Archive for June, 2006

The New Legal Realism

| Peter Klein |

Oliver Williamson attributes to Karl Llewellyn the idea of contracts as frameworks for structuring relationships rather than abstract, formal rules that apply independent of context. Llewellyn was also a founder of legal realism, an early-twentieth-century movement to make the study of law not only more pragmatic and realistic, but also more firmly grounded in modern social science. Llewellyn's writings don't appeal to everyone, but his ideas have been revived by a movement known as the New Legal Realism. The new legal realists aim

to develop rigorous, genuinely interdisciplinary approaches to the empirical study of law. In recent years, legal academics have shown renewed interest in social science. However, to date there has been no organized paradigm within the legal academy for translating and integrating diverse social science disciplines and methodologies. NLR scholarship pays systematic attention to this process of translation and integration. Like the "old" legal realists, we seek to bring the best of current social science and legal scholarship to bear on important policy issues of our day — but with the benefit of several generations of new knowledge.

The blog Empirical Legal Studies is running a series on this (1, 2, 3, 4, 5, more to come). Brian Leiter is not impressed. I'm not sure exactly what it all means for the economic analysis of contracting and organization but plan to follow the debate, at least from afar. (HT: Conglomerate Blog)

22 June 2006 at 11:55 am 1 comment

Between Society and Market

| Peter Klein |

I know little about the economic history of the Middle East, but the title of this upcoming workshop, "Between Society and the Market: Novel Approaches to the Business History of the Middle East," caught my eye. The workshop, organized by Relli Shechter and Andrew Godley, is part of the 8th Mediterranean Research Meeting, coming in March 2007. From the call for papers:

In the period before independent states in the Middle East (the Ottoman and colonial eras), businesses were often studied in the context of community history. It is known that entrepreneurial ethnic minorities were very active, but little is known of their larger economic and social impact on the region, and even less on Muslim entrepreneurship. There is also a large body of literature on the activities of foreign multinationals in the region, especially in the oil industry of course, but also in banking (Bamberg, Clay, Ferrier, Corley, Codley et al Jones 1981, 1987, Yergin). While these multinationals were the progenitors of the modern commercial enterprise in the region, this literature overwhelmingly views their Middle Eastern activities through the lenses of the parent companies or corporate HQ rather than understanding how the introduction of new products, techniques and business forms may have influenced local entrepreneurs, workers and consumers. . . .

During the period of emerging nation-states nad the rapid build up of national economies . . . , the study of businesses was again relegated to a secondary status. Private businesses were either discredited or simply ignored, and the rise of public sector ones mostly discussed from an administrative and political perspective. How small, medium, and large (the latter mostly state owned) businesses actually operated, and how the role of management and workers changed during these transitions has hardly been discussed.

Read the rest here.

21 June 2006 at 1:19 pm 1 comment

Tying Your Own Hands, BlackBerry Edition

| Peter Klein |

Joe writes below about time inconsistency, or the Ulysses problem: sometimes you can make yourself better off by deliberately limiting your own options ("tying your own hands"). This phenomenon has been widely studied in monetary policy (earning Finn Kydland and Edward Prescott a Nobel Prize), bargaining theory, and even internal organization.

From the New York Times we learn that a Chicago hotel has found a way to solve the time-inconsistency problem for heavy BlackBerry users: upon check-in, guests wishing to enjoy some downtime can give their device to the general manager, who agrees to keep it under lock and key for the duration of the stay. (I hope my wife isn't reading this.) (HT: Steven Dubner)

20 June 2006 at 4:31 pm 1 comment

Motivation Workshop at CBS

| Nicolai Foss |

One of the more pleasing aspects of being a Professor is to have committed and active PhD students. One of my PhD students, Mia Reinholdt, is organizing a workshop on "Motivational Foundations of Knowledge Sharing" at the Copenhagen Business School on the 27. October.

She has done a good job indeed with respect to keynote speakers. The first keynote speaker is the extremely influential Edward Deci, Professor of Psychology and Gowen Professor in the Social Sciences of the University of Rochester. The second keynote speaker is Europe's perhaps best known, and certainly most productive, economist, Professor Bruno Frey of the University of Zürich.

