Archive for July, 2008

Call For an Annual Adam Smith Festival

| Peter Klein |

In 1990 I was privileged to attend a conference on “Adam Smith and his Legacy” commemorating the 200th anniversary of Smith’s death. The speakers included eight of the twenty Economics Nobel Laureates then living along with Smith scholars such as Andrew Skinner, general editor of the 1976 Glasgow edition of Smith’s Works and Correspondence. The papers were published in this book; you can read my conference report here. Listening to and visiting with the Laureates was fun, though I didn’t learn much about Adam Smith at the conference (most economists — Nobel Laureates included — know and care little about the history of economic thought). There was also an event at Smith’s grave in Canongate Kirk. (Somewhere I have a picture of myself at the site of Smith’s birthplace in Kirkcaldy; it’s basically me standing next to this).

From Gavin Kennedy I learn that Eamonn Butler has called for an annual Adam Smith Festival, to be held each summer in Edinburgh. The city already holds an internationally recognized and highly successful arts festival so it knows how to do this sort of thing. Butler proposes several activities that could be part of a Smith festival then adds, wryly:

[O]ther people will have their own ideas. After all, it would not do for an Adam Smith Festival to be too rigidly planned. How much more appropriate it would be if different people’s initiatives came together — as if led, indeed, by an invisible hand.

31 July 2008 at 9:47 am 1 comment

Research and Teaching: Friends or Foes?

| Peter Klein |

Administrators at every research university know the mantra, repeated endlessly to parents, funders, and overseers: cutting-edge research and top-notch (undergraduate) teaching go hand-in-hand. But there is surprisingly little work, theoretical or empirical, investigating the relationship. Here is an edited transcript of a discussion between economists Jim Gwartney (Florida State), Dirk Mateer (Penn State), Rich Vedder (Ohio U), and Russ Sobel (West Virginia) about the relationship between research and teaching. They were asked (1) is research needed for good teaching, and (2) can research activity harm teaching?

Higher education has two key missions: transferring existing knowledge to students, and discovering new knowledge. While the two functions are not mutually exclusive, there is a growing awareness that trade-offs exist between them. Does an emphasis on research detract from undergraduate education? Are too much time and money spent on research rather than teaching? Is career advancement (such as tenure) too dependent on research, a la “publish or perish?”

We asked four noted university-based economists to discuss those issues. . . .

Hat tip to Vedder, whose higher ed blog is on my regular reading list.

30 July 2008 at 11:19 am 4 comments

Neuroeconomics and the Firm

| Peter Klein |

I’m not a big fan of neuroeconomics — Gul and Pesendorfer’s critique seems about right to me — but if you like that field you may be interested in this call for book chapters:

Neuroeconomics and the Firm

Editors:
Mellani Day
Angela Stanton
Isabell Welpe

How can we take advantage of neuroeconomics to inform organizations? Neuroscience can provide us with ways to understand causal relationships; it enables us to identify the biological drivers of beliefs, opportunity perception, opportunity analysis, risk-aversion or risk-seeking, motivation, incentives and reward mechanisms; in other words, we can map the pre-decisional dynamics of the human brain. Neuroeconomics has yielded important new insights and may provide powerful new ways of looking at the firm. (more…)

29 July 2008 at 10:29 am Leave a comment

São Paulo Workshop on Institutions and Organizations

| Peter Klein |

See below for information on the Third Research Workshop on Institutions and Organizations, 13-14 October 2008 at Fundação Getúlio Vargas in Brazil. Session topics include “Organizations, law and corruption,” “Institutions and development,” “Institutions and environment,” “Psychological issues and organization strategies,” and “Industrial and competition policy.”

I participated in last year’s conference and enjoyed it tremendously. There is a growing network of Brazilian researchers working on various topics in the New Institutional Economics. It is a good group to be involved with. (more…)

28 July 2008 at 10:47 am 1 comment

Moral Hazard, For Real

| Peter Klein |

I suppose I posted a whimsical item about moral hazard because I was too angry to write anything about the Financial Irresponsiblity Bailout and Reward Act of 2008, the moral-hazard story of the decade. Buy more house than you can afford? Sign a mortgage contract you can’t understand? Invest in risky mortgage-backed securities that lose money? Run your financial institution into the ground? Don’t worry, the hapless US taxpayer will pick up the tab!

