## Archive for October, 2007

| Peter Klein |

### Halloween Movies for Middle Managers

| Peter Klein |

The Saw movies, writes Grady Hendrix in Slate, are perfect for middle managers. Typical slasher flicks are “id-tickling celebrations of the chaos that ensues when mindlessly violent monsters are unleashed in controlled environments like summer camps, schools, hospitals, and space stations. ” By contrast, Jigsaw — the protagonist-villian of the Saw films — is

a pedant and a bore, a Type A overachiever who is constantly creating “tests” for the other characters and then grading the results. Chaos is his enemy; order and personal productivity are his friends. He’s a management drone leading the cast in a team-building exercise. . . . In Saw III he uses liquefied pigs, death by car wash, and a tricked-out version of the rack to awaken a grieving father to the magic of forgiveness. It’s the liberating figure of the motion picture monster reduced to the status of a self-help guru. And he won’t shut up. “Despite all of the advantages and privileges that you were given at birth, you have returned to prison again and again,” he scolds one of his victims. “Up until now, you have spent your life among the dead, piecing together their final moments. You’re good at this because you are also dead. Dead on the inside,” he preaches at another. It’s like an endless lecture from your mom.

The Saw movies don’t just celebrate traps; they are traps: Fans are lured in with the promise of gore, but they find themselves stuck in their seats, subjected to Jigsaw’s endless stream of numbing pseudo-profundities.

An “endless stream of numbing pseudo-profundities”? Hmmm, sounds like some of the academic journals I read.

### Are Transaction Costs a Distraction?

| Nicolai Foss |

Yes, says Harold Demsetz in a paper, “Ownership and the Externality Problem,” which was published in 2003, but which I only read recently (there does not seem to exist an online version; the paper is chpt. 11 in this book).

Consider the steel mill and the laundry of the Traditional Externality Tale. The two firms could merge, in which case externalities per definition would be absent. This, of course, only substitutes (additional) management costs (the costs of reduced specialization) for the transaction costs of market exchange. The former may exceed the latter in which case specialization is preferable, but then externalities emerge.  (more…)

### Maybe Taylorism Will Come Back

| Peter Klein |

The human race will one day split into two separate species, an attractive, intelligent ruling elite and an underclass of dim-witted, ugly goblin-like creatures, according to a top scientist.

It doesn’t happen for 100,000 years, so today’s management consultants are safe. Of course, my headline refers to the popular conception of “Taylorism,” not actual Taylorism. (HT: Uncommon Descent)

### O&M on Facebook

| Peter Klein |

I have an account on Facebook, but I don’t really know what to do with it. (All the cool kids use it, so I figured what the heck.) Anyway, for those of you serious Facebook users, we’ve created a Facebook group for O&M. Besides the usual social-networking features the page has Discussion Board capabilities so you can raise and discuss issues of interest without waiting for an appropriate post to appear here on the blog. Enjoy!

### . . . And If You Can’t Teach, Teach Gym

| Peter Klein |

You know the old adage: If you can, do; if you can’t, teach. Is it true for business?

A paper in the August 2007 Academy of Management Perspectives, “Do Business School Professors Make Good Executive Managers?” by Bin Jiang and Patrick Murphy (full text; abstract; press release), identifies 217 firms with former business-school professors in management positions and finds that these firms have higher revenues-per-employee than a control group matched by industry, location, and firm size. Faculty making early exits from their academic careers appear to be the most valuable, while neither academic area nor business-school ranking seem to matter. Conclusion:

Executive managers learn from past experiences when they draw the right lessons from those experiences. But experience alone is not enough. Given the rigorous training professors receive in order to design research that objectively parses error and data, one final supposition is that they may be particularly competent at delineating patterns in complex management and organizational experiences. They may also be especially capable of continually developing innovative questions that lead to information useful for executive decision-making amidst uncertainty.

I enjoyed reading the paper. Certainly I like to think that I’d command a high salary if I chose to give up my cushy professor lifestyle for the real world. However, I don’t find the empirical analysis convincing. Here’s why: (more…)

### Insert Your Own Punch Line Here

| Peter Klein |

Brian McCann describes recent experimental work on the ultimatum game:

Unlike humans, who have a tendency to make generous offers when they are the first player and to reject non-generous offers when they are the second players, chimpanzees exhibit the type of rational, profit-maximizing behavior economists would expect.

