Archive for October, 2006

Roundup of Interesting Working Papers

| Peter Klein |

Kathy Fogel, Randall Morck, and Bernard Yin Yeung, “Big Business Stability and Economic Growth: Is What’s Good for General Motors Good for America?” NBER Working Paper 12394. On the relationship between Schumpeterian competition and overall economic performance.

Thomas Malone, Peter Weill, Richard K. Lai, Victoria T. D’Urso, George Herman, Thomas Apel, and Stephanie Woerner, “Do Some Business Models Perform Better than Others?” MIT Sloan Research Paper No. 4615-06. Interesting attempt to classify all 10,970 publicly traded US corporations from 1998 to 2002 according to two dimensions, what asset rights are sold (Creators, Distributors, Landlords, and Brokers) and what type of assets are involved (Financial, Physical, Intangible, and Human). Finds that some types outperform other types on particular performance dimensions, though no single type dominates all other types on all dimensions.

Naomi R. Lamoreaux and Jean-Laurent Rosenthal, “Contractual Tradeoffs and SMEs Choice of Organizational Form, A View from U.S. and French History, 1830-2000,” NBER Working Paper 12455. Asks why partnerships, rather than corporations, were the dominant business structure before the twentieth century. Uses US and French data to argue that partnerships and corporations are complementary organizational forms.

22 October 2006 at 10:35 pm Leave a comment

Salvation Through Corn?

| Peter Klein |

I enjoyed this rant against agricultural subsidies by Kyle of Impudent Domain. Kyle is mostly on target (though E. C. Pasour provides a more systematic overview of the relevent issues here and here). The best part is the closing line, on the ethanol boondoggle, which echoes William Jennings Bryan. I say, you shall not crucify American energy consumers on a cross of corn!

21 October 2006 at 12:32 am 1 comment

Economics and Literature

| Peter Klein |

Lest the “Pomo Periscope” series below make you think we at O&M are anti-literary or anti-narrative, let me tell you about one of my favorite literary scholars, University of Virginia professor Paul Cantor. A specialist in Shakespeare and English Romanticism, Cantor has recently begun writing about the relationship between literature and economic theory (and, in his Gilligan Unbound, the relationship between economics and pop culture).

Cantor burst on the (economics) scene with a 1994 article in the Review of Austrian Economics, “Hyperinflation and Hyperreality: Thomas Mann in Light of Austrian Economics.” Focusing on Mann’s 1925 short story “Disorder and Early Sorrow,” set in the waning days of the Weimar Republic, Cantor explores the parallels between hyperinflation and “hyperreality,” the condition of being unable to distinguish fact from fiction. “If modernity is characterized by a loss of the sense of the real,” writes Cantor, “this fact is connected to what has happened to money in the twentieth century.” Mann’s story, as interpreted by Cantor, illustrates how closely the commercial and cultural worlds are linked. (Cantor has also written about the economic views of such diverse literary and cultural figures as Percy Bysshe Shelley and W. C. Fields.)

Here is a series of Cantor lectures from a July 2006 seminar on “Commerce and Culture.” Topics include “The Economic Basis of Culture”; “The Economics of Painting: Patronage vs. the Market”; “The Economics of Classical Music: Patronage vs. the Market”; “The Economics of Modernism”; and “Totalitarianism and the Arts in the 20th Century.” All are well worth watching.

19 October 2006 at 11:56 pm 2 comments

Pomo Periscope II: Recommended Reading

| Nicolai Foss |

Here is an old  but excellent paper by the great French sociologist Raymond Boudon, “The Freudian-Marxian-Structuralist (FMS) movement in France: variations on a theme by Sherry Turkle,” Revue Tocqueville, vol. II, no. 1 (Winter 1980), pp. 5-24.  (Unfortunately, the paper doesn’t seem to exist online, but your library should be capable of getting it for you). The paper is highly recommended, not only for its dissection of the FMS, but also because so much of what says about the FMS fits more contemporary pomo trends perfectly. (more…)

18 October 2006 at 8:51 am Leave a comment

Knowledge Governance: Call for Papers

| Nicolai Foss |

My co-blogger recently blogged (here) on the newly launched International Journal of Strategic Change Management which has a heavy O&M representation (i.e., Peter, I and former O&M guest blogger Joe Mahoney) on its editorial board . As Peter mentioned, Oliver Williamson has just joined IJSCM as consulting editor.

