Archive for November, 2010
| Peter Klein |
In my graduate class this morning we were discussing the diversity of theories and approaches in strategic management research when a useful illustration came to mind. I recently registered as a reviewer for the upcoming SMS conference and, as requested, indicated my areas of interest and expertise. The lists for “Theory” and “Method,” reproduced below, are instructive. I mean, can you imagine such lengthy lists for the AEA meeting or a conference in accounting or finance? (OK, perhaps still too short for some. . . .)
| Peter Klein |
Following the Keynesian Consensus of the 1950s and 1960s Monetarism emerged as an alternative. By the late 1970s, there were Keynesians and Rational Expectations macroeconomists. When I took graduate macro in the late 1980s, I was told there were two schools of thought: New Keynesian and New Classical. (Elwood: “What kind of music do you usually have here?” Claire: “Oh, we got both kinds. We got country and western.”)
Old-style Keynesianism made a roaring comeback in the last two years. But cracks are starting to appear in the consensus edifice. An increasing number of commentators in the popular press are voicing disappointment with the results of deficit spending and money creation (aka “quantitative easing”), the classic Keynesian policy instruments. What are they turning to instead? Not Monetarism or New Classicism, which don’t seem like viable alternatives. Surprisingly, the mainstream press is rediscovering the Austrians.
“We’re All Austrians Now,” declares CNBC, saying the Mises-Hayek theory “provides the best explanation for the business cycle we just lived through.” And pity the poor Fed: “the resurgent popularity of Austrian economics may actually be hampering the ability of the Federal Reserve to reflate the economy with low interest rate policies. Businesses, now aware of the dangers of a low inflation-sparked economic bubble, may simply be refusing to fall for the age-old boom-bust trap.” Sunday’s Newsweek noted “The Triumphant Return of Hayek,” citing “a growing backlash against the Fed’s monetary activism” and adding that Bernanke’s policy “suffers from the same fundamental flaw as Keynesianism, in that it protects inefficient players instead of injecting renewed vigor into the economy.” (Bonus quotation, via Larry White: “Keynesian theory . . . advocates a policy opposed to the interest of large investors and entrepreneurs and then, when this policy is about to be realized, holds the high liquidity preference of investors and the timidity of entrepreneurs responsible for the necessity further to increase taxation and public works.” — Otto von Mering, 1944) Even the staid Economist thinks the Austrian theory deserves more attention from policymakers.
Is there a shift in public attitude toward government management of the economy? Is the opinion-molding class changing its tune? Or are these reports anomalies? If public opinion and opinion among elites is changing, what explains the change? New evidence? Change in ideology? Self-interest?
| Peter Klein |
It’s the weekend after Thanksgiving, so naturally I’m thinking about residuals — not leftover turkey and cranberry sauce, but entrepreneurial characteristics and behaviors as residuals, as latent variables that leave traces in outcomes that we can’t otherwise explain. I’ve argued before that common measures of entrepreneurship such as startups, self-employment, patents, venture funding, etc., while related to entrepreneurship, are epiphenomena, manifestations of an underlying, unobservable attribute or behavior such as judgment, alertness, innovation, or adaptation. (These are difficult, if not impossible, to measure directly; asking survey respondents, for instance, “How many opportunities did you identify this month?” is not quite the same thing as measuring Kirznerian alertness!) In a recent musing on strategic entrepreneurship I suggested that
many of the entrepreneurial capabilities we’re really interested in are latent, and best captured as residuals — e.g., something heritable and not explainable by other observables. . . . Mike Wright talked [at the CBS strategic entrepreneurship conference] about mobility, both across firms or projects (habitual entrepreneurs, spin-outs) and across countries (immigrant and returnee entrepreneurs, transnational entrepreneurs). From the perspective of research design, some of these movements may be useful for isolating the “entrepreneurial” essence, such as it is.
