Posts filed under ‘- Lien -’

Blind Review Blindly Reviewing itself

| Lasse Lien |

From Scott Masten we received this classic gem:

A growing interest in and concern about the adequacy and fairness of modern peer-review practices in publication and funding are apparent across a wide range of scientific disciplines. Although questions about reliability, accountability, reviewer bias, and competence have been raised, there has been very little direct research on these variables.

The present investigation was an attempt to study the peer-review process directly, in the natural setting of actual journal referee evaluations of submitted manuscripts. As test materials we selected 12 already published research articles by investigators from prestigious and highly productive American psychology departments, one article from each of 12 highly regarded and widely read American psychology journals with high rejection rates (80%) and nonblind refereeing practices.

With fictitious names and institutions substituted for the original ones (e.g., Tri-Valley Center for Human Potential), the altered manuscripts were formally resubmitted to the journals that had originally refereed and published them 18 to 32 months earlier. Of the sample of 38 editors and reviewers, only three (8%) detected the resubmissions. This result allowed nine of the 12 articles to continue through the review process to receive an actual evaluation: eight of the nine were rejected. Sixteen of the 18 referees (89%) recommended against publication and the editors concurred. The grounds for rejection were in many cases described as “serious methodological flaws.” A number of possible interpretations of these data are reviewed and evaluated.

(Peters and Ceci, 1982)

Are these findings specific to the 80s and psychology? Care to replicate?

30 May 2013 at 11:32 am 3 comments

Arrunada Seminar: Benito Arruñada – Underprovision of Public Registries?

| Benito Arruñada |

Underprovision of Public Registries?

Organizing registries is harder than it seems. Governments struggled for almost ten centuries to organize reliable registries that could make enabling rules safely applicable to real property. Similarly, company registries were adopted by most governments only in the nineteenth century, after the Industrial Revolution. Moreover, though most countries have now been running property and company registries for more than a century, only a few have succeeded in making them fully functional: in most countries, adding a mortgage guarantee to a loan does not significantly reduce its interest rate.

US registries show that these difficulties do not only affect developing countries. Many US registries are stunted, shaky institutions whose functions are partly provided by private palliatives. In land, the public county record offices have been unable to keep up with market demands for speed and uniform legal assurance. Palliative solutions such as title insurance duplicate costs only to provide incomplete in personam guarantees or even multiply costs, as Mortgage Electronic Registry Systems (MERS) did by being unable to safely and comprehensively record mortgage loan assignments. In company registries, their lack of ownership information means that they are of little help in fighting fraud, and their sparse legal review implies that US transactions require more extensive legal opinions. In patents, a speed-oriented US Patent and Trademark Office combines with a strongly motivated patent bar to cause an upsurge of litigation of arguably dangerous consequences for innovation.

The introduction of registries has often been protracted because part of the benefits of registering accrue to others. They also have to compete with private producers of palliative services (i.e., documentary formalization by lawyers and notaries) who usually prefer weak or dysfunctional registries, as they increase the demand for their services. Moreover, most legal resources, including the human capital of judges, scholars, and practitioners is adapted to personal instead of impersonal and registry-mediated exchange.

Information and communication technologies have opened new possibilities for impersonal trade, thus increasing the demand for the institutions, such as registries, that support impersonal trade. Economic development therefore hinges, more than ever, on governments’ ability to overcome these difficulties, which are allegedly holding back the effective registries needed to enable impersonal exchange and exhaust trade opportunities.

4 February 2013 at 5:22 am 3 comments

Arrunada Seminar: Corrado Malberti – What could be the next steps in the elaboration of a general theory of public registers?

| Corrado Malberti |

What could be the next steps in the elaboration of a general theory of public registers?

From a lawyer’s perspective, one of the most important contributions of Arruñada’s Institutional Foundations of Impersonal Exchange is the creation of a general economic theory on public registers. Even if this work is principally focused on business registers and on registers concerning immovable property, many of the results professor Arruñada achieves could be easily extended to other registers already existing in many legal systems or at the transnational level.

For example, a first extension of the theories proposed by professor Arruñada could be made by examining the functioning of the registers that collect information on the status and capacity of persons. A second field that should probably benefit from professor Arruñada’s achievements is that of public registers that operate at a transnational level and established by international treaties. In particular, in this second case, the reference is obviously to the Cape Town convention on International Interests in Mobile Equipment which will, and — to some extent — already has, resulted in the creation of different registers for the registrations of security interests for Aircrafts, Railway Rolling Stock, and Space Assets. In my view it will be important to test in what measure the solutions adopted for these registers are consistent with the results of Arruñada’s  analysis.