Joe Mahoney, I and the editor of IJSCM, Patricia Ordonez de Pablos, will edit a special issue of IJSCM on “Knowledge Governance.” (For an attempt to characterize knowledge governance as an emerging field in management, see this paper; forthcoming in a slightly revised version in Organization).

 Here is the Call for Papers: (more…)

18 October 2006 at 2:03 am 1 comment

Hummer on the End-Period Problem

| Peter Klein |

I don’t drive a Hummer, but Hummers provide me what environmental economists call existence value. The fact that Hummers exist — or, more precisely, that their existence drives certain people crazy — gives me pleasure. And their advertisements are terrific: well-crafted, entertaining, and funny, in a we-don’t-take-ourselves-too-seriously kind of way.

The latest television ad for the H2 provides a perfect illustration of the “end-period problem” in repeated games. I don’t know how to link to the clip directly, but you can find it on Hummer’s site by clicking “Hummer World,” “TV Commercials,” and “Astronomer.”

Well, what would you do if a giant asteroid were headed our way?

18 October 2006 at 12:13 am Leave a comment

Pomo Periscope I: “Economics and Narrative Form”

| Nicolai Foss |

Here at O&M we try to keep a keen eye on pomo tendencies in economics and management (e.g., herehere and here). Indeed, we do this with such frequency that we, as of this post, will have a regularly occurring feature — The Pomo Periscope.

We kick off by letting the Periscope zoom in on a “Call for Papers on Proposed Panel on Economics and Narrative Form, Society for the Study of Narrative Literature, Georgetown, 03/07.” Here is the full call: (more…)

17 October 2006 at 11:31 am 10 comments

Specialized Wikis for Sharing Class Notes

| Peter Klein |

Students wishing to share class notes can try two new wiki-like services, NoteMesh and EdTechPost offers some commentary.

More than ever, professors need to add a disclaimer to their syllabi: “I am not responsible for information on class notes wikis, MySpace, Facebook, or any other websites. To be honest, I’m not even sure what those things are.”

If such tools had been available when I was a student, just think where I could be today!

17 October 2006 at 10:10 am 1 comment

Vanderbilt PhD Program in Law and Economics

| Peter Klein |

Vanderbilt University is the only US institution (as far as I know) offering a PhD degree in Law and Economics. The program now has a web page describing the faculty, curriculum, seminar series (Henry Manne is on the Fall slate), and other practicalities. (Via Josh Wright.)

16 October 2006 at 5:35 pm Leave a comment

Further Dissent on Grameen

| Peter Klein |

The econo-blogosphere continues to heap adulation on Nobel Laureate Muhammad Yunus and the Grameen Bank. I keep waiting for someone to join me in expressing reservations. Economists and bloggers alike excel at challenging the conventional wisdom, especially when press coverage of an individual or event is completely one-sided. But so far no takers.

Much of the information circulating about Grameen doesn’t pass the “smell test.” For instance, we’re told that 90 percent of Grameen’s borrowers are women. Yunus says poor Bangladeshi women are better credit risks than poor Bangladeshi men, and that such women are historically underserved by credit institutions. Fair enough, but 90 percent? If that number is accurate, then we’re talking about a political statement, not a development strategy.

The number that puzzles me the most, though, is Grameen’s repayment rate, variously described at 98 or 99 percent. To begin with, this is an odd statistic to tout. Banks do not measure their performance by the repayment rate, but by profitability or the efficiency with which deposits are converted into loans. OK, you say, Grameen is not chasing profits, but broader social objectives. Fine, but then the appropriate performance measure is the number of new businesses created with Grameen credit, the change in the poverty rate, or some other measure of social welfare.

In any case, the point is moot, because the number is bogus. As reported in the October 14 WSJ:

Mr. Yunus often says the bank has a loan-recovery rate as high as 98.5%. Yet that figure ignores the clients who are far behind in their loan payments. The bank reports a loan as overdue only if the borrower has missed 10 or more consecutive payments. And the bank has often provided new loans to allow borrowers to keep current on old ones. The problem came to a head early this decade, when 19% of Grameen loans were at least one year overdue.

15 October 2006 at 10:19 pm 5 comments

Politically Incorrect Entrepreneur of the Year

| Peter Klein |

A German entrepreneur wants to create a nostalgic smokers’ haven above the clouds by starting a nicotine-friendly airline offering Cuban cigars, caviar and flight attendants in designer uniforms — as well as smoking allowed in every seat.

