Archive for August, 2006

Oskar Morgenstern on Economic Data

| Peter Klein |

Philipp Bagus rehabilitates Oskar Morgenstern’s great, and underappreciated, book On the Accuracy of Economic Observations, first published in 1950. Morgenstern’s target was national income statistics and macro-econometric forecasting, but many of the same issues apply to business forecasting as well.

23 August 2006 at 8:53 am 2 comments

Methodological Individualism and the Selfish Gene

| Nicolai Foss |

As a staunch advocate of methodological individualism in the social sciences, I have often experienced the following comment at seminar presentations and in conversations: “Why take the individual as the explanatory atom? Why not go further in the direction of reductionism and begin analysis with the selfish gene?”

The comment is usually (though not always) intended to suggest that an advocacy of methodological individualism is fundamentally arbitrary and that there is no reason why individuals should have a privileged status in an explanatory sense.  However, the comment is based on a fallacy, which Livia Markoczy and Jeff Goldberg (1998) call the “driver-seat fallacy.” To wit:

It is all too common for people to imagine that evolutionary psychologists and others are claiming that our thoughts and emotions are driven by our genes … This fallacy misunderstands the way genes work. Genes build bodies. … Once the body is built, the genes have no control or influence on what those bodies do.  It makes no more sense to say that genes drive our thoughts and emotions than it does to say that genes pump our blood. Our heart pumps our blood and our brain drives our thoughts and emotions … Our genes are not in the driver’s seat, we are.  

Thus, the selfish gene argument against methodological individualism is a red herring.

23 August 2006 at 1:54 am 10 comments

Kauffman Entrepreneurship Research Portal

| Peter Klein |

The Kauffman Foundation’s Entrepreneurship Research Portal summarizes articles and working papers, events, grant opportunities, and other useful information related to entrepreneurship research. A valuable resource for those doing work in this area.

22 August 2006 at 4:52 pm 2 comments

Think Globally, Act Locally: Shop at Wal-Mart

| Peter Klein |

Michael Strong, who heads the FLOW project, explains:

Between 1990 and 2002 more than 174 million people escaped poverty in China, about 1.2 million per month. With an estimated $23 billion in Chinese exports in 2005 (out of a total of $713 billion in manufacturing exports), Wal-Mart might well be single-handedly responsible for bringing about 38,000 people out of poverty in China each month, about 460,000 per year.

Read the whole thing here. And get some of these cool wristbands from the Adam Smith Institute: “I buy goods from poorer countries.”

22 August 2006 at 2:36 pm Leave a comment

Gordon on Private Communities

| Peter Klein |

My favorite urban economist, USC’s Peter Gordon, on private communities:

Robert Nelson has documented the current migration into private communities which now house 55-million Americans. Governance is by homeowners associations (HOAs) and markets are vetting the trade-offs of property rights protections vs rights losses that most property owners look for. The fly-in-the-ointment is an oldie: the problems of democracy are well documented and are real at all levels of government, whether it be federal, state, local or private.

This is why Spencer MacCallum has predicted that HOAs are just a waystation and better forms of governance will replace them. He suggests the hotel as his model, where governance is by contract rather than by democracy.


22 August 2006 at 10:11 am Leave a comment

One More Stride Forward in the Struggle Against Collectivism

| Nicolai Foss |

“Individuals and Organizations: Thoughts on a Micro-Foundations Project for Strategic Management and Organizational Analysis” by Teppo Felin and me has just been published in David Ketchen and Donald D Bergh, Research Methodology in Strategy and Management 3.  Here is a working paper version. And here is the Abstract:

Making links between micro and macro levels has been problematic in the social sciences, and the literature in strategic management and organization theory is no exception.  The purpose of this chapter is to raise theoretical issues in developing micro-foundations for strategic management and organizational analysis. We discuss more general problems with collectivism in the social sciences by focusing on specific problems in extant organizational analysis. We introduce micro-foundations to the literature by explicating the underlying theoretical foundations of the origins of individual action and interaction.  We highlight opportunities for future research, specifically emphasizing the need for a rational choice program in management research.

22 August 2006 at 2:50 am Leave a comment

A Muddle on Vertical Integration

| Peter Klein |

Slate’s Daniel Gross offers a hopeless muddle on vertical integration in his latest Moneybox column. Citing several examples of forwards integration mentioned in a recent WSJ article, Gross proclaims “the return of one of the great industrial developments of the late 19th century: vertical integration.” But the reasoning is a mess.

