better ICB responsiveness. As FADD was mainly expressed in tumor cells from HCC by scRNAseq analysis, we constructed Fadd knockout stable cells using murine HCC cell lines. Interestingly, CRISPR knockout of tumoral Fadd led to increased tumor weights in immunocompetent but not immunodeficient mice, accompanied with decreased tumoral CD8+T cells. Mechanistically, FADD phosphorylation promoted NF-κB transcriptional activity to increase CCL5 secretion from HCC cells via interacting with its nuclear binding partners Src-associated-substrate-during-mitosis-of-68kDa/KH domain containing, RNA binding, signal transduction associated 1 (Sam68/KHDRBS1) and lysine (K)-specific methyltransferase 2D (KMT2D), thus directing CD8+T cell tumor infiltration. In addition, anti-PD1 triggered FADD phosphorylation via IFN-γ and TNF-ɑ release from CD8+T cells in ICB-sensitive but not resistant tumors. Most importantly, sequential FADD activation via genetic and pharmacologic approaches could re-sensitize the therapeutic efficacy of anti-programmed death 1 (PD1) antibody in ICB-resistant orthotopic and spontaneous HCC models by turning cold tumors hot. Taken together, our findings reveal a key molecular feature of ICB-responsive hot tumors that may guide the development of sequential combinatory immunotherapies for the majority of HCC patients with low responsiveness to ICB monotherapy. This project is supported by the University Grants Committee through General Research Fund (24110323, 14107622, 14104820) and the Health and Medical Research Fund (07180556). Citation Format: Jingying Zhou, Jiahuan Lu. FADD activation renders hepatocellular carcinoma sensitive to immune checkpoint blockade by turning cold tumors hot [abstract]. In: Proceedings of the American Association for Cancer Research Annual Meeting 2024; Part 1 (Regular Abstracts); 2024 Apr 5-10; San Diego, CA. Philadelphia (PA): AACR; Cancer Res 2024;84(6_Suppl):Abstract nr 5545.

Abstract 2534: Single-cell dissection of heterogeneity and dynamics of tumor ecosystem upon immune-checkpoint blockade in hepatocellular carcinoma

Abstract Background: Therapy-induced alteration of tumor ecosystem poses a major barrier for cancer regression. As the majority of patients with hepatocellular carcinoma (HCC) develops resistance to immune checkpoint blockade (ICB) therapy, we aimed to characterize heterogeneity and dynamics of multicellular tumor ecosystem following anti-PD-1 treatment using scRNA-seq. Methods: In a phase II clinical trial of pembrolizumab on advanced hepatitis B virus-related HCC patients (NCT03419481), we performed a comprehensive single-cell transcriptomic profiling of biopsy samples from 26 patients before and during treatment. The composition and distribution of immune aggregates in responsive tumors was characterized by scRNA-seq and spatial transcriptome analyses. The anti-tumor efficacy of combined therapy with anti-PD-1 and inhibition of immunosuppressive macrophage were further determined in RIL-175-derived PD-1-resistant mouse model. Results: After initial data processing and quality control, we obtained 353,329 high-quality cells that included tumor cells, myeloid cells, lymphoid cells, endothelial cells and fibroblasts. Our analysis revealed that baseline tumor-reactive CD8+T cells exhibited a strong association with improved prognosis. Notably, treatment-induced expansion and differentiation of tumor-reactive CD8+T cells with memory-like phenotype highly correlated with durable ICB response. Moreover, we observed a co-occurrence pattern of key anti-tumor immune subsets in the tumor microenvironment (TME), which associated with ligand-receptor pair interactions. Spatial transcriptome analysis further validated the presence of immune aggregates in responsive tumors. Importantly, we derived an responsive signature from immune aggregates, which showed a strong association with improved prognosis in pan-cancer ICB datasets. Paired comparisons of pre- and on-treatment macrophage percentages in non-responders revealed a specific expansion of an immunosuppressive macrophage subset. Inhibition of this macrophage subset could overcome ICB resistance by enhancing T cell function in our PD-1 resistant model. We further observed that a tumorous epithelial-mesenchymal transition (EMT) program might contribute to therapeutic resistance via TME remodeling. Conclusions: Our study suggests that tumor-reactive CD8+T cells and immune aggregates may be associated with durable ICB response, while ICB-induced upregulation of immunosuppressive macrophages and EMThi tumor cells contributed to therapeutic evasion. These findings provide valuable insights for identification of predictive biomarkers and therapeutic strategies for ICB therapy of HCC. This project is supported by the General Research Fund (14119023, 14120621 and 14115820), the Li Ka Shing Foundation, and the CUHK Strategic Seed Funding for Collaborative Research Scheme. Citation Format: Alfred S. L. Cheng, Zhewen Xiong, Haoran Wu, Jianquan Cao, Zhixian Liang, Jingying Zhou, Joseph Jao-Yiu Sung, Kevin Yip, Stephen Chan. Single-cell dissection of heterogeneity and dynamics of tumor ecosystem upon immune-checkpoint blockade in hepatocellular carcinoma [abstract]. In: Proceedings of the American Association for Cancer Research Annual Meeting 2024; Part 1 (Regular Abstracts); 2024 Apr 5-10; San Diego, CA. Philadelphia (PA): AACR; Cancer Res 2024;84(6_Suppl):Abstract nr 2534.

