Archive for October, 2006
Rise of the Aerotropolis
| Peter Klein |
Historically, cities have sprung up at the junctions of oceans and rivers (New Orleans) or railroad networks (Chicago), which made the docks or the blocks around the central station the choicest real estate in town. But “cities are always shaped by the state-of-the-art transportation devices present at the time of their founding,” observes Joel Garreau, author of Edge City and chronicler of American sprawl. “The state of the art today is the automobile, the jet plane, and the networked computer. Because of the airport, it’s possible to imagine a world capital in a place that was once an absolute backwater — a Los Angeles or a Dallas appearing in an utterly improbable location, including Bangkok.”
Hence the rise of the “aerotropolis,” the name for the cities springing up around mega-airports like Thailand’s Suvarnabhumi (near Bangkok), which will handle 100 million passengers per year (as much as New York City’s three major airports combined), and Dubai World Central, which will be able to accommodate twice as many passengers as Frankfurt’s airport and will host a permanent population of 750,000. (more…)
Wikipedia: Friend or Foe?
| Peter Klein |
Is Wikipedia “the ultimate vindication of universal education, or a widening crack in the edifice of our culture?” Stanford’s Jackson Library blog directs our attention to “Know It All” in the New Yorker and “The Hive” in the Atlantic for different perspectives.
As economists, of course, we happily consume wikis but wonder why anyone bothers to produce them. (After all, wikis aren’t just vanity projects, like organizational economics blogs.)
Phelps on Personal Knowledge
| Peter Klein |
I thought I had a scoop with this Phelps item on entrepreneurship, but he makes many of the same points in an essay, “Dynamic Capitalism,” on today’s WSJ editorial page. Here’s a passage of particular interest to O&M readers: (more…)
Your Favorite Anomalies
| Lasse Lien |
Anomalies are a key engine of scientific progress, so say Kuhn and Clayton Christensen, among others. Anomalies should accordingly be celebrated and distributed. In this spirit I offer what I consider to be a great example of an anomaly (and please submit your own favorites, or comment on the one below). This one is lifted from a recent AER paper by DellaVigna and Malmendier.
How do consumers choose from a menu of contracts? We analyze a novel dataset from three U.S. health clubs with information on both the contractual choice and the day-to-day attendance decisions of 7,752 members over three years. The observed consumer behavior is difficult to reconcile with standard preferences and beliefs. First, members who choose a contract with a flat monthly fee of over $70 attend on average 4.3 times per month. They pay a price per expected visit of more than $17, even though they could pay $10 per visit using a 10-visit pass. On average, these users forgo savings of $600 during their membership. Second, consumers who choose a monthly contract are 17 percent more likely to stay enrolled beyond one year than users committing for a year.
So is this an anomaly, or is it just me?
Forgotten/Overlooked Pioneers of the RBV
| Nicolai Foss |
Pointing to intellectual precursors is an important rhetorical exercise in many fields and disciplines. There may be rational reasons for this practice. Perhaps it helps build identity and assists group cohesion, and other things that we know very little about at O&M. Of course, to some people (including this blogger), doctrinal history is inherently interesting, but people with this preference seem to be a small and vanishing minority (in all of social science; I doubt anyone in natural science does doctrinal history professionally). To the extent that doctrinal history issues enter management discourse, it seems to mainly serve a legitimizing purpose.
When strategy management scholars of the resource-based variety ponder the past of their approach one name invariable comes up, namely that of Edith Tilton Penrose who has acquired the status of pioneering matriarch of the RBV. Numerous papers have been written on Penrose as a precursor of the RBV (e.g., this, this, and this).
Although I have the greatest admiration for Penrose’s work, particularly her 1959 book, I have some difficulties with this interpretation. (more…)
Phelps on Entrepreneurship
| Peter Klein |
Here is a short piece by Edmund Phelps on entrepreneurship (scroll down to page 26 of the pdf). Snippet:
In real-life entrepreneurial economies . . . entrepreneurs are like fighter pilots: they cannot explain completely their thinking and the decisions they make; the financiers can understand even less. In the modern theory, the entrepreneur-creators of projects and the financiers weighing the projects face radical uncertainty, and therefore do not all make the same valuations.
A usefully structured model would portray each financier as seeking to back the idea of an entrepreneur whose “thinking,” or model, seems like his — thinking with regard to which industry is the best bet, swinging for the fences or not, etc. The insight here, which originates with Hayek and M. Polanyi, is that everyone in a capitalist system carries around a sort of personal model of the economy — at any rate, some piece of it. Thus, the “capital market” is a sort of matching process that mates a financier to an entrepreneur, whom the former sees as having a model compatible with his own model. In such a theory, the heart of the capitalist system is a profusion of ideas represented as competing models of the economy (or a piece of it).
