Posts filed under ‘Institutions’

The Origin of Social Norms

| Peter Klein |

Some findings that would not have surprised Carl Menger:

Ode to the sea: Workplace Organizations and Norms of Cooperation
Uri Gneezy, Andreas Leibbrandt, John A. List
NBER Working Paper No. 20234, June 2014

The functioning and well-being of any society and organization critically hinges on norms of cooperation that regulate social activities. Empirical evidence on how such norms emerge and in which environments they thrive remains a clear void in the literature. To provide an initial set of insights, we overlay a set of field experiments in a natural setting. Our approach is to compare behavior in Brazilian fishermen societies that differ along one major dimension: the workplace organization. In one society (located by the sea) fishermen are forced to work in groups whereas in the adjacent society (located on a lake) fishing is inherently an individual activity. We report sharp evidence that the sea fishermen trust and cooperate more and have greater ability to coordinate group actions than their lake fishermen counterparts. These findings are consistent with the argument that people internalize social norms that emerge from specific needs and support the idea that socio-ecological factors play a decisive role in the proliferation of pro-social behaviors.

I await comments below about how social norms emerge and persist not because they facilitate cooperation and joint gains, but because they legitimize existing social structures or support exploitation or power or. . . .

23 June 2014 at 2:43 pm 5 comments

New ISNIE Awards

| Peter Klein |

images (4)The International Society for New Institutional Economics has established four new awards, named after the pioneers of new institutional social science: the Ronald Coase Best Dissertation Award, Oliver Williamson Best Conference Paper Award, Douglass North Best Paper or Book Award, and Elinor Ostrom Lifetime Achievement Award. Details on the awards, and a call for nominations for the Coase, North, and Ostrom awards, are on the ISNIE site. (Sadly, my suggestion for a Best Organizational and Institutional Economics Blog Award was not heeded.)

8 April 2014 at 8:55 am Leave a comment

Contracts as Technology

| Peter Klein |

That’s the title of an interesting new law review article by Kevin Davis (New York University Law Review, April 2013). Just as we can treat organizational structure as as sort of technology, and study the introduction and diffusion of new organizational forms with the same theories and methods used to study technological innovation and diffusion, we can think of contracts as structures or institutions that emerge, are subject to experimentation and competition, and evolve and diffuse. Here’s the abstract:

If technology means, “useful knowledge about how to produce things at low cost”, then contracts should qualify. Just as mechanical technologies are embodied in blueprints, technologies of contracting are embodied in contractual documents that serve as, “blueprints for collaboration”. This Article analyzes innovations in contractual documents using the same kind of framework that is used to analyze other kinds of technological innovation. The analysis begins by laying out an informal model of the demand for and supply of innovative contractual documents. The discussion of demand emphasizes the impact of innovations upon not only each party’s incentives to collaborate efficiently, but also upon reading costs and litigation costs. The analysis of supply considers both the generation and dissemination of innovations and emphasizes the importance of cumulative innovation, learning by-doing, economies of scale and scope, and trustworthiness. Recent literature has raised concerns about the extent to which law firms produce contractual innovations. In fact, a wide range of actors other than law firms supply contractual documents; including end users of contracts, specialized providers of legal documents, legal database firms, trade associations, and academic institutions. This article discusses the incentives and capabilities of each of these potential sources of innovation. It concludes by discussing potential interventions such as: (1) enhancing intellectual property rights, (2) relaxing rules concerning the unauthorized practice of law and, (3) creating or expanding publicly sponsored clearinghouses for contracts.

See also Lisa Berstein’s comment. (HT: Geoff Manne)

17 March 2014 at 3:49 pm 1 comment

WINIR Conference in Greenwich: Deadline Approaching

| Dick Langlois |

February 28 is the deadline for submitting an abstract to the first conference of the World Interdisciplinary Network for Institutional Research (WINIR), which will take place 11-14 September 2014 at the Old Royal Naval College, Greenwich. Keynote speakers include Timur Kuran. Information and abstract submission at the WINIR website.

25 February 2014 at 10:21 am Leave a comment

Cheating and Public Service

| Dick Langlois |

Everyone knows that people who want to go into government jobs have high pro-social preferences and impeccable honesty. Well, not so in India, according to Rema Hanna from the Kennedy School at Harvard, who spoke in our department seminar series Friday. Here is the abstract:

In this paper, we demonstrate that university students who cheat on a simple task in a laboratory setting are more likely to state a preference for entering public service. Importantly, we also show that cheating on this task is predictive of corrupt behavior by real government workers, implying that this measure captures a meaningful propensity towards corruption. Students who demonstrate lower levels of prosocial preferences in the laboratory games are also more likely to prefer to enter the government, while outcomes on explicit, two-player games to measure cheating and attitudinal measures of corruption do not systematically predict job preferences. We find that a screening process that chooses the highest ability applicants would not alter the average propensity for corruption among the applicant pool. Our findings imply that differential selection into government may contribute, in part, to corruption. They also emphasize that screening characteristics other than ability may be useful in reducing corruption, but caution that more explicit measures may offer little predictive power.

I wonder what her colleagues at the Kennedy School think of this. Ask not what you can do for your country; ask what your country can do for you.

24 February 2014 at 6:09 pm 3 comments

CFP: Coase Memorial Issue of Man and the Economy

| Peter Klein |

An important announcement from Ning Wang, editor of Man and the Economy:

Man and the Economy
Call for Papers for a Special Issue in Memory of Ronald Coase

“R. H. Coase: The Man and His Ideas”

Man and the Economy will devote a special issue (December 2014) to the life and ideas of Ronald Coase, the 1991 Nobel Laureate in Economics and Founding Editor of this journal. During his long academic life, Coase devoted himself to economics, which, in his view, should investigate how the real world economy works, with all its imperfections. Coase viewed and practiced economics as a social science, a study of man creating wealth in society through various institutional arrangements. To honor the memory of Coase, we welcome original research articles that extend and develop the Coasian economics, including empirical studies of the structure of production and exchange. We also welcome critical and constructive commentaries that clarify and elaborate the Coasian themes, from a law-and-economics/new institutional economics perspective, which include, but not limited to, topics on transaction costs, property rights, theories of the firm and China’s economic transformation. In addition, we also welcome personal reflections and reminiscences of Coase as a colleague, a teacher, an editor, and/or a friend.

Submissions must be made online via the Journal’s website:

Deadline for submissions is September 30, 2014.

12 February 2014 at 8:51 am Leave a comment

Disruptive Innovation and Job-Market Signaling

| Peter Klein |

The job-market value of education, as famously argued by Michael Spence (1974), derives from two sources: additions to human capital and signaling. By going to college, you learn some useful skills, but you also demonstrate to potential employers that you have the natural ability to earn a degree. Depending on the difficulty of obtaining a degree for students of varying abilities, a college degree may be valuable even if you don’t learn a thing — you distinguish yourself from those who weren’t clever or patient enough to jump through the necessary hoops.

Of course, the human-capital and signaling components aren’t mutually exclusive. But, as long as at least some part of the job-market value of education comes from signaling, the demand for higher education depends on its perceived signaling value, relative to the cost of signaling. And herein lies the rub: getting a college degree is a very costly signal. Suppose high-ability workers could demonstrate their value to the job market by obtaining some credential that low-ability workers can’t or won’t obtain, without forgoing the explicit and opportunity costs of 4+ years at college. This would be an attractive alternative for many, and bad news for the higher-education industry, which today has a virtual monopoly on credentialing.

Michael Staton makes precisely this argument in today’s HBR Blog: “The Degree Is Doomed.” Staton argues that new technologies increasingly allow the unbundling of the learning and signaling functions of higher education, and that alternative signals such as “work samples, personal representations, peer and manager reviews, shared content, and scores and badges” are undermining the value of the college degree.

There are sites — notably Degreed and Accredible — that adapt existing notions of the credential to a world of online courses and project work. But there are also entire sectors of the innovation economy that are ceasing to rely on traditional credentials and don’t even bother with the skeumorph of an adapted degree.  Particularly in the Internet’s native careers – design and software engineering — communities of practice have emerged that offer signals of types and varieties that we couldn’t even imagine five years ago.   Designers now show their work on Dribbble or other design posting and review sites.  Software engineers now store their code on GitHub, where other software engineers will follow them and evaluate the product of their labor.  On these sites, peers not only review each other but interact in ways that build reputations within the community. User profiles contain work samples and provide community generated indicators of status and skill.

These are specialized areas, and probably not substitutes for the credentialing function for other fields and industries. But low-cost, innovative, specialized signaling methods could pose a significant challenge to the university establishment.

Of course, even if higher education loses its credentialing function, it can still add value the old-fashioned way, through teaching.

8 January 2014 at 10:54 am 4 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).
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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).
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