Archive for August, 2006

Transgressing the Boundaries

| Peter Klein |

Our colleagues at have been reporting on the recent meeting of the American Sociological Association. I’ve enjoyed following the discussion and learning more about what our sociologically inclined brethren say about organizations. But only today did I learn that the theme of this year’s ASA meeting was “Great Divides: Transgressing Boundaries.” Where, I thought, have I heard that expression before? Then I remembered: the title of Alan Sokal’s famous hoax paper was “Transgressing the Boundaries: Towards a Transformative Hermeneutics of Quantum Gravity.”

I guess sociologists have a sense of humor after all.

30 August 2006 at 5:52 pm Leave a comment

Down With Spitzer

| Peter Klein |

Professor Bainbridge reviews Brooke Masters’s biography of Eliot Spitzer:

A fair reading of Eliot Spitzer’s record as presented by Masters suggests that he is both a genuine cause crusader and a career political hack. Spitzer has consistently used — and abused — his authority as New York attorney general to level sweeping accusations against a wide swath of American business. In some cases, like the proverbial stopped clock, he got it right. In a lot of cases, however, the much ballyhooed charges got a lot of press attention but then quietly went away. Indeed, on the few occasions he’s taken one of these high profile business cases to trial, he’s lost at least as often as he’s won. Instead, his record consists mainly of using media pressure to extort settlements from frightened executives.

Oh, and by the way, down with Giuliani too.

30 August 2006 at 11:48 am Leave a comment

Foucault and Economics

| Nicolai Foss |

Catallaxy has a post on “Foucault at the Sydney Institute.” More precisely, the post is about a presentation on Foucault by Foucault scholar, Clare O’Farrell:

She noted that Foucault’s ideas are rapidly growing in popularity and influence in a wide range of fields including the social sciences and the humanities, also nursing, health administration and education. Unfortunately this list coincides with a list of problem areas in my humble opinion, though I would not be rash enough to blame Foucault’s influence alone.

O’Farrell is then ” .. asked about Foucault’s economics … The reply did not address the specific issues but it seems that late in his life Foucault wrote a book (in French) on the rises of neoliberalism.”  (more…)

30 August 2006 at 11:29 am Leave a comment

Levels Issues I: Homogeneity and Heterogeneity

| Nicolai Foss |

Issues that relate to levels of analysis are some of the most vexing ones in social science, both theoretically and empirically.  I plan to post on levels issues over the coming week or so. Today’s topic: Homogeneity and heterogeneity across levels of analysis. (more…)

30 August 2006 at 10:25 am 1 comment

Measuring Organizational Form

| Peter Klein |

A reader, inspired by our discussion on organizational form, asks for references to empirical papers relating organizational form to performance. My suggestions:

1. The literature from the 1970s and 1980s on the “M-form hypothesis.” The classification scheme is described in Williamson and Bhargava, “Assessing and Classifying the Internal Control Apparatus of the Modern Corporation,” in Keith Cowling, ed., Market Structure and Corporate Behavior (London: Gray Mills, 1972). Empirical papers (you’ll have to Google them) include Armour and Teece (1978), Steer and Cable (1978), Teece (1981), Thompson (1981), Harris (1983), Cable and Dirrheimer (1983), Cable and Yasuki (1984), and Hill (1985). I’m currently working on a paper revisiting these data using some updated techniques.

2. The “diversification discount” literature in empirical corporate finance. This literature is about organizational form to the extent that organizational form is correlated with the number of industry segments, the distribution of activities across industries, or some measure of relatedness. (Among the many papers in this literature, the best known are Lang and Stulz, 1994; Berger and Ofek, 1995; Campa and Kedia, 2003, Chevalier, 2004). A few papers try to infer organizational form from past activities, such as prior acquisitions (Hubbard and Palia, 1999; Klein, 2001).

3. More direct measures include segment or subsidiary counts within a single industry (Klein and Saidenberg, 2005, Sanzhar, 2006), the ratio of administrative staff to total employees (Zhang, 2005), the number of positions reporting directly to the CEO (Rajan and Wulf, 2003), and the average number of management levels between the CEO and division managers (Rajan and Wulf, 2003).

