Archive for July, 2006

Emergence of the East India Company

| Peter Klein |

An example of spontaneous order in the emergence of the large firm: Emily Erikson and Peter Bearman’s “Routes into Networks: The Structure of English Trade in the East Indies, 1601-1833,” forthcoming in the American Journal of Sociology. Working paper here. Abstract:

Drawing on a remarkable data set compiled from ships’ logs, journals, factory correspondence, ledgers, and reports that provide unusually precise information on each of the 4,572 voyages taken by English traders of the East India Company (hereafter EIC), the authors describe the EIC trade network over time, from 1601 to 1833. From structural images of voyages organized by shipping seasons, they map the (over time and space) emergence of dense, fully integrated, global trade networks: of globalization before globalization. The paper shows that the integration of the world trade system under the aegis of the EIC was the unintended by-product of systematic individual malfeasance (private trading) on the part of ship captains seeking profit from internal Eastern trade.

The paper even gets a plug from Scientific American:

The researchers . . . describe how many rogue captains ignored orders to trade in established markets and then return directly to England, choosing instead to explore new locations and trade between local Asian ports for their own personal profit. Although they were breaking the law by appropriating supplies and ship crews for this private trading, in doing so they ultimately benefited the East India Company by building a larger market and gaining a unique knowledge of local market fluctuations.

Via Craig Newmark. Related: my earlier post on market-based management.

21 July 2006 at 2:28 pm Leave a comment

Syllabus Bleg

| Peter Klein |

As part of a curriculum review project I’m collecting syllabi for first- or second-year PhD courses in strategy, organization theory, and the economics of organizations. If you have a syllabus you’re willing to share, please send it to me at I will discuss broad themes and patterns with my colleagues but will keep details confidential. Thanks!

21 July 2006 at 11:49 am Leave a comment

Fraudulent Management Books

| Peter Klein |

Be careful when purchasing management books in China:

As Chinese economy and private business grow rapidly, books on western company management and leadership strategies have been on the list of top sellers in many bookstores. However, it is discovered recently that a lot of the best-sellers are bogus books.

Execution Ability, a popular series of seven books written by “famous Harvard professor Paul Thomas”, turned out to be bogus. “This professor and his books are now very famous in China,” said Jiang Ruxiang, general manager of Beijing Zion Consulting Co., Ltd. Jiang discovered that there is no such a professor Paul Thomas at all.

Another example is a book titled “No excuse”, with fake American writer and fake New York Times review as “The most perfect reading for company employee training”. It was the best-selling management book in 2004 with sales of 2 million copies. . . . 

Examples of [fake] “honors” include “2003 No. 1 sales on Amazon”; “Endorsed by U.S. Land, Navy and Air Forces.”; “Every U.S. government employee has a copy”, etc.

HT: JC Spender.

21 July 2006 at 10:19 am 4 comments

Patently Silly

| Peter Klein |

It’s a bit unfair to interrupt our serious discussion of intellectual property by taking cheap shots at the US Patent Office, but I can’t resist plugging Patently Silly by Daniel Wright and Alex Eben Meyer. You’d be surprised what the USPTO considers unique, useful, and non-obvious.

(NB: When I worked at the CEA a few years ago, I once asked a USPTO official for his perspective on the marginal benefits and costs of various patent characteristics (length, breadth, etc.), including the pros and cons of having a patent system at all. He literally could not understand what I was talking about. When I brought up the possibility that a patent examiner could make a mistake, and grant legal protection for an invention that was not unique or useful, he stated flatly: “We don’t make those mistakes.”)

20 July 2006 at 10:55 am Leave a comment

Libertarian Professors in Denmark

| Nicolai Foss |

Here is a list of libertarian professors, mainly in the US. However, there is also a listing of libertarian professors outside of US. I have the distinct honour of being the only Danish libertarian professor.

However, I am not sure if I am a libertarian (new? neo? paleo? left? vulgar? right?). I guess I am more of your ordinary Jacksonian, paleo-con, semi-Straussian, culturally conservative kind of person.  Moreover, there are actually quite a number of libertarian/conservative professors in Denmark. The best known is surely Peter Kurrild-Klitgaard who is a political science professor at Copenhagen University. Peter is an incredible energetic person with a large scholarly output and a massive production of popular writings in newspapers. He is the European editor of Public Choice. Other prominent Danish professors with a libertarian/conservation orientation are David Gress (history of ideas), Jesper Lau Hansen (Law), Henrik Lando (economics), and Christian Bjørnkjær (economics).