Corrado Malberti, Professor in Commercial Law. University of Luxembourg.  Commissione Studi Consiglio Nazionale del Notariato.

30 January 2013 at 10:51 am 3 comments

Arrunada Seminar: Matteo Rizzolli – Will ICT Make Registries Irrelevant?

| Matteo Rizzolli |

Will ICT Make Registries Irrelevant?

With this brief post, I would like to add some further discussion on the role of new technologies and ICTs for the evolution of registries. The book of Prof Arrunada touches upon the issue in chapter 7 where the role of technical chance is tackled. He discusses mainly the challenges in implementing different degrees of automation in pre-compiling and lodging information from interested parties and even in automating decision-making by the registry itself.

These challenges represent the costs of introducing ICTs in registries. In the book the benefits of ICTs for abating the costs of titling/recording are not discussed at length. Think of them in terms of the costs of gathering, entering, storing, organising and searching the data. I assume it is trivial to say that ICTs decrease the fixed and variable costs of registries even when some issues raised in the book are considered. In terms of the figure below (my elaboration of figure 5.1 on pg 133) this is equivalent to say that, thanks to ICTs, the black line representing the “Value of land under public titling” shifts upwards and therefore the “Indifference point for individual titling decisions” shifts leftward and makes registries more desirable.

However, i think that an important effect of ICTs is neglected in this analysis. In fact ICTs are now pervasive in most transactions. Land is observed with all sorts of satellite technology and the movement of objects and people is traced in many ways. Communications, both formal and informal are also traced and information on companies is just one click away for most individuals. I don’t want to discuss philosophical, sociological or legal aspects of this information bonanza. Neither neglect that more information doesn’t mean better or more trustworthy information. On the other I think we can agree that the quantity of information available to counterparts of a transaction is greatly increased and -more important- that verifiable evidence can be produced more easily should legal intervention in case of conflict arise.

All this information windfall may -this is my hypothesis- decrease the costs of keeping transactions out of registries and therefore improve the value of transactions under privacy. In terms of the figure below, this amounts to rotating the red line upwards and, as a result, shifting the “Indifference point for individual titling decisions” on the right.

In a sense, ICTs both i) decrease the costs of registries and ii) makes registries less relevant. On balance, it is hard for me to say which effect of ICTs may prevail. I think however this could be a very interesting empirical question to research.

Matteo Rizzolli. Assistant Professor of Law and Economics at the Free University of Bozen, Italy. Board member and secretary of the European Law & Economics Association

Click figure for higher resulution:

rizzolli picture

23 January 2013 at 6:15 am 1 comment

Hard and Soft Obscurantism

| Lasse Lien |

I recently attended a presentation by the great social scientist Jon Elster, in which he lamented the state of affairs in social science. Elster has – quite nicely, IMHO – coined the terms hard and soft obscurantism as the main problems. To Elster, obscurantism generally refers to endeavors that are unlikely to produce anything of value, and where this can be predicted in advance. This in contrast to more honorable failures, where a plausible hypothesis turns out to be wrong, leaving much effort without much value.

Soft obscurantism is exactly what it sounds like. Unfalsifiable, impenetrable theories which often proudly ignores standards for argument and evidence that elsewhere constitute the hallmark of the scientific method. Examples are post modernism (Latour), structuralism (Lévi-Strauss), Functionalism (Bourdieu, Foucault), Marxism (Badiou) and psychoanalysis.

But there is a ditch on the other side of the road too. Hard obscurantism refers to mathematical exercises without any tangent to reality, which is useful neither as mathematics nor social science. Another form of hard obscurantism is data mining, or misuse of fancy econometrics, or a combination of the two. Both mathematical games and econometric voodoo give the appearance of “scientificness”, but Elster doesn’t hold his guns about the value created by hard obscurantism either:

“I believe that much work in economics and political science that is inspired by rational-choice theory is devoid of any explanatory, aesthetic or mathematical interest, which means that it has no value at all”

One can of course argue about the size of the size of the total problem, and relative size of each type (personally, I would bet on soft obscurantism as the bigger problem), but the key question is perhaps why obscurantism of either type isn’t gradually rooted out. According to Elster their combined “market share” in the social sciences seems to be growing.