I have nothing but contempt in my heart for all who asked for, drafted, and voted for this odious piece of legislation. If there were any doubt that the US is, in many ways, a socialist economy, this massive socialization of financial-market risk should put such doubts to rest. Capitalism, requiescat in pace.

26 July 2008 at 10:09 pm 4 comments

New Edition of Hayek’s Early Works

| Peter Klein |

The Mises Institute has just released a new edition of Hayek’s early works on economic theory, Prices and Production and Other Works: F. A. Hayek on Money, the Business Cycle, and the Gold Standard, edited and introduced by Joe Salerno. It collects the monographs Prices and Production, Monetary Theory and the Trade Cycle, and Monetary Nationalism and International Stability, along with the important essays “The Paradox of Saving,” “Reflections on the Pure Theory of Money of Mr. J.M. Keynes,” “The Mythology of Capital,” and “Investment That Raises the Demand for Capital.” These works, written between 1929 and 1937, established Hayek’s reputation as one of the great technical economists of his day, and the leading opponent of Keynes in monetary and business-cycle theory. Ironically, Hayek is mostly known today for his popular writings, particularly The Road to Serfdom, and for his later work on knowledge, evolution, and social theory. It is often forgotten that he was first and foremost an economic theorist.

Here is a detailed Hayek bibliography (through 1982) compiled by Leonard Liggio. Here’s a biographical essay written by yours truly. Here is the home page of the Collected Works of F. A. Hayek (and a pointer to my favorite volume). And it’s never too early to begin preparations for this important holiday.

Update: By coincidence, Collected Works editor Bruce Caldwell was interviewed in today’s Carolina Journal about his new edition of The Road to Serfdom.

25 July 2008 at 2:57 pm 3 comments

Moral Hazard

| Peter Klein |

Ten-year-old child wants a mobile phone. Parent buys a basic, inexpensive model with a pay-as-you-go plan. Child loses phone.

Parent: “You see, I thought that might happen, which is why I got you a cheap phone that’s easily replaceable and not one of those fancy, expensive ones you’re always asking for.”

Child: “But if I had a fancy one, I would have been more careful not to lose it.”

25 July 2008 at 10:01 am 2 comments

The Beauty of Entrepreneurship

| Peter Klein |

Entrepreneurship is exciting, important, dynamic, unpredictable, creative, the “driving force” of the market economy, in Mises’s words. But is it beautiful? Yes, writes Evan Osborne in the new issue of the excellent Independent Review:

Commerce deserves a place next to literature, poetry, painting, music, and other conventional forms of art as an arena for human expression and a potential source of beauty. To expand the limits of human possibilities, entrepreneurs attempt to create value by rearranging scarce resources, and the methods they employ in these endeavors exhibit such dimensions of beauty as proportion, symmetry, and harmony.

The online edition of the article, “Commerce is Beautiful,” is behind a six-month moving wall but you can read the working-paper version here. It’s worth nothing that mathematics, another field not normally associated with the fine arts, also uses aesthetic terms like elegant, deep, austere, and beautiful to describe its achievements.

24 July 2008 at 9:34 am Leave a comment

This Could Have Been Worse

| Peter Klein |

From PhD Comics, via Fabio. Part of an this week’s series poking fun at the professoriate.

24 July 2008 at 9:24 am Leave a comment

Conference Announcement: The Practice and Theory of Entrepreneurship

| Peter Klein |

The University of Missouri’s McQuinn Center for Entrepreneurial Leadership announces its 2008 conference, “Entrepreneurship: Where Practice and Theory Meet,” 6-7 November in St. Louis:

A conference bringing together practitioners and researchers to discuss current research and share best practices for creating successful new ventures and vibrant economies (with a special focus on rural entrepreneurship). The conference will highlight the Appalachian Regional Commission’s 10-Year Entrepreneurship Initiative, the W.K. Kellogg Foundation’s Entrepreneurship Development Systems in Rural America Program, and recent community initiatives.