20 July 2006 at 9:36 am 3 comments

Business Ethics and Bioethics

| Peter Klein |

Just as business schools are increasingly emphasizing business ethics and corporate social responsibility (not everyone thinks this is wise), the biological and medical sciences are increasingly emphasizing bioethics. Yet bioethics courses at US universities are usually offered by the philosophy or religious studies departments, or by professional philosophers or theologians in university-wide centers, not by regular faculty in the biology or pharmacology departments. Why? I can think of at least three explanations:

1. Business schools are more serious about ethics than are biology or pharmacology departments, and hence more willing to devote resources to hiring ethicists and creating ethics programs.

2. Business schools are trendy and shallow, using management professors to teach “ethics lite” or “pop ethics” courses rather than outsourcing this material to the academic units where it belongs.

3. Bioethics problems are subtle and complex (Is an embryo a person?). Business-ethics problems are mundane and straightforward (Should you lie to your shareholders?). Philosophers are needed for the former, but not for the latter.

What do readers think?

19 July 2006 at 8:00 am 4 comments


| Nicolai Foss |

Empirical economists tend to exalt the property of “robustness.” Robustness is a priori taken to be epistemologically virtuous. However, this is not so obvious as it may seem. As Kevin Hoover points out in the preface to the most recent (June) issue of the Journal of Economic Methodology, most of which is dedicated to a symposium on “Fragility and Robustness in Econometrics”:

The idea that robustness is an epistemic virtue across the entire range of measures is not obvious. Suppose that the efficient-markets hypothesis works well in the United States but not in China. Does that count against the efficient-markets hypothesis? Or does it instead point to a substantive difference between American and Chinese financial markets?

A lot of things in econometrics are closely related or depend on robustness, such as omitted-variable bias and extreme-bounds analysis, but robustness has seldom been explicitly discussed. The contributors to the symposium are John Aldrich, Aris Spanos, and Jim Woodward. For somebody who is not an econometrics buff, Jim Woodward’s “Some Varieties of Robustness” is likely to be particularly informative.

18 July 2006 at 12:37 am Leave a comment

New Paper by Tan and Mahoney: Integrating TCE, RBV, and Agency Theory

| Peter Klein |

Are transaction cost economics, the resource-based view of the firm, and agency theory substitutes or complements? Most applied studies in organizational economics use one or another framework to explain the phenomenon in question; relatively few studies incorporate multiple frameworks, and even fewer attempt to distinguish among them empirically.

A new paper by Danchi Tan and Joe Mahoney, “Why a Multinational Firm Chooses Expatriates: Integrating Resource-Based, Agency and Transaction Costs Perspectives” (Journal of Management Studies, May 2006), takes the middle approach, developing a new framework that incorporates key elements of TCE, RBV, and AT to explain multinational firms’ decisions to staff their foreign subsidiaries with expatriates or host country nationals. (more…)

17 July 2006 at 12:59 pm 1 comment

To Boldly Go, Where No State Has Gone Before

| Peter Klein |

The better works in science fiction challenge us to explore and reflect upon strange and interesting forms of social and political organization, such as the anarcho-capitalism of Robert Heinlein’s Luna or the (shockingly) rigid social hierarchy of Mary Doria Russell’s Rakhat. The political economy of the Star Trek universe, by contrast, is remarkably dull and familiar. As Tim Cavanaugh reminds us in the new issue of Reason:

[T]he society of the Federation is the kind of thing that might spring fully grown from the hernia scar of Lyndon Baines Johnson — a galacticized Great Society. A vaguely militarized government makes all decisions. Any time the Enterprise crew encounters a private entrepreneur or contractor, that person will almost certainly turn out to be a thief, a swindler, a coward, or all three. (Roger C. Carmel’s mincing, scheming Harry Mudd is Star Trek’s idea of a businessman.) . . . Despite frequent references to a “noninterference” directive in contacting alien civilizations, Star Trek eerily predicts the era of total interventionism, as James T. Kirk, an interstellar Gen. Tommy Franks, routinely smashes planetary autocracies, promising (sometimes) that others will come along later to do the nation building.

Cavanaugh borrows here from Paul Cantor, one of my favorite scholars, about whom I will blog soon.

17 July 2006 at 12:05 pm Leave a comment

Vacation Reading

| Nicolai Foss |

The more narcissistic bloggers often inform their readership on the subject of What I am Reading This Summer (substitute Spring, Fall, Winter). Of course, no reason to not adopt this well-established practice.

