Posts filed under ‘Papers’
Perceptions of Opportunities – Part 2
| Peter Lewin |
The second review article in the latest issue of AMR by Venkataraman, Sarasvathy, Dew, and Forster (VSDF) is more ambitious than the first by Shane, discussed in Part 1. In fact one might describe the ambition motivating the article as grandiose. VSDF “seek to recast entrepreneurship as a science of the artificial” an entirely new way of looking at entrepreneurship in the interest of uncovering (what I take to be universal) principles that can serve as the basis of a new empirical and policy-useful science of entrepreneurship. [I see this article as a companion piece to the article by Sarasvathy and Venkataraman (SV) in ET&P January, 2011, in which this grandiose vision is even more apparent.]
The science of the artificial(supposedly a distinct category of science from natural or social science) is derived from the work of Herbert Simon (1996).
As a theory develops it splits into two streams: (1) “basic” research that continues to refine the causal explanations and (2) “applied” research that seeks to alter the variables of explanation. At that point the phenomenon of interest has become an artifact. …
A science of the artificial is interested in phenomena that can be designed [and controlled]. … Design lies is the choice of the boundary values; control lies in the means to change them. (24).
So a useful theory is itself an artifact something that can be used to understand and (importantly) control aspects of the (social) world. And, I suppose, the new science of entrepreneurship will eventually develop such artifacts. [At the end of the article they talk about “recasting opportunities as artifacts” – so I am not sure how this is all connected.]
My lack of expertise regarding the work of Herbert Simon (something which I am now more encouraged to remedy) prevents me from pronouncing with confidence on this part of the article. Suffice it to say that the meaning and contribution of this new “science of the artificial” is far from clear to me. I am left with a feeling that if it is indeed such an important and path-breaking meta-scientific turn, the authors should be able to explain it better. It should be more accessible and transparent. I am left highly skeptical, but I urge readers of this post to read the article and perhaps enlighten me and others. (more…)
Perceptions of Opportunities – Part 1
| Peter Lewin |
The January 2012 issue of the AMR (available here for subscribers or those with academic access) features two review articles assessing the progress of the “Promise” examined in the well-known article by Scott Shane and Sankaran Venkataraman (AMR 2000: The Promise of Entrepreneurship as a Field of Research) — one from each of the original co-authors. The first is an interesting, if somewhat pedestrian, article by Scott Shane. The second is a much more profound and ambitious contribution by Venkataraman together with Saras Sarasvathy, Nicholas Dew, and William Forster.
In the decade since that article there has, indeed, been a significant shift in the focus of research in entrepreneurship. Most notable, perhaps, is the focus on entrepreneurial “opportunities” — familiar to Austrian economists from the work of Israel Kirzner, but by now a standard element in the story. Each of the articles spends considerable time revisiting questions about the nature of entrepreneurial opportunities and provides its own resolutions. Here I will provide just a quick overview of this part of Shane’s article. (I intend to provide one for the second article soon).
In considering the “nexus of opportunities and individuals” offered originally in “Promise” as a reason to shift attention from the person to the function, Shane addresses the question of whether entrepreneurial opportunities should be considered “objective” or “subjective” — a question that has proliferated in this research stream, albeit with varying focus and terminology. The problem is, it seems to me, that the notion of “opportunity” is one that depends on the formation of a mental image by some individual or individuals. Opportunity implies plan — a plan of action to use, transform, combine, existing resources in a profitable way. Without the plan there is just the world. So how can “opportunity” be objective? This is related to the question: are opportunities “discovered” (Alvarez and Barney: Organizaҫões em Contexto, 2007) or are they created; or in the words of Venkataraman, et. al. are they made or found? (more…)
Are We Quacks?
| Lasse Lien |
Rich Bettis makes an important point in a forthcoming issue of SMJ. Bettis points out how two unfortunate practices interact with each other to create a very serious and fundamental problem for knowledge accumulation in (strategic) management.
One is the widespread practice of running numerous regressions on a given dataset and subsequently adapting (or in milder cases “tuning”) hypotheses or theory to fit the data. By itself this practice is quite unfortunate, since data patterns can and will occur by chance, and the more regression models one tries the more likely that one will “find” something. We obviously do not want such random patterns to influence either theory building or our catalog of empirical findings. However, this problem would be a great deal less serious if replication studies were common and we gladly published non-findings. Random correlations in the data would not survive replication tests, and would be eliminated fairly quickly.
As we all know, in management, replication studies cannot get published and are basically just not done. To make matters worse, we don’t publish non-findings either. This is the second unfortunate practice. Taken together these two practices may in the worst case indicate that much of what we think we know in management are just random data patterns, discovered through data mining, and protected by our lack of replication studies and refusal to publish non-findings. This is a sobering thought. As Bettis points out, we should all be very thankful that replication studies are more common in medical research than in management.
What is the solution? Well, a first step might be to launch the Journal of Managerial Replication Studies and give it the prestige it deserves. Either SMS or AOM should see the launch of such a journal as a crucial responsibility. I mean, we really don’t want to be quacks, do we?
