Archive for July, 2012

Hierarchy, French Style

| Peter Klein |

The French love hierarchy, right? Well, yes, but all hierarchies are not alike. Here’s a comoprehensive study of French manufacturing firms:

The Anatomy of French Production Hierarchies
Lorenzo Caliendo, Ferdinando Monte, Esteban Rossi-Hansberg
NBER Working Paper No. 18259, July 2012

We use a comprehensive dataset of French manufacturing firms to study their internal organization. We first divide the employees of each firm into `layers’ using occupational categories. Layers are hierarchical in that the typical worker in a higher layer earns more, and the typical firm occupies less of them. In addition, the probability of adding (dropping) a layer is very positively (negatively) correlated with value added. We then explore the changes in the wages and number of employees that accompany expansions in layers, output, or markets (by becoming exporters). The empirical results indicate that reorganization, through changes in layers, is key to understand how firms expand and contract. For example, we find that firms that expand substantially add layers and pay lower average wages in all pre-existing layers. In contrast, firms that expand little and do not reorganize pay higher average wages in all pre-existing layers.

30 July 2012 at 7:44 am 1 comment

Conference Honoring Larry Ribstein

| Peter Klein |

I only met  Larry Ribstein a few times but was deeply impressed with his erudition and insight. He is best known for his work on unincorporated businesses but was an expert in a number of areas of business law (as well as music and cinema).

This November the GMU Law School is hosting a conference in his honor, “Unlocking the Law: Building on the Work of Professor Larry Ribstein.” Speakers include Henry Manne, Richard Epstein, Gillian Hatfield, Todd Henderson, Cliff Whinston, and many others. Hit the link above for the details.

27 July 2012 at 2:14 pm Leave a comment

Macroeconomics QOTD

| Peter Klein |

Courtesy of David Stockman (via Dennis):

[T]he clamoring and clattering that you hear from the Keynesians . . . that austerity is bad forgets the fact that austerity isn’t an elective course. Austerity is something that happens to you when you’re broke.

21 July 2012 at 12:29 pm 1 comment

Obama on Small Business

| Peter Klein |

President Obama’s gaffe about business creation — “If you’ve got a business, you didn’t build that. Somebody else made that happen” — has been met with the usual reactions. Defenders claim he simply used infelicitous language to describe the vital role of government in providing essential goods, while critics point out, for instance, that he didn’t even get it right on the Golden Gate Bridge (which received no federal money). I actually feel sorry for the guy. It was an pretty dumb thing to say, politically, and may end up hurting him more than Romney’s role in “exporting American jobs” (gag) hurts the challenger.

The idea that no one builds a business on his own, without help from other people, is in once sense trivially true, as Leonard Read never tired of explaining. No one person knows how to make a pencil, let alone a microprocessor. As a defense of government spending on infrastructure (not only roads and bridges, but things like the internet), it falls completely flat. Of course some entrepreneurs profit from government spending on infrastructure — not just directly (e.g., road contractors, engineering companies hired by ARPA, etc.) but indirectly (from lower transportation or transmission cost, net of tax payments). But such anecdotes do not at all “justify” the expenditures. As I once wrote about the internet:

[E]nthusiasts tend to forget the fallacy of the broken window. We see the internet. We see its uses. We see the benefits it brings. We surf the web and check our email and download our music. But we will never see the technologies that weren’t developed because the resources that would have been used to develop them were confiscated by the Defense Department and given to Stanford engineers. Likewise, I may admire the majesty and grandeur of an Egyptian pyramid, a TVA dam, or a Saturn V rocket, but it doesn’t follow that I think they should have been created, let alone at taxpayer expense.

A gross benefit to particular entrepreneurs from a government program does not, by itself, demonstrate net benefits to the taxpaying community. Vague references to spillovers and multipliers may sound good in a press conference, but are no substitute for serious analysis.

