| Peter Klein |
Two interesting new papers on entrepreneurship. The first deals with financial capital — specifically, the degree to which entrepreneurship (defined as self-employment) is constrained by credit availability. As regular readers know, I’ve been crusading against the idea that entrepreneurship consists of recognizing opportunities, in favor of the alternative idea that entrepreneurship involves putting assets at risk. The latter view directs our attention to how entrepreneurial activities are funded; rather than assuming that all positive-NPV opportunities are exploited, we should focus on the investor’s decision to allocate risk capital to one or another potential project. Put simply, “entrepreneurship is exercised not only by founders, but by funders.”
Funders care about collateral, which suggests that self-employment is constrained by the availability of durable personal assets like housing. In a new NBER working paper, “Housing Collateral and Entrepreneurship,” Martin Schmalz, David Sraer, and David Thesmar find a strong correlation between self-employment and house prices. “Our empirical strategy uses variations in local house prices as shocks to the value of collateral available to individuals owning a house and controls for local demand shocks by comparing entrepreneurial activity of homeowners and renters operating in the same region. We find that an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, entrepreneurs with access to more valuable collateral create larger firms and more value added, and are more likely to survive, even in the long run.”
My Missouri colleague Colleen Heflin, along with Seok-Woo Kwon and Martin Ruef, have a new paper in the American Sociological Review on social capital and self-employment. Many papers have examined how an individual’s “social capital” — defined as networks of social and professional relationships — affects various economic outcomes, including the propensity to start a firm. Colleen and her colleagues focus at the community level and find that “individuals in communities with high levels of social trust are more likely to be self-employed compared to individuals in communities with lower levels of social trust. Additionally, membership in organizations connected to the larger community is associated with higher levels of self-employment, but membership in isolated organizations that lack connections to the larger community is associated with lower levels of self-employment.”
Of course, self-employment is only a crude proxy for entrepreneurship in the functional sense, but it is a widely used proxy in the empirical literature. I suppose entrepreneurship researchers, like other social scientists, resemble the drunk looking for his car keys under the lamppost. Who am I to complain?
| Peter Klein |
The ISNIE 2014 Call for Papers is now available. The conference is at Duke University, 19-21 June 2014, home of President-Elect and Program Committee Chair John de Figueiredo. Bob Gibbons and Timur Kuran are keynote speakers. ISNIE is one of our favorite conferences, so please consider submitting a proposal! Submissions are due 30 January 2014.
| Peter Klein |
Craig Newmark pointed me to this list of “15 Famous Business Books Summarized In One Sentence Each.” I don’t think highly of any of the books on the list except Innovator’s Dilemma, but it’s an interesting exercise. Care to try your hand? I’ll start:
Oliver Williamson, Economic Institutions of Capitalism: Be shrewd in your dealings with suppliers and customers; they may not do what they promised.
Edith Penrose, Theory of the Growth of the Firm: The more you do what you’re good at, the better you get at similar things that may surprise you.
Ludwig von Mises, Bureaucracy: Fixed rules are better than employee discretion when you’re producing stuff that isn’t bought and sold on markets.
Michael Porter, Competitive Strategy: Be efficient and productive, but pay attention to your rivals and partners, or they’ll eat you for lunch.
John Maynard Keynes, The General Theory: Chicken chicken chicken, chicken chicken chicken chicken chicken.
| Peter Klein |
It finds what you’d expect: When agents are assigned multiple tasks, and evaluated using objective performance criteria, they will tend to favor those tasks that produce measurable outputs, at the expense of equally important, but harder-to-measure tasks. This is why, for example, professors at research universities often neglect their teaching duties. Sure it’s important, but quality is hard to demonstrate, so I’ll concentrate on publications, grants, and other research activities.
Testing the Theory of Multitasking: Evidence from a Natural Field Experiment in Chinese Factories
Fuhai Hong, Tanjim Hossain, John A. List, and Migiwa Tanaka
NBER Working Paper No. 19660, November 2013
A well-recognized problem in the multitasking literature is that workers might substantially reduce their effort on tasks that produce unobservable outputs as they seek the salient rewards to observable outputs. Since the theory related to multitasking is decades ahead of the empirical evidence, the economic costs of standard incentive schemes under multitasking contexts remain largely unknown. This study provides empirical insights quantifying such effects using a field experiment in Chinese factories. Using more than 2200 data points across 126 workers, we find sharp evidence that workers do trade off the incented output (quantity) at the expense of the non-incented one (quality) as a result of a piece rate bonus scheme. Consistent with our theoretical model, treatment effects are much stronger for workers whose base salary structure is a flat wage compared to those under a piece rate base salary. While the incentives result in a large increase in quantity and a sharp decrease in quality for workers under a flat base salary, they result only in a small increase in quantity without affecting quality for workers under a piece rate base salary.
| Peter Klein |
Gladwell has more in common with his academic critics than either he or they realize, or care to admit. Academic writing is rarely a pursuit of unpopular truths; much of the time it is an attempt to bolster prevailing orthodoxies and shore up widely felt but ill-founded hopes.
The subject here is Malcolm Gladwell, a favorite punching-bag here at O&M, but the general point is worth pondering. Despite the myth of the brave academic, wielding his tenured position as a shield against the powerful interests trying to bring him down, academics typically crave influence, acceptance, and security and are attracted to power — in particular, political power — like moths to flame. There are exceptions, of course.
| Nicolai Foss |
More evidence on the softening nature of commercial society. Here is the abstract:
Levitt and List (2007) conjecture that selection pressures among business people will reduce or eliminate pro-social choices. While recent work comparing students with various adult populations often fails to find that adults are less pro-social, this evidence is not necessarily at odds with the selection hypothesis, which may be most relevant for behavior in cutthroat competitive industries. To examine the selection hypothesis, we compare students with two adult populations deliberately selected from two cutthroat internet industries — domain trading and adult entertainment (pornography). Across a range of indicators, business people in these industries are more pro-social than students: they are more altruistic, trusting, trustworthy, and lying averse. They also respond differently to shame-based incentives. We offer a theory of reverse selection that can rationalize these findings
| Nicolai Foss |
So, with Torben Pedersen, Bocconi University, I am arranging a Strategic Management Society “Special Conference” (so-called) on “Microfoundations in Strategic Management Research: Embracing Individuals” next year in Copenhagen. Specifically, the conference takes place from the 13. to the 15. of June at the Copenhagen Business School. (The DRUID conference starts on June 16). Pretty good lineup, I dare say, with keynotes by Ron Burt, Richard Rumelt and Ernst Fehr and several luminaries in the panels.
The deadline for paper proposals (5 pp + 2 pp refs) is December 5. Submit a proposal!