HT: Helge Thorbjørnsen
Entrepreneurial Paradoxes and Simulations
| Peter Lewin |
Back from the SEA meetings in Washington DC, the venue for our annual SDAE conference and membership meeting. At the annual banquet we honored Leonard Liggio for his contribution to the teaching of Austrian economics. Dick Wagner gave the presidential address. Both received a standing ovation.
The panels were well attended and, from what I could tell, the quality very high. I presented my paper on Entrepreneurial Paradoxes (which has been around for a while). Young Bak Choi commented on it and presented an interesting paper on the role of entrepreneurship in economic development and development policy. David Harper and Anthony Endres presented a paper on another variation on the theme of heterogeneous capital and its structure. Perhaps most interesting was a paper by a strategic management Ph.D candidate at York University, Mohammad Keyhani (co-authored with Moren Lévesque), on “The Role of Entrepreneurship in the Market Process: A Simulation Study of The Equilibrating and Disequilibrating Effects of Opportunity Creation and Discovery.” Randy Holcombe commented. Interesting that the issue of equilibration is considered important enough to investigate with simulations. But it raises some important questions. My own current view, having spent a lifetime contemplating the issue, is that we are no nearer an answer than we ever were, and that perhaps the more important distinction is between entrepreneurial actions that add value and those that do not.
Next year’s meetings will be in New Orleans. The president-elect of the SDAE is Larry White. He will be putting together the panels. So if you have an interest in presenting a paper, discussing one, or chairing a panel, let him know (lwhite11@gmu.edu).
In the Journals
| Peter Klein |
Three newly published papers of likely interest to O&Mers:
- Jeffrey L. Furman and Scott Stern, “Climbing atop the Shoulders of Giants: The Impact of Institutions on Cumulative Research,” American Economic Review 101, no. 5 (August 2011).
While cumulative knowledge production is central to growth, little empirical research investigates how institutions shape whether existing knowledge can be exploited to create new knowledge. This paper assesses the impact of a specific institution, a biological resource center, whose objective is to certify and disseminate knowledge. We disentangle the marginal impact of this institution on cumulative research from the impact of selection, in which the most important discoveries are endogenously linked to research-enhancing institutions. Exploiting exogenous shifts of biomaterials across institutional settings and employing a difference-in-differences approach, we find that effective institutions amplify the cumulative impact of individual scientific discoveries.
- Antti Kauhanen, “The Perils of Altering Incentive Plans: A Case Study,” Managerial and Decision Economics 32, no. 6 (September 2011).
This paper studies a retail chain that introduced a sales incentive plan that rewarded for exceeding a sales target and subsequently cut the incentive intensity in addition to increasing the target. Utilizing monthly panel data for 54 months for all 53 units of the chain the paper shows that the introduction of the sales incentive plan increased sales and profitability, whereas the changes in the plan lead to a marked drop in sales and profitability. Thus, modifying the incentive plan proved costly for the firm. The results are consistent with the gift-exchange model of labor contracts.
- Oriana Bandiera, Iwan Barankay, and Imran Rasul, “Field Experiments with Firms,” Journal of Economic Perspectives 25, no. 3 (Summer 2011).
We discuss how the use of field experiments sheds light on long-standing research questions relating to firm behavior. We present insights from two classes of experiments—within and across firms—and draw common lessons from both sets. Field experiments within firms generally aim to shed light on the nature of agency problems. Along these lines, we discuss how field experiments have provided new insights on shirking behavior and the provision of monetary and nonmonetary incentives. Field experiments across firms generally aim to uncover firms’ binding constraints by exogenously varying the availability of key inputs such as labor, physical capital, and managerial capital. We conclude by discussing some of the practical issues researchers face when designing experiments and by highlighting areas for further research.
“Micro Chauvinists” Pushing Back …
| Nicolai Foss |
A reviewer of a recent book proposal by Teppo Felin and me (which was accepted, BTW; details later) had the effrontery to note that “Felin and Foss get considerable pushback when they take a strong stand on methodology.” Of course, this reviewer got it all wrong. To wit:
- Teppo and I recently published “The endogenous origins of experience, routines and organizational capabilities: The poverty of stimulus” in the Journal of Institutional Economics, accompanied by critical comments by Sidney Winter, Brian Pentland, Geoff Hodgson and Thorbjørn Knudsen. Here is our response to the comments of our critics. The response has been accepted for publication in the Journal of Institutional Economics.
- In a recent paper in Sociological Theory, influential sociologists Ronald Jepperson and John W Meyer took issue with the rampant “micro-chauvinism” that, in their opionion, increasingly dominates social science, and called for multi-level explanation that admits a role for causation that (in some unexplained fashion) takes place at levels above that of individuals. In this brief note, Teppo and I (and Peter Abell of LSE) take issue with their arguments, and argue that they fundamentally misunderstand methodological individualism and its crucial role in understanding those phenomena that are “multi-level”, “complex” and “emergent.”