This will all be discussed in more detail in the magnum opus.

30 August 2006 at 9:08 am 1 comment

Ken Lay Chair Still Available

| Peter Klein |

The University of Missouri is once again trying to fill the Kenneth L. Lay Chair in Economics. Drop me a line if you’re interested. But you’d better move fast

29 August 2006 at 9:02 am Leave a comment

The Corporation versus Tom Cruise

| Peter Klein |

Hollywood studios are standing up to eccentric, pampered stars like Tom Cruise and Lindsay Lohan. At last, says Professor Bainbridge, corporate studios are acting like corporations. “Once again, the public corporation and its norm of shareholder wealth maximization prove to be a force for good.” (Prof. B. is not a fan of stakeholder theory, if you didn’t know.)

On the other hand, if the dependent variable is individual film revenues, rather than film studio market value, the presence (and presumably behavior) of particular stars seems to have little impact on performance. So says Art DeVany (via Marginal Revolution).

28 August 2006 at 2:13 pm Leave a comment

General-Purpose Technologies and Long-Term Economic Growth

| Peter Klein |

Another interesting book review from EH.Net, this time by Joel Mokyr on Economic Transformations: General Purpose Technologies and Long-Term Economic Growth by Richard G. Lipsey, Kenneth I. Carlaw, and Clifford T. Bekar.

The book is hard to summarize because it is unusually rich and diverse. It contains long discussions of technological change, its nature, sources, and consequences. Lipsey maintains that technology is at the heart of modern economic growth and asks — once again — what the sources of Western success are. Among other things, the book also treats at length the economics of technological change, the history of science, and population dynamics. It is part grand synthesis, part textbook, part statement of the author’s idiosyncratic views, and throughout an excellent read — informed, curious, unafraid of being unconventional or politically incorrect.


Lipsey joins a large number of economists who, when thinking about the long run, feel that evolutionary models are more appropriate than standard neoclassical ones.

Hopefully, as if responding to Nicolai’s plea, Lipsey et al. also discuss some policy implications of their evolutionary perspective.

28 August 2006 at 10:06 am Leave a comment

Editors, Reviewers, and Academic Judgment

| Peter Klein |

Further to Nicolai’s remarks below:

1. Marginal Revolution had a thread a while back about the best economics journal editors. Don’t know of a similar discussion for other disciplines.

2. The suggestion that editors may defer too heavily to reviewers, rather than forming their own, independent judgments of quality, brings to mind a recent exchange between Leland Yeager and David Laband and Robert Tollison on what Yeager called “secondhandism.” Yeager decried the practice of hiring, promoting, and tenuring faculty based only on quantitative measures of output such as journal rankings, citations, and similar metrics. Laband (who specializes in ranking economics journals) and Tollison replied that hiring and promotion committees should rely, not on their own idiosyncratic opinions, but on the “market test.” Here is Yeager, followed by Laband and Tollison, and Yeager again.

27 August 2006 at 2:52 pm Leave a comment

Are Reviewers Too Powerful?

| Nicolai Foss|

Reviewers certainly are powerful. Are they too powerful?

When I served as Departmental Editor of the Journal of International Business Studies it occassionally happened that I issued invitations to revise and resubmit , against the advice of the reviewers. I often accepted papers for publication that at least one and sometimes two reviewers hated. Once it happened that after I had accepted such a paper, a very dissatisfied reviewer — a prominent Wharton scholar — wrote to the chief editor, complaining that I was undermining the refereeing institution. Well, I thought the reviewer was wrong and that I (and the author) was right. And I thought I had no obligation to slavishly follow his advice, which was just that, a piece of advice, and not a verdict. (more…)

27 August 2006 at 10:50 am 12 comments

Who Killed the History of Economics?

| Peter Klein |

As discussed here before, economists are not generally familiar with the history of economic thought. Roy Weintraub offers this explanation: Heterodox economists often specialize in the history of economic thought, so mainstream economists come to associate doctrinal history with heterodoxy, thus turning them off to the history of economics itself. (Thanks to Mark Thornton for the cite.)

