Search Results for ‘arruñada’
Incentives Matter, Soviet Edition
| Dick Langlois |
As economists like Benito Arruñada and Eric Hilt have shown, fishing and whaling have always used an incentive system in which crew members are paid a share of the profits of the voyage. Recall that Ishmael in Moby Dick contracted for a 300th lay, a 300th “part of the clear nett proceeds of the voyage, whatever that might eventually amount to.” This provides relatively high-powered incentives, in that it is a reward based on results, though it works only when team members can monitor each other easily and when the market for workers is competitive. (This contrasts with the reward system in, say, professional sports, where one is rewarded on the basis of one’s own performance rather than on that of the team. But that may be changing.)
I was surprised to discover that even Soviet factory ships used a similar system, as described in the Martin Cruz Smith novel Polar Star — a work of fiction but clearly well researched and probably accurate. “The Polar Star’s pay was shared on a coefficient from 2.55 shares for the captain to 0.8 share for a secondclass seaman. Then there was a polar coefficient of 1.5 for fishing in Arctic seas, a 10 percent bonus for one year’s service, a 10 percent bonus for meeting the ship’s quota, and a bonus as high as 40 percent for overfulfilling the plan. The quota was everything. It could be raised or lowered after the ship left dock, but was usually raised because the fleet manager drew his bonus from saving on seamen’s wages. Transit time to the fishing grounds was set at so many days, and the whole crew lost money when the captain ran into a storm, which was why Soviet ships sometimes went full steam ahead through fog and heavy seas.”
Presumably, however, the share was not of profit but of some fixed amount. The incentive came from the quota bonuses, which, as the novel details, were subject to political manipulation. Interesting nonetheless that the system used incentives of the broadly traditional kind, and that it explicitly rewarded workers differently for different skill level and status.
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3 comments 14 July 2010
What Does the Rule of Law Variable Measure?
| Peter Klein |
Bill Easterly poses this question, referring to his NYU colleague Kevin Davis’s work on law and development. Davis has several papers criticizing economists’ use of rule-of-law variables in development research (1, 2, 3). As summarized by Easterly:
Kevin points out that two current measures of “rule of law” used by economists in “institutions cause development” econometric research are by their own description a mixture of some characteristics of the legal system with a long list of non-legalistic factors such as “popular observance of the law,” “a very high crime rate or if the law is routinely ignored without effective sanction (for example, widespread illegal strikes),” “losses and costs of crime,” “corruption in banking,” “crime,” “theft and crime,” “crime and theft as obstacles to business,” “extent of tax evasion,” “costs of organized crime for business” and “kidnapping of foreigners.” Showing that this mishmash is correlated with achieving development tells you what exactly? Hire bodyguards for foreigners?
What if “institutions” are yet another item in the long list of panaceas offered by development economists that don’t actually help anyone develop?
Easterly opens with a clever example of a legal rule that doesn’t make sense outside an informal, non-rule context. But overall I think he’s a little unfair to the development and financial economists working in this area, many of whom are sensitive to these problems but are doing the best they can with the data available. It’s true, however, that much of the early work, particularly in the LLSV tradition, conflated de jure and de facto rules (particularly in over-emphasizing differences between common-law and civil-law countries). Benito Arruñada’s critique of the Doing Business Project is also informative in this regard.
2 comments 21 August 2009
Strategic Management Theory and the Financial Crisis
| Nicolai Foss |
We (well, in fact, mainly Peter) have blogged extensively on the current financial crisis. Guest blogger Benito Arruñada suggested that macroeconomists may learn something from forest management. In a recent paper Rajshree Agarwal, Jay Barney, Peter, and I suggest that macroeconomists may learn something from strategic management theory. The paper is forthcoming as a SO!apbox Essay in the November issue of Strategic Organization. Hopefully it will stir considerable controversy. Here is the abstract:
Macroeconomic theory assumes that factors of production in the economy are homogeneous and fungible. As a result, it is poorly suited for analyzing and developing policy responses to the recent financial crisis. Theories of strategic management and organization, with their emphasis on heterogeneous resources and capabilities, are better positioned. We provide examples of how macroeconomic theory may lead policies astray, and how theories of strategic management provide insight into the nature and causes of the financial crisis and the appropriate policy response.
Add comment 1 August 2009
Thanks to Guest Blogger Benito Arruñada
| Peter Klein |
Thanks to Benito Arruñada for a provocative and insightful series of posts over the last few weeks. We look forward to Benito’s continuing participation in the comment threads here at O&M. You can also follow the action (in English and Spanish) at Benito’s own blog.
Watch for more guest bloggers to be announced soon!