As of tomorrow, I will be on vacation for two weeks in Antibes in the sourthern part of the perhaps most commie country in the World. This is what I will bring with me: (more…)

14 July 2006 at 5:00 am 1 comment

Hayek on Subjectivism and Progress in Economics

| Nicolai Foss |

Austrians are very fond of quoting Friedrich von Hayek’s claim in his The Counter-Revolution of Science (1952: 52) that all major advances in economics over the preceding one hundred years represent the progress of subjectivism. Hayek’s claim is, however, quite puzzling. (more…)

14 July 2006 at 3:12 am 8 comments

PowerPoint Peeves

| Peter Klein |

The increasingly ubiquitous PowerPoint has its uses, to be sure, but is no substitute for clear thinking and clear writing, the keys to any decent presentation. Rants and raves: Guy Kawasaki suggests the 10/20/30 rule — no more than ten slides, no more than twenty minutes, and at least a 30pt. font. Gordon Smith hates slides full of text. My own pet peeves include distracting backgrounds and typefaces, inconsistent punctuation and tense, and the obligatory “roadmap” slide (“This presentation, like every other one you’ll see at the conference, goes like this: introduction, literature review, hypotheses, data, results, conclusions. How many minutes do I have left?”). And, of course, not every idea is best communicated through slides (you’ve all probably seen the PowerPoint version of the Gettysburg Address).

Fred Tung objects to people using PowerPoint as a teleprompter, populating their slides with complete sentences then reading them word-for-word. I couldn’t agree more. Then again, in some disciplines, particularly in the humanities, “presenting a paper” has always meant simply reading a prepared text. My father was an academic historian, and I was shocked the first time I accompanied him to a professional meeting at which each panelist merely read his paper aloud. (I understand this is common in philosophy as well; I don’t know about other fields.)

Reading a paper aloud has never made sense to me. Wouldn’t it make more sense simply to hand out the paper and let participants read it on their own?

13 July 2006 at 3:40 pm 13 comments

My First Bleg: Transaction Similarity

| Peter Klein |

A “bleg,” for those who don’t know, is a blog post asking readers for help. (We’ve already written plogs, posted bloggerel, and suffered from blogathy and even blogstipation. No problems yet with blogorrhea.)

Anyway, here’s the bleg. Can readers provide some good references from the capabilities or RBV literatures on Coase’s concept of “transaction similarity,” the idea that firms are more likely to integrate transactions similar to transactions that have been integrated in the past, controlling for current levels of asset specificity, uncertainty, frequency, and so on?

12 July 2006 at 2:17 pm 1 comment

The New Growth Theory

| Nicolai Foss |

I am reading David Warsh’s Knowledge and the Wealth of Nations: A Story of Economic Discovery.  Although the book contains little that will be new to those with some knowledge of the history of economics and recent growth theory, it is worth reading because it is beautifully written, contains some juicy gossip, and has a clear storyline.  In other words, excellent Summer reading.

A notable feature of the book is portraying the development of new growth theory as a remarkable instance of scientific discovery.  Eight years ago, I published a paper in the Journal of Economic Methodology, “The New Growth Theory: Some Intellectual Growth Accounting” (here is an earlier paper version) that took issue with this claim.  My argument was that the NGT was successful for purely heuristic reasons. The argument may have been over the top, or the NGT may have changed since 1998.  Anyway, here is the abstract:

This paper discusses the reasons for the success of the New Growth Theory. Given that the NGT does not appear to say much new about empirical reality, that its essential ideas have been known for a long time, and that it does not really make contact with a large literature on institutions and economic change, its strong success may arguably be seen as surprising.  Or, at least, its success may appear peculiar to Lakatosian methodologists, and others who emphasize notions such as “novel facts”.  The reason for the success of the NGT is argued to lie in its constituting a case of strong heuristic progress: it brought growth through knowledge accumulation within the confines of neoclassical economics, and thus demonstrated the continued viability of this research tradition.

12 July 2006 at 8:07 am 1 comment

Remind Me, Who Are the Commies?

| Peter Klein |

From the June Harper’s Index:

Price for which China will rent out Beijing’s Great Hall of the People: $12,000

Percentage of Chinese who say the free market is “the best system on which to base the future of the world”: 74

Percentage of the French who say this: 36

(HT: LRC blog)

Addendum: Joe Carter misses the real commies. E.g.:

Remember when the perfect dis was to call someone a pinko? “You don’t eat meat? What, are you . . . communist?” For some reason, “You don’t eat at McDonalds? Are you some kind of anti-globalist?” just doesn’t have the same bite.

12 July 2006 at 2:56 am 8 comments

Intellectual Property: The New Backlash

| Peter Klein |

In the “new economy” or “knowledge economy” literature it is taken for granted that strong intellectual-property protection is not only efficient, but also just and fair. Without the temporary monopoly protection granted by copyrights and patents, who would have sufficient incentive to innovate? And don’t innovators deserve to reap the benefits of their creations?

There have always been doubters, and lately the critics have become more vocal. Stephan Kinsella makes a strong normative case, based on libertarian principles, against legal protection for intangibles. (See also his bibliography and blog.) For the utilitarian case against IP see Michele Boldrin and David Levine’s Against Intellectual Monopoly (and their blog). And for a summary of arguments against using patent counts to measure innovative activity see this article by Pierre Desrochers.