Thanks to Lew Rockwell for the link. Incidentally, starting in January 2007 smokers in my town of Columbia, Missouri, will be banned from all restaurants, bars, and even the most sacred space of any American college town — the football stadium.

15 October 2006 at 6:42 pm Leave a comment

Workshop on Evolution and Policy

| Nicolai Foss |

In an earlier post, I pointed out that evolutionary economics is remarkably weak when it comes to the normative foundations of the EE enterprise. Thus, evolutionary economists do not shy away from making often strong pronouncements on policy, for example, on IPR policy, regional policies, etc., but these policy statements are seldom defended by references to explicit welfare standards.

There are signs that a recognition is spreading that the normative foundations of policy is a weak spot in evolutionary economics. Here is an announcement of an interesting workshop (I may go myself) on “normative policy implications from recent advances in the economics of innovation and industrial dynamics” (what a sexy title!): (more…)

14 October 2006 at 11:38 am Leave a comment

Factions in Evolutionary Economics

| Nicolai Foss |

Evolutionary economics has emerged as the perhaps most successful modern heterodox approach. One possible reason for this relative success is that modern EE, in contrast to Austrian economics, old institutional economics, and (partly) post Keynesian economics, embraces formal model building and econometrics. Like the so-called orthodox economics that modern EE is a self-styled alternative to, EE is by no means monolithic. Although evolutionary economists go (roughly) to the same conferences and publish in pretty much the same journals, several factions are discernible within the overall EE community — such as

  1. the”Italo-Wharton-Columbia” faction (Dosi, Marengo, Malerba, Orsenigo, Levinthal, Winter, Nelson);
  2. the “old institutionalist-realist-evolutionists” (Hodgson, Lawson), mainly located in UK and US, and strong in economic geography; and
  3. the German evolutionists, nowadays primarily represented by Ulrich Witt, the Director of the Evolutionary Economics Group at the Max-Planck-Institut für Ökonomik in Jena.

One thing that differentiates the the third group from the two other ones is a stronger commitment to methodological individualism (at least the second group seems to explicitly reject MI). The overriding emphasis on routines and habits that characterizes groups 1) and 2) cannot be found in the works of the German evolutionists. Entrepreneurship is much more strongly emphasized here. There is a suspicion of biological analogies. Economic evolution is conceptualized in terms of the emergence and dissemination of novelty, rather than in terms of the evolutionary triad of variation, heredity and selection. It is an approach that is closer to Austrian economics; hence, here at O&M, we are sympathetic to German evolutionism. For a nice sampling, check out the Papers on Economics and Evolution series that is published by the MPI in Jena.

14 October 2006 at 11:17 am Leave a comment

A Nobel for Entrepreneurship?

| Peter Klein |

This year’s Nobel Prize in economics didn’t go to William Baumol or Israel Kirzner, but the peace prize went to economist and banker Muhammad Yunus, founder of Bangladesh’s Grameen Bank. Yunus is a pioneer of microcredit — small, uncollateralized loans given to poor borrowers for starting small businesses. Microcredit is widely touted as a market-based, entrepreneurial solution to world poverty.

The econo-blogosphere is elated. Greg Mankiw calls it a “second Nobel” for economics. Tyler Cowen says it’s a “wonderful choice,” noting (correctly) that Yunus would never have been considered for the economics prize.

But how well does microcredit work? The evidence is mixed. A few studies claim to find substantial, beneficial effects on entrepreneurial activity and wealth, but these studies tend to come from the Grameen Bank itself, or from advocacy groups like the Microcredit Summit Campaign. Search SSRN or RePEc and the picture becomes much cloudier.

Call me a microcredit skeptic. Here’s why: (more…)

13 October 2006 at 3:15 pm 8 comments

Interview with James March

| Peter Klein |

The October 2006 Harvard Business Review features an interview with James March, one of the most important organizational theorists of the twentieth century. Here’s an online version (possibly behind a subscription firewall). Here’s a summary from the Jackson Library Blog (which I’m finding more and more useful all the time):

The article is called ‘Ideas as Art’ (pp. 82-89). In the introductory part, the author quotes the University of Chicago professor John Padgett who once wrote: “Jim March is to organization theory what Miles Davis is to jazz.” In the interview, March elaborates on the distinction he makes between the practical managerial needs and concerns and scholarly approach to new ideas. He values ideas which contain “some form of elegance or grace or surprise — all the things that beauty gives you” and not being relevant to the immediate needs of an organization manager in a short run. He also explains the essence of his rather famous and colorfully named theories: “garbage can theory”, “technology of foolishness”, and “hot-stove effect”. The interview reveals not only a great and original scholar but also the multifaceted personality of Jim March, a man with appreciation for literature, a poet himself and an author of several books of poetry. In his own words: “What might make a difference to us, I think, is whether in our tiny roles, in our brief time, we inhabit life gently and add more beauty than ugliness.”