There is still time to think about a paper theme. Deadline (for abstracts) is 28. August. Send 500 a words abstract (or a full paper) to Mia on

20 June 2006 at 1:39 pm 1 comment

Rings and Promises

| Peter Klein |

Brayden King caught my eye today with a post titled "Is Power Sexy?" He's referring to a 2005 American Journal of Sociology paper with the same title. Of course, contemporary academic prose can make even sex and power seem dull — Using a set of network data from a large number of naturally occurring groups, this study seeks to determine whether powerful people are more likely to be seen as sexy by others than are persons without power [, and] disentangles two aspects of power that are often confused, namely power as a dyadic relationship and power as an individual characteristic or position (which the author calls "status") — but I believe Brayden when he says it's a fun paper to read and blog about.

This made me think, what are some papers in organizational economics that are fun to read? One is Margaret Brinig's "Rings and Promises" (1990), which applies Williamson's hostage model to diamond engagement rings. (more…)

19 June 2006 at 3:44 pm 3 comments

Materials for PhD Course on the Theory of the Firm

| Peter Klein |

Our PhD course on the Theory of the Firm concluded yesterday with a research workshop on Joe Mahoney’s stakeholder approach. All the course materials, including readings and lecture slides, are now available at the course website. These materials might be useful for someone seeking an overview of the key issues and problems in transaction cost economics, the property-rights approach, and the resource-based and capabilities views, as well as Austrian, evolutionary, and entrepreneurial perspectives on the firm.

The student participants were impressive, and the three instructors made a fabulous team. (To hire us for your upcoming gig, please contact our agent at BR-549.)

17 June 2006 at 9:16 am 2 comments

Danish Economists

| Peter Klein |

This post definitely merits the ephemera tag, but here it is anyway, largely for the benefit of my Danish co-blogger.

Where are the important Danish economists? The Swedes have Wicksell, Myrdall, Hecksher, Ohlin, Lindbeck, and Holmström. Norway gave us Trygve Haavelmo and Finn Kydland. The president-elect of ISNIE is Icelander Thrainn Eggertsson. (Sorry, Finns!) So, what happened to the Danes? Did they exhaust all their collective intellectual capital on philosophy, physics, and literature?

16 June 2006 at 1:01 am 7 comments

Time Inconsistency and a Stakeholder Theory of the Firm

| Joe Mahoney |

Recently I have become more persuaded that the incomplete contracting literature potentially offers a theoretical foundation for a stakeholder theory of the firm.

In this light, two industrial organization economists — Dan Kovenock and Stephen Martin — have “inspired” me to learn more about the concept of time inconsistency problems. In a world of incomplete contracting, we often face the potential for time inconsistency problems (Grossman and Hart, 1986) and opportunistic rent extraction. A policy that is optimal ex ante but sub-optimal ex post can be described as “time inconsistent.”


15 June 2006 at 3:30 am 2 comments

Announcing Guest Blogger Joe Mahoney

| Nicolai Foss |

Peter and I are extremely pleased and proud to announce our new guest blogger, Joseph Mahoney. Joe is a Professor of Strategy at the Dept. of Business Administration, College of Business, University of Illinois at Urbana-Champaign. His first blog entry will appear later today.

Many readers of this blog will know Joe’s work. For those who don’t, suffice it to say that Joe is one of the most prolific and influential scholars in strategic management. While perhaps most often associated with the resource-based view, Joe has also done important work on transaction cost economics (indeed, his knowledge of TCE is encyclopedic) and on entrepreneurship, drawing on Austrian economics. His paper with Ron Sanchez on modularity (SMJ, 1996) and another with J.R. Pandian (SMJ, 1992) are among the most cited and influential SMJ papers. He has recently published a nice volume on Economic Foundations of Strategy with Sage.

Welcome, Joe!

15 June 2006 at 3:19 am Leave a comment

Academic Insults

| Nicolai Foss | 

I was once told by a prominent German economist over (an otherwise pleasant) dinner: “Nicolai, you have the potential to become a rigorous scientist” (a colleague dryly commented that “at least he said you had the potential”). Well, I ended up doing muzzy management stuff, and, hence, never realized any such potential.

Does anyone out there have any good stories of academic insults that you want to share with the readership of O&M? Perhaps with a little effort we may end with something akin to George Stigler’s Conference Handbook.

Update 1: Here is nice poisonous comment that I received only yesterday but forgot to mention: “Nicolai, you are the master of academic economies of scope” (i.e., excessive recycling).

Update 2: Joe Mahoney reminded me of this classic: “No one can think higher of Professor Z’s paper than I do — and I think the paper is a complete mess.”