Abstract 2662: Deciphering the cellular and molecular determinants of immunotherapy resistance in NASH-associated hepatocellular carcinoma by single-cell analysis

Abstract Introduction: Non-alcoholic steatohepatitis (NASH) has emerged as a prominent risk and the most rapidly increasing aetiology of hepatocellular carcinoma (HCC). Despite the effectiveness of immune checkpoint blockade (ICB), like anti-programmed cell death-ligand 1 (anti-PD-L1) antibodies, in a subset of HCC patients, NASH has been shown to impair the anti-tumor immunity in ICB-treated HCC. We aim to elucidate the mechanisms responsible for ICB resistance in NASH-HCC at single-cell resolution. Methods: Orthotopic NASH-HCC mouse models were generated by orthotopically injecting liver cancer cell line into NASH liver induced by methionine-and choline-deficient diet (MCD) or choline-deficient, L-amino acid-defined, high-fat diet (CDAHFD). Multi-color flow cytometry and single-cell RNA-sequencing (scRNA-seq) were utilized to dissect the liver and tumor immune microenvironment upon anti-PD-L1 treatment. Results: Anti-PD-L1 treatment failed to alleviate tumor burden in NASH mice, indicating that orthotopic NASH-HCC mouse models were resistant to ICB therapy. Compared to the control liver, multi-color flow cytometry demonstrated that CD11b+F4/80+CD206+M2 macrophages accumulated in NASH liver and further increased in liver and tumor upon anti-PD-L1 treatment. Tumor-infiltrating M2 macrophages exhibited the most significant and robust correlation with tumor weight among all immune cell types. Moreover, PD-1 expression on tumor-infiltrating CD8+ T cells positively correlated with tumor weight and intratumoral M2 macrophages. Furthermore, scRNA-seq analysis identified a NASH-specific tumor-infiltrating monocyte subcluster, which may differentiate into an ‘M2-like’ macrophage subtype upon anti-PD-L1 treatment as demonstrated by cell trajectory analysis. Conclusion: Our study provides insights into the significance of monocyte/macrophage reprogramming in ICB resistance in NASH-HCC. Further investigation is conducted to identify the molecular mechanisms during monocyte-macrophage differentiation and explore potential targeted strategies to overcome ICB resistance in NASH-HCC. Acknowledgment: This study is supported by the General Research Fund (14120621 and 14119023), the Collaborative Research Fund (C4045-18W), the Li Ka Shing Foundation and CUHK Strategic Seed Funding for Collaborative Research Scheme. Keywords: hepatocellular carcinoma, single-cell RNA-sequencing, anti-PD-L1, macrophages. Citation Format: Lingyun Zhang, Yiling Zhang, Wenshu Tang, Zhewen Xiong, Xiaoyu Liu, Zhixian Liang, Yuk Wah Tsang, Weiqin Yang, Xiaohang Long, Alfred Sze Lok Cheng. Deciphering the cellular and molecular determinants of immunotherapy resistance in NASH-associated hepatocellular carcinoma by single-cell analysis [abstract]. In: Proceedings of the American Association for Cancer Research Annual Meeting 2024; Part 1 (Regular Abstracts); 2024 Apr 5-10; San Diego, CA. Philadelphia (PA): AACR; Cancer Res 2024;84(6_Suppl):Abstract nr 2662.

