Archive for May, 2006

Nudity, Law, and Social Norms

| Peter Klein |

From Bryan Caplan I learn that Berkeley's "Naked Guy," a campus fixture during my graduate-school years there in the early 1990s, committed suicide last week. Bryan, then a Berkeley undergraduate, adds this astute observation: "At the time, I often pointed out that the Naked Guy was proof that social norms, not the law, were the foundation of civility: Even if nudity were legalized, only one student out of tens of thousands would take it all off."

The importance of informal norms and social conventions is increasingly recognized in economics (and law). The literature in this area goes back at least to Menger's (1883) analysis of institutions, and includes contributions from Schelling (1960), Ullman-Margalit (1977), Schotter (1981), Sugden (1986), Benson (1990), and Ellickson (1991). Recent work by Baker, Gibbons, and Murphy (2002) on relational contracting, focusing on the narrower question of firm boundaries, belongs on this list as well. This literature interprets social norms as equilibrium solutions to the kinds of coordination games popularized by Schelling (1960). Credible threats of reciprocity are the key. In these models agents abide by informal rules not out of a sense of moral duty, or from a process of unconscious socialization, but because it is in their rational self-interest to do so.

My sense is that management theory, and organizational behavior in particular, has yet to grapple with the insights from this strand of literature. Am I wrong?

31 May 2006 at 12:44 pm 9 comments

Axel Leijonhufvud and a Bit of Autobiography

| Nicolai Foss |

As blogging is an inherently narcissistic undertaking, I hope I will be excused for the following piece of autobiographical indulgence.

I began studying economics at the University of Copenhagen in 1983. The three first years essentially followed a micro and macro division (with a strong dominance of macro stuff). The macro part, particularly in my second year, was positively awful. The intention clearly was that macro should lead directly to econometrics, so all teaching and reading material centered on analyzing the causal structure of one silly Keynesian model after another.

The indoctrination with Tinbergen-style Keynesianism was rather massive, but there was one paper in the syllabus that dealt with monetarist and new classical critiques of Keynesianism. Naturally, this paper (though dismissive of the critics of Keynesianism) triggered my interest in those writers who were somehow in opposition to the tedious Keynesianism that we were taught. Hunting expeditions to the library ensued.

In this way, I discovered a book by a Henry Hazlitt, called The Failure of the New Economics, which was virulently anti-Keynes, and somewhat primitive in its reasoning. Some further search uncovered a book in distinguished blue binding, and an intriguing title in golden letters, On Keynesian Economics and the Economics of Keynes: A Study in Monetary Theory by an author with a familiar Scandinavian name, Axel Leijonhufvud. I was completely captivated by this book, and it became my economics bible until I graduated from the University of Copenhagen. (more…)

31 May 2006 at 8:25 am 4 comments

Review Paper on the Economics of Clusters

| Peter Klein |

Pierre Desrochers calls my attention to this review essay for practitioners on the economics of clusters, published by Brookings in March. The paper cites Pierre's Review of Austrian Economics paper with Frederic Sautet, whch is a good sign.

30 May 2006 at 1:35 pm Leave a comment

New Institutional Economics: What My Students Ask

| Peter Klein |

At the September 2005 meeting of the International Society for New Institutional Economics (ISNIE) in Barcelona I participated in a roundtable organized by Claude Menard and Mary Shirley, “Challenges and New Directions in NIE,” celebrating the Handbook of New Institutional Economics (Springer, 2005). Because I teach a required first-year PhD course in the NIE, I thought it would be interesting to discuss how students react to the material as the seek to integrate it with what they are learning in the general economics curriculum. Many scholars research and teach aspects of the NIE, but only rarely step back and evaluate the entire field, as a whole. Preparing to teach this course for the first time last year gave me an opportunity to do so.

Here are the most common questions students ask about the NIE and my course, “Economics of Institutions and Organizations”:

1. Is this a tools course or a field course?

In other words, is the NIE foundational to all fields of economics (and, possibly management), or an applied field like industrial organization, labor economics, international trade, etc.? (more…)

30 May 2006 at 7:49 am 10 comments

Ken Lay, Local Boy

| Peter Klein |

Today’s edition of my local paper, the Columbia (Missouri) Daily Tribune, adds a little local color to the Enron story with this item on Ken Lay, a Missouri minister’s son who attended the University of Missouri in the 1960s and earned BA and MA degrees in economics. Lay was a protégé of economics professor Pinkney Walker, who brought Lay to Washington when Walker was appointed by Richard Nixon to head the Federal Power Commission (now FERC). That, for better or worse, is where Lay learned about the energy industry.

A 1991 profile of Lay in the Houston Chronicle goes further in crediting — certain people would say “blaming” — Lay’s economics training for his later accomplishments. “His sophomore year at the University of Missouri, in professor Pinkney Walker’s introductory economics class, the small-town boy who had never been outside the Missouri state line became hooked on the world of money, from Wall Street horse-trading to monetary policy and international trade. ‘It all became so clear, so logical,’ Lay says. ‘I could see how markets worked, how firms worked. All of it just sort of fit together.’ ”

Of course, Lay understood markets well, but was no friend of free ones. (more…)

28 May 2006 at 4:05 pm Leave a comment

Paradoxes in the RBV?

| Nicolai Foss |

One of the hallmarks of pomo (postmodernist) "discourse" (or "conversation") is the indiscriminate use of the word "paradox." In management, organizational scholars are particularly prone to use the p word. I have sat in countless seminars and witnessed several conference presentations where the presenters declared some paradox to exist, in theory, in practice or in both. I have never been successful in my attempts to argue that upon closer inspection (better analysis) the postulated paradoxes usually vanish.

In terms of management journals, one of the pomo strongholds is unfortunately one of our leading journals, the Academy of Management Review.  I am pretty much behind in my reading of AMR. But  this morning I opened the January 2006 issue, and performed my usual vain search for articles that cited my works. I quickly found Lado, Boyd, Wright and Kroll's "Paradox and Theorizing Within the Resource-based View."

The authors claim to use "paradox in the logical sense to address epistemological issues surrounding RBV logic, such as unfalsifiability, tautology, and infinite regress" (p.117).  They argue that they embed their understanding in a non-traditional view of science (in contrast to those — such as Foss (1996; "Knowledge-based Approaches to the Theory of the Firm," Org Science) — who allegedly holds "… that the presence of paradox within a theory undermines its scientific utility" (Foss 1996 says no such thing)). (more…)

28 May 2006 at 8:24 am 7 comments

Non-Monetary Compensation

| Peter Klein |

Managers: Looking for effective forms of non-monetary compensation? Scott Adams has suggestions here, here, and here.

27 May 2006 at 9:07 am Leave a comment

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).