Thus, the macro chauvinists are the ones who are getting the pushback ;-)
“A Simple Model of the Evolution of Simple Models of Evolution”
| Lasse Lien |
If you don’t think this title is cool there is something very wrong with you. Here is the associated abstract:
Abstract: In the spirit of the many recent simple models of evolution inspired by statistical physics, we put forward a simple model of the evolution of such models. Like its objects of study, it is (one supposes) in principle testable and capable of making predictions, and gives qualitative insights into a hitherto mysterious process.
And this is the essence of the simple model(2):
- A physicist runs across or concocts from whole cloth a mathematical model which is simple, neat, and contains a great many variables of the same sort.
- The physicists has heard of Darwin (1859), and may even have read Dawkins (1985) or some essays by Gould, but wouldn’t know Fisher (1958), Haldane (1932), and Wright (1986) from the Three Magi, and doesn’t dream that such a subject as mathematical evolutionary biology exists.
- The physicist is aware that lots of other physicists are interested in annexing biology as a province of statistical physics.
- The physicist interprets his multitude of variables as species or (if slightly more sophisticated) as genotypes, and proclaims that he has found “Darwin’s Equations” (cf. Bak et al. (1994)), or, more modestly, has made an important step towards eventually finding those equations.
- His paper is submitted for review to other physicists, who are just as ignorant of biology as he, but see that it’s about equivalent to the other papers on evolution by physicists. They publish it.
- The paper is read by other physicists, because at least it’s not another derivation of specific heats on some convoluted lattice under a Hamiltonian named for some Central European worthy now otherwise totally forgotten. Said physicists think this is cutting-edge evolutionary theory.
- Some of those physicists will know or discover simple, neat models with lots of variables of the same type.
(Shalizi and Tozier, 1999, p. 2)
What could substitute for physics and evolution here if we wanted to make a social science analogy? I think game theory could play the role of physics in many cases. What else?
Overdue on Boundaries/Crises
| Lasse Lien |
Good papers often seem like they are long overdue. One can’t help but wonder why they weren’t written a long time ago since the questions they raise are of such obvious interest and importance. In that sense I think this paper qualifies as overdue:
Abstract: How economic crises impact the boundaries of firms has been offered virtually no attention in the literature on the theory of the firm. I review the best-known theories of the firm and identify the variables that matter for the explanation of firm boundaries. I then examine how an economic crisis may impact these variables and change efficient firm boundaries. The various theories of the firm have difficulties explaining how firms efficiently adapt their boundaries to such prominent characteristics of economic crisis as declining demand and increased costs of external finance. However, all these theories stress uncertainty as an antecedent of firm organization, and as uncertainty is also an important characteristic of an economic crisis I examine how uncertainty is allowed to play out in the various theories in order to identify what predictions we can derive from the theory regarding changes in efficient firm boundaries as consequence of changes in uncertainty. The analysis suggests that we need to be more precise in describing the nature of the uncertainty that is assumed in the various theories. Moreover, allowing for changes in levels of uncertainty requires that we take the processes of boundary changes into account in the theory of firm boundaries.
Foss, Kirsten. 2010. How do economic crises impact firm boundaries? European Management Review7: 217–27.
More on Selective Intervention
| Nicolai Foss |
“Selective intervention” and the more narrow notion of the “impossibility of selective intervention” are among the more elusive notions in the theory of the firm. We have blogged on them a number of times (the most explicit treatment is here). Coined by Oliver Williamson, selective intervention simply means intervention to produce net gains. Thus defined, selective intervention is, of course, not “impossible.” The” impossibility” refers to the conjecture that firms cannot just be grown continuously by selective intervention; at some point various commitment and enforcement problems associated with managerial intervention kicks in, resulting in zero net gains. However, demonstrating this is a “puzzle.”
A new paper, “Solving the Selective Intervention ‘Puzzle’,” by noted French economist, Jacques Cremer, usefully places the problem in context, provides a nice overview of the extant literature, and argues that the problem has essentially been solved:
I have shown that the common thread to all the solutions is the fact that the principal stays in the game” after the contract is signed, and cannot commit himself to a policy which would make the world similar to the world in which there would be no vertical integration. On this basis, solutions that stress incompleteness of contracts, the change in the allocation of authority, the change in the amount of information available to the principal, all provide solutions that are theoretically consistent, and, furthermore, often not incompatible with each other. Determining which solution provides a better guide to applied analysis requires an examination of other features of the model.
Academic Nepotism in Italy
| Lasse Lien |
In case you wonder the author of this paper — Stefano Allesina — works in Chicago:
Abstract: Nepotistic practices are detrimental for academia. Here I show how disciplines with a high likelihood of nepotism can be detected using standard statistical techniques based on shared last names among professors. As an example, I analyze the set of all 61,340 Italian academics. I find that nepotism is prominent in Italy, with particular disciplinary sectors being detected as especially problematic. Out of 28 disciplines, 9 – accounting for more than half of Italian professors – display a significant paucity of last names. Moreover, in most disciplines a clear north-south trend emerges, with likelihood of nepotism increasing with latitude. Even accounting for the geographic clustering of last names, I find that for many disciplines the probability of name-sharing is boosted when professors work in the same institution or sub-discipline. Using these techniques policy makers can target cuts and funding in order to promote fair practices.
Allesina, S. (2011). “Measuring Nepotism through Shared Last Names: The Case of Italian Academia.” PLoS ONE 6(8): e21160. doi:10.1371/journal.pone.0021160
Two New Papers …
| Nicolai Foss |
… by Yours Truly. The Academy of Management Review just published my paper with Siegwart Lindenberg, “Managing Joint Production Motivation: The Role of Goal Framing and Governance Mechanisms,” and Organization Science just published “Linking Customer Interaction and Innovation: The Mediating Role of New Organizational Practices,” by me, Keld Laursen and Torben Pedersen. Here are the abstracts: (more…)
The Decline of Peer Review
| Dick Langlois |
Glenn Ellison has a paper in the new issue of Economic Inquiry called “Is Peer Review in Decline?” Here’s the abstract.
Over the past decade, there has been a decline in the fraction of papers in top economics journals written by economists from the highest ranked economics departments. This paper documents this fact and uses additional data on publications and citations to assess various potential explanations. Several observations are consistent with the hypothesis that the Internet improves the ability of high profile authors to disseminate their research without going through the traditional peer review process.
An alternative explanation is that the distribution of productivity among departments has gotten flatter, and Ellison can’t definitively reject that possibility. (Luigi Zingales and his coauthors had argued that the Internet has reduced the advantages for productivity of being at a top university.) But the explanation Ellison favors has to do with the increasing costs of the review process, especially at top field journals, where editors (he claims) have been increasingly demanding revisions. Because the costs of the review process are high and the benefits modest for prestigious authors, they increasingly avoid these journals.
Productivity: The Mother of (Nearly) All Good Things
| Lasse Lien |
The mother of all good (material) things is productivity growth. Competitive advantage, firm level growth and survival, profits, economy-wide economic growth, job creation, and destruction, etc. are all outcomes that depend critically on relative productivity and productivity changes. So if you understood productivity really well, you would understand a lot about (material) outcomes across firms, industries and countries, too.
Also, if one wants to advance “the human condition” it is presumably better to advance the understanding of productivity than profits, since profits are contaminated by market power. Profit maximization is good because – or to the degree – it tends to raise productivity. So while profit maximization and competition are means, productivity growth is the goal.
Though few would argue against the fundamental importance of productivity, productivity is nevertheless quite rarely used as a dependent (or independent) variable in strategy, organizational economics, organization theory, leadership, innovation, etc. The reason is probably that the considerable problems associated with measuring productivity has scared us into focusing on more easily observable variables, such as accounting profits, Tobin’s Q, EVA, sales growth, survival, etc.
However, there is a large literature in economics that attacks productivity head on, and tries to elucidate its determinants. Though there is an unfortunate bias towards manufacturing in this literature (due to measurement issues), the findings from this research stream still makes extremely interesting reading (IMHO). Here is a recent review of the key findings from the past decade:
Economists have shown that large and persistent differences in productivity levels across businesses are ubiquitous. This finding has shaped research agendas in a number of fields, including (but not limited to) macroeconomics, industrial organization, labor, and trade. This paper surveys and evaluates recent empirical work addressing the question of why businesses differ in their measured productivity levels. The causes are manifold, and differ depending on the particular setting. They include elements sourced in production practices — and therefore over which producers have some direct control, at least in theory — as well as from producers’ external operating environments. After evaluating the current state of knowledge, I lay out what I see are the major questions that research in the area should address going forward. (JEL D24, G31, L11, M10, O30, O47)
Syverson, Chad. 2011. “What Determines Productivity?” Journal of Economic Literature 49(2): 326–65.
Do Senior Managers Make Better Decisions Than Students?
| Nicolai Foss |
Even management students may occasionally suffer from confidence and self-esteem problems. I have had many students confide that they were more than a little scared at the prospect of landing a real job where their decision-making skills would be compared to older, wiser, smarter, etc. colleagues. Rather than directing them to this site, in the future I am going to give such students a copy of Gary E. Bolton, Axel Ockenfels and Ulrich Thonemann’s “Who Is the Best at Making Decisions? Managers or Students?” They set up a simple experiment based on a simple profit maximizing problem, and find that practitioner performance isn’t as good as graduate business students’. Moreover, the learning curve of the latter is steeper than that of practicioners. (more…)
More on Free Speech
| Nicolai Foss |
We have blogged a number of times in the past on (the economics of) free speech. John Stuart Mill is, of course, the towering figure when it comes to philosophical defenses of free speech. Here is a recent working paper, “Speech, Truth, and Freedom: An Examination of John Stuart Mill’s and Justice Oliver Wendell Holmes’s Free Speech Defenses,” that compares Mill with Holmes’ views, undertakes a dehomogenization exercise, and argues that their different free speech positions are rooted in different underlying views of liberty. For free speech afficionados, perhaps, but still recommended.
Klein Even Bigger
| Lasse Lien |
More has been added to Peter’s already considerable pile of honors and distinctions. This time it’s the European Management Review’s best paper award for 2010 for “Toward a Theory of Public Entrepreneurship,” European Management Review 7: 1-15 (2010) by Peter G. Klein, Joseph T. Mahoney, Anita M. McGahan, and Christos N. Pitelis. (Here’s the version at the publisher’s website.)
Congratulations to Peter and coauthors!
Frank Knight and the Austrians
| Peter Klein |
At this year’s Austrian Scholars Conference I gave a presentation playfully titled “Frank H. Knight: The Forgotten Austrian.” The title was tongue-in-cheek, of course, as Knight was no Austrian. Though friendly with Hayek personally, Knight was a harsh critic of Austrian capital theory, particularly as formulated by Böhm-Bawerk and Hayek. (Knight conceived capital as a permanent fund of value, with interest determined by the technical marginal productivity of capital, rejecting notions of production structures and time preference.) Knight was also a key developer of perfect competition theory — anathema to Austrians — though mainly to illustrate the importance of uncertainty, not to serve as a welfare bechmark.
Still, there are many interesting similarities between Knightian and Austrian economics. Regular readers of O&M already know that Mises’s approach to entrepreneurship, uncertainty, and the firm is basically the same as Knight’s. Knight rejected positivism, calling it “the emotional pronouncement of value judgments condemning emotion and value judgments” (Knight, 1940). He often sounded like a Misesian praxeologist: “If anyone denies that men have interests or that ‘we’ have a considerable amount of knowledge about them, economics and its entire works will simply be to such a person what the world of color is to the blind man” (Knight, 1956). Indeed, critics dismiss Knight’s epistemological writings as “extended Austrian-style disquisitions on the foundations of human knowledge and conduct and the like” (LeRoy and Singell, 1987) — the ultimate insult! (more…)
Entirely New Working Paper Approach
| Lasse Lien |
Here’s a new WP of mine (with T. Hillestad). Check out the sublimely boring title. We figure that the more boring we can make the title, the better what follows will appear. Earlier I have tended to do it the other way around, i.e. fancy title and intensely boring thereafter.
Recession, HR and Change
We document how the recession in the wake of the financial crisis created a general surge in pro-change attitudes and behavior. Next, we examine variation across firms with respect to this change boost. In particular we focus on how and why a firm’s use of HR-measures such as training, pay changes and layoffs matters. We find that training and layoffs increases the relative size of the effect, while pay cuts reduce it. We make sense of these findings by looking at managers’ choice among HR-measures as a signal used by employees to determine their employment risk. The level of employment risk is in turn linked to employees’ investments in change in a nonlinear, U-shaped fashion.
More on Routines
| Nicolai Foss |
The Journal of Institutional Economics, now in its seventh year of operation, is emerging as an important outlet in the intersection of new and old institutional economics, evolutionary economics and other more or less heterodox approaches. In addition, Geoff Hodgson and Benito Arrunada, the editors, are doing a splendid job of attracting contributions, not only from luminaries such as Richard Posner, but also from important non-economist thinkers whose work may have a bearing on economic issues (e.g., philosopher John Searle and evolutionary anthropologist Robin Dunbar).
The most recent issue of JoIE features a special issue on “Business Routines.” The SI includes particularly thoughtful essays by Ulrich Witt and Jack Vromen. As readers of this blog will know, probably ad nauseam, Teppo Felin and I have repeatedly discussed the troubling lack of micro-foundations for understanding the emergence, stability, change, etc. of routines (and other similar constructs, like capabilities). We also have a paper in the SI, launching related, but different critiques. Specifically, we explicate the behaviorist and empiricist foundations of the organizational routines and capabilities literature and the extant emphasis placed on experience, repetition, and observation as the key antecedents and mechanisms of routines and capabilities.
This paper is followed by three comments by Sidney Winter, Brian Pentland, and Geoff Hodgson and Thorbjørn Knudsen, respectively, that take critical (in the case of Pentland, extremely critical) issue with various aspects of our argument. Winter and Knudsen and Hodgson raise many fundamental points, but unfortunately Pentland has thoroughly misunderstood the nature of the micro-foundations projects we advocate, and therefore concludes that all we add to the field is “confusion.” Although there is no such thing as bad publicity, Teppo and I are working on a rejoinder to these comments. More to come!
If You’re Not a Cynic Yet, this Might Help…
| Lasse Lien |
Revolving Door Lobbyists
Jordi Blanes i Vidal, Mirko Draca, Christian Fons-Rosen.Abstract: Washington’s “revolving door” — the movement from government service into the lobbying industry — is regarded as a major concern for policy-making. We study how ex-government staffers benefit from the personal connections acquired during their public service. Lobbyists with experience in the office of a US Senator suffer a 24% drop in generated revenue when that Senator leaves office. The effect is immediate, discontinuous around the exit period and long-lasting. Consistent with the notion that lobbyists sell access to powerful politicians, the drop in revenue is increasing in the seniority of and committee assignments power held by the exiting politician.
By See the full paper here.
Ginsburg and Wright on Behavioral Law and Economics
| Dick Langlois |
Judge Douglas Ginsburg will be presenting a paper (written with Josh Wright) called “Behavioral Law and Economics: Its Origins, Fatal Flaws, and Implications for Liberty” at Columbia next week. I am on the mailing list for the Law and Economics Workshop at Columbia, so I received a copy of the paper as an email attachment; but the email specifically requests that the paper not be forwarded, so I won’t make it available here. I imagine Josh will post it eventually. But if you’re in NYC, you can hear the paper presented on Friday, February 25, 11:30am-1:00pm, in the Levien Room (Warren Hall, W. 116th near Morningside, across from the main law school building, 10th Floor).
The AER Canon
| Lasse Lien |
The American Economic Review is celebrating its 100th anniversary and, to commemorate, Volume 101, Issue 1 names the top 20 papers during its first 100 years as judged by the following committee: Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow. The list and the committee’s justification for including each paper can be found here. The committee admits using a combination of quantitative as well as qualitative criteria, but I cannot see that the list is idiosyncratic in any particular way. A balanced and reasonable canon IMHO:
Alchian, Armen A., and Harold Demsetz. 1972. “Production, Information Costs, and Economic Organization.”American Economic Review, 62(5): 777–95.
Arrow, Kenneth J. 1963. “Uncertainty and the Welfare Economics of Medical Care.” American Economic Review, 53(5): 941–73.
Cobb, Charles W., and Paul H. Douglas. 1928. “A Theory of Production.” American Economic Review,18(1): 139–65.
Deaton, Angus S., and John Muellbauer. 1980. “An Almost Ideal Demand System.” American Economic Review, 70(3): 312–26.
Diamond, Peter A. 1965. “National Debt in a Neoclassical Growth Model.” American Economic Review, 55(5): 1126–50.
Diamond, Peter A., and James A. Mirrlees. 1971. “Optimal Taxation and Public Production I: Production Efficiency.” American Economic Review, 61(1): 8–27.
Diamond, Peter A., and James A. Mirrlees. 1971. “Optimal Taxation and Public Production II: TaxRules.” American Economic Review, 61(3): 261–78.
Dixit, Avinash K., and Joseph E. Stiglitz. 1977. “Monopolistic Competition and Optimum Product Diversity.” American Economic Review, 67(3): 297–308.
Friedman, Milton. 1968. “The Role of Monetary Policy.” American Economic Review, 58(1): 1–17.
Grossman, Sanford J., and Joseph E. Stiglitz. 1980. “On the Impossibility of Informationally Efficient Markets.” American Economic Review, 70(3): 393–408.
Harris, John R., and Michael P. Todaro. 1970. “Migration, Unemployment and Development: A Two-Sector Analysis.” American Economic Review, 60(1): 126–42.
Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30.
Jorgenson, Dale W. 1963. “Capital Theory and Investment Behavior.” American Economic Review, 53(2): 247–59.
Krueger, Anne O. 1974. “The Political Economy of the Rent-Seeking Society.” American Economic Review, 64(3): 291–303.
Krugman, Paul. 1980. “Scale Economies, Product Differentiation, and the Pattern of Trade.” American Economic Review, 70(5): 950–59.
Kuznets, Simon. 1955. “Economic Growth and Income Inequality.” American Economic Review, 45(1): 1–28.
Lucas, Robert E., Jr. 1973. “Some International Evidence on Output-Inflation Tradeoffs.” American Economic Review, 63(3): 326–34.
Modigliani, Franco, and Merton H. Miller. 1958. “The Cost of Capital, Corporation Finance and the Theory of Investment.” American Economic Review, 48(3): 261–97.
Mundell, Robert A. 1961. “A Theory of Optimum Currency Areas.” American Economic Review,51(4): 657–65.
Ross, Stephen A. 1973. “The Economic Theory of Agency: The Principal’s Problem.” American Economic Review, 63(2): 134–39.
Shiller, Robert J. 1981. “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?” American Economic Review, 71(3): 421–36.
Another Field Experiment
| Lasse Lien |
As previously pointed out, field experiments are rare. Here is another. This one is on the quality of decision making. I guess the authors’ finding that men are more consistent (i.e. rational) decision makers than women will raise an eyebrow or two. I don’t know about other male O&M readers, but I am definitely taking home a copy to show my wife.
Who Is (More) Rational?
Syngjoo Choi, Shachar Kariv, Wieland Müller, and Dan SilvermanyRevealed preference theory offers a criterion for decision-making quality: if decisions are high quality then there exists a utility function that the choices maximize. We conduct a large-scale field experiment that enables us to test subjects’ choices for consistency with utility maximization and to combine the experimental data with a wide range of individual socioeconomic information for the subjects. There is considerable heterogeneity in subjects’ consistency scores: high-income and high-education subjects display greater levels of consistency than low-income and low-education subjects, men are more consistent than women, and young subjects are more consistent than older subjects. We also find that consistency with utility maximization is strongly related to wealth: a standard deviation increase in the consistency score is associated with 15-19 percent more wealth. This result conditions on socioeconomic variables including current income, education, and family structure, and is little changed when we add controls for past income, risk tolerance and the results of a standard personality test used by psychologists.
Three New Review Papers
| Nicolai Foss |
Although they are in general not highly regarded, I love writing review papers. Writing such a paper is an excellent opportunity to revisit classic papers. Sometimes you get a new idea while reflecting on the current research frontier. They are great for establishing research contacts, for although review papers may not be cited a lot, they are read a lot. And they can usually be put quickly together. Here are three new review papers/chapters written over the last month or so:
- “Entrepreneurship in the Context of the Resource-Based Theory of the Firm.” Written for Kevin Mole and Monder Ram, eds., Perspectives in Entrepreneurship (Palgrave).
- “The Emerging Strategic Entrepreneurship Field.” Written with my PhD student Jacob Lyngsie for Daniel Hjorth, ed., Handbook of Organisational Entrepreneurship (Elgar).
- “Entrepreneurship and the Economics of the Firm.” Written with Peter G. Klein and Peter’s PhD student Per L. Bylund for the above-mentioned Hjorth volume.
Scientific Misconduct in Management Research
| Nicolai Foss |
Fraudulent behavior in research is the ultimate academic gossip. It is hardly surprising that our post on Thomas Basbøll’s claim that management theory heavyweight Karl Weick has engaged in plagiarism (here) was one of O&M’s most popular posts in 2010. One of my own papers was once directly copied. All that was changed was the front page. In one of those strange coincidences, the journal editor asked my co-author to review the paper. The plagiarist was a consultant, not an academic, so it is possible that the case had no consequences for him.
How prevalent is scientific misconduct in management research? And how strongly should we care? After all, what gets published in the management journals does not have the same direct impact as what gets published in the medicine journals, or what the UN’s Intergovernmental Climate Panel utters. While management research may not cure cancer, it likely has considerable impact on resource allocation, and therefore on what is available for curing cancer. Moreover, there are strong externalities: A reputation for “bad science” in one field or discipline may easily spill over to other fields and disciplines. Hence, misconduct should be regarded with as severely in management research as in other fields and disciplines.
With respect to the incidence of fraudulent research behavior, rather little is known. While fraud in, particularly, medicine tends to draw major headlines in the press, I cannot recall anything similar in the case of management research. It seems unlikely that management researchers should be significantly more honest than researchers in medicine, so our lack of knowledge in this seems troublesome. In ”Management Science on the Credibility Bubble: Cardinal Sins and Various Misdemeanors,” recently published in the Academy of Management Learning and Education, Arthur G. Bedeian, Shannon G. Taylor, and Alan N. Miller present evidence that research misconduct is quite a prevalent phenomenon. Briefly, they collected data from faculty in 104 PhD-granting management departments in the US. Questions identified “eleven different types of questionable research conduct, including data fabrication, data falsification, plagiarism, inappropriately accepting or assigning authorship credit, and publishing the same data or results in two or more publications.”
Some of Bedeian et al.’s examples of “questionable research conduct” seem somewhat open to interpretation and questioning (e.g., “developing ‘ins’ with journal editors” — in fact, the initiative for such “ins” often emerge from the editor side; “published the same data or results in two or more publications” — presumably, there is nothing necessarily wrong with publishing “the same data … in two or more publications”), and the procedure of asking faculty to indicate their “knowledge of faculty engaging in” research misconduct is questionable, as different faculty may relate to the same episode of research misconduct (they acknowledge this problem). Still, the numbers are quite striking. More than 70% reports knowledge of cases of not giving due credit to originators of ideas (i.e., plagiarism). Even more report knowledge of data manipulation, although only (?) 27% report knowledge of outright data fabrication.
The Confusing “Business Model” Construct
| Nicolai Foss |
The discourse of both practicing managers and management scholars abounds with concepts and jargon that sound fine, and surely refer to something real and important, but are used in a hopelessly imprecise manner and have all sorts of different, often conflicting, meaning attached to them. Examples of yesteryear include “value creation,” “competitive advantage,” and “value proposition” — “yesteryear”, because reasonable clarity has gradually been achieved with respect to their meaning.
Another example, where lack of clarity unfortunately persists, is that of “business models” — which refers to, for example, “bricks and clicks business models” (which is mainly about integrating online and offline presence), “collective business models” (which is mainly about pooling resources across firms), “cutting out the middleman” (which is, well, you guessed it), “franchising” (which is a particular contractual arrangement for handling distribution), “freemium” (offering free basic services and expensive premium services” etc., etc. (examples are from the wiki on the subject). So, business models are about internet distribution, the contractual form of distribution, resource sharing, cutting out middlemen, differentiation policies, etc. It is not clear what unites all this, except, perhaps, a basic concern with the consumer/customer side of value creation and appropriation (and even that doesn’t hold for all conceptions). Moreover, some argue that building a business model is subordinate to formulating a strategy, while others (e.g., Teece) argue that strategies are on a lower level than business models.