Abstract 3062: Unraveling the role of RCC2 in glioblastoma by mutational analysis and a murine model of glioma

Abstract Glioblastoma (GBM) is a brain malignancy characterized by being highly aggressive, lethal, yet treatment modalities remain limited. Recent studies have implicated Regulator of Chromosome Condensation 2 (RCC2), a guanine nucleotide exchange factor (GEF) for RalA, as a potential regulator in glioblastoma pathogenesis. RCC2 has been shown to play a role in promoting glucose metabolism through BACH1-dependent upregulation of hexokinase II (HK2)(1). In this study, we investigated the functional mechanism of RCC2 in gliomagenesis using two complementary approaches. First, the relevance of RCC2 structural regions on its downstream functions were examined. By superimposing the three-dimensional crystal structure of RCC2 onto RCC1 (Regulator of Chromosome Condensation 1), a related GEF, we identified several unique regions within the RCC1-like domain of RCC2. A panel of point, substitution, and deletion mutants were generated, and pulldown experiments were performed to assess their relative binding affinity with BACH1. Additional assays to assess their relative ability to modulate the expression of HK2 and other cellular parameters will be discussed. The structure-functional characterization of distinct regions within RCC2 may identify unique sequences within RCC2 that could have relevance to glucose metabolism, cell proliferation and cell motility. Additionally, we have established a murine glioma model utilizing a Pten heterozygous mice expressing a GFAP-Cre-recombinase transgene (Gfap-cre;Ptenfl/+). Glioma were induced by stereotaxically injected lentiviral constructs expressing either with HRasV12 oncogene alone or together with RCC2. Neurological symptoms were monitored over a period of 7 months, and histopathological analysis was performed to evaluate the morphological and molecular features of the tumors. We showed that co-expression of HRasV12 and RCC2 exhibited earlier emergence of neurological manifests in both male and female groups (Log-rank test, p<0.05) when compared to HRasV12 alone. Overall, our study provides insights into both the structural mechanism of RCC2 in gliomagenesis through mutational analysis of RCC2 and the functional relevance through a murine model of glioma. (1)Liu, T. et. al. Cancer Lett (2022) 549:215914. Funding: This work is supported by a General Research Fund grant (#14113519) from the University Grants Committee of Hong Kong. Citation Format: Wayne L.H. Ho, Penelope M.Y. Or, Andrew M. Chan. Unraveling the role of RCC2 in glioblastoma by mutational analysis and a murine model of glioma [abstract]. In: Proceedings of the American Association for Cancer Research Annual Meeting 2024; Part 1 (Regular Abstracts); 2024 Apr 5-10; San Diego, CA. Philadelphia (PA): AACR; Cancer Res 2024;84(6_Suppl):Abstract nr 3062.

Abstract 1426: Lipid-mediated epigenetic activation of PPAR-gamma signaling promotes immune-checkpoint resistance in hepatocellular carcinoma