### J-PAL Update

| Peter Klein |

We reported earlier on MIT’s Poverty Action Lab (J-PAL), a research and policy center that advocates using randomized controlled trials instead of traditional econometric methods to evaluate the effects of various programs. J-PAL is featured in this week’s issue of Nature, an unusual recognition for social-science research. (HT: 3quarks)

### Why the Resistance to Prices?

| Peter Klein |

When the quantity demanded exceeds the quantity supplied — causing shortages, delays, congestion, misallocation — the solution is to raise the price. Every freshman economics student knows this. Why, then, are regulators, industry groups, and consumer representatives so often opposed to rationing by the price mechanism? Is it simply Bryan Caplan’s anti-market bias? Is it interest-group politics? Or is there something specific people don’t like, or don’t understand, about prices?

Two examples: (1) Airline landing slots. I worked on this problem with Dorothy Robyn back at the CEA in 2000. The US FAA prices airport landing slots, and access to the air traffic control system, on a per-passenger basis, regardless of time of day, season, overall stress on the system, and so on. In other words, the price charged has no relation to the marginal cost of provision. The obvious solution is some kind of congestion pricing mechanism. But the major players are generally opposed. Mike Giberson provides details on the latest attempt to use prices to reduce air-travel delays. Time-of-day pricing? “We are unalterably, adamantly opposed to it,” says the head of the Air Transport Association, the airlines’ lobby group. (more…)

### Reflections on the McQuinn Entrepreneurship Conference

| Peter Klein |

Last week’s McQuinn Center conference on entrepreneurship in Kansas City was a great success, with some 75 participants from places like Nepal, Norway, the UK, and Peru as well as the US and Canada. Keynoters Cornelia Flora, Pierre DesrochersSandy Kemper, and Randy Westgren challenged and inspired the group and the papers and discussions highlighted a variety of innovative entrepreneurship research topics, theories, and methods. Papers and presentations are now available on the conference website.

I had the pleasure of offering introductory and closing remarks, and I’ll share here some reflections about the state of the field and suggestions for moving forward. (more…)

### Tribute to Bob Higgs

| Peter Klein |

It was a great pleasure watching Robert Higgs accept the 2007 Schlarbaum Award for Lifetime Defense of Liberty at the Mises Institutes’s 25th Anniversary Celebration in New York. Bob is an outstanding scholar whose 1987 book, Crisis and Leviathan, should be required reading for Naomi Klein. He is a fierce defender of political and economic freedom, private property, and the rule of law. Bob also edits the Independent Review, a terrific interdisciplinary journal that values clear exposition as well as academic rigor (a rare combination, these days).

Earlier this year a group of Bob’s friends, colleagues, and former students produced a Festschrift volume, Government and the American Economy: A New History, in his honor. Contributors include Price Fishback (the editor), Gary Libecap, Stanley Engerman, Robert McGuire, Richard Sylla, John Wallis, Jeff Hummel, Robert Margo, Mark Guglielmo, Werner Troesken, Sumner La Croix, Randal Rucker, E. C. Pasour, Jr., Lee Alston, and Joseph Ferrie. The result is “a series of stimulating cameos by a distinguished assemblage of economic historians,” writes reviewer Gavin Wright (himself a distinguished economic historian). Check it out!

### Celebrating the Index Card

| Peter Klein |

Old-timers like me learned to write research papers by taking notes on index cards, spreading them out on a table, and placing them in a coherent sequence. Nowadays people just open up Word (or, for geekier types, $\LaTeX$) and start typing. Of course, ex ante preparation and ex post revision are substitutes and, as the cost of the latter has fallen, investment in the former has dropped sharply. The net effect on quality — well, let’s just say the jury is out.

One of my favorite tech blogs, Web Worker Daily, which features retro-analog stuff like the Hipster PDA, offers this list of things you can do with an index card. I’ve tried many of these (not #7 and #13) and have found them quite effective.

I guess you could use something like ndxCards, but would it be as much fun?

### Contract Design Capabilities

| Nicolai Foss |

In his thoughtful appraisal of Milgrom and Roberts (1992), Brian Loasby pointed out that the ability to transact and exchange is itself a capability, that firms may differ in terms of such capabilities, but that organizational economics routinely assume that firms have perfect transacting capabilities. This insight has been curiously neglected in the lenghty debate on the relations between transaction costs and capabilities. Former O&M guest blogger Dick Langlois is one of the few scholars who have embraced the insight, mainly from the capabilities side of the debate and casting it in terms of his notion of “dynamic transaction costs.”

A recent line of research initiated by Nick Argyres and Kyle Mayer addresses the issue more from the organizational economics, mainly TCE, side. Thus, Nick and Kyle’s excellent 2004 Organization Science paper, “Learning to Contract,” makes the empirically grounded point that changes in the structure of the contracts that govern a relationship may (for complex contracts in uncertain environments) reflect joint learning rather than the risks of specific assets.  (more…)

### Nobel Nugget of the Day

| Peter Klein |

Mike Giberson: “In some respects the Nobel is just a beauty contest for academic economists without a swimsuit competition (thank the gods!).”