For more, see this and this and this.

23 January 2013 at 5:38 am 12 comments

Arrunada Seminar: Rod Thomas – Developing a Credible Automated System for Agency Registration under a “Registration of Rights” Model

| Rod Thomas |

Developing a Credible Automated System for Agency Registration under a “Registration of Rights” Model

In his book, Arruñada rehearses the debate between mere recordation of deeds versus registration of rights. Under the “registration of rights” model, the registration event may be backed by a State guarantee of ownership, as is the case under a Torrens system. Under such a system, the need for a credible automated system is paramount. This is because the registration event is normally conclusive as to title rights, even in the face of third party ineptness or fraud in undertaking the registration.  By way of example, in Torrens systems, the transaction, once completed, can conventionally only be overturned where the transferee is found to have been fraudulent in obtaining the registered title interest even if the dealing is void at law.

Under a registration of rights model there is a heightened sense of vulnerability where the registration even is undertaken by an agent.  This is because the agent and not the transferee may have been either fraudulent or inept in undertaking the transaction. An example of such a system in operation is the Landonline System, as it presently exists in New Zealand, where only agency registration is possible.

Arruñada also argues that for a registration system to be successful, it needs to be both cost effective and accessible. Consequently a tension arises under a registration of rights model, operated by agency registration. On the one hand effective measures need to be put in place to protect consumers from inept or fraudulent transactions. On the other hand, a system which is overly complex, or expensive to operate, is unlikely to be successful.

Such concerns may be less pressing in countries where digitalised signatures already play a key role in authorising transactions. In those jurisdictions it appears to be a relatively straightforward procedure to incorporate the need for the existing interest holder’s digitalised signature before a transaction can occur. What however of jurisdictions such as the United Kingdom, Australia or New Zealand where digitalised signatures are not in ready use and agency registration is common?

Various possibilities come to mind for these other jurisdictions.  One may be imposing a system where each dealing must first be authorised by a private PIN number known only to the existing land interest holder.   This however may be cumbersome to operate and regulate.  Also, PIN number may not be securely kept, so abuses could still occur.  Another possibility may be to incorporate “flags” into the automated system, so the interest holder is notified of any proposed dealing with his or her interest, and can therefore block the proposed registration before it occurs.

The question therefore needs to be asked; “what possibilities exist under a registration of rights model  (in the absence of electronic signatures) for setting up a safe and cost effective automated system, operated by agency registration?”

Rod Thomas. Senior Lecturer in Law, Auckland University of Technology, New Zealand

21 January 2013 at 4:04 am 2 comments

Arrunada Seminar: Stephen Hansen – Public Institutions and Endogenous Information in Contracting

| Stephen Hansen |

Public Institutions and Endogenous Information in Contracting

Benito Arruñada’s Institutional Foundations of Impersonal Exchange: Theory and Policy of Contractual Registries is an impressive and erudite study of the relationship between legal institutions and impersonal exchange. While clearly valuable for better understanding policies regarding formalization, in my mind it also introduces ideas that are relevant for contract theory more generally and yet hardly treated in the literature.

Since the 1970′s economic theorists have understood that information asymmetries between parties who write contracts are a key source of inefficiencies in exchange. Since then, a vast literature has developed exploring this idea from many different angles. Nevertheless, two key features usually appear. First, the set of parties who write contracts all observe each other, know they are contracting with each other, and (with some exceptions) observe the terms of the contracts agreed. Second, the information asymmetries are assumed to be a fixed, exogenous feature of relationships.

Benito’s book convincingly shows that both of these limit our understanding of trading frictions in the real world. A key insight is that, in addition to his “type” or “action” (to use the language of contract theory), the formal contracts that an economic agent has written with others may be unobservable. After reading the book, it became clear to me that this dimension of non-observability is just as important for generating market failure as others. The second, and intimately related, insight is that the degree of non-observability of contractual rights depends on public institutions, in particular registration systems. Whereas it is unclear how a public body would help contracting parties discover — to take a standard example — each other’s preferences over the good they are proposing to trade, Benito shows that they can affect the amount of information they have about each other’s formal legal rights. And, in line with what one would expect, when institutions can reduce this information asymmetry, the likelihood of efficient trades increases.

Putting these two ideas together provides an original and to me very exciting view on the value of legal systems. Economists often discuss “good” legal systems as those which enforce written agreements transparently at low cost. After reading Benito’s book, I recognized that legal systems also act to endogenously affect the amount of information that parties have available to reach those agreements in the first place. This deserves to be an influential idea in future discussions of law, economics, and contract theory.

Stephen Hansen. Assistant Professor. Economics Department. Universitat Pompeu Fabra. Barcelona, Spain

19 January 2013 at 5:24 am 1 comment

Arrunada Seminar: Corrado Malberti (2) – An Empirical Test on the Differences between Recordation and Registration

| Corrado Malberti |

An Empirical Test on the Differences between Recordation and Registration

One key point of professor Arruñada is that “[i]t is safe to assume that recordation is less effective than registration in avoiding title uncertainty”. However, the Author acknowledges that it would be essential to perform some empirical analysis to support his conclusions. Importantly he also acknowledges that comparing the performance of titling systems is a daunting task, and that it should be important to consider the specifics of each country.

To start the debate on this point, professor Arruñada compares simple averages for two samples of European Union countries with different titling systems. The Author discovers that, apparently (at least in Europe), registration systems are not only more effective, but also less costly than recordation systems. However, Arruñada also acknowledges that this data is more a starting point for a fruitful discussion than the end of the debate, since it would be ”premature . . . to interpret these empirical differences as causal effects, given the small samples involved”.

I completely agree with this perspective and, I also believe that, starting from this data, it will be important to further investigate the matter.

However, this also poses the question on which is the direction empirical research should take in future. In fact, it is conventional wisdom among legal scholars that registration is superior to recordation. For example, it was also for that reason that, after the end of WWI, Italy decided to preserve in the new provinces the registration system already in place in Austria-Hungary, and that France decided to maintain the livre foncier in Alsace-Moselle.

Since any generalization concerning the classifications of public registers may have little predictive value on how real legal problems are solved, probably, in future, it will be prudent to carry out empirical analyses that consider homogeneous legal frameworks. This would limit the risks of giving the same label to systems that practically adjudicate disputes in completely different ways. Thus, from this perspective, it would probably be more interesting and valuable to focus the attention on those legal systems, like the French and the Italian, where two different public registers coexist.

Corrado Malberti, Professor in Commercial Law. University of Luxembourg.  Commissione Studi Consiglio Nazionale del Notariato.

17 January 2013 at 6:08 am 1 comment

Arrunada Seminar: Corrado Malberti – The Different Dimensions of Recordation and Registration

| Corrado Malberti |

The Different Dimensions of Recordation and Registration

Concerning the characteristics of registration and recordation, I think that the classification made by professor Arruñada should adopt a more nuanced perspective. In fact, the distinction between, on the one hand, recordation systems where deeds are deposited to facilitate their inspection and that rely on what professor Arruñada calls a property rule, and, on the other hand, registration systems that define rights and that give preference to what professor Arruñada calls a property rule, is probably sacrificing important complexities that exist in the public registers falling in each of these two categories.

In fact, legal scholarship highlighted that the dimensions that should be taken into account in classifying public registers are, at least, three:

  • the first dimension concerns what is entered in the register, either a deed or a right;
  • a second dimension is related to the effects of the entry in the register, either the entry simply regulates the conflicts between two or more acquirers from the same owner, or the entry defines the right;
  • finally, the third dimension concerns the role played by bad faith in making a valid entry in the public register.

The combination of these different dimensions makes the dichotomy between registration and recordation more intricate. And it has been argued that, from a legal perspective, it would be impossible to give to these categories anything more than a didactic relevance. In addition, it should also be noted that, even when classified along these three dimensions, in certain cases public registers adopt peculiar principles (e.g. the sometimes radically different rules governing adverse possession could be taken as evidence of how peculiar the practical results of each legal system could be).

Professor Arruñada makes important efforts in trying to include many of these nuances in his analysis. Yet, for many public registers it is difficult to deny the existing contaminations between recordation and registration.