Obviously, attempts to reduce all this confusion are highly laudauble. Two recent such attempts deserve mention here. One is an excellent paper, “The Business Model: Theoretical Roots, Recent Developments, and Future Research,” by Christoph Zott, Raphael Amit, and Lorenzo Massa. Among other things they argue that the business model is a meaningful unit of analysis, and should be understood as a firm-centric, yet boundary-spanning activity system supported by a logic of value creation and appropriation. The second attempt is a special issue of Long Range Planning on the subject, with contributions from such luminaries as David Teece, Raphael Amit, Rita McGrath, Muhammad Yunus, Yves Doz, Michael Tushman and many others. I have only read the Teece paper, but look forward to reading the rest. Teece (in “Business Models, Business Strategy, and Innovation”) begins by arguing the “concept of a business model lacks theoretical grounding in economics or in business studies,” goes on to offer his own definition, supplies several examples, discusses the conceptual differences between business models and business strategies and ends by linking the business model constructs to his earlier work on how the organization of the innovation process influences the appropriation of value from innovation. Like so many articles in LRP, this paper will be excellent for the classroom.
Finally — a Field Experiment!
| Lasse Lien |
Field experiments represent a killer combination of a causal design and external validity — the best of both the classical (laboratory) experiment and the natural experiment. Unfortunately, field experiments in strategy, management, organizational economics, etc. are often prohibitively costly, morally questionable, or both. But sometimes a field experiment is feasible, and when it is, it tends to stand out as particularly interesting.
This paper illustrates this point quite well, IMHO. The paper is a field experiment on the not entirely trivial question: Does Management Matter?
Coordination Problems in the Theory of the Firm
| Nicolai Foss |
Many textbooks (e.g., this one or this one) begin by noting that there are two fundamental problems of economic organization, namely the coordination problem and the motivation problem — and then devote 95% of the space to the latter problem. (In a paper published in 1993 (but written in 1989), I proposed that extant theories of the firm could be understood as taking either a PD (-like) game or a coordination game as the fundamental underlying structure of interaction. In my reading, capabilities theories were about coordination problems, while mainstream organization economics fundamentally started from PD-like situations; this paper develops the argument a little bit).
Important work has been done on coordination problems in the context of the theory of the firm by Colin Camerer and Mark Knez (e.g., here), Phanish Puranam and Ranjay Gulati (here), Luis Garicano (e.g., here), Birger Wernerfelt (e.g., here), and, of course, co-blogger Dick Langlois (check his CV here on O&M — most of his stuff on economic organization is about coordination). One could also make the point that large parts of traditional organizational design theory (of the information processing/contingency variety, including Marschak & Radner’s team theory) are really about coordination problems rather than motivation problems. Dick Langlois has long argued that Coase (1937) is fundamentally about coordination rather than motivation.
This is definetely something; however, compared to the enormous outpouring of work on motivation problems, it is fair to say that coordination problems are neglected, although there are reasons to suppose that they are quite important: There are plenty of examples of highly motivated people utterly failing with respect to organizing and coordinating.
I just came across an excellent paper, “Coordination Neglect: How Lay Theories of Organizing Complicate Coordination in Organization,” that deals with a number of obstacles to coordination rooted in heuristics (“lay theories”) that individuals apply, for example, when setting up a division of labour in an organization. Notably, individuals systematically neglect task interdependencies. They also fail to communicate sufficiently because of knowledge bias and they are poor at translating problems for others. There are plenty of useful illustrations and anecdotes in the paper, making it excellent as a companion to a traditional motivation/incentive-focused textbook in a theory of the firm class. Highly recommended!
Democracy and Credible Commitment in Universities
| Nicolai Foss |
In 2003, Denmark enacted what is the easily the least democratic university legislation in the world (the North Korean one may be less democratic). Essentially, faculty voting rights are now limited to selecting members of an “academic council” which mainly serves as a quality check on candidates for evaluation committees and as a body that offers advice to the university president and the deans. A board of directors (with a majority of external members) appoints the president, the president appoints the dean, and the dean appoints department heads.
This truly major change was partly motivated by the various inefficiencies of the earlier, much more democratic conditions. However, as autocratic systems also have well-known inefficiencies, the question is whether Denmark let the governance pendulum swing too much toward the opposite end. My colleague Henrik Lando directed my attention to a truly excellent paper by O&M guest blogger Scott Masten that is directly relevant to the understanding of this issue. (more…)
My Proudest Academic Achievement
| Peter Klein |
I’ve produced so many seminal papers in my long and distinguished career that I can’t name them all. Um, I can’t name any, actually. But here’s one for the ages: “‘They Have the Internet on Computers Now?’ Entrepreneurship and Economics in the Simpsons.” It’s coauthored with talented Missouri PhD students Per L. Bylund and Christopher H. Holbrook and is forthcoming in Joshua Hall, ed., Homer Economicus: The Simpsons and Economics (Springer, 2011), which should be on every economics and management teacher’s bookshelf.
Recent Comments