Economics Nobel
| Peter Klein |
The Nobel Prize in Economics goes to macroeconomist Edmund Phelps. No award this year for organizational economics (Williamson, Hart, Holmström, Milgrom, Alchian, Demsetz) or the economics of entrepreneurship (Baumol, Kirzner).
Reaction from the econo-blogosphere is generally favorable, but subdued. “A safe pick” is the modal comment. Lynne Kiesling adds a little sizzle: “For my money, the value of his work is in dialing down the hubris of the government policymaker who thought that monetary and fiscal policy were dials that they could twiddle to control and manage the economy. Phelps’ work helped to introduce some humility to counter that control-oriented exuberance.” And here’s Tyler Cowen on What It All Means:
The big questions still matter. Unemployment, economic growth, labor markets, capital accumulation, fairness, discrimination, and justice across the generations are indeed worthy of economic attention. Phelps contributed to all of those areas. Normative questions matter. Relevance and breadth triumph over narrow technical skill.
Problems over puzzles, in other words. Three cheers for that.
Russ Roberts provies this list of dead economists who should have won the Prize: Peter Bauer, Frank Knight, Fritz Machlup, Ludwig von Mises, Oskar Morgenstern, Joan Robinson, and Julian Simon.
Berkeley Puts Class Lectures on Google Video
| Peter Klein |
My alma mater UC Berkeley has become the first university to give away its class lectures for free, via Google Video. “Google Video presents us with a wonderful opportunity to share UC Berkeley’s amazing faculty with a global community of lifelong learners,” says vice provost Christina Maslach. “We see this endeavor as one part of our expanding digital bridge that is directly connecting the public we serve with the intellectual riches of the campus.” (Via Paul Reist.)
Schmoller and Pareto
| Peter Klein |
Tim Swanson reminds me of a funny Schmoller story told by Vilfredo Pareto:
Vilfredo Pareto, the influential Italian economist, while giving a talk in the early 1900s at an economics conference in Geneva, was repeatedly and noisily interrupted by his powerful colleague Gustav von Schmoller. Von Schmoller, who from his throne at the University of Berlin ruled the German academic world, apparently kept shouting in patronizing tone, “But are there laws in economics?” Despite his aristocratic upbringing Pareto had little respect for appearances, reportedly having written his monumental work Trattato di Sociologia Generale while owning a single pair of shoes and one suit. It was therefore easy for him to transform himself into a beggar the next day and approach von Schmoller on the street. “Please, sir,” Pareto said, “can you tell me where I can find a restaurant where you can eat for nothing?” “My dear man,” replied van Schmoller, “there are no such restaurants, but there is a place around the corner where you can have a good meal very cheaply.” “Ah,” said Pareto, laughing triumphantly, “so there are laws in economics!”
This version is in Albert-Laszlo Barabasi, Linked: The New Science of Networks (2002). The original source is Pareto’s The Mind and Society (1916).
Pareto, by the way, is an extremely interesting, and neglected, social theorist, whose contributions go far beyond the ubiquitous “Pareto optimality.”
Great Online Langlois Slides for Org Econ Course
| Nicolai Foss |
Former O&M guest blogger Dick Langlois has posted the slides for his Economics of Organization course online here. There are 237 slides in total. Some of them are composed with considerable artistic acumen (e.g., check out slide #189). Even better than those excellent slides on the same subject I have seen from the hand of my esteemed co-blogger.
International Journal of Strategic Change Management
| Peter Klein |
The new International Journal of Strategic Change Management aims to join the Strategic Management Journal and Strategic Organization in the top tier of strategic management journals. IJSCM will focus on dynamics and change and on new developments in the economics of organization and in the applied fields of strategic management, industrial organization, and international business.
The journal’s leadership includes Editor-in-Chief Patricia Ordoñez de Pablos, Consulting Editors Anita McGahan and Oliver Williamson, and Executive Editor Margaret Peteraf. Former O&M guest blogger Joe Mahoney serves as Associate Executive Editor, and Nicolai and I are on the Editorial Board, so you know journal is in good hands.
Submissions can be sent by email to patriop@correo.uniovi.es. Instructions for authors are here. Submit a paper today!
Bill Starbuck’s New Book
| Nicolai Foss |
Omar at orgtheory.net dismisses critical discussions of the institutions of publishing social science research as “jeremiads” (see here), that is, “moralistic texts that denounce a society for its wickedness” (Wikipedia), typically written — but by no means always — by old, grumpy men. In contrast, Omar has great faith in the efficiency of these institutions (see the exchanges between my co-blogger and Omar here).