Add comment 25 July 2009
Will Macroeconomists Solve the Crisis?
| Benito Arruñada |
One may doubt it after observing that Ben Bernanke was one of those believing in the Great Moderation — the claim that macroeconomic volatility had been reduced. Macroeconomic policymaking seems to be as unsafe as firefighting: extinguishing small fires creates the conditions for hell. Shouldn’t macroeconomists learn something from forest management? (For a start: “Fire Must Be Ally in Forest Management.”) Of course, if coupled with an acid-suppressing pill, they could even dare to read Hayek’s “Pretence of Knowledge.”
1 comment 14 July 2009
Does Economics Training Hinder Managers’ Ability?
| Benito Arruñada |
In a new paper with Xosé H. Vázquez we explore the consequences of using different behavioral assumptions in training managers on their future performance. We argue that training with an emphasis on the standard assumptions used in economics (rationality and self-interest) leads future managers to rely excessively on rational and explicit safeguarding, crowding out instinctive contractual heuristics and signaling a “bad” type to potential partners. In contrast, the behavioral assumptions used in management theories, because of their diverse, implicit, and even contradictory nature, do not conflict with the innate set of cooperative tools and may provide a good training ground for such tools.
We present tentative confirmatory evidence by examining how the weight given to behavioral assumptions in the core courses of the top 100 business schools influences the average salaries of their MBA graduates. Controlling for the average quality of their students and some other school characteristics, we find that average salaries are significantly higher at those schools whose core MBA courses contain a higher proportion of management courses as opposed to courses based on economics or technical disciplines. (more…)
4 comments 8 July 2009
How Active are Governments in the Morality Business?
| Benito Arruñada |
Brad Taylor doubts in his reaction to my previous post on organizations and markets in morality that:
The moral authority of the Church was anywhere near complete in even the most ardently Catholic societies. The Church claimed a monopoly on morality, and many people went along with it to a greater or lesser degree. This seems pretty close to what government does today. The state doesn’t simply create laws aimed at resolving the inevitable conflicts among people, but attempts to influence public opinion through various types of propaganda – telling people not to smoke or get drunk and dance, for example.
I would not claim that the Church enjoyed a monopoly, only that the production of morality was more organizational — i.e., it took place within organizations (the Church itself was divided in several organizations), was more centralized, and was made by specialized moralist experts (mainly, theologians and priests, but even with some specialization of priests between those who focused on taking care of parishes, preaching, and confessing). In contrast, I am inclined to think that morality is now produced more in the market: it is less centralized and is produced by generalists.
It is true, as Brad says, that governments play an increasing role, especially in many European countries where they (1) control most education, even introducing new mandatory courses on “Good Citizenship”; (2) run their own TV stations, with plenty of scope to manipulate its contents; and (3) are actively running advertising campaigns about everything from global warming to racism or the use of condoms.
However, there are many other powerful sources of morality that are purely market driven: e.g., Hollywood movies and commercial TV series; biologists, pop stars, and former politicians moonlighting as preachers for their favorite causes; reality shows; gossip media; and so on.
1 comment 5 July 2009
Organizations or Markets in Morality?
| Benito Arruñada |
Moral codes can be produced and enforced through markets or through organizations. In particular, Catholic theology can be interpreted as a paradigm of the organizational production of morality. In contrast, the dominant moral codes are now produced in something resembling more a market.
The organizational character of Catholicism comes from its centralized production and enforcement of the moral code by theologians and priests and the mediation role played by the Church between God and believers. The epitome of both features is the old institution of confession of sins, a cultural universal that reaches full sophistication — for good and for bad — within Catholicism. My forthcoming JSSR paper argues that confession was a strikingly organizational solution to the production and enforcement of morality, something that Western societies now do mostly through markets. (more…)
3 comments 30 June 2009
Why “Doing Business” Leads to Bad Policy
| Benito Arruñada |
In a post at the PSD blog, David Kaplan sees little difference between the “Doing Business” position and my own. He writes:
Part of Professor Arruñada’s argument is that the Doing Business indicators do not capture all the relevant components of the business environment. The writers of the Doing Business 2009 report agree. . . .
I believe that the debate is not mainly about what Doing Business measures. Really, the debate is about how these measures are used in shaping public policy. Critics of Doing Business are concerned that countries will ignore the above warnings and only reform in areas that are measured in Doing Business.
I doubt that one can separate what DB measures and how it does it from how DB measures are used in the field. My main complaint, however, is different, namely that the DB method has often led to bad policy. (more…)
3 comments 26 June 2009
Capitalism’s Challenges: Cycles of Expropriation
| Benito Arruñada |
Following up my previous entry on cycles of statism, I ask next: How important are cycles of expropriation? Consider, for example, how Bolivia has nationalized foreign oil firms every 34 years. In the most recent round, the nationalizing decree read:
Consider that Bolivia was the first country on the Continent to nationalize ts hydrocarbons, in 1937 with Standard Oil Co, a heroic measure, and done again in 1969 with Gulf Oil, leading the present generation to carry on the third and definitive nationalization. (Supreme Decree 28701, Evo Morales, President, May 2006).