Update 3: I just recalled that the German economist mentioned above at a later occasion, a conference dinner, told me: “You know, Nicolai, it is actually really funny, but it turns out — giggle, giggle — that you have more citations than I have, heh-heh-heh.” Oh, the absurdities of this world.

13 June 2006 at 8:01 am 9 comments

Government Did Invent the Internet, Sort Of

| Peter Klein |

Here is a short general-interest piece on the history and significance of government involvement with the internet. The article is based on a talk I gave over ten years ago, and I have to admit the basic argument has held up rather well. As Hal Varian says in the preface to Information Rules, "technology changes, economic laws do not."

13 June 2006 at 2:49 am Leave a comment

Hart on Ex-Post Governance

| Peter Klein |

Nicolai, Joe Mahoney, and I had the pleasure of lunching yesterday with Oliver Hart, who was in Copenhagen to attend our PhD course and learn something about the theory of the firm. (Ha ha, just checking to see if you're paying attention; actually he was in town for a workshop.)

Hart is writing a new paper (with John Moore), currently titled "Partial Contracts," responding to the charge that incomplete-contracting models of the firm ignore the temporal, sequential processes of coordination that characterize the firm. Robert Gibbons, characterizing the asset-specificity approaches of Williamson (1971, 1979, 1985) and Klein, Crawford, and Alchian (1978) as rent-seeking theories of the firm, calls the Grossman-Hart-Moore property-rights approach

the inverse of the rent-seeking theory. Specifically, where the rent-seeking theory envisions socially destructive haggling ex post, the property-rights theory assumes efficient bargaining, and where the rent-seeking theory is consistent with contractible specific investments ex ante, the property-rights theory requires non-contractible specific investments. These distinctions should already make it clear that the property-rights theory in no sense formalizes the rent-seeking theory (i.e., Grossman-Hart did not formalize Williamson….).

Williamson puts it thusly: "GHM vaporize ex post maladaptation by their assumptions of common knowledge and costless ex post bargaining." (more…)

13 June 2006 at 2:29 am Leave a comment

“First, Kill All the Economists …”

| Nicolai Foss |

As regular readers of O&M will know, we are highly critical of the bashing of economics that is represented by recent work by  Pfeffer, Ghoshal, Mintzberg and others (e.g., this post).

One of our problems, amongst many, with the new management bashing of economics is that this literature appears to be wholly negative. There is usually at best vague indications of the nature of the critics' alternatives.

However, a recent special issue of Managerial and Decision Economics, while being highly critical of the role of econonomics in management research and education, at least tries to come up with an alternative.

The introductory essay of the editor, Satoshi Kanazawa, indicates the nature of the argument: The sub-title is "The Insuffiency of Microeconomics and the Need for Evolutionary Psychology in the Study of Management" (the title being identical to the adaptation of Shakespeare's "The first thing we do, let's kill all the lawyers" (Henry IV) that is also the heading of this post).


12 June 2006 at 2:36 pm 3 comments

PhD Course on the Theory of the Firm

| Peter Klein |

This week I join Nicolai and Joe Mahoney for a four-day PhD Course, "Theories of the Firm and Their Application in Business Administration," at the Copenhagen Business School. The course outline, reading list, and notes for some lectures are available here. (More notes will be added as we go.) No webcast or live-blogging, but if anything exciting happens during the week, O&M readers will be the first to know.

10 June 2006 at 8:59 am 1 comment

How Heterogenous is Economics, Really?

| Nicolai Foss |

At seminars and conferences, I have often heard management scholars make the following kind of remark: "The economists think that management is fragmented, but look at economics itself. Economists disagree about virtually everything."

It easy to argue that this argument is entirely shallow, and is reflective of reading in the newspaper that this chief economist disagrees with that chief economist and generalizing this to the whole econ profession, while not understanding that economists hold a strong disciplinary core in common, and that disagreements tend to be over application and interpretation rather than about the most fundamental principles.  Seen in that light, economics is not fragmented, while management is, even absurdly so. (In fact, some of the management critics of  economics that we routinely blast here at O&M (i.e., Ghoshal, Pfeffer et al.) have a correct understanding of the unity of economics, even though their view of economics is entirely outdated).

However, increasingly the argument is being made by economists themselves, albeit mainly so-called "heterodox" economists that economics is changing from a situation in which a single paradigm held uncontested sway to a much more differentiated picture with multiple fundamentally different approaches. (more…)

9 June 2006 at 3:58 am 2 comments

Has Corporate Corruption Increased?

| Peter Klein |

Teppo Felin asks an important question: has corporate malfeasance — earnings manipulation, information distortion, and outright fraud — increased systematically in recent decades, or are Enron, WorldCom, Global Crossing, and their ilk just a few bad apples?

Despite all the sound and fury over this question, the evidence appears to be surprisingly thin. First, there is the obvious methodological problem that we don't observe corruption per se, but only responses to alleged or actual corrpution. We know when firms restate their earnings, but not when firms should have restated their earnings and didn't. We observe SEC investigations and enforcement actions, but not the (presumably many) instances of Type I or II error.

Second, the time-series evidence on even these proxies is slim. Several descriptive studies document an increase in earnings restatements over the past 20 years (especially the last 5-7 years), though as far as I know there are no studies looking at longer time periods. (more…)

7 June 2006 at 5:22 pm 10 comments

Summer Reading on Management for Graduate Students?

| Nicolai Foss |

Perform the Gedanken Experiment that a graduate student would actually approach you for summer reading suggestions (not sure this would ever happen, but it is nice imagining). Specifically, the student — say, either a budding management graduate student who wishes to familiarize himself quickly with the very best in management thinking or an econ graduate student who consider a business school a likely future place to work — would like to know what are the indispensable papers from the last two decades in management that anyone who wishes to write a dissertation in management should (ideally) know. Are there any? Is management so fragmented that we cannot up with any papers that everybody should have some knowledge of? Or can we do better?

Please, readers of O&M, suggest 2-3 papers from the last two decades that you would consider indispensable. If you like, explain why you consider them important. (HT to Crooked Timber).

6 June 2006 at 2:57 pm 11 comments

Was Taylor a Taylorite?

| Peter Klein |

Speaking of scientific management, one of Frederick W. Taylor's biographers tells us that Taylor himself was no Taylorite. Yesterday I was looking for an article by Gavin Wright and stumbled upon Wright's review of Daniel Nelson's 1980 book Frederick W. Taylor and the Rise of Scientific Management. (JSTOR subscribers can read the review here.) According to Nelson, Taylor was primarily an engineer — a very creative and successful one — with little interest in labor management. His inventions revolutionized the machine-tool industry, and he later ventured into "popular" management writing as a PR gimmick, to enhance his personal reputation and build his consulting practice. (We also learn that Taylor was a champion lawn tennis player, inventor of a spoon-shaped tennis racket and a two-handled golf club that was later banned, and the son of a radical feminist and abolitionist mother.)

6 June 2006 at 11:43 am 4 comments


| Peter Klein |

We already have Econometrica and Psychometrika, so it was only a matter of time before the economic historians — whose Cliometric Society has been around since 1983 — started a new quantitative economic history journal, Cliometrica. I received an announcement today, which included this description:

The journal encourages the methodological debate, the use of economic theory in general and model building in particular, the reliance upon quantification to buttress the models with historical data, the use of the more standard historical knowledge to broaden the understanding and suggesting new avenues of research, and the use of statistical theory and econometrics to combine models with data in a single consistent explanation.

I'm not sure how this is supposed to distinguish the journal from the Journal of Economic History or Explorations in Economic History; perhaps they are not quantitative enough?  (more…)

5 June 2006 at 5:45 pm Leave a comment

The Management Myth?

| Peter Klein |

Lots of chatter on the net about an article in the June 2006 Atlantic, “The Management Myth,” by Oxford-trained philosopher and former consultant Matthew Stewart. (Online version for magazine subscribers only.)

Most of management theory is inane, writes our correspondent, the founder of a consulting firm. If you want to succeed in business, don’t get an M.B.A. Study philosophy instead.

Most commentators (1, 2, 3) seem to find the article challenging and profound. Paul Kedrosky demurs, saying Stewart “accomplished the impossible. He made me like management theory, MBAs, and consultants more, while liking philosophy (and Oxford philosophers) less.” Kedrosky calls the article “disjointed, dull, obvious, smug, poorly written, and full of falsely-elevated faux philosophy chatter.” Hmmmm, sounds like a perfect candidate for Academy of Management Review! (Note to AMR editors and referees: just kidding.)

Update: Lynne Kiesling likes Stewart’s book on Spinoza and Leibnitz.

5 June 2006 at 1:57 pm 5 comments

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Our Recent Books

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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