Aside from being a brilliant and original thinker, March is also one of the funniest people I have ever met, a brilliant after-dinner speaker who has as many Wisconsin jokes as Garrison Keillor has Minnesota jokes.

Here’s a longer interview from 2000 by Mie Augier and Kristian Kreiner.

12 October 2006 at 12:02 pm 2 comments

Netflix Tries Crowdsourcing

| Peter Klein |

Movie-rental firm Netflix appeals to the masses for a new recommendation system. Beat the system currently in place and walk away with $1 million.

12 October 2006 at 11:48 am Leave a comment

Sharpe Rethinks CAPM

| Peter Klein |

A core Kuhnian principle is that scholars never change their minds. This is especially when their original views lead to Nobel Prizes. So what a surprise to learn that Nobel Laureate William Sharpe, co-creator (with Harry Markowitz) of the Capital Asset Pricing Model (CAPM), is rethinking his views on asset pricing.

[Sharpe’s] latest book, “Investors and Markets: Portfolio Choices, Asset Prices and Investment Advice,” may send investors and academics scurrying. Published this month by Princeton University Press, the book eschews mean-variance analysis — the mathematically complex formula that relates rewards to risks of securities or portfolios — in favor of a “state preference” approach that relies on an easy-to-understand simulation. That approach is based on a model closer to that used in financial engineering than in the ivory tower.

Markowitz, apparently, is not convinced, and will debate Sharpe at an upcoming conference. (Via Mark Thoma)

11 October 2006 at 9:20 pm 1 comment

Happy Foss-hmmmm-Crowley Day

| Nicolai Foss |

We bloggers are a narcissistic bunch. My co-blogger has started a tradition of wishing our readers “Happy Hayek-Klein Day ” on his birthday, and obviously I wish to start a similar  tradition. Unfortunately, no famous Austrian economists were born on October 12. The closest we can get is the granting of the Ph.D. to Murray Rothbard, but that was Oct. 11 (1956).

I am afraid the perhaps most famous person with an intellectual occupation born on 12 October is . . . the notorious Aleister Crowley (b. 1875), “The Great Beast 666,” “The Wickedest Man in the World,” a libertine rather than a libertarian — and the grandfather of George W. Bush (at least according to this blog). 

How I will celebrate? Well, I have a nice 4-hours lecture on transaction cost economics to deliver. Such joy . . . 

11 October 2006 at 6:05 pm 4 comments

American Economists: Not So Free-Market After All

| Peter Klein |

I’ve blogged previously about Daniel Klein’s work on the political identities and policy views of economists and other academics (here and here). A new paper by Klein and Charlotta Stern surveys American Economic Association members on various policy issues, finding that “about 8 percent of AEA members can be considered supporters of free-market principles, and that less than 3 percent may be called strong supporters. . . . Even the average Republican AEA member is ‘middle-of-the road,’ not free-market.”

Why are economists almost universally perceived as strong supporters of the free market? Klein and Stern offer several conjectures. One is that economists tend to be strong supporters of (international) free trade and at least partial liberalization, making it look like economists support free-market principles more generally. Another is that most academics in the social sciences and humanities are strongly opposed to the free market, making economists look like radical free-marketeers by comparison. Yet another is that most of the strong supporters of the free market (in academia) are economists, leading to the mistaken inference that most economists are strong supporters of the free market.

11 October 2006 at 3:15 pm 2 comments

Jon Elster Site

| Nicolai Foss |

Here is a nice site dedicated to Norwegian sociologist, the Robert Merton Professor at Columbia University, Jon Elster, a champion of an interesting (modified) rational choice and clearly methodological individualist sociology. It lists all Elster’s works, including some unpublished papers. Some works are downloadable. Unfortunately, nothing seems to have been done on the site since appr. 2000.

11 October 2006 at 1:55 pm 1 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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