Corrado Malberti, Professor in Commercial Law. University of Luxembourg.  Commissione Studi Consiglio Nazionale del Notariato

16 January 2013 at 5:00 am 1 comment

Arrunada Seminar: Pamela O’Connor – Conflating Contractual and Property Rights

| Pamela O’Connor |

Conflating Contractual and Property Rights

Coming from a property law perspective, I welcome Arruñada’s recognition of the need for economists to acknowledge the nature of property as as rights in rem (rights in things, enforceable against third parties) and their essential difference from contractual rights that bind only the contracting parties. Although legal scholars such as Bernard Rudden, Thomas Merrill and Henry E Smith have been pointing out the inadequacies of traditional economic conceptions of property for some time, economic theorists have been slow to grapple with the implications.
One consequence of conflating contractual and property rights is apparent in recent Australian legislation on resource rights. State legislatures have introduced new types of rights that run with land and bind third parties as rights in rem, but are largely defined by individual agreements. Their relationship to other property rights remains unclear, and their variability makes them costly for other people to assess. Although uptake of the new rights has been slow, they have the potential to burden land titles with proliferating rights that bind all future owners and which nobody really understands.

Pamela O’Connor. Associate Professor, Faculty of Law. Monash University. Australia

14 January 2013 at 5:13 pm 3 comments

Arrunada Seminar: Paul Dower – Centralized vs. Decentralized Allocation

| Paul Dower |

Centralized vs. Decentralized Allocation

In Benito Arruñada’s insightful new book, Institutional Foundations of Impersonal Exchange: Theory and Policy of Contractual Registries, the widespread failure of titling programs in developing countries is used as motivation for a greater appreciation of the role of contractual registries. In many developing countries, immovable assets, especially land, are initially and subsequently allocated using a centralized mechanism as opposed to a decentralized market mechanism implicitly assumed in the book.

The conflict between those holding property and those acquiring property is different under a centralized allocation mechanism. Sara Berry in Chiefs Know Their Boundaries, an interesting work on an agricultural region of Ghana, describes the political process involved in determining the complicated overlapping and competing property claims in a system where land is allocated by a centralized mechanism. Here, the relevant asset is not exactly land but community membership. This asset consists of various rights, one of which entails a kind of social insurance that functions through land allocated based on perceived need. The chief simultaneously serves as the contractual registry, performing public reallocation of rights when necessary, as well as the steward of the community members’ rights in rem, enforceable against all parties. Since need is imperfectly observable, this allocation mechanism suffers from a moral hazard problem, in which the acquiring party has private information putting the holding party at a disadvantage. In this setting, the registry is and can not be independent but it can aim to be impartial.

This example highlights the institutional specialization required for impersonal exchange, a point made well in the book, but it also points to several difficulties not apparent in the analysis. First, the judgment proof problem is more complicated. Power and social status can create a judgment proof problem that is independent or even negatively correlated with the standard one of not having enough wealth to compensate the victim of a violation of rights.  The judgment proof problem can create problems for the voluntary registration of property claims. Second, the asset that is transferred or involved in transactions in a centralized system may not easily map into assets exchangeable in a decentralized system. Here, there is a parallel to the informational externality discussed in the book concerning transactions of rights in rem. The lack of institutional specialization leads to significant information costs if rights in rem are transferred.  Third, since local legal orders are usually less specialized and serve multiple purposes under a centralized allocation mechanism, they may appear weaker than they actually are. On one hand, the apparent favoritism of a local may merely reflect the fact that an outsider does not have a legitimate claim to rights in rem because the local that transacted with the outsider did not possess rights in rem (even though, as shown above, rights in rem exist and can be transferred). On the other hand, due to the social insurance role of land allocation, the local property holder commonly has a superior claim to land in the abstract than what can be acquired at any moment in time by another local or an outsider. Thus, local legal orders can be in better positions to track the competing or overlapping claims than a public registry based on a state-backed legal order, even though the political process required to adjudicate competing claims under the local legal order restricts trade opportunities.

Paul Dower

Kinross Assistant Professor of Development Economics, New Economic School (NES). Research Economist, Center for Financial and Economic Research (CEFIR).

10 January 2013 at 9:49 am 3 comments

Arrunada Seminar: Giorgio Zanarone – The Contracts behind Contracting

| Giorgio Zanarone |

The Contracts behind Contracting

Benito Arruñada’s “Institutional Foundations of Impersonal Exchange” is an important book in many ways. It develops a unified theory of property and business registries. It provides the reader with deep historical and institutional analyses that make the theory compelling. And it discusses paths for the reform of business formalization policies that challenge the conventional wisdom.

In my view, however, the most important contribution of Benito Arruñada’s book is broader and more subtle: it shifts the unit of analysis in the theory of the firm from personal to impersonal exchanges. From Coase (1937, 1960) and Williamson (1979) to Grossman and Hart (1986), Holmstrom and Milgrom (1994), and others, the economic theories of the firm have treated contracts as personal exchanges, with little analytic distinction between phyisical and legal persons. This has led to Alchian and Demsetz’s (1972) famous definition of the firm as a “nexus of contracts”.