First, there’s no systematic evidence that vertical integration ever went away. We have plenty of anecdotal information about outsourcing, increased use of networks and alliances, “refocusing,” and the like, but little systematic evidence for a comprehensive, economy-wide trend toward vertical dis-integration. (more…)

21 August 2006 at 8:58 pm 4 comments

Silly Things Nobel Prize Winners Say

| Nicolai Foss |

It is comforting to us ordinary mortals that Nobel Prize winners in economics have contributed their share of nonsense.  Here at O&M we hope to make the Silly Things etc. post a regularly occurring feature. Today’s quotation is from Douglass C. North’s recent Understanding the Process of Economic Change (2005: 122):

Economists of a libertarian persuasion have for some time labored under the delusion that there is something called laissez faire and that once there are in place “efficient” property rights and the rule of law the economy will perform well without further adjustment. The scandals involving Enron, Dynergy, WorldCom, and others in 2001-2002 should have laid such a delusion to rest.

21 August 2006 at 2:05 pm 8 comments

Bell Labs’s New Mandate: Make Money

| Peter Klein |

AT&T’s legendary Bell Labs — home of the transistor, the laser, UNIX, cellular telephony, and other breakthroughs — is being turned into a profit center.

Each [project] is expected to make back six times what it spends on research. Those with the biggest financial potential get the most funding. Researchers often condense their work into eight-minute PowerPoint presentations. [New head Jeong] Kim also seeks more government research grants and is aiming to speed the transformation of technology into products by seeking corporate partners and venture capital.

In earlier days, Bell Labs’ scientists might have rejected Mr. Kim’s commercial approach to science. Not now.

So reports the W$J on today’s front page. I suspect that advocates of increased public funding for R&D will take this as further evidence of the market’s inability to supply public goods. Terence Kealey demurs.

Update: The University of Illinois, recognizing the growing importance of for-profit universities such as the University of Phoenix, will establish a for-profit subsidiary. (Via Richard Vedder)

21 August 2006 at 1:18 pm 1 comment

Firms, Strategies, and Economic Change

| Peter Klein |

My review of Tony Yu’s Firms, Strategies, and Economic Change: Explorations in Austrian Economics (Edward Elgar, 2005), written for the Quarterly Journal of Austrian Economics, is available for preview here.

21 August 2006 at 10:00 am Leave a comment

All Firms Are Not Alike

| Peter Klein |

This may come as a shock to regulators, but all firms are not alike. No one-size-fits-all regulatory policy can possibly be effective. Yet, SOX and similar governance codes impose a host of blanket requirements (audit committees, majority of outside directors, etc.) on all companies, large and small, focused and diversified, profitable and unprofitable, and so on. Economically literate regulators must be schooled in industrial-organization models in which the “representative firm” is identical to every other firm.

This new paper by LSE economists Sridhar Arcot and Valentina Giulia Bruno examines heterogeneity among governance choices at UK companies and finds that the best-governed firms are not always those that conform to the “best practices” imposed by regulators.

A [governance] measure which accounts for different choices by companies of corporate governance is significantly associated with performance as against measures based on a tick-box approach, which are not. We find that companies departing from best practice for valid reasons perform exceptionally well and out-perform the fully compliant ones. In contrast, mere compliance with the provisions of the Code does not necessarily result in better performance.

(Via Professor Bainbridge)

Update: Dale Oesterle argues that uniform listing requirements for IPOs are depressing the US IPO market, suggesting that small firms should be allowed to make their IPOS over the Internet, as is allowed in the UK.

21 August 2006 at 8:54 am 2 comments

Is Judgment Measurable?

| Lasse Lien |

The hosts of this blog have offered an intriguing perspective on entrepreneurship, in which the entrepreneur is seen as an individual possessing judgment. Judgment is in short the ability to spot opportunities for profit under Knightian uncertainty (as opposed situations involving mere risk). Because there are prohibitive transaction costs associated with exploiting judgement via market contracting, the entrepreneur is left with little choice but to start his or her own firm to exploit this competence/skill/resource. This seems quite plausible, and I nodded enthusiastically as I read the paper. However, one problem kept — and keeps — bothering me (as a lowly empiricist); the problem of how to establish the existence of judgment empirically. (more…)

20 August 2006 at 2:11 pm 6 comments

Management Styles: Bob Knight vs. Coach K

| Peter Klein |

Two of the most successful US college basketball coaches, Bob Knight and Mike Krzyzewski (Coach K), are as well known for their management styles as for their on-court success. Knight (the legendary Indiana University coach now at Texas Tech.) is the in-your-face, marine-style drill sergeant who tears his players down only to build them back up. Duke’s Krzyzewski (a former Knight assistant) prefers to nurture and encourage his players, trying to establish a caring, family-style atmosphere.