This explanation strikes me as misguided, for two reasons. First, many heterodox economists publish in history-of-thought journals, attend history-of-thought conferences, and the like not by choice, but because they cannot get their work published in mainstream journals. The perceived link between heterodoxy and the history of economic thought is thus endogenous, begging the question of why mainstream economists are willing to tolerate heterodoxy as history but not otherwise.

Second, and more important, mainstream economists’ lack of interest in doctrinal history is more likely due to the general Whiggishness pervading modern social science. (more…)

26 August 2006 at 5:30 pm 1 comment

More Interesting Links

| Peter Klein |

More links for O&M readers to enjoy. (Celebrity readers, you too!)

26 August 2006 at 5:08 pm Leave a comment

The O&M Readership is Expanding

| Nicolai Foss |

We have been suspecting it for a long time, but now it is an established fact: We have an expanding celebrity readership. Here is a series of nice pics of an O&M celebrity reader preparing to post a comment on a Nicolai Foss strategic management post. Now we only need to get Salma to live up to that surname …

26 August 2006 at 1:18 pm Leave a comment

Readings on Structural Equations Modeling

| Peter Klein |

I posted a while back on the increasing interest in structural equations modeling (SEM) among economists and management scholars. My PhD student Frayne Olson, an SEM enthusiast (and, incidentally, the nephew of Mancur), sent me some introductory references, which I hereby pass along:

  • Rex B. Kline, Principles and Practice of Structural Equation Modeling, 2nd ed. (Guilford Press, 2005). (“A very easy to understand presentation of the SEM concepts and applications.”)
  • Ralph O. Mueller, Basic Principles of Structural Equation Modeling: An Introduction to LISREL and EQS (Springer, 1996). (“Uses basic matrix algebra to explain how SEM coefficients are estimated. I have found this to be closer to the typical teaching format used within econometrics textbooks. It may be easier to make the transitions and linkages to traditional regression analysis by reading this book.”)

Addendum: Every good SEM analysis includes a path diagram (like the boxes-and-arrows models filling the pages of the Academy of Management Review). This paper tells you all you could ever want to know, and more, about the theory underlying such diagrams. (Via Technology Ideas for Teachers.) And wouldn’t you much rather see path diagrams like these?

25 August 2006 at 1:36 pm Leave a comment

Wal-Mart — Cont’d

| Nicolai Foss |

My co-blogger has recently drawn attention to how Wal-Mart contributes to reducing global poverty. On my recent visit to Atlanta, Georgia, he also arranged a trip to Alabama that in addition to a visit to the Ludwig von Mises Institute was also supposed to include a touristic visit to a Super Wal-Mart, no less (I shall not comment on why the latter visit never materialized, but Peter’s knowledge of the Georgia and Alabama roads may have played a role here).

Apropos of Wal-Mart, the latest issue of the Academy of Management Perspectives  (formerly the Academy of Management Executive) features an excerpt from Charles Fishman’s The Wal-Mart Effect: How the World’s Most Powerful Company Really Works — and How It Is Transforming the American Economy.  R. Edward Freeman contributes a commentary which predictably concludes that Wal-Mart “… can’t do much right, simply because it is trying to tell its story in the narrow economic mode” (p.40), and therefore sacrifices a number of relevant stakeholder interests.  (more…)

25 August 2006 at 1:19 pm Leave a comment

Dissing Prahalad

| Peter Klein |

Management theory superstar C.K. Prahalad, having conquered the corporation in Competing for the Future, then turned his attention to global poverty. His plan urged firms to tap into the purchasing power of the world’s poorest consumers, creating large gains for both buyers and sellers. But there are doubters.

C.K. Prahalad’s theory on the purchasing power at the “bottom of the pyramid” (BOP) has a legion of enthusiastic supporters. The BOP argument that savvy multinationals will enrich themselves and the poor by selling to this market is “at best a harmless illusion and potentially a dangerous delusion,” according to Michigan professor Aneel Karnani. His new working paper, Fortune at the bottom of the pyramid: a mirage, is the strongest criticism I’ve seen of Prahalad and his devotees.

