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An Official O&M Holiday

| Mike Sykuta |

This date, May 8, is a holiday of sorts at O&M and certainly in the field of Austrian economics. As Peter is traveling today and has thus far not taken the opportunity to remind us of the day’s significance, I simply refer you to one of Peter’s earlier posts and wish you (and Peter) a Happy Hayek-Klein Day.

8 May 2009 at 1:18 pm 6 comments

Economists More Ethical; US Researchers Not

| Mike Sykuta |

Thanks to Josh Wright over at TOTM, I found Ben Edelman and Ian Larkin’s recent HBS Working Paper on “Demographics, Career Concerns or Social Comparison: Who Games SSRN Download Counts?” Their abstract reads:

We use a unique database of every SSRN paper download over the course of seven years, along with detailed resume data on a random sample of SSRN authors, to examine the role of demographic factors, career concerns, and social comparisons on the commission of a particular type of gaming: the selfdownloading of an author’s own SSRN working paper solely to inflate the paper’s reported download count. We find significant evidence that authors are more likely to inflate their papers’ download counts when a higher count greatly improves the visibility of a paper on the SSRN network. We also find limited evidence of gaming due to demographic factors and career concerns, and strong evidence of gaming driven by social comparisons with various peer groups. These results indicate the importance of including psychological factors in the study of deceptive behavior.

Their results suggest that papers published in the Economics Research Network of SSRN are significantly less likely to have “fraudulent” downloads (as measured in their paper) while papers in the Finance, Legal, and Accounting Networks are significantly more likely to have fraudulent downloads. Aren’t these the places in which ethics are being more broadly taught? Business and Law?

Among their other interesting results, papers by non-US authors are less likely to have fraudulent downloads. Perhaps surprisingly, one’s status on the tenure track seems not to be important, but one’s peer comparisons do. Sadly, there is no attempt to directly measure the O&M effect.

20 April 2009 at 11:08 am Leave a comment

GM vs. TCE: Another “Block Upon Block”?

| Mike Sykuta |

Ronald Coase has spent the past two decades or more lamenting the lack of progress in economic theory. He bemoans the fact that economics, unlike its physical-science counterparts, fails to dispose of (or pursue new versions of) theories when facts show that prevailing theories are inaccurate or incomplete.

Among his many arguments, Coase has pointed to Williamson’s Transaction Cost Economics (TCE) as one that seems impervious to the facts. Part of Coase’s discontent with the TCE story rests on his observation that many firms sustain relationships characterized by high degrees of asset specificity using contractual means. While Ben Klein and others pointed to General Motors-Fisher Body as evidence to support the TCE story, Coase pointed to relations with auto frame manufacturer A.O. Smith at the same time that were not subsumed by vertical integration. This eventually led to the infamous GM-Fisher Body debate that seems for want of a real conclusion (see some of Peter’s previous comments on this here, here and here).

Well once again, General Motors seemingly plays the foil against TCE. Several weeks ago, GM announced plans to purchase Delphi Group’s global steering manufacturing operations. Delphi operated the steering unit solely for GM’s use. Delphi, in bankruptcy since October 2005, has been able to use GM’s dependence on Delphi’s operations to secure roughly $450 million in liquidity capital from GM to maintain its operations. Sounds like the classic hold-up problem, doesn’t it? But wait! (more…)

17 April 2009 at 2:13 pm 14 comments

Another Regulation Not Worth Its Salt

| Mike Sykuta |

Thanks to Randy Westgren for calling attention to an April 7 article in the New York Times concerning a new regulatory initiative in the Big Apple. It seems Mayor Bloomberg has decreed that salt consumption should be cut in half and has pledged the coercive power of New York City’s food industry regulatory system to launch a “nationwide initiative” to pressure the food industry to change its salty ways.

Apparently Mayor Bloomberg has identified salt consumption as a major public health crisis. Never mind that scientific research fails to demonstrate a causal relationship between salt consumption and actual health outcomes. Never mind that the human body requires some level of salt and there is no research demonstrating the potential health consequences of restricting persons’ salt intake to the level the Mayor prescribes. And don’t even think about the idea of personal responsibility and liberty in choosing what to eat and whether (and how much) salt to consume.

“if the salt has become tasteless, how can it be made salty again? It is no longer good for anything, except to be thrown out and trampled under foot by people.” Perhaps a better approach would be to throw out such ill-founded regulations and trample them under foot.

7 April 2009 at 9:42 pm Leave a comment

Another Attack on Outrageous Bonuses

| Mike Sykuta |

For the second time in a week, the Obama Administration attacked what it referred to as “outrageous” bonuses paid during a time of economic struggle for so many Americans. The announcement came as a reaction to Walmart’s announcement that the Arkansas-based retailer paid almost $1 billion in bonuses to its employees. Adding in profit-sharing, 401K contributions, and employee discounts, the total giveaway is closer to $2 billion, according to company officials.

The White House reacted strongly to such “corporate largess” less than a week after reports that bailout target AIG paid millions in bonuses to its employees. “At a time when so many Americans are losing their homes and unable to put food on their tables, it is unconscionable that a retailer that has benefited so much from consumers should be paying out such astronomical sums in bonuses to its employees. To make matters worse, we understand these bonuses were not even contractually obligated, as in the AIG case,” stated White House spokesman Robert Gibbs. “Obviously Walmart’s ‘Every Day Low Prices’ are not as low as they should be.” Congressional Democrats said they are considering legislation to tax Walmart employees’ bonus payments and to force the retailer to lower its prices further. (more…)

20 March 2009 at 10:08 pm 11 comments

Reducing Transaction Costs in Government Procurement

| Mike Sykuta |

Lest anyone think I (or, by association, O&M) am just a disgruntled Obama-basher, let me applaud the Administration’s announcement today of its intent to overhaul the ways in which the government contracts for goods and services, particularly in the Department of Defense. I suspect the collective “we” are all in favor of identifying methods and processes that will reduce transaction costs (and overall costs) in government procurement programs.

On this point, there is economic research that should help guide the Administration’s deliberations. To wit, William Rogerson provides a pretty thorough assessment of the economic incentives in defense procurement (JEP, 1994) and has a follow-up article on the optimal structure of fixed-priced cost reimbursement contracts (AER, 2003). Bajari and Tadelis (RAND J., 2001) provide a study of incentives versus transaction costs in procurement contracts. Although focused on private-sector construction, their findings are likely relevant to government procurement as well. Important lesson: cost-plus is not necessarily bad.

4 March 2009 at 1:30 pm 6 comments

Helland at Missouri

| Mike Sykuta |

Eric Helland will be on campus this Friday, 6 March, to give a seminar on the effects of insurance reimbursement policies on the provision of medical services. In this paper, Helland and his co-author Paul Heaton compare the level and number of treatments recommended for auto-injury trauma patients in Colorado before and after a change in state law that shifted the burden from more generous auto-policy reimbursements to less generous, traditional health-insurance policies. Following the change, doctors recommended more reimbursable treatments per patient despite negligible changes in the character of auto injuries or in the health outcomes of those cases.

This is the latest in a stream of research Eric has done examining the (sometimes perverse) incentive systems created by different market and regulatory structures and the political economy of such outcomes, including issues of corporate governance (here), class-action lawsuits (here), and workings of the judicial system (here and here).

Eric’s talk is part of the Economics Department’s seminar series. If you are within driving distance, I’m sure you would find it worth your while.

3 March 2009 at 5:44 pm Leave a comment

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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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