Upon pondering these facts, what’s a good management scholar to do? Why, make a leadership case out of them, of course. (more…)

19 August 2006 at 10:58 pm 2 comments

Nicolai’s Secret Life

| Peter Klein |

My co-blogger claims to be a hard-nosed, logical, anti-postmodern realist, but guess what? He has secretly authored a book — in German, no less! — on “Women Who Changed the World,” profiles of feminist intellectuals and activists such as Virginia Woolf, Lou Andreas-Salomé, Bertha von Suttner, and Ellen Key. Here’s the proof. Perhaps he thought by writing the book in German, as Frauen, die die Welt verändern, we wouldn’t find out. Nice try, Nicolai!

Oh, wait, never mind, this is actually an database error. The real author is Katharina Kaminski. (Or is that a pseudonym?)

19 August 2006 at 2:40 pm Leave a comment

Scientific Progress in Strategic Management Bleg

| Nicolai Foss |

I have little doubt that strategic management as a field of inquiry has made significant strides forward in the last 3-4 decades.  Let’s just ambitiously assert that it has made “scientific progress.” One has little doubt that an overwhelming majority of the Academy of Management’s perhaps dominant division, the Business Policy and Strategy Division, would agree with this assessment. This is not just bias; the BPS may be important because strategic management is a scientific success story. But on what grounds can we assert this?  Here are some possibilities: (more…)

19 August 2006 at 1:36 pm 4 comments

Teaching Evaluations: Nationality Discounts and Premia?

| Nicolai Foss |

As is, I suppose, the case with most of the readers of this blog, I am subject to the discipline of student evaluations. I tend to find them pretty useless because their information content is rather low and because the whole process is very noisy and biased, although I do admit that they are a powerful tool for getting rid of teachers who are placed at the left tail of the quality distribution (let me anticipate a possible misunderstanding: I am usually rated in the opposite end of the distribution).

Here is a possible example of bias: I have often observed, and so have many colleagues with whom I have discussed the matter, what seems to be a nationality premium. (more…)

19 August 2006 at 7:46 am 3 comments

Roundup of Interesting Links

| Peter Klein |

Besides the links in the right-hand-side column below, O&M readers may find the following of interest:

18 August 2006 at 2:00 pm Leave a comment

Announcing the New O&M Guest Blogger: Lasse Lien

| Nicolai Foss |

Peter and I are privileged to have been joined here at O&M by some magnificent guest bloggers, first Joe Mahoney and currently Dick Langlois. We will soon be joined by an additional guest blogger, namely Associate Professor Lasse Lien, PhD, Norwegian School of Economics and Business Administration, no doubt one of the smartest (and nicest) Norwegian business administration scholars

Lasse is a friend of Peter and I.  Peter has written a series of fine papers with Lasse, all on aspects of diversification. These have their root in Lasse’s PhD thesis on which I was lucky to serve as a supervisor and which he defended in 2004.  I am also a colleague with Lasse at the Norwegian School of Economics and Business Administration.

Lasse’s main interest is empirical research practice (don’t expect too many blog posts on cultural conservatism, Misesian praxeology or Lockian/Rothbardian self-ownership from him). He has already announced that he has something provocative in store. We look forward to it, and welcome him at O&M.

18 August 2006 at 12:28 pm 1 comment

Academic Insults: Gordon Tullock Edition

| Peter Klein |

Nicolai recently started a thread on academic insults. Alex Tabarrok has created one exclusively for insults delivered by Gordon Tullock, a legendary put-down artist. To wit:

“Gordon,” I asked, “do you think we should ban child labor?”  “No, keep working.”

The other day Gordon asked me to read one of his papers and I pointed out a few typos.  “Excellent,” he said, “this will surely be your greatest contribution to economics.”

Gordon is prone to pressing people with difficult questions.  One of my colleagues responded, “Gordon, I’m not that good at thinking on my feet.”  Without missing a beat Gordon pulled up a chair and said “well sit down and we’ll see how you do then.”

Bob Lawson adds this one:

After going through the model and somewhat apologetically presenting my results which didn’t show what the model predicted. Gordon says to me, “That’s ok, Bob, a lot of other people haven’t found that result either.”

17 August 2006 at 11:26 am Leave a comment

I Know Just What You Mean

| Peter Klein |

Headline of the day, from

Redmond: FOSS makes our brain hurt

(Actually FOSS here means Free Open-Source Software and the story’s about Microsoft. But it could have just as easily been about Foss.)

16 August 2006 at 11:14 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).