Speakers include Elaine Edgcomb (Aspen Institute), Deb Markley (Rural Policy Research Institute), and John Potter (OECD). The conference is sponsored by the McQuinn Center, ExCEED / University of Missouri Extension, the Rural Policy Research Institute, and the Federal Reserve Banks of St. Louis and Kansas City. Further details including registration information, accomodations, etc. are available at the McQuinn Center website. Contact Ken Schneeberger for more information.

23 July 2008 at 8:10 pm Leave a comment

Our Own Buzz, Continued

| Peter Klein |

Lasse’s post reminded me of the classic “What the Professor Really Means.” Students, take note. Graduate students, study this carefully for its pedagogical wisdom.

23 July 2008 at 10:01 am Leave a comment

NIE Guidebook

| Peter Klein |

The long-awaited New Institutional Economics: A Guidebook is due out this September from Cambridge University Press. Editors Eric Brousseau and Jean-Michel Glachant assembled an all-star team including Oliver Williamson, Paul Joskow, John Nye, Gary Libecap, Lee Alston, Pablo Spiller, Benito Arruñada, Stéphane Saussier, Jackson Nickerson, Brian Silverman, Joanne Oxley, Mike Sykuta, Mike Cook, and many others — even Foss and Klein. You can pre-order yours today — the hardback’s a whopping $140 but the paperback’s only $59.

Here’s the official CUP page and here’s an information page put together by Eric Brousseau. It should be a valuable reference for years to come.

22 July 2008 at 4:21 pm 2 comments

The Long Tail, Serial-Killer Edition

| Peter Klein |

Visiting my Mom this past weekend I found an item in the local paper about Kelly Robinson and Dan Norder, a happy couple who met at a Jack the Ripper conference. That’s right, they’re fellow Ripperologists. They’re even hosting this year’s Ripper conference, 10-12 October in Knoxville, Tennessee. For every interest or hobby there’s a group or club, and in the new economy they’re all on the web. (I shouldn’t give Kelly and Dan too hard a time; after all, I met my wife at an Austrian economics conference.)

By the way, in case you missed it, the current issue of HBR features Anita Elberse’s critique of the Long-Tail phenomenon. Yes, she argues, the web has given us many niche markets, but almost all the money is being made at the left-hand side of the distribution. Here are Chris Anderson’s response and Elberse’s rejoinder.

22 July 2008 at 12:31 am 1 comment

Our Own Buzz

| Lasse Lien |

While we are (eagerly) awaiting the definition of beaconicity, here’s what the standard scientific jargon really means (original source unknown):

“IT HAS LONG BEEN KNOWN” — I didn’t look up the original reference.

“A DEFINITE TREND IS EVIDENT” — The data are practically meaningless.

“WHILE IT HAS NOT BEEN POSSIBLE TO PROVIDE DEFINITE ANSWERS TO THE QUESTIONS” — An unsuccessful experiment, but i still hope to get it published.

“THREE OF THE SAMPLES WERE CHOSEN FOR DETAILED STUDY” — The other results didn’t make any sense.

“TYPICAL RESULTS ARE SHOWN” — This is the prettiest graph.

“THESE RESULTS WILL BE IN A SUBSEQUENT REPORT” — I might get around to this sometime, if pushed/funded.

“THE MOST RELIABLE RESULTS ARE OBTAINED BY JONES” — He was my graduate student; his grade depended on this. (more…)

21 July 2008 at 9:39 am 5 comments

Technology and Firm Size and Organization (Redux)

| Dick Langlois |

Peter blogged a while ago about an article by Giovanni Dosi, Alfonso Gambardella, Marco Grazzi, and Luigi Orsenigo in the bepress online journal Capitalism and Society. Both this article and the accompanying discussion by Bill Lazonick take aim at my 2003 article “The Vanishing Hand.” I have now crafted a response, which I propose to submit to the journal as a letter. But readers of O&M can read it right away here.

I should also mention that the same issue of Capitalism and Society has an interesting article on the family firm by Princeton historian Harold James, with a wonderful comment by Randall Morck. I met Morck this past November at a conference in Kyoto, and was extremely impressed.

