Posts filed under ‘New Institutional Economics’
| 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.
| 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: http://www.degruyter.com/view/j/me
Deadline for submissions is September 30, 2014.
| Nicolai Foss |
In modern standard economics, property rights as an analytical category are mainly associated with the work of Oliver Hart, largely because of his important work, with Sanford Grossman, John Moore and others, on asset ownership in the context of the boundaries of the firm (the pioneering paper is here). Many modern (younger) economists don’t seem to know of the older property rights tradition, associated with Coase, Alchian, Demsetz, Cheung, Barzel, Furubotn, Umbeck, Alston, Libecap, Eggertson et al. Given the prevalent Whig interpretation of the evolution of economic theory, one may be led to the belief that the modern approach superseded or incorporated everything that was sound in the older, verbal approach, while advancing property rights thinking in rigorous game-theoretical terms.
With a frequent co-author, I have penned a paper, “Coasian and Modern Property Rights Economics: A Case of Kuhnian Lost Content,” that argues that such a view is false. In fact, we argue that there has been something akin to a Kuhnian “loss of content” (Kuhn, 1996) in the move from Mark I to Mark II property rights economics. What we call “property rights economics Mark II” is a more narrow approach in terms of the phenomena that are investigated, namely why it matters who owns the asset(s) in a relation that spans at least two stage of production in a value chain. In contrast, “property rights economics Mark I” was taken up with the complex and contingent nature of real ownership arrangements, and pointed to the many margins on which individual can exercise capture of rights, how they seek to protect their rights, the resources consumed in this process, and the role of institutions in facilitating and constraining such processes. This institutional research program is considerably richer than the one implied by Mark II property rights economics.
| Peter Klein |
A friend complains that management and entrepreneurship scholarship is confused about the concept of transaction costs. Authors rarely give explicit definitions. They conflate search costs, bargaining costs, measurement costs, agency costs, enforcement costs, etc. No one distinguishes between Coase’s, Williamson’s, and North’s formulations. “Transaction costs seem to be whatever the author wants them to be to justify the argument.”
It’s a fair point, and it applies to economics (and other social sciences and professional fields) too. I remember being asked by a prominent economist, back when I was a PhD student writing under Williamson, why transaction costs “don’t simply go to zero in the long run.” Indeed, contemporary organizational economics mostly uses terms like “contracting costs,” and since 1991 Williamson has tended to use “maladaptation costs” (while retaining the term “transaction cost economics”).
When I teach transaction costs I typically assign Doug Allen’s excellent 2000 essay from the Encyclopedia of Law and Economics and Lee and Alexandra Benhams’ more recent survey from my Elgar Companion to Transaction Cost Economics (unfortunately gated). Doug, for example, usefully distinguishes between a “neoclassical approach,” in which transaction costs are the costs of exchanging well-defined property rights, and a “property-rights approach,” in which transaction costs are the costs of defining and enforcing property rights.
What other articles, chapters, and reviews would you suggest to help clarify the definition and best use of the “transaction costs”? Or should we avoid the term entirely in favor of narrower and more precise words and phrases?
| Peter Klein |
Some interesting review issues and special collections are hot off the virtual presses. The Journal of Management has just released its annual review issue with a number of valuable papers, including this one of particular interest to the O&M crowd:
The Many Futures of Contracts: Moving Beyond Structure and Safeguarding to Coordination and Adaptation
Donald J. Schepker, Won-Yong Oh, Aleksey Martynov, and Laura Poppo
In this article, we review the literature on interfirm contracting in an effort to synthesize existing research and direct future scholarship. While transaction cost economics (TCE) is the most prominent perspective informing the “optimal governance” and “safeguarding” function of contracts, our review indicates other perspectives are necessary to understand how contracts are structured: relational capabilities (i.e., building cooperation, creating trust), firm capabilities, relational contracts, and the real option value of a contract. Our review also indicates that contract research is moving away from a narrow focus on contract structure and its safeguarding function toward a broader focus that also highlights adaptation and coordination. We end by noting the following research gaps: consequences of contracting, specifically outcome assessment; strategic options, decision rights, and the evolution of dynamic capabilities; contextual constraints of relational capabilities; contextual constraints of contracting capabilities; complements, substitutes, and bundles; and contract structure and social process.