18 July 2012 at 9:57 am 5 comments

Summer Readings

| Nicolai Foss |

OK, my eleven weeks, Euro-style, full-tax-payer-paid, summer vacation starts today. In the time-honored tradition of narcissistic academic bloggers, here is what I plan to (hope to) read while frolicking on the beaches of the Riviera and relaxing in those small Spanish villages:

  • Jonathan Haidt: The Righteous Mind.  This will be a re-read. I read Haidt’s book 2 months ago and loved most of it, although I thought it was rather weak towards to the end. The whole argument is basically founded on the notion of group selection, and while group selection has made a huge comeback in terms of scientific respectability, perhaps Haidt is overdoing it?
  • Mark Pagel: Wired for Culture.  Interest in group selection is also why I will read Pagel’s book, which seems to be all about human group selection, written by a leading British expert on human evolution. A reason why I take an interest in group selection stems from my interest in Hayek’s work on cultural evolution which is basically a group selection story — and which has been strongly criticized for exactly this reason.
  • Ezequiel Morsella, John A Bargh and Peter M. Gollwitzer: Oxford Handbook on Human Action.  No, this is not a commentary on Mises, but a collection of essays that” … brings together the current thinking of eminent researchers in the domains of motor control, behavioral and cognitive neuroscience, psycholinguistics, biology, as well as cognitive, developmental, social, and motivational psychology. It represents a determined multidisciplinary effort, spanning across various areas of science as well as national boundaries.”   Great and accessible reading for anyone with an interest in human action and behavior that goes beyond simplistic economics treatments.
  • Steven Pinker: The Better Angels of Our Nature: Why Violence Has Declined.  Pinker is always worth a read!

13 July 2012 at 11:45 am 3 comments

Hardware Matters

| Peter Klein |

Joe Salerno’s post at Circle Bastiat, “There’s No Such Thing as a Free Cloud,” could have been an entry in our nothing new under the sun series. Joe highlights a recent HBR blog piece on the physical footprint and energy requirements of server farms, showing that success in the digital age depends, for some players, on access to tangible capital assets and energy. There are important implications:

The notion of a world without scarcity is thus usually propagated by leftist social theorists–but not always. There were some libertarian futurists around in the early 1970s. But lately many libertarians are among the vanguard of those who, dazzled by the marvels of the Digital Age, argue that many goods have become costlessly and, therefore, infinitely producible. Without government interference, they contend, humankind will be able to satisfy more and more of their wants using the resources freely available inside the Cloud.

Our Post-Scarcity libertarians should tell this to the owners of the 500,000 data centers, which contain the hundreds of millions of servers worldwide that constitute the real and indispensable infrastructure of the Cloud.

There are also the wires, cables, switches, cell towers, and client machines (PCs, smartphones, tablets, etc., not to mention smart refrigerators, cars with OnStar, thermostats, and more) that give us access to the cloud. To be sure, Moore’s law allows us to consume this hardware as never before. But software without hardware is like, hmmmm, peanut butter without jelly, Sonny without Cher, a Tim Burton movie without Johnny Depp. Notes Joe: “Once again, common sense observation of the real world reveals the ceaseless struggle of human actors to economize on the use of resources and vindicates the old and true economics of scarcity.”

11 July 2012 at 10:45 am Leave a comment

SMS Career and Paper Development Workshop

| Peter Klein |

Join Laura Cardinal, Bill Schulze, Tomi Laamanen, Bruce Lamont, Gerry McNamara, Karen Schnatterly, and me for a  research-focused senior PhD/junior faculty and paper development workshop at the 2012 Strategic Management Society meetings in Prague.  Full details below the fold.  (more…)

9 July 2012 at 3:04 pm Leave a comment

Entrepreneurship and the Auteur Theory

| Peter Klein |

I’ve been reading Jack Mathews’ The Battle of Brazil: Terry Gilliam v. Universal Pictures in the Fight to the Final Cut, a fascinating — if absurdly one-sided — look at director Terry Gilliam’s struggle to get his 1985 film Brazil distributed in the US. Mathews tells the story as a noble crusade by a brilliant, iconoclastic, visionary filmmaker against the evil studio system, run by corporate toadies who care only about making money, even if it means destroying the artistic unity of the filmmaker’s creative vision. Gilliam had “final cut” rights for a version released in Europe, but his US distributor, Universal, demanded substantial edits, which Gilliam refused to make. Universal, led by Sid Sheinberg (who comes across heroically in documentaries about Steven Spielberg’s Jaws), was completely within its contractual rights to insist on these changes, but the result was a very different film that has been lampooned by critics. (The Sheinberg version was canned and an alternate Gilliam version eventually shown in the US after a long, ugly, public battle between Gilliam and the studio.)

