Archive for September, 2006
Youtube.com
| Nicolai Foss |
I became aware of youtube.com through Russ Coff who very effectively used a youtube video in one his presentations at the recent Academy of Management Meetings.
Youtube.com is a bonanza. I quickly found numerous videos with my favorite jazzers, e.g., Django Reinhardt, Tal Farlow, and others, but for you more serious folks, there are great videos of our favorite political economists. For example, here is the great Arnold Schwarzenegger introducing Uncle Milton’s Free to Choose series. And here is Milton himself. Here is one on Ludwig von Mises (produced by the Mises Institute). Of course, there is a clip of Ayn Rand praising the “new intellectual,” and condemning “the dark ages,” “superstitions”, etc. (unfortunately she doesn’t mention that “A is A”), all in less than a minute. Great stuff!!
What’s in a Name? Property Rights, Legal Rights, and Economic Rights
| Nicolai Foss |
I tend to find the property rights approach associated with such economists as Coase, Demsetz, Alchian, and perhaps particularly Yoram Barzel extremely useful, informative, and insightful. (I also find their approaches more generally useful than the more recent property rights approach associated with Oliver Hart and his colleagues and students; on the differences between the “old” and the “new” property rights approaches, see this paper). It spans multiple level of analysis, and its explanatory reach seems to me to be huge. Most of my papers over the last few years utilize property rights notions in one way or another.
However, I have found that there are some basic difficulties of communicating property rights economics. It is not so much a matter of too many people (still) arguing that the Coase theorem “doesn’t hold” (usually the same types who argue that PD games are “wrong”). (more…)
Wikis Are Great, But. . . .
| Peter Klein |
Like Mike Giberson, I’m high on wikis. Of course, as with any open-source product wikis have both strengths and weaknesses compared with conventional, more hierarchical production methods. For many applications, though, the wiki model seems to work remarkably well.
But should students write their own textbooks? My former colleague Rick Watson thinks so. Here is the website of his Global Text Project, an attempt to create free, open-source textbooks for students in the developing world. Great tagline: Engaging many for the benefit of many more. (You expect clever verbiage from a guy who came up with the acronym CISL — go on, say it out loud — for his center.) Here is the projects’s blog. Here is a press release. (Via Dorai Thodla)
“Coase and Simon Got It Right, Alchian and Demsetz Got It Wrong”
| Peter Klein |
A reader asks: “In a response to a prominent economist who asked ‘what have we learned about . . . organizations,’ you provided a list that began with ‘Organizations can have market-like features, but are inherently different from markets. I.e., authority is real — Coase and Simon got it right, Alchian and Demsetz got it wrong.’ What are the major papers that led to this conclusion?”
I have in mind the Alchian-Demsetz notion that the firm is a legal fiction, a convenient label for a nexus of contracts. (Recall the famous passage in their 1972 paper about “firing the grocer.”) Classic formulations of the opposite view — that the firm does, in fact, have some power of fiat — come from the two Olivers, Williamson and Hart. (more…)
Sometimes I Wish I Were a Professor of “Critical Studies”
| Peter Klein |
Then I could write sentences like this:
Gang of Four locate their Marxist theory in the Althusserian notion of expressing resistance through the contradictions inherent in the Ideological State Apparatuses (ISA) of the corporate-controlled rock music industry, and the way in which Gang of Four express their theory of Marxist thought is by inducing in the listener an alternative consciousness achieved through contradictions and disorientations that serve to mirror the very sense of disorientation and contradiction that capitalistic consciousness creates.
The reference is to the pop group group Gang of Four, not this Gang of Four (or, for that matter, this one). I suppose the analysis is deep, in a critical studies kind of way. (Crooked Timber has all the gory details.)
Shifting or Rotating Demand?
| Lasse Lien |
For O&M readers interested in competitive strategy, I would like to recommend a recent paper in AER by Johnson and Myatt: “On the Simple Economics of Advertising, Marketing, and Product Design” (vol 96, no. 3). The authors analyze a weirdly understudied topic in economics, namely rotations of the demand curve. This means that firms by their choice of advertsing, marketing and product design can influence the dispersion of customers valuations for a product. Take for instance product design. A universally attractive new feature will simply shift the demand curve outward, while a new feature that pleases some customers and displeases others will lead to an increased dispersion of customers valuation, that is, to a rotation of the demand curve. (more…)
Infotopia
| Peter Klein |
From Knowledge Problem I learn of Cass Sunstein’s new book Infotopia: How Many Minds Produce Knowledge. Mike Giberson reflects on the obvious Hayekian parallels. And see these thoughtful remarks by Lynne Kiesling. (Here are some less insightful comments on Wikis and Digg.)
The Treatment of Frequency in Transaction Cost Economics
| Peter Klein |
Every schoolboy knows that transactions are characterized by asset specificity, uncertainty, and frequency. (Every schoolboy schooled in transaction cost economics that is.) Yet, while asset specificity and uncertainty have been treated exhaustively in the literature, frequency has become the red-headed stepchild of the transaction cost triple.
As I read the TCE literature, frequency shows up in at least three distinct forms, not all of them compatible. (more…)
Swimming with the Stingrays
| Peter Klein |
Daniel Larison takes National Review’s Cliff May to task using Steve Irwin’s unfortunate death to score political points. “Poor Steve Irwin. He not only died in a horrible accident, but something far worse has happened to him: his death has become a kind of cautionary tale for neoconservative foreign policy. Leave the poor man alone, for goodness’ sake!”
It made me wonder: How long before someone makes Irwin’s death into a cheesy management metaphor? You know what I’m talking about. The competition is like a giant stingray, seemingly docile and minding its own businesses, but ready to lash out with its barbed tail when threatened. Or: Technology entrepreneurs, like the late Steve Irwin, think they have things under control, while danger lurks right under their feet. Spare us, please!
Leijonhufvud Papers
| Nicolai Foss |
Here is one more entry in the ongoing O&M Leijonhufvud feuilleton. Leijonhufvud is still alive and kicking, and has a couple of very nice downloadable working papers in the series of the Department of Economics, University of Trento (downloadable here).
In “The Uses of the Past,” a keynote speech to the European Association of the History of Economic Thought, Leijonhufvud takes issue with the
… misconception … that neoclassical economics was always about optimizing and equilibrium. Up at least through the 1950s, neoclassical economists always distinguished between static and dynamic theory. Dynamics referred, on the one hand, to the adaptation of individuals and, on the other, to the market process whereby they collectively groped towards equilibrium. Equilibria were understood as the point attractors of these processes. Static theory dealt with the property of these attractors … What is called dynamic theory today is just the generalization of the old static theory.
More on Leijonhufvud
| Nicolai Foss |
The great economist Axel Leijonhufvud has been the subject of earlier posts here on O&M (here and here). A recent issue of the Cambridge Journal of Economics features an article by Elisabetta de Antoni (a colleague of Leijonhufvud at the University of Trento) on “The Auctioneerless Economics of Axel Leijonhufvud: The “Dark Forces of Time and Ignorance” and the Coordination of Economic Activity.”
The article contains some strange claims — e.g., it claims that “Leijonhufvud has the unquestionable merit of having devised the metaphor of the auctioneer” (p. 2) and this auctioneer is the “personification of the (equally occult) ‘invisible hand’ of the market” (p.3) — but there are many interesting observations and points. Thus, it doesn’t over-concentrate on the 1968 book, and nicely tells the story of how Leijonhufvud became increasingly heterodox, as the econ profession since about the mid-1970s moved towards the intertemporal optimization approach that still holds sway. On the whole, the paper is a reliable and informative guide to the thinking of one of the most fascinating contemporary economists.
Economic Literacy in Fiction
| Peter Klein |
I blogged previously about the silly and boring political economy of the Star Trek universe (quoting Tim Cavanaugh’s brilliant line about Captain Kirk as “an interstellar Gen. Tommy Franks”). For those nerdy, libertarian sci-fi fans out there I offer now this analysis of the economic organization of Star Trek: Deep Space 9.
Speaking of high culture, what about that community in M. Night Shyamalan’s The Village? It’s a small town in the wilderness, completely cut off from the social division of labor, and yet the inhabitants have decent (19th-century) technology — buildings, tools, clothing, etc. (If you’ve seen the film, you know that the inhabitants actually have more advanced technological knowledge than they pretend to have, but still….) There is specialization within the village, and a little private property, but no evidence of money, prices, or exchange. How do they survive? Don’t these villagers know that trade is better than autarky? How do they solve the calculation problem? I can willingly suspend my disbelief only so far.
More on Methodological Individualism and Subjectivism
| Nicolai Foss |
In an earlier post, I argued that methodological individualism involves “… almost with necessity some kind of subjectivist methodology.” David Gordon made the comment that methodological individualism does not have “… to involve a commitment to a subjectivist methodology. The sociologist George Caspar Homans combined methodological individualism with behaviorism.” I didn’t have the time to respond to Gordon then, so the following is a somewhat belated response of sorts (or perhaps just some further reflections prompted by Gordon’s comment). (more…)
Industrial Entrepreneurship in Early Modern China
| Peter Klein |
Coase, Williamson, and others have long called for comparative institutional analysis across countries and across time. How do various institutional arrangements perform under alternative institutional environments? We are only beginning to understand this question. (Important contributors to the literature include Witold Henisz, Tarun Khanna, Masahiko Aoki, and various members of the Centre ATOM, among others.) Can changes in the institutional environment be regarded as exogenous “shift parameters,” as Williamson has articulated the problem, or is there a more subtle, complex co-evolution among institutions and organizational form?
These issues are raised in Madeleine Zelin’s The Merchants of Zigong: Industrial Entrepreneurship in Early Modern China (Columbia University Press, 2006), reviewed here by Carol Shiue for EH.Net. Zelin’s new book traces the history of the salt merchants of western Sichuan province, who created one of the first, vertically integrated industrial enterprises in modern China. Though not explicitly a comparative study, Zelin’s volume provides a useful companion to the landmark studies by Chandler and others of the history of modern enterprise in the West. As Shiue observes, “A recurrent theme of the book is that the business arrangements seen in the Chinese salt industry belie not only previous perceptions about the predatory influence of the ‘feudal’ state on entrepreneurial incentives in China, but also the purported uniqueness of Western business practice.”
See also Shiue’s earlier review of Zelin, Ocko, and Gardella, eds., Contract and Property in Early Modern China (Stanford University Press, 2004).
Entrepreneurship and Uncertainty Bearing
| Peter Klein |
A further point about entrepreneurial judgment: The claim that the essence of entrepreneurship is uncertainty bearing, that the entrepreneur is the party to whom gains and losses accrue in a dynamic, evolving economy, does not imply any particular view about the psychological characteristics of those individuals who perform this function. The entrepreneurial function is to bear uncertainty, regardless of how entrepreneurs interpret their own behavior.
This issue comes out in “Entrepreneurial Risk and Market Entry” by Brian Wu and Anne Marie Knott, from the September 2006 issue of Management Science (working paper version here). This paper, which has generated a lot of buzz, argues that entrepreneurs (defined here as individuals who start new businesses) are just as risk averse as other agents in the economy, but systematically tend to overestimate their own abilities. In other words, entrepreneurs engage in risky behavior even though they don’t like uncertainty, because they don’t think the results of their own actions are uncertain. (more…)
More on Artificial States
| Peter Klein |
Greg Mankiw and Amity Shales discuss applications of the Alesina, Easterly, and Matuszeski paper on “Artificial States” to US policies in Afghanistan and Iraq. The paper is fascinating, full of insight and innovative analysis. Of course, you read about it here first (with applications to management).
Classical Liberalism and Cultural Conservatism
| Peter Klein |
Astute readers will have noticed this blog’s professed interest in both classical liberalism (or libertarianism) and cultural conservatism. But are they compatible? Classical liberals are often portrayed as social and cultural libertines, products of the Enlightenment, modernism, and the secular revolt of Reason against traditional moral authority. Indeed, responding to an earlier post on the political leanings of sociologists, a commentator wrote: “I am honestly curious about how you square the rational ambitions of classical liberalism with the irrational conservative ideals on ‘orthodox Christianity’ and reliance on Authority?”
The answer is simple: classical liberalism is a political doctrine, and cultural conservatism is, well, a cultural doctrine — more precisely, a set of social, cultural, and moral beliefs or principles. (more…)
More on Strategic Factor Markets
| Nicolai Foss |
Jay Barney’s 1986 paper, “Strategic Factor Markets: Expectations, Luck and Business Strategy,” is a classic of recent strategic management literature and one of the key contributions to the resource-based view. It is also one of those papers where the argument — in this case that firms can only gain a competitive advantage if they buy at least some inputs at a price below the net present value of those inputs — seems so irritatingly obvious — that is, after you have read the paper. (more…)
Levels Issues II: Recommended Reading
| Nicolai Foss |
One of the most insightful discussions of what we may mean by “levels of the social” that I know of is a recent and apparently still unpublished paper with the same title by philosopher (and chancellor) Daniel Little. Litte defends micro-foundations, mechanism-based explanation, denies macro-macro causation, and argues that the “molecule” of social phenomena is the socially situated individual in a local context. Although the latter position may be too much to stomach for the die-hard methodological individualist, there is much with which Austrians and other economists can agree. An excellent read!
Thank You, Dick!
| Nicolai Foss |
Many thanks to Dick Langlois for guest blogging at O&M. Dick has contributed some excellent blog posts which are among the most viewed ones on the site. We hope Dick will continue to visit O&M in the future and post comments. Thanks, Dick, for allowing us to benefit from your fertile mind.
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