Abstract Background: Although use of immune-checkpoint inhibitors (ICI) has yielded impressive results in cancer patients, resistance to ICI therapies has increasingly been observed, especially in hepatocellular carcinoma (HCC). Materials and Methods: We generated a novel anti-programmed death-ligand 1 (PD-L1) treatment resistant mouse hepatoma cell Hepa1-6 (PD-L1R) by 7-generation of in vivo selection. To dissect tumor cell-intrinsic resistant mechanism, we performed single-cell RNA-sequencing (scRNA-seq) from anti-PD-L1-treated tumors generated from parental or PD-L1R cells. Expression level of target genes was detected by QPCR, western blot and immunohistochemical analyses. Lipid content and fatty acid uptake was examined by Oil Red O and BIODIPY staining. Peroxisome proliferator-activated receptor gamma (PPARγ) promoter methylation level was analyzed by bisulfite pyrosequencing. To investigate the tumor cell-extrinsic factors, we profiled the myeloid and lymphoid lineages by flow cytometry. Results: ScRNA-seq revealed significant gene enrichments in lipid metabolism and PPARγ signaling pathway in PD-L1R tumors, which could be verified in both mRNA and protein levels. Moreover, we observed evident lipid accumulation in the PD-L1R tumors when compared to the parental tumors by Oil Red O staining. Consistently, PD-L1R tumor cells exhibited higher lipid content and enhanced fatty acid uptake in vitro, as demonstrated by BODIPY493/503 and BODIPY-C16 analyses. Of note, palmitic acid could dose-dependently increase Pparg mRNA expression in parental cells to a similar level with the PD-L1R cells, supporting an important role of lipids in inducing PPARγ expression. Pyrosequencing analysis indicated that PD-L1R cells exhibited lower PPARγ methylation level compared with parental cells. Notably, 5-Azacytidine treatment in parental cells significantly reduced the promoter DNA methylation and increased Pparg mRNA expression to similar extent with the PD-L1R tumor cells, thus indicating DNA hypomethylation-driven PPARγ up-regulation. Flow cytometry analysis showed that ICI resistance was associated with lower cytotoxic CD8+ T cells but higher intermediate Th17 cells, myeloid-derived suppressor cells and T regulatory cells in the tumor microenvironment (TME). Conclusions: Our study suggested that lipid exposure may epigenetically up-regulate PPARγ transcription in the development of anti-PD-L1 resistance. Detailed investigation on the crosstalk between aberrant lipid metabolism and immunosuppressive TME is ongoing. Acknowledgment: This study is supported by RGC General Research Fund (14120621 and 14119023), Li Ka Shing Foundation and CUHK Strategic Seed Funding for Collaborative Research Scheme. Citation Format: Zhewen Xiong, Stephen Lam Chan, Jingying Zhou, Xuezhen Zeng, Weiqin Yang, Haoran Wu, Jianquan Cao, Jie-Ting Low, Michael Wing-Yan Chan, Kevin Yuk-Lap Yip, Joseph Jao-Yiu Sung, Alfred Sze-Lok Cheng. Lipid-mediated epigenetic activation of PPAR-gamma signaling promotes immune-checkpoint resistance in hepatocellular carcinoma [abstract]. In: Proceedings of the American Association for Cancer Research Annual Meeting 2024; Part 1 (Regular Abstracts); 2024 Apr 5-10; San Diego, CA. Philadelphia (PA): AACR; Cancer Res 2024;84(6_Suppl):Abstract nr 1426.

Cyber Insurance and Post-Breach Services: A Normative Analysis

Cyber insurance is becoming an essential tool for managing cybersecurity risks. In this study, we analyze how having the option to subscribe to cyber insurance services affects firms’ risk prevention and mitigation decisions. We model the scenario where the firm purchases cyber insurance in a competitive insurance market and compare it against the case when it does not purchase cyber insurance. When there is a breach, cyber insurance can help cover mitigation expenses and breach losses. Consistent with the prior literature, we find that in most cases cyber insurance exacerbates ex ante moral hazard by decreasing expected risk prevention. However, it enhances ex post efforts by increasing expected risk mitigation, which can lead to more positive outcomes for the insured firm. The mechanism involves designing the contract with a delicate calibration of the coverage of breach losses and the coinsurance rate. Moreover, the findings highlight the importance of a healthy risk mitigation service market in managing cybersecurity risks. Funding: This research was supported in part by the Hong Kong SAR General Research Fund project [16502417]. Supplemental Material: The e-companion is available at https://doi.org/10.1287/serv.2021.0120 .