It’s great reading for those interested in movies and the business of making movies. But there’s an interesting entrepreneurship angle as well. Most film critics, including author Mathews, accept the auteur theory of cinema, which sees movies as the highly personal products of a director’s creative vision. The studio approach, which treats moviemaking as a collaborative enterprise designed to make money, is anathema to the auteurs. The case is usually made with familiar anecdotes: 24-year-old Orson Welles had final control over Citizen Kane and created one of the medium’s great masterpieces, while RKO destroyed the follow-up Magnificent Ambersons (and all of Welles’s subsequent films). The studios thought Star Wars would flop, and after George Lucas made his zillions he decided to finance and produce his subsequent films on his own, without studio interference — the dream of every auteur. American art-house darlings like Robert Altman, Peter Bogdonavich, Quentin Tarantino, Jim Jarmusch, etc. are always portrayed as fighting to keep Hollywood from turning their edgy, original films into bland, corporate drivel pitched at suburban soccer moms.

As Paul Cantor and others have explained, however, the auteur theory is bunk. Moviemaking is, in fact, a collaborative venture, and many of the best films are studio pictures created by large teams — the best example being Casablanca, which was essentially written by committee. Or, as Cantor puts it: “Just three words: Francis Ford Coppola.” (The Godfather films were studio pictures; virtually everything Coppola did since, with the partial exception of Apocalypse Now, has been a disaster.) And take George Lucas: Does anybody think the problem with the prequel trilogy was too many people standing around saying, “George, you can’t do that”?

Consider the parallels with entrepreneurship. (more…)

6 July 2012 at 1:44 pm 9 comments

Handbook of Economic Organization

| Peter Klein |

Kudos to Anna Grandori for her edited volume, Handbook of Economic Organization: Integrating Economic and Organization Theory, currently making its way through the editorial process at Edward Elgar. Blurb:

The volume distinctively aims at integrating economic and organization theories for the explanation and design of economic organization. Economic organization is therefore intended both as an object of enquiry and as an emerging disciplinary field: not economics applied to organization as an object, but a forefront interdisciplinary  field attracting researches and integrating insights from  economics,  organization theory, strategy and management, economic sociology, and cognitive psychology. The authors are distinguished scholars at their productive peak in those fields, sharing an in interest in an integrated and enlarged approach to economic organization. Each chapter not only addresses foundational issues and provides a state-of-art, but also offers original contributions and identifies key issues for future research.

Table of Contents is below the fold. You”ll find many of your favorite authors. (more…)

3 July 2012 at 4:42 pm Leave a comment

Italian Social Science: Generalized Low Quality?

| Nicolai Foss |

In conversations with Italian colleagues I have often been struck by the sad cynicism, sometimes even spite, with which they talk about Italian academic institutions. There is mention of “barons,” backstabbing, secret deals and networks, “the Roman approach,” the Illuminati and whatnot (OK, perhaps not that specific secret society) that hinder fully realizing the potential of Italian social science. To be sure, the situation cannot be entirely debilitating as there is quite serious research being conducted across a number of Italian universities (and as a frequent visitor to both Bocconi and Luiss Guido Carli I can testify to this). But, there is clearly a perception of rot among Italian academics themselves .

Here is a quite controversial 2009 paper, “L Words: The Curious Preference for Low Quality and Its Norms,” by famed rational choice sociologist, Diego Gambetta and philosopher Gloria Origgi. The paper begins thusly: “We have spent our academic careers abroad, Gloria in France and Diego in Britain. Over this long period of time each of us has had over a hundred professional dealings with our compatriots in Italy – academics, publishers, journals, newspapers, public and private institutions. It is not an exaggeration to say that 95% of the times something went wrong. Not catastrophically wrong, but wrong nonetheless.” 

The reasons for “this cocktail of confusion, sloppiness and broken promises” that, allegedly, is Italian academia, can be located in a peculiar equilibrium, described as the “L world.” This is not, as one might think, a world described by the PD-game, but rather a situation in which both (all) parties agree on delivering high quality (H) and both (all) deliver low quality (L), and, as Gambetta and Origgi explain, (more…)

1 July 2012 at 8:33 am 8 comments


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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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