We do have trading cards and t-shirts, however.

### Economists and Sociologists: Can’t We All Just Get Along?

| Peter Klein |

I haven’t blogged much on the Comparative Organizations conference hosted by Dave Whetten, Teppo Felin, and Brayden King. It was a terrific conference and I enjoyed myself very much but, as the lone economist in a group dominated by sociologists, I found the experience a little disorienting. Teppo, Brayden, and Gordon Smith — another non-sociologist participant-observer — have posted their reflections and, when Teppo sent this picture of Gordon and me (riding the chairlift at Sundance and no doubt engaged in deep, philosophical conversation), I remembered that I wanted to write something. So here goes.

1. Organizational economists and organizational sociologists are generally interested in the same phenomena. What are the characteristics and performance attributes of various forms of organization? How do social and market conditions, formal institutions, government policy, culture, and the like affect organizations? How do organizations change through time?

2. We differ profoundly, however, in how we try to answer these questions. (more…)

### Podcasts with the Big Boys

| Peter Klein |

O&M tells you all you need to know about mechanism design. For outside opinions, however, listen to these Bloomberg on the Economy podcasts with Paul Samuelson, Kenneth Arrow, Amartya Sen, and Thomas Schelling, commenting on the implications of mechanism design and game and information theory more generally. Supposedly they know something about this stuff.

### A Truly Noble Nobel — Should Gore Really Have Gotten This Prize?

| David Hoopes |

So, my last use of the word noble was a typo, but I left it in case someone might think I’m clever.

Am I the only one who finds Vice President Gore’s prize to be a trifle disturbing?

Former guest blogger extrodinaire Steve Postrel’s post “Taxes al Carbon” raised a number of issues regarding common assumptions on the extent and causes of global warming.

Many people seem to concede (including Gore) that his movie is often incorrect. However, this is rationalized because the issue merits more attention than it gets.

Does anyone else wish the peace prize had more to do with peace?

### More on the Noble Prize (or the Economics Prize in Memory of Nobel)

| David Hoopes |

Since the O&Mers have been so quiet about the N prize I guess I’ll ramble a bit. In a comment on one of Peter’s posts I mentioned Demsetz and Alchian. For some reason I had it in my head that A.A. had already won. That’s what I get for staying at UCLA for so long (Alchian had just quit teaching when I got there).

I don’t know why I thought Alchian had won it. “Production, Information costs and Economic Organization” (with Harold Demsetz), American Economic Review 62 (1972): 777-95 is a pretty amazing paper. And “Vertical Integration, Appropriable Rents, and the Competitive Contracting Process” (with Robert Crawford and Bejamin Klein), Journal of Law and Economics (1978) has been very influential. Though I think people think of Ben Klein for that paper. As noted above, Alchian is very well known for (and thought of because of ) “Uncertainty, Evolution and Economic Theory,” Journal of Political Economy 58 (1950): 211-21.

Having said all that, I think srp is correct in that Alchian’s best chance is going in with Nelson and Winter for evolutionary economics or Demsetz and Williamson or Oliver Hart for theory of the firm. It’s hard to imagine that evolutionary economics is that appreciated. I think Sid Winter is grossly underrated. His body of work in economics and strategy is pretty amazing.

As readers of my posts might guess, I am a pretty big fan of Demsetz. I don’t know that Harold is as productive or quantitative as most award givers might like. Stilger and Coase were pretty big fans. But, Hart and Williamson seem more likely award winners.

Over at orgtheory.net they’ve been discussing sociologists and management people who (in some alternate universe) might win. There are not too many Herb Simons out there.

### Berkeley Online Classes

| Peter Klein |

UC-Berkeley is offering several Fall 2007 classes in free, online versions. Here are some that may interest O&M readers:

### Shameless Self-Promotion

| Nicolai Foss |

The European Management Review has started a series of portraits of innovative research environments in management in Europe. The first such environment to be portrayed was the Institute of International Business at the Stockholm School of Economics and Business Administration (here). The Winter 2007 issue will feature a narrative that focuses on the Center of Strategic Management and Globalization which I am heading here at Copenhagen Business School. You can read the paper, “Knowledge Governance in a Dynamic Global Context: the Center for Strategic Management and Globalization at the Copenhagen Business School” here. Oh, did I mention that I wrote the paper myself?

## Authors

Nicolai J. Foss | home | posts
Peter G. Klein | home | posts
Richard Langlois | home | posts
Lasse B. Lien | home | posts

## Guests

Former Guests | posts

## Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).