Although Bill Starbuck isn’t young any more, and there no doubt is a certain jeremiad-like quality to his misgivings about research practice in the social sciences, I submit that even Omar stands to benefit from reading Starbuck’s new opus, The Production of Knowledge: The Challenge of Social Science Research. Clearly, Omar has considerable experience with the institutions of publishing, and Bill Starbuck has only been the editor of Administrative Science Quarterly, but there may still be a thing or two to learn. Here is the book’s blurb: (more…)
Open Letter to a Technology Entrepreneur: No More Handouts
| Peter Klein |
Vinod Khosla is a co-founder of Sun Microsystems, general partner at Kleiner, Perkins, Caufield, and Byers, and one of the world’s top venture capitalists. He is also a strong advocate for ethanol and co-chair of the campaign for California’s Proposition 87, a ballot initiative to tax oil companies to subsidize research on alternative fuels. Shikha Dalmia castigates Khosla for relying on government, rather than the market, to pick winners in technology markets.
Inviting the government to meddle in the affairs of private business is never a good idea, and if anyone should understand this, it is you. You reportedly left your country because of its hostile business environment and thrived spectacularly in this land of (semi) free enterprise, co-founding Sun Microsystems — one of the most successful computer companies on the planet. . . . But, with all due respect, even a man of your stellar track record can’t simply will markets to do his bidding; an economy is not a machine that can be manipulated according to its maker’s grand designs. If it were, India’s central planners would have made rivers of energy flow into every Indian home. . . .
Some commentators have suggested that your support for Prop 87 is a rent-seeking move, meant to boost your recent investments in ethanol by debilitating competitors. I don’t buy that. Yet, the issue is, if ethanol has all the advantages you says it does — if it is renewable, cleaner, less volatile, more reliable, easily transportable etc. — surely you of all people could convince enough investors to cough up the $4 billion that Prop 87 would raise. Are you not turning to taxpayers because you don’t want to assume that kind of risk — and can’t convince fellow investors to either?
HT: Lynne Kiesling
The Dismal Science
| David Gordon |
Everyone knows that Thomas Carlyle called economics the “dismal science”, but the context in which he did so is surprising. Sandra Peart and David Levy point out in The “Vanity of the Philosopher”: From Equality to Hierarchy in Postclassical Economics (University of Michigan Press, 2005), that Carlyle thought economics was “dismal” because the classical economists opposed slavery. Adam Smith and his successors supported a broadly utilitarian philosophy in which everyone was taken to be equally capable of happiness. Carlyle and other defenders of hierarchy condemned the economists for what they regarded as dangerous nonsense.
The supporters of hierarchy appealed to the new science of evolutionary biology to support their position. Darwin himself favored the perfection of the race rather than happiness as the standard of ethics; and although he did not reject sympathy for the unfortunate, he feared its malign effects. (Peart and Levy do not mention, though, that Darwin was on the opposite side from Carlyle in the controversy over Governor Eyre’s brutal suppression of a black revolt in Jamaica.) Francis Galton and other supporters of eugenics criticized the classical economists for ignoring the differences in quality among people: the state, in their view, should make efforts to obtain a “better” population. (more…)
Does Transaction Cost Economics Need Opportunism?
| Peter Klein |
During a recent discussion of transaction cost economics a commentator asked: “I am always puzzled by why we need opportunism when we have individuals pursuing their self-interests as a postulate.” Opportunism, of course, is Oliver Williamson’s concept of “self-interest seeking with guile.” In a world of opportunism individuals cannot be assumed to keep their promises, to fulfil their obligations, and to respect the interests of their trading partners unless “safeguards” are in place. The task of economic organization, in Williamson’s terms, is to “organize transactions so as to economize on bounded rationality while simultaneously safeguarding them against the hazards of opportunism.”
But is opportunism just another word for self-interest? Neither Klein, Crawford, and Alchian (1978) nor Grossman and Hart (1986) nor Baker, Gibbons, and Murphy (2002) nor other contemporary treatments of the economic theory of the firm invoke the concept of opportunism. Instead, they rely simply on the economists’ usual notion of self-interested, maximizing behavior. What, then, is the point of introducing opportunism? (more…)
Prophetic Company Names
| Peter Klein |
This morning I caught an NPR story on a recent US outbreak of E. coli linked to contaminated spinach. The FBI is now investigating two California spinach-processing plants for possible criminal violations. Of course, even if no legal sanctions are imposed, the firm that packed the contaminated spinach will likely go out of business, the victim of reputation effects. The firm’s customers, including Dole and Cosco, are almost certain to change vendors. In short, this episode is a good illustration of the Darwinian struggle for survival under market competition.