19 July 2008 at 7:43 pm 1 comment

Resort-Town Pricing

| Peter Klein |

Like other members of the O&M community in the Northern Hemisphere I’m enjoying the lazy days of summer. This week I’ve been on an extended-family vacation in Destin, Florida — heart of the “Redneck Riviera” — reading mindless fiction, drinking piña coladas, and showing off my Body by InBev. One thing that surprises me is that prices at the local grocery store, and the local Wal-Mart (sorry, Walmart >|<), are no higher than the prices back home, even though the price elasticity of demand is surely lower. Why don’t resort-town stores price like stores in airports or at ski resorts? Demand isn’t quite that inelastic, but presumably less elastic than demand in year-round communities. Likewise, one would expect Walmart prices to be significantly lower in retirement communities or other areas populated by price-sensitive shoppers.

I asked my colleague Emek Basker, a Walmart expert, and she says that while there’s plenty of anecdotal evidence of variation in price (and product selection) across Walmart stores, she doesn’t know any empirical studies explaining these differences systematically in terms of price elasticities, income, labor costs, etc. Anybody know of such studies?

18 July 2008 at 10:38 am 4 comments

File Sharing Controversy: The Chronicle Weighs In

| Peter Klein |

The Chronicle of Higher Education provides a useful summary of the OS-Liebowitz debate on file sharing we’ve been following for a while (thanks to David Glenn for the tip). I like this description of the original piece by Oberholzer-Gee and Strumpf:

The paper seemed like a model piece of empirical social science for the Freakonomics era. Unusual data source analyzed with “instrumental variables”? Check. Counterintuitive conclusion? Check. Implications for hot-button policy debate? Check. The scholars filed an amicus brief in defense of file-sharing companies in the U.S. Supreme Court’s Metro-Goldwyn-Mayer Studios Inc. v. Grokster case in 2005. When a revised version of their working paper appeared in the February 2007 issue of the Journal of Political Economy, it was the lead article.

And people think editorial decisions are made on purely scientific grounds. . . . Anyway, the article includes valuable background information and some interesting details. Strumpf suggests that Liebowitz is pressing the issue so zealously because Liebowitz’s center at UT-Dallas receives funding from the RIAA and “other commercial interests,” a charge I find shockingly inappropriate and unprofessional. (Anyone who knows Liebowitz can attest to his zeal on a number of unpopular issues, such as his defense of QWERTY and his attack on the Boston Fed study of mortgage discrimination.)

I don’t know the primary sources well but one gets the definite impression that Oberholzer-Gee and Strumpf are being less-than-fully candid about their work. Their defenses against various critics (not only Liebowitz) seem weak and unconvincing. Overall, this episode reminds me of the Card-Kreuger controversy over the minimum wage: an empirical paper finds the opposite of what everyone expects and makes a big splash, but the authors don’t have a solid explanation for their findings, there are questions about the data and methods, and specialists aren’t convinced by the results. My conjecture is that in this case, like the minimum-wage episode, the spashy result will not stand the test of time.

17 July 2008 at 2:57 pm 4 comments

Opportunities and Entrepreneurship Research: A Critique

| Peter Klein |

The notion of economic “opportunities,” and their discovery or creation, is one of the core concepts of contemporary entrepreneurship research. But the use of opportunities as the unit of analysis poses several problems. The opportunity-discovery or opportunity-recognition perspective tends to treat economic opportunities as objective phenomena, while, under Knightian uncertainty, profit opportunities are always subjective, existing only in the imagination of economic actors. In an alternative view that Nicolai and I have elaborated in several papers, entrepreneurship is best understood not as perception, but as action, the investment of resources under uncertainty in anticipation of uncertain rewards.

In a new paper, “Opportunity Discovery, Entrepreneurial Action, and Economic Organization,” I critique the opportunity-discovery perspective in more detail. In particular, I argue that the literature has misunderstood Israel Kirzner’s concept of “discovery,” the theoretical basis of much of the research on opportunity discovery. Kirzner’s explanandum is not entrepreneurship per se, but equilibration. He invokes the entrepreneur, and his “alertness” to exogenously determined profit opportunities, as a metaphor, to explain the tendency of markets to clear. It is not meant as a positive account of the entrepreneurial function, but rather an instrumental explanation of the market process. Hence a research program based on operationalizing “opportunities,” exploring thow they can be “discovered without search,” and so on, is unlikely to bear fruit.