By focusing on how hidden “originative” contracts make the consequences of present contracts uncertain, and on how registering contracts ex ante can reduce the uncertainty of good-faith acquirers of rights, Benito Arruñada’s book moves an important step towards an economic theory of the firm as a legal person. In that perspective, the nexus of contracts we call “firm” differs from a similar nexus of market contracts because, being the firm registered, external parties can contract with it without fearing that previous “internal” contracts will dilute their rights. In this sense, one could say that ex ante registration marks the boundary between firms and markets.

Beyond the book, these important insights are motivating and will motivate further research, along several lines. In a joint work in progress, Benito Arruñada, Nuno Garoupa and I are developing a formal model to compare “private-ordering” market solutions to the problem of impersonal exchange with regulated solutions, such as the contractual registries discussed in Benito’s book. In a similar vein, it would be interesting to incorporate impersonal exchange and contractual registries in a formal theory of firms’ boundaries. Finally, the book opens promising avenues for empirical research, from the comparative performance of registries and market solutions to the effects of business formalization policies in rich and developing countries. An exciting agenda for XXI-Century institutional and organizational economics!

Giorgio Zanarone

Associate Professor, Colegio Universitario de Estudios Financieros (CUNEF)

9 January 2013 at 2:40 am 1 comment

Arrunada Seminar: Amnon Lehavi – Economics, Property Rights, and Third Parties

| Amnon Lehavi |

Economics, Property Rights, and Third Parties

Benito Arruñada’s book offers an innovative and intriguing analysis of the crucial role that institutions such as land registries play for securing property rights. A key observation that Benito makes deals with the different focus that economists have vis-à-vis lawyers in their view of property. While “everybody agrees that security of property is essential for development” (p. 24), Benito argues that economists tend to be more concerned with the public order function of property, one which guards against violence and confiscation and which then allows for parties to engage in subsequent efficient bilateral transactions, as modeled by Coase and others. But as Benito aptly notes, lawyers are also concerned with a different aspect of securing property rights, one which has to do with otherwise “routine” property dealings that may fall prey to misuse of transactions. Such conflicts can arise, for example, between a good faith purchaser of an asset and the original owner whose property has been deprived by an intermediate party and then “sold” on the market. Sticking to a contractual paradigm, one that is simply assumed by economists, may thus come short in identifying the true complexity of property rights.

To more fully protect against potential abuse of property rights, or against other cases undermining the security of title, the legal system should be able to award remedies to property owners to protect their interests not only vis-à-vis the direct party to the transaction but also vis-à-vis third parties (in rem protection). This is where land registries come into play. These institutions provide the mechanisms which ensure that private rights would be broadly enforced, “good against the world.” The publicity granted to property rights through such registries and the guarantee of good title, especially in those jurisdictions which follow the registration (Torrens) system, add a key feature of certainty to property rights, one that may be missing from standard economic analysis. Benito’s book offers a unique contribution in identifying the economic and legal foundations of such institutions. His work should be closely studied by scholars across all fields.

Amnon Lehavi
Atara Kaufman Professor of Real Estate, Radzyner School of Law
Academic Director, Gazit-Globe Real Estate Institute Interdisciplinary Center (IDC)

4 January 2013 at 4:17 am 2 comments

Arrunada Seminar: John Nye – Formalization and “Optimal” Regulation

| John Nye |

Formalization and “Optimal” Regulation

Benito’s work on titling and formalization seems to serve as an excellent illustration of the problem of “optimal” regulation.  Much of the debate about state vs. market presupposes a clear-cut distinction between private and public spheres.  But as Benito’s complex discussion of the evolution of formalization and the choices involved in selecting appropriate titling or registration systems shows, the creation of good institutions that protect and enhance property often involve conflicts between different levels of regulatory power (local vs. national) and conflicts between well-functioning but non-scaleable local norms and more cumbersome but universally applicable formal rules.  What are the advantages of systems that allow at least some functioning property arrangements in developing societies but which constrain the creation of more effective systems as the nation grows?  Do central systems that work closer to the ideal and minimize transactions cost presuppose too much of the state capacity that is often lacking in many nations?  Does a well-functioning central system of registration enhance state capacity with greater use or does it encourage unwanted Leviathan by transferring too much power to the State? Consider a country like the People’s Republic of China that did not even have formal private property till a few years ago: Should the state be using its period of authoritarian powers to impose new and theoretically “sensible” rules that might be easier to propose now than later or should it tread lightly and experiment with varieties of local arrangements in the hope of finding which sets of rules work best in a Chinese context, while running the risk that such arrangements may congeal with success and become difficult to reverse?