Content Promotion for Online Content Platforms with the Diffusion Effect

Problem definition: Content promotion policies are crucial for online content platforms to improve content consumption and user engagement. However, traditional promotion policies generally neglect the diffusion effect within a crowd of users. In this paper, we study the candidate generation and promotion optimization (CGPO) problem for an online content platform, emphasizing the incorporation of the diffusion effect. Methodology/results: We propose a diffusion model that incorporates platform promotion decisions to characterize the adoption process of online content. Based on this diffusion model, we formulate the CGPO problem as a mixed-integer program with nonconvex and nonlinear constraints, which is proved to be NP-hard. Additionally, we investigate methods for estimating the diffusion model parameters using available online platform data and introduce novel double ordinary least squares (D-OLS) estimators. We prove the submodularity of the objective function for the CGPO problem, which enables us to find an efficient [Formula: see text]-approximation greedy solution. Furthermore, we demonstrate that the D-OLS estimators are consistent and have smaller asymptotic variances than traditional ordinary least squares estimators. By utilizing real data from a large-scale video-sharing platform, we show that our diffusion model effectively characterizes the adoption process of online content. Compared with the policy implemented on the platform, our proposed promotion policy increases total adoptions by 49.90%. Managerial implications: Our research highlights the essential role of diffusion in online content and provides actionable insights for online content platforms to optimize their content promotion policies by leveraging our diffusion model. Funding: R. Zhang is grateful for the financial support from the Hong Kong Research Grants Council General Research Fund [Grants 14502722 and 14504123] and the National Natural Science Foundation of China [Grant 72293560/72293565]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.0172 .

Liberalizing Home-Based Business

Working at home benefits entrepreneurs by lowering fixed costs and allowing them to engage in joint market and household production. We evaluate a large-scale reform in Singapore, the Home Office Scheme, that allowed business creation at one’s residential property and study whether home-based entrepreneurship spurs entrepreneurial activities. The difference-in-differences estimate shows that the reform led to a significantly higher level of business creation and the firms newly created in response to the reform had a higher survival rate. The effect is more pronounced for low-income female individuals and industries with high start-up capital, implying that financial constraints and nonpecuniary benefits likely drive the effect. The reform also encourages entrepreneurs to become serial entrepreneurs, and they open a larger business with a similar survival rate for their second firm. Overall, our findings suggest that the program effectively attracted more entry into self-employment without significantly lowering the average quality of the pool. This paper was accepted by David Sraer, finance. Funding: J. Zhang acknowledges support from the Seed Fund for Basic Research for New Staff of HKU [Code: 202009185022] and the General Research Fund by University Grants Committee of Hong Kong SAR [Grant 12500420]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.04232 .

Unifying Procedure-Dependent Preference Reversals: Theory and Experiments

Revealed preferences between alternatives can be systematically reversed across a variety of elicitation procedures (e.g., choice, valuation, matching, joint/separate evaluation). These puzzling findings have been usually invoked to challenge the procedure invariance principle. Yet procedure-dependent preferences can be endogenous. This paper presents a unifying theory of contextual deliberation to account for seemingly disparate phenomena of preference reversals. When attribute importance is ex ante imperfectly known, people can engage in costly information retrieval/acquisition activities (i.e., deliberation) prior to making decisions. Elicitation procedures can influence revealed preferences through affecting the incentive for deliberation. Therefore, contextual deliberation can endogenously yield procedure-dependent preference reversals, offer a common microfoundation for extant psychological accounts (e.g., the prominence hypothesis, the evaluability hypothesis), and coherently organize apparently unrelated/inconsistent findings in the literature. We also run five experiments and document new findings that are inconsistent with extant hypotheses but can be reconciled by contextual deliberation. This paper was accepted by Dmitri Kuksov, marketing. Funding: This work was supported by the Hong Kong Research Grant Council (RGC) General Research Fund [Grant 16500614]. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2021.02640 .