The firm’s name? Natural Selection Foods.
HRM in Heaven and Hell
| Nicolai Foss |
This is definitely ephemera, but I thought it was funny:
One day while walking down the street a highly successful HR Director was tragically hit by a bus and she died. Her soul arrived in heaven where she was met at the Pearly Gates by St. Peter himself.
“Welcome to Heaven,” said St. Peter. “Before you get settled in though, it seems we have a problem. You see, strangely enough, we’ve never once had a Human Resources Director make it this far and we’re not really sure what to do with you.” (more…)
Celebrating the Entrepreneur in Film
| Peter Klein |
Like other cutting-edge, deeply committed educational professionals, I use film clips in class wherever possible. When teaching entrepreneurship I show the courtroom scene at the end of Francis Ford Coppola’s fine 1985 film Tucker: The Man and His Dream. Jeff Bridges (as Preston Tucker) delivers a magnificent speech on the entrepreneur’s right to dream, to experiment, to take chances, and to be wrong. The scene moves me to tears. (Then again, so does the segment on the for-profit lifeguard in John Stossel’s “Greed” special.) In any case, Tucker, along with the 1951 Alec Guinness flick The Man in the White Suit, have been the only entrepreneurship films in my collection.
Now from Stephen Carson I learn of another film celebrating the entrepreneur: Boom Town (1940):
A marvelous and fun ode to entrepreneurship starring Clark Gable and Spencer Tracy as two wildcatters that take extreme risks hunting for oil in 1918 Texas. The roles of risk, capital and entrepreneurial insight are all portrayed wonderfully. The cherry on top is when competitors invoke the Sherman Antitrust Act to go after a company they can’t defeat fair and square in the marketplace (imagine that!)
The courtroom speech at the end includes an argument indicating how private owners of capital are motivated to wisely manage natural resources(!) and this wonderful tribute to entrepreneurs: “McMasters is a wildcatter. If it wasn’t for automobiles he’d be driving a covered wagon. It’s always been his breed that has opened up the country and made it what it is. So now, I’m wondering… Is it getting to be out of line in these Unites States for a man like him to make a million dollars with his brains and with his hands? Because if that’s true, then we’d better rewrite this land-of-opportunity stuff.” Did Hollywood really make this film? Wow!
It’s moving to the top of my Netflix queue.
Schmoller Revisited
| Peter Klein |
The Jahrbuch für Gesetzgebung, Verwaltung, und Volkswirtschaft, edited by Gusav Schmoller — commonly known as Schmollers Jahrbuch — was one of the most important and influential economics journals of the nineteenth century. Schmoller was the leader of the younger German Historical School and the main opponent of Carl Menger in the Methodenstreit, or battle over methods, that raged between the German historicists and the fledgling Austrian School. (It was Schmoller and his followers who coined the phrase “Austrian School,” the word Austrian being synonymous, among German-speaking intellectuals, for provincial and second-rate). Schmoller and his school are little known to contemporary social scientists, suffering the same fate that befell their American disciples, the Institutionalists Thorstein Veblen, John R. Commons, and Wesley Clair Mitchell. (As Coase once remarked: “Without a theory they had nothing to pass on except a mass of descriptive material waiting for a theory, or a fire.”)
To my surprise I received an email today announcing a new issue of Schmollers Jahrbuch. I had no idea the journal was still being published. The announcement was for a special issue, “Schmoller’s Legacy for the 21st Century.” Papers include “Schmoller’s Impact on the Anglophone Literature in Economics” by Geoffrey Hodgson, “Schmoller and Modern Sociology” by Yuichi Shionoya, “Gustav Schmoller, His Heirs and the Foundation of Today´s Social Policy” by Gerold Blümle and Nils Goldschmidt, and “Gustav Schmoller and Globalisation” by Heinz Rieter and Joachim Zweynert.
Incidentally, Murray Rothbard used to tell the story that during an intense (but friendly) disagreement between himself and Mises at Mises’s New York seminar Mises teasingly called him a “Schmollerite” — the ultimate insult to an Austrian economist!
Beauty and Politics
| Nicolai Foss |
Most of us classical liberals tend to think of politics as largely ugly. But apparently beauty is more important in politics than competence, intelligence, likability, or trustworthiness (not that it is surprising that these may not be that important ….). Check this fascinating new paper.
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