Seth Carnahan, Rajshree Agarwal, and Ben Campell have an interesting new paper, “The Effect of Firm Compensation Structures on the Mobility and Entrepreneurship of Extreme Performers,” that takes this kind of approach, measuring entrepreneurial ability as the residual in a wage regression. Most of the variation in wages can be explained by age, experience, race, gender, education, and other observables; what remains is partly measurement error, but can also include a latent ability parameter. Seth, Rajshree, and Ben use this parameter, along with the wage structure of an employee’s existing firm, to explain which employees tend to leave to join new firms, particularly startups. Check it out!
| Nicolai Foss |
It seems to be rather generally accepted that the Gold Standard of empirically-based science is the randomized experiment. Mosts economists and management scholars subscribe to this view, although its critics include notables like James Heckman (here). Arguably, the greatest badge of honor that one can aspire to nowadays as an economist (let’s forget about management scholars here ;-)) is to publish an experimentally-based paper in Nature or Science. However, one thing is the method of randomized experiments per se; quite another thing is the actual design of such experiments in social science and psychology.
In a recent paper, “The Weirdest People in the World,” Joseph Henrich, Steven Heine, and Ara Norenzayan point out that most designs involve samples drawn entirely from Western, Educated, Industrialized, Rich, and Democratic (WEIRD) societies, in practice often first-year students.
Of course, any serious experimental paper should be forthcoming about potential problems of external and ecological validity. The problem is certainly not neglected; in fact, some journals ban papers based on experiments involving students. However, the point of the Henrich et al. paper is to document how massive the problem really is in terms of the extremely widespread use of samples drawn from a total outlier population, namely WEIRD people and the sweeping conclusions drawn from experiments using WEIRD subjects. To establish this they compare to non-WEIRD samples. They end their paper by discussing what may be done in terms of practical research heuristics and research policy with respect to dealing with generalizability.
| Scott Masten |
I had my first personal encounter with America’s new health care legislation last week. The University of Michigan’s current (i.e, pre-Obamacare) faculty-and-staff health care benefits provide health care coverage for faculty children up to age 25. As a result, my daughter, who turns 24 this next month, was eligible for an additional year of coverage under my benefits. Last week, the UM Benefits Office sent employees an email announcing the Patient Protection and Affordable Care Act’s much-touted requirement that health care policies hereafter provide coverage of dependents up to age 26. The announcement added, “The health care reform law removes all previous and current eligibility requirements for coverage.” But then a little further down was the following: “In order to be eligible for coverage under your benefits, a dependent child must … not [be] eligible for health benefits through his or her own employer.” So my daughter, who was eligible to remain on my UM plan for another year before Obamacare, becomes ineligible January 1 because she works for a small company that offers a health plan. It’s not the end of the world, of course. My daughter (who lives at home) will be a bit poorer because she will have to pay for her own health care a year sooner than expected, and the coverage probably won’t be as comprehensive as the UM plan is. If that were the only issue, I wouldn’t have bothered with this post. (more…)
| Scott Masten |
I haven’t had a chance to read the article that Nicolai linked to below yet, but it reminded me of a not-unrelated article in last month’s American Psychologist, “The Graying of Academia: Will It Reduce Scientific Productivity?” Here’s the abstract:
The belief that science is a young person’s game and that only young scientists can be productive and publish high-quality research is still widely shared by university administrators and members of the scientific community. Since the average age of university faculties is increasing not only in the United States but also in Europe, the question arises as to whether this belief is correct. If it were valid, the abolition of compulsory retirement in the United States and some parts of Canada would lower the productivity of these university systems. To address this question, this article reviews research on the association of age and scientific productivity conducted during the last four decades in North America and Europe. Whereas early research typically showed a decline in productivity after the ages of 40 to 45 years, this decline has been absent in more recent studies. Explanations for this change are discussed.
| Nicolai Foss |
That’s the overall conclusion of a nice recent study, “Career Incentives and ‘Publish and Perish’ in German and US Universities,” by Uschi Backes-Gellner and Axel Schlinghof. Their theoretical basis is fairly standard personnel economics, but empirically they do something attractive, namely they compae intra-individual productivity differences and monetary incentives over a single researcher’s career. This means that they can avoid the biases introduced by inter-individual ability differences that plague cross-sectional comparisons of research productivity and incentives.
Briefly, Backes-Gellner and Schlinghof hypothesize that increases in research output will obtain prior to tenure in the US system as well as prior to lifetime employment in Germany (and a decline after tenure/lifetime employment). They expect productivity to rise more prior to promotion to full professor in the US than prior to equivalent career changes in Germany (because the wage structure is more compressed in German academia). Finally, for the US (but not for Germany), they expect research productivity to increase in the period before promotion to full professor, but decline afterwards. To test the hypotheses, the authors build a dataset from online CVs of US and German researchers. All hypotheses are borne out in the data.