This is from Christine Bowers at the World Bank’s PSD Blog. Karani’s paper calls the BOP argument “seductively appealing, [but] riddled with fallacies.” Says Karani:

Not only is the BOP market quite small, it is unlikely to be very profitable, especially for a large company. The costs of serving the markets at the bottom of the pyramid are very high. The poor are often geographically dispersed (except for the urban poor concentrated into slums) and culturally heterogeneous. This increases distribution and marketing costs and makes it difficult to exploit economies of scale. Weak infrastructure (transportation, communication, media, and legal) further increases cost of doing business. Another factor leading to high costs is the small size of each transaction.

Read the paper here.

25 August 2006 at 9:17 am 6 comments

What Do We Really Know About Organizations?

| Peter Klein |

Recently a prominent economist, having discovered O&M for the first time, emailed me: “So what have we learned about how organizations really, really work in the past decade?”

I was in an airport when I received the query, and didn’t have time to prepare a thoughtful, well-crafted response. Rather than ignore the question, however, I replied with a few off-the-cuff remarks. After reading my remarks, I’d like readers to respond with their own brief thoughts. I.e., if you had to answer this question, quickly, in 250 words or less, what would you have said?

Here’s what I wrote (with a few small touch-ups): (more…)

24 August 2006 at 9:00 am 5 comments

Essays on Schumpeterian Economics

| Peter Klein |

Mark Frank reviews Arnold Heertje’s Schumpeter on the Economics of Innovation and the Development of Capitalism for EH.Net. The book collects eleven of Heertje’s essays on Schumpeter, offering “a solid introduction into the insights of Schumpeter’s vision, as well as an interesting first-hand account on the evolution of Schumpeter’s influence within economics over the past several decades.”

PS: One of the best biographies you’ve never heard of is Robert Loring Allen’s Opening Doors: the Life and Work of Joseph Schumpeter (Transaction Publishers, 1991).

23 August 2006 at 5:17 pm 3 comments

Four Theories of Profit

| Lasse Lien |

The word equilibrium should perhaps be used sparingly here in this Austrian stronghold. Nevertheless, I shall dare to use it once or twice below. One of the biggest buzzes at the recent Academy of Management meeting in Atlanta was Richard Makadok’s paper, “Four Theories of Profit and Their Interaction.” Makadok’s main point was that we have four main classes of theories/mechanisms explaining positive profits in equilibrium, and that while we know a great deal about each theory individually, we do not know much about their interaction. I certainly agree that studying the interaction between such theories is worthwhile, and there is a lot to like about Makadok’s paper (which I BTW only have an older version of, therfore no link). What I am less sure about is what these basic theories should be, and how independent the four theories suggested by Makadok really are. (more…)

23 August 2006 at 3:29 pm 10 comments

Take That, Berle and Means

| Peter Klein |

When the Board and senior management of media company VNU agreed to a buyout by a private-equity group headed by Kohlberg Kravis Roberts, shareholders did something usual: they rebelled.

The rebels — including some of the world’s largest mutual funds — proposed their own business plan and new executives, and tried to force the chairman to quit. “We took the initiative to defend long-term shareholders’ interests,” says the group’s leader, Eric Knight, head of New York-based Knight Vinke Asset Management.

After a months-long battle, shareholders eventually won a modest increase of nearly $250 million from the private-equity firms — or 2.5% more than the original deal. But that improvement was less significant than the fact that shareholders had rebelled, proposing a do-it-yourself restructuring plan that competed with a big private-equity offer accepted by management and the board.

So reports the W$J in its last Friday’s issue. The story is pitched as indicating a more-general backlash against LBOs. Warren Buffett is quoted as warning his shareholders against “deal flippers.” However, there is plenty of evidence that LBOs, on average, generate long-term gains, not only for shareholders but also for the economy as a whole. (Look for a major contribution to this literature from my PhD student John Chapman.) And isn’t it ironic to find stockholders taking an active stand against private-equity investors, given Michael Jensen’s warning of the “Eclipse of the Public Corporation”? Maybe the public corporation has life in it still.

23 August 2006 at 8:55 am Leave a comment

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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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