Archive for December, 2006

Top Posts of 2006

| Peter Klein |

As 2006 draws to a close we reflect on our most popular posts of the year. (Actually, we’ve only been in operation since April, so these are our most popular posts of all time, but you get the idea.) Here’s the list, followed by some commentary:

1. Is Math More Precise Than Words?
2. Intellectual Property: The New Backlash
3. Dilemmas of Formal Economic Theory
4. We Need Some Economics of Pomo
5. The New Bashing of Economics: The Case of Management Theory
6. Has Corporate Corruption Increased?
7. HRM in Heaven and Hell
8. Yale’s New MBA Curriculum: “Perspectives,” Not Functions
9. Malthus and the “Dismal Science”
10. Formal Economic Theory: Beautiful but Useless?
11. Why Do Sociologists Lean Left — Really Left?
12. The SWOT Model May Be Wrong
13. Multi-Culturality and Economic Organization
14. What Do We Really Know About Organizations?
15. Academic Insults: CCSM Edition
16. A Nobel for Entrepreneurship?
17. Price as a Signal of Quality
18. Economics: Puzzles or Problems?
19. Another Irritating Practice 
20. Market-Based Management

Now, we’re talking small numbers here — the Drudge Report we ain’t — so the ranking is highly sensitive to random events, like an incoming link from Marginal Revolution. Nonetheless, some clear