The always-interesting Strategic Organization has also released a package of previously published papers as a virtual special issue titled “Whither Strategy?” I have a soft spot for anything using the word “whither,” but this is a great collection by any name. Check out the ToC:
- Advancing strategy and organization research in concert: Towards an integrated model? | Durand, R. 2012. Volume 10, Issue 3. pp.297-303
- The end of strategy? | Farjoun, M. 2007. Volume 5, Issue 3. pp.197-210
- Strategic organization: A field in search of micro-foundations | Felin, T., & Foss, N.J. 2005. Volume 3, Issue 4. pp.441-455
- The disintegration of strategic management: it’s time to consolidate our gains | Hambrick, D.C. 2004. Volume 2, Issue 1. pp.91-98
- Stylized facts, empirical research and theory development in management | Helfat, C.E. 2007. Volume 5, Issue 2. pp.185-192
- So you call that research?: mending methodological biases in strategy and organization departments of top business schools | Heugens, P., & Mol, M.J. 2005. Volume 3, Issue 1. pp.117-128
- Process thinking in strategic organization | Langley, A. 2007. Volume 5, Issue 3. pp.271-282
- The field of strategic management within the evolving science of strategic organization | Mahoney, J.T., & McGahan, A.M. 2007. Volume 5, Issue 1. pp.79-99
- Walking the walk as well as talking the talk: replication and the normal science paradigm in strategic management research | Mezias, S.J., & Regnier, M.O. 2007. Volume 5, Issue 3. pp.283-296
- Paradigm prison, or in praise of atheoretic research | Miller, D. 2007. Volume 5, Issue 2. pp.177-184
- The Strategy Research Initiative: Recognizing and encouraging high-quality research in strategy | Oxley, J.E., Rivkin, J.W., & Ryall, M.D. 2010. Volume 8, Issue 4. pp.377-386
- The brain as substitute for strategic organization | Powell, T.C., & Puccinelli, N.M. 2012. Volume 10, Issue 3. pp.207-214
- The cultural side of value creation | Ravasi, D., Rindova, V., & Dalpiaz, E. 2012. Volume 10, Issue 3. pp.231-239
- A sociological perspective on strategic organization | Ruef, M. 2003. Volume 1, Issue 2. pp.241-251
- Strategy-as-practice meets neo-institutional theory | Suddaby, R., Seidl, D., & Le, J.K. 2013. Volume 11, Issue 3. pp.329-344
- How to connect strategy research with braoder issues that matter? | Vaara, E., & Durand, R. 2012. Volume 10, Issue 3. pp.248-255
- Big Strategy/Small Strategy | Whittington, R. 2012. Volume 10, Issue 3. pp.263-268
Those of you attending this weekend’s ASSA meeting in Philadelphia may want to catch a great session sponsored by ISNIE and titled “The Economic Institutions of Higher Education.” I am presenting along with Henry Manne and Sarah Smith; Scott Masten is chairing and discussants are Bob Gibbons, Henry Hansmann, and Jeff Furman. The session is Saturday, January 4 at 2:30pm in the Philadelphia Marriott, Grand Ballroom, Salon L
| Peter Klein |
It’s been another fine year at O&M. 2013 witnessed 129 new posts, 197,531 page views, and 114,921 unique visitors. Here are the most popular posts published in 2013. Read them again for entertainment and enlightenment!
- Rise of the Three-Essays Dissertation
- Ronald Coase (1910-2013)
- Sequestration and the Death of Mainstream Journalism
- Post AoM: Are Management Types Too Spoiled?