I’m sure the specific issues of titling, registration, and formalization that Benito discusses will be well treated by those with more specific expertise in these areas.  But I also hope we will see some commentary on these broader issues of evolutionary problems in the construction of liberal states.

John V.C. Nye
George Mason University and Higher School of Economics, Moscow

3 January 2013 at 11:33 am 2 comments

Arrunada Seminar: P.J. Hill – The Importance of Sequential Exchange

| P. J. Hill |

The Importance of Sequential Exchange

Arruñada’s important contribution to the vast literature on institutions and exchange comes from a concept that has been largely ignored by previous contributors (including me), namely the sequential nature of exchange. Most of us have treated the definition and enforcement of property rights as important for exchange, but we have not thought seriously about the ongoing nature of such exchange. If specialization and impersonal exchange are going to occur, the transfer of a property right will be repeated numerous times. Arruñada has integrated well the sequential nature of exchange into his analysis. That integration leads to a host of insights about informality, property registers, and the trade-offs that come from lowering the transaction costs of exchange versus the strength of property rights. How did so many of us miss such an important concept in our work on property rights and the exchange of those rights?

P.J. Hill
Professor Emeritus, Wheaton College and Senior Fellow, Property and Environment Research Center (PERC)

3 January 2013 at 11:22 am 2 comments

Arrunada Seminar: Grand Opening

| Lasse Lien |

Today we are proud to launch a virtual seminar over Benito Arruñada’s important new book: Institutional Foundations of Impersonal Exchange: Theory and Policy of Contractual Registries (U. of Chicago Press).

First, what on earth is a virtual seminar? In this case a virtual seminar means that we over the next two weeks will launch a series of posts that address issues in Arruñada’s book, or issues that are inspired by issues in Arruñada’s book. Our hope is that many of you will join the discussion by adding your reflections, objections, or thoughts under the lead posts in the usual O&M way. Please note that if you haven’t had the time to read the book, but have thoughts on the subjects brought up or think additional subjects should be brought up, don’t let that stop you. We want to hear your thoughts!

Who is Benito? Benito is Professor of Business Organization at the Department of Economics and Business at Pompeu Fabra University, Barcelona. Prior to joining Pompeu Fabra and after graduating from the universities of Oviedo and Rochester, he held positions at the Universities of Oviedo and León, and was John M. Olin Visiting Scholar in Law and Economics at Harvard Law School. He has also taught at the Universities of Paris (I and X), Frankfurt, Autónoma de Madrid and Pablo de Olavide in Seville, and visited UC Berkeley, Washington and George Mason Universities. Benito Arruñada was a member of the founding board of directors and served as President (2005-2006) of the International Society for New Institutional Economics, ISNIE. And most prestigious of all; he is a former guest blogger at O&M.

What about the book? As the title reveals, the essence of the book is the institutional foundations for impersonal exchange. If you are reading a blog called Organizations and Markets, it seems safe to assume that you will find this topic interesting and profoundly important. To flesh it out a bit more, what could be better than to let Benito himself explain the main thrust of the book:

| Benito Arruñada |

Governments and development agencies spend considerable resources building property and company registries to protect property rights. When these efforts succeed, owners feel secure enough to invest in their property and banks are able use it as collateral for credit. Similarly, firms prosper when entrepreneurs can transform their firms into legal entities and thus contract more safely. Unfortunately, developing registries is harder than it may seem to observers, especially in developed countries, where registries are often taken for granted. As a result, policies in this area usually disappoint.

In this book, I have aimed to avoid such failures by deepening our understanding of both the value of registries and the organizational requirements for constructing them. Presenting a theory of how registries strengthen property rights and reduce transaction costs, I analyze the major tradeoffs and propose principles for successfully building registries in countries at different stages of development. The focus is on land and company registries, explaining the difficulties entailed, including current challenges like the subprime mortgage crisis in the United States and the dubious efforts being made in developing countries toward universal land titling. But the analytical framework covers other registries, including intellectual property and organized exchanges of financial derivatives.

Arruñada, Benito, Institutional Foundations of Impersonal Exchange: Theory and Policy of Contractual Registries, University of Chicago Press, Chicago, 2012. (Amazon site: http://ow.ly/cBMU5).

3 January 2013 at 7:57 am Leave a comment

A Paper You Might Want to Read

| Lasse Lien |

Here’s a link to the “online first” version of a new Org. Science paper by Peter and myself. This one has been in the pipeline for some time, and we’ve blogged about the WP version before, but this is the final and substantially upgraded version. Please read it and cite it, or we will be forced to kidnap your cat:

The survivor principle holds that the competitive process weeds out inefficient firms, so that hypotheses about efficient behavior can be tested by observing what firms actually do. This principle underlies a large body of empirical work in strategy, economics, and management. But do competitive markets really select for efficient behavior? Is the survivor principle reliable? We evaluate the survivor principle in the context of corporate diversification, asking if survivor-based measures of interindustry relatedness are good predictors of firms’ decisions to exit particular lines of business, controlling for other firm and industry characteristics that affect firms’ portfolio choices. We find strong, robust evidence that survivor-based relatedness is an important determinant of exit. This empirical regularity is consistent with an efficiency rationale for firm-level diversification, though we cannot rule out alternative explanations based on firms’ desire for legitimacy by imitation and attempts to temper multimarket competition.

2 December 2012 at 6:51 pm Leave a comment

Book Seminar: Institutional Foundations of Impersonal Exchange: The Theory and Policy of Contractual Registries

| Lasse Lien |

Very shortly O&M will host a Virtual Seminar on former guest blogger Benito Arruñada’s important new book, Institutional Foundations of Impersonal Exchange: The Theory and Policy of Contractual Registries (University of Chicago Press, 2012). The blurb:

Governments and development agencies spend considerable resources building property and company registries to protect property rights. When these efforts succeed, owners feel secure enough to invest in their property and banks are able use it as collateral for credit. Similarly, firms prosper when entrepreneurs can transform their firms into legal entities and thus contract more safely. Unfortunately, developing registries is harder than it may seem to observers, especially in developed countries, where registries are often taken for granted. As a result, policies in this area usually disappoint.

So stay tuned for this. While we are finalizing the last details of the virtual seminar, you may want to attend one of Benito’s presentations:

27 November 2012 at 3:23 am 1 comment

Now THAT’s a Principal-Agent Problem

| Lasse Lien |

The Swedish secret service has caused quite an uproar recently. Following a difficult year, the Chief of the agency decided to spend 5 million Swedish kroner on a James Bond themed (!) party to boost the morale among its 1,000 employees. That sum amounts to more than 750 USD per agent-slash-employee for one single party. The principals — the Swedish taxpayers — seem to think that this was way over the top, and evidence of imperfect interest alignment and agents acting in their self interest. Jokesters have also pointed out that if they had thrown a STASI or KGB-themed party instead, it would have been a tad less glamorous, but spending could have been more in line with the principals’ interests. I don’t know, but perhaps the Swedes will have to invest more in monitoring their monitors.

1 September 2012 at 11:03 am 1 comment

Part-time Work and Discursive Resistance and Foucault and Stuff

| Lasse Lien |

I both challenge and reify this:

Contributing to a Foucauldian perspective on ‘discursive resistance’, this paper theorizes how part-time workers struggle to construct a valid position in the rhetorical interplay between norm-strengthening arguments and norm-contesting counter-arguments. It is thereby suggested that both the reproductive and the subversive forces of resistance may very well coexist within the everyday manoeuvres of world-making. The analysis of these rhetorical interplays in 21 interviews shows how arguments and counter-arguments produce full-time work as the dominant discourse versus part-time work as a legitimate alternative to it. Analysing in detail the effects of four rhetorical interplays, this study shows that, while two of them leave unchallenged the basic assumptions of the dominant full-time discourse and hence tend instead to reify the dominant discourse, two other interplays succeed in contesting the dominant discourse and establishing part-time work as a valid alternative. The authors argue that the two competing dynamics of challenging and reifying the dominant are not mutually exclusive, but do in fact coexist.

Nentwich, J. and Hoyer, P. (2012), “Part-time Work as Practising Resistance: The Power of Counter-arguments.” British Journal of Management, forthcoming.

24 April 2012 at 2:22 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).
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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