In an experiment with Marco Casari we find similar patterns under more “democratic” circumstances. You may download the paper here.
Add comment 22 June 2009
Does Capitalism Suffer Cycles of Statism?
| Benito Arruñada |
Does the current expansion of the State reverse a previous reduction, to be reduced once again in the future? Or, alternatively, is there a sort of ratchet effect, with a trend towards greater statism disguised by cycles along such increasing trend?
I am inclined to think that cycling has not taken place around a stationary average but around an increasing tendency (see the figures). But perhaps a better way of facing these questions would be to disaggregate in different dimensions. For instance, in several papers with Veneta Andonova we argue that freedom 
of contract has been in decline for more than a century in Western Law, both in civil- and common-law countries. Something similar could probably be said about trade, but in the opposite direction. However, in both freedom of contract and trade, it might be the case that exchange opportunities have expanded mainly as a result of technological change (e.g., cheaper transportation and communications), whatever the legal constraints. In terms of research, how could these trends be measured?
These thoughts were triggered by a timely and extremely suggestive paper by Witold J. Henisz presented at the Workshop on “Manufacturing Markets” organized last week in Villa Finaly, Florence, by Eric Brousseau and Jean-Michel Glachant. My next few blogs will address other aspects of Henisz’s views on the broader challenges facing capitalism.
2 comments 18 June 2009
Is the Future in Contract Manufacturing?
| Benito Arruñada |
The purchase of Opel by Magna shows the strength of contract manufacturers and their strategies, which I discussed with Xosé H. Vázquez in our 2006 article in the Harvard Business Review. Once thought of as a lifebelt for the decreasing margins of large-brand owners, contract manufacturing has now become a major source of competition. Shanghai Automotive Industry Corporation (SAIC), which learned the business by producing initially for Volkswagen and GM, has actually started to sell its own cars in Europe and North America. It has even bought R&D knowledge, acquiring from bankrupt MG Rover the drawings needed to build the Rover 25, Rover 45, and Rover 75.
The economic crisis is accelerating this process. The need to liberate assets to increase ROI has been facilitated by technological and organizational change. This is stimulating business practices at the corporate level that are pushing outsourcing practices to dangerous limits. The wrong management of contract manufacturing will thus increasingly provoke knowledge leaks to direct competitors and the loss of internal manufacturing knowledge; more importantly, it will continue to eliminate barriers to entry, allowing large distributors and contract manufacturers themselves to market their own brands much more easily.
4 comments 9 June 2009
World Bank’s “Doing Business” Changing Course
| Benito Arruñada |
Thanks to O&M for the opportunity to join the conversation. I plan to be blogging about some issues discussed in my book.
One of my recent research areas is the cost of business formalization. In particular, I have criticized the World Bank’s Doing Business project for the narrow focus of its “Starting a Business” indicator on reducing the initial costs of incorporating companies (Arruñada, 2007, 2009), which disregards the more important role of business registers as a source of reliable information for judges, which is essential for reducing transaction costs in future business dealings. In many developing countries, registers produce documents that judges do not trust and, therefore, registration does not facilitate impersonal transactions that it should be supporting. Reducing the explicit cost of registers and speeding production of useless paperwork will not help. The priorities of reform policies should therefore be thoroughly reviewed, aiming first for registers to achieve a minimum reliability. (See this discussion).
In April, following continuing pressure by Barney Frank, chairman of the US House Financial Services Committee, the World Bank decided to drop Doing Business’s “Employing Workers Indicator” and develop a new “Worker Protection Indicator” after concluding that the first indicator “does not represent World Bank policy and should not be used as a basis for policy advice or in any country programme documents that outline or evaluate the development strategy or assistance programme for a recipient country” (Aslam, 2009).
In line with my argument about registration, meaningful indicators of institutional quality should be comprehensive of costs and values. Therefore, an indicator of the quality of employment regulation should consider not only workers’ protection but other aspects, such as, most prominently, unemployment rates.
1 comment 4 June 2009
Introducing Guest Blogger Benito Arruñada
| Peter Klein |
We’re delighted to announce Benito Arruñada as our newest guest blogger. Benito is Professor of Business Organization at Pompeu Fabra University in Barcelona, a former President of ISNIE, and a prolific researcher in the areas of organization, law and economics. Most of his work focuses on the organizational conditions that facilitate impersonal exchange, from property titling or business regulation to moral systems. He has published widely in journals such the Journal of Law and Economics, Industrial & Corporate Change, Harvard Business Review, Journal of Law, Economics, and Organization, Journal of Economic Behavior & Organization, Journal of Comparative Economics, and International Review of Law and Economics.
Benito will be blogging about his new book on property and business formalization, Building Market Institutions: Property Rights, Business Formalization, and Economic Development, coming out next year from the University of Chicago Press, and other topics that strike his fancy. Welcome, Benito!
1 comment 3 June 2009
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.
2 comments 22 July 2008