- Nobel Miscellany
- The Myth of the Flattening Hierarchy
- Climate Science and the Scientific Method
- Bulletin: Brian Arthur Has Just Invented Austrian Economics
- Solution to the Economic Crisis? More Keynes and Marx
- Armen Alchian (1914-2013)
- My Response to Shane (2012)
- Your Favorite Books, in One Sentence
- Does Boeing Have an Outsourcing Problem?
- Doug Allen on Alchian
- New Paper on Austrian Capital Theory
- Hard and Soft Obscurantism
- Mokyr on Cultural Entrepreneurship
- Microfoundations Conference in Copenhagen, June 13-15, 2014
- On Academic Writing
- Steven Klepper
- Entrepreneurship and Knowledge
- Easy Money and Asset Bubbles
- Blind Review Blindly Reviewing Itself
- Reflections on the Explanation of Heterogeneous Firm Capability
- Do Markets “React” to Economic News?
Thanks to all of you for your patronage, commentary, and support!
| Peter Klein |
The ISNIE 2014 Call for Papers is now available. The conference is at Duke University, 19-21 June 2014, home of President-Elect and Program Committee Chair John de Figueiredo. Bob Gibbons and Timur Kuran are keynote speakers. ISNIE is one of our favorite conferences, so please consider submitting a proposal! Submissions are due 30 January 2014.
| Peter Klein |
Here is a symposium on Doug Allen’s very important book The Institutional Revolution (Chicago, 2011). The symposium features essays by Deirdre McCloskey, Joel Mokyr and José-Antonio Espín-Sánchez, and our own Dick Langlois, along with a reply by Doug. The issue revolves around the role of measurement, and Doug’s thesis that reductions in measurement costs are central to improved economic performance.
My favorite line, from Doug’s reply:
I have read “The Problem of Social Cost” more times than I can recall, and study as I may, I have never found a logical error in it. But here is the point: if the author, both at the time and 30 years later, still failed to fully grasp his own perfect work, then it is an understatement to note that the ideas are subtle.
| Dick Langlois |
I have recently become involved with a new organization that many readers may be interested in. It’s called the World Interdisciplinary Network for Institutional Research (WINIR). From the website:
WINIR is a specialist but global network. It is set up to complement rather than rival other organisations that have the study of institutions on their agenda. Unconfined to any single academic discipline, it accepts contributions from any approach that can help us understand the nature and role of institutions. While other organisations are intended to act as broad forums for all kinds of research in the social sciences, WINIR aims to build an adaptable and interdisciplinary theoretical consensus concerning core issues, which can be a basis for cumulative learning and scientific progress in the exciting and rapidly-expanding area of institutional research.
You can learn more and sign up here. If you join now, you will be considered a founding member. WINIR is tentatively planning a conference for next year near London and one the year after that in Rio.
| Peter Klein |
From Jill Bradbury:
The herd strays; crops die.
Who pays? Gain and harm are weighed.
Not Pigou’s frayed nerves.
Feel free to try your hand in the comments.
| Peter Klein |
Ronald Coase passed away today at the age of 102. One of the most influential economists of the 20th century, perhaps of all time. His “Problem of Social Cost” (1960) has 21,692 Google Scholar cites, and “The Nature of the Firm” has 24,501. Adam Smith’s Wealth of Nations, summed across editions, has about 30,000. Coase changed the way economists think about the business firm and the way they think about property rights and liability. He largely introduced the concepts of transaction costs, comparative institutional analysis, and government failure. Not all economist have agreed with his arguments and conceptual frameworks, but they radically changed the terms of debate in the economics of law, welfare, industry, and more. He is the key figure in the “new institutional economics” (and co-founder, and first president, of the International Society for New Institutional Economics).
Coase did all these things despite — or because of? — not holding a PhD in economics, not doing any math or statistics, and not, for much of his career, working in an economics department.
We’ve written so much on Coase already, on these pages and in our published work, that it’s hard to know what else to say in a blog post. Perhaps we should just invite you to browse old O&M posts mentioning Coase (including this one, posted last week).