11 July 2006 at 12:42 pm 11 comments

Leijonhufvud — Cont’d

| Nicolai Foss |

Apropos my earlier post on the work of Axel Leijonhufvud and what it meant for me personally, I just came across this amusing keynote speech, “My Keynesian Education,” by Robert Lucas to the 2003 History of Political Economy Conference: “I remember when Leijonhufvud’s book came out and I asked my colleague Gary Becker if he thought Hicks had got the General Theory right with his IS-LM diagram. Gary said, ‘Well, I don’t know, but I hope he did, because if it wasn’t for Hicks I never would have made any sense out of that damn book.’ That’s kind of the way I feel too, so I’m hoping Hicks got it right” (pp. 12-13).

10 July 2006 at 8:48 am Leave a comment

Interesting New Paper by JC Spender

| Nicolai Foss | 

One of the puzzles of business administration/management is that the fields of entrepreneurship and strategic management have existed, and continue to exist, in such relative separation.  Intuitively, one would think of entrepreneurship — the identification and seizure of new opportunities for profit — as constituting the core of the strategic management field. This, however, is not the case. However, there are various indications that strategic management scholars are about to develop interest in entrepreneurship (e.g., work by Kim and Mahoney, Alvarez and Barney). 

One specific indication is an excellent and highly recommended recent paper by JC Spender, “The RBV, Methodological Individualism, and Managerial Cognition: Practising Entrepreneurship.” Here is the Abstract:

If we consider Schumpeter’s methodological individualism and entrepreneurship, the ‘managerial cognition’ arguments can contribute new insights to the RBV discourse.  I open by examining the links between resource inputs and firm outputs , and argue the types of rents implied by the RBV cannot arise or be sustained if these links are logical and explainable. The only rents then available are Marshallian quasi-rents arising from information asymmetry or the Ricardian rents from initial allocation, i.e., those of Porter’s analysis. Today’s RBV lacks the components necessary to create and manage the value at the core of Barney’s VRIO model.  Causal ambiguity or uncertain inimitability might imply sustainable rents but clearly do not explain how the arise, any more than asserting the firm has dynamic capabilities does.  To illustrate how value might be created and brought into the analysis, I look at Penrose’s model of managerial learning, primarily as an accessible instance of the epistemological approach proposed by Austrian economists such as Hayek, Kirzner, and Schumpeter.  This concept of value creation parallels the sense-making concepts of the managerial cognition literature. I conclude that an alliance of BPS and MOC approaches can complement and so complete the RBV, synthesizing notions of value creation, heterogeneous and immobile resources, and endogenous growth into a dynamic theory of the firm.  It balances rational choice and Schumpeterian entrepreneurship. To wrap this argument up, I discuss the theoretical and practical implications of the amended RBV.

10 July 2006 at 4:31 am 4 comments

Keynes on Ethnic Homogeneity

| Nicolai Foss |

Here is John Maynard Keynes speculating on the ideal postwar order in Europe:

A view of the post-war world which I find sympathetic and attractive and fruitful of good consequences is that we encourage small political and cultural units, combined into larger, and more closely knit, economic units. It would be a fine thing to have thirty or forty capital cities in Europe, each the center of a self-governing country entirely free from national minorities (who would be dealt with by migrations where necessary) and the seat of government and parliament and university center, each with their own pride and glory and their own characteristics and excellent gifts. But it would be ruinous to have thirty or forty entirely independent economic and currency uniions” (from Robert Skidelsky. 2000. John Maynard Keynes, Vol. 3., cited in Deepak Lal. 2004. In Praise of Empires, p.59; my emphasis).

Skidelsky notes that “this pleasing picture of a re-medievalised Europe did not survive in later drafts.”  Perhaps Keynes got cold feet when he recognized that his proposal would effectively entail ethnic cleansing.

9 July 2006 at 3:54 am 3 comments

Latent Variables and Structural Equations Modeling

| Peter Klein |

Among my PhD students I note an increasing interest in structural equations modeling (SEM), particularly for working with latent variables. One student’s dissertation uses SEM to study the effect of the institutional environment on entrepreneurship, treating entrepreneurship as a latent variable and using measures of new business starts, patent filings, and the like as the corresponding manifest variables. Another student is using SEM to examine free-riding among members of a large cooperative, with various observable behaviors serving as indicators for the latent variable free-riding.

More generally, SEM is becoming a standard tool in management, where abstract concepts like trust, knowledge, capabilities can (potentially) be modeled as latent variables in a system of equations. Indeed, when I visited Nicolai in his office in Copenhagen a couple of weeks ago, the first thing I noticed on his desk was a LISREL manual, prominently displayed on the corner. (He assures me it is not for show.) (more…)

8 July 2006 at 12:33 am 3 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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