The paper is forthcoming in the Strategic Entrepreneurship Journal. Comments welcome. Abstract below the fold. (more…)

16 July 2008 at 11:00 am 2 comments

Pirrong on Speculation

| Peter Klein |

Following up Dick’s post on speculation, Craig Pirrong had a nice piece in Friday’s WSJ providng more details on oil markets. Notes Craig:

The unprecedented run-up in oil prices is painful for consumers around the world. But the focus on speculation is misguided, and represents a convenient distraction from an understanding of the real, underlying causes of high oil prices — most notably continuing demand growth in the face of stagnant production, supply disruptions and the weakening dollar.

More restrictions and regulations of energy markets, in the vain belief that such actions will bring price relief, are counterproductive. They will make the energy markets less efficient, rather than more so.

The pointer is from Mike Giberson, who provides more information and links to Craig’s (brilliantly named) blog, Streetwise Professor. Craig testified Friday on oil-market speculation before the US House Agriculture Committee; you can read his remarks here. And for a classic paen to speculation more generally, see Victor Niederhoffer’s classic “The Speculator as Hero.”

Note to graduate students: If you haven’t read Craig’s classic papers on bulk shipping, introducing the concept of “temporal specificity,” your education is incomplete. Check ‘em out:

Pirrong, Stephen C. 1992. “An Application of Core Theory to the Study of Ocean Shipping Markets.” Journal of Law and Economics 35: 89–131.

Pirrong, Stephen C. 1993. “Contracting Practices in Bulk Shipping Markets: A Transactions Cost Explanation.” Journal of Law and Economics 36: 937–76.

15 July 2008 at 9:32 am 1 comment

Technology and Firm Size and Organization

| Peter Klein |

As a New Economy skeptic (1, 2, 3, 4) I worry about sweeping claims that information technology has rendered obsolete the large, vertically integrated, publicly held corporation and its managerial hierarchy. Such claims suffer from two problems: First, they tend to be thinly documented — evidence on the economy-wide distribution of organizational forms is largely fragmentary and anecdotal. Second, they usually exaggerate what’s new about those changes that we can document. As I wrote in my review of Yochai Benkler’s The Wealth of Networks:

Benkler proposes social production as an alternative to the traditional organizational modes of “market” and “hierarchy,” to use Oliver Williamson’s terminology. Indeed, open-source production differs in important ways from spot-market interaction and production within the private firm. But here, as elsewhere, Benkler tends to overstate the novelty of social production. Firms, for example, have long employed internal markets, delegated decision rights throughout the organization, formed themselves into networks, clusters, and alliances, and otherwise taken advantage of openness and collaboration. There exists a variety of organizational forms that proliferate within the matrix of private property rights. Peer production is not new; the relevant question concerns the magnitude of the changes.

Here, the book suffers from a problem common to others in this genre. Benkler provides a wealth of anecdotes to illustrate the revolutionary nature of the new economy but little information on magnitudes. How new? How large? How much? Cooperative, social production itself is hardly novel, as any reader of “I, Pencil,” can attest. Before the web page, there was the pamphlet; before the Internet, the telegraph; before the Yahoo directory, the phone book; before the personal computer, electric service, the refrigerator, the washing machine, the telephone, and the VCR. In short, such breathlessly touted phenomena as network effects, the rapid diffusion of technological innovation, and highly valued intangible assets are not really really new. (Tom Standage’s history of the telegraph and its own revolutionary impact, The Victorian Internet [New York: Walker & Company, 1998], is well worth reading in this regard.)

A new paper by Giovanni Dosi, Alfonso Gambardella, Marco Grazzi, and Luigi Orsenigo, “Technological Revolutions and the Evolution of Industrial Structures: Assessing the Impact of New Technologies upon the Size and Boundaries of Firms,” looks at the empirical evidence more systematically and concludes that the effect of information technology on firm size and organization is real, but modest: (more…)

14 July 2008 at 8:47 am 2 comments

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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).

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