The blogosphere will be filled in the coming days with analyses, reminiscences, and tributes. You can find your favorites easily enough (try searching Twitter, for example). I’ll just share two of my favorite memories. The first comes from the inaugural meeting of the International Society for New Institutional Economics in 1997. After a discussion about the best empirical strategy for that emerging discipline. Harold Demsetz stood up and said “Please, no more papers about Fisher Body and GM!” Coase, who was then at the podium, surprised the crowd by replying, “I’m sorry, Harold, that is exactly the subject of my next paper!” (That turned out to be his 2005 JEMS paper, described here.) A few years later, I helped entertain Coase during his visit to the University of Missouri for the CORI Distinguished Lecture. At lunch we talked about his disagreement with Ben Klein on asset specificity. After the lunch he got up, shook my hand, and announced, with evident satisfaction: “I see all Kleins are not alike.”
| Peter Klein |
Economists and management scholars know Stuart Macaulay’s landmark 1963 article, “Non-Contractual Relations in Business: A Preliminary Study,” as the foundation for modern work in relational contracting. As Williamson (1985, p. 10) put it, “Macaulay’s studies of contractual practices support the view that contractual disputes and ambiguities are more often settled by private ordering than by appeal to the courts — which is in sharp contrast with the neoclassical presumptions of both law and economics.” A new book on Macaulay has promoted a symposium over at the ContractsProf Blog. I’m particularly looking forward to this week’s contributions, especially the one from Gillian Hadfield.
| Peter Klein |
ISNIE is holding its annual conference next week in Florence. I hope to see many O&Mers there. Eric Maskin and Samuel Bowles are keynoting, and there are special tracks or sessions to honor Elinor Ostrom (who passed away last year) and Oliver Williamson (who recently turned 80).
| Dick Langlois |
In September I will be part of a symposium on “Institutions and Economic Change,” organized by Geoff Hodgson’s Group for Research in Organisational Evolution. The workshop will be held on 20-21 September 2013 at Hitchin Priory, Hitchin, Hertfordshire, England. Here is the program and call for participation:
Masahiko Aoki (Stanford University, USA)
“Between the Economy and the Polity: Causation or Correlation. Theory and a Historical Case from China”
Francesca Gagliardi (University of Hertfordshire, UK)
“A Bibliometric Analysis of the Literature on Institutional Complementarities”
Geoffrey Hodgson (University of Hertfordshire, UK)
“A Manifesto for Legal Institutionalism”
Jack Knight (Duke University, USA)
“Courts and Institutional Change”
Suzanne Konzelmann (Birkbeck College, University of London, UK)
“‘Picking winners’ in a Liberal Market Economy: Modern Day Heresy – or Essential Strategy for Competitive Success?”
Richard Langlois (University of Connecticut, USA)
“The Institutional Revolution: A Review Essay”
Ugo Pagano (University of Siena, Italy)
“Synergy, Conflict and Institutional Complementarities”
Abstracts are available on this GROE webpage: uhbs-groe.org/workshops.htm
This workshop is designed to provide in-depth discussion of cutting-edge issues, in a forum that permits the attention to detail and definition that is often lacking in larger, conference-style events. The expected maximum number of participants is 50. Our past Workshops have filled up rapidly, so please book early to avoid disappointment. The workshop will include a poster session where participants may present their research, as long as it is related to the workshop theme. To apply to be included in the poster session send an abstract of your paper to Francesca Gagliardi (firstname.lastname@example.org). To reserve a place on the workshop please visit store.herts.ac.uk/groeworkshop
| Peter Klein |
| Peter Klein |
The Center for Institutional Studies at Russia’s Higher School of Economics sponsors an annual summer school “aimed at creating and supporting the academic network of young researchers from all regions of Russia as well as from CIS and other countries, who work in the field of New Institutional Economics.” This year’s conference is 29 June – 5 July in Moscow, and the faculty includes former O&M guest blogger Scott Masten along with John Nye, Russell Pittman, Garrett Jones, and many others. The full program, along with registration and other info, is available at the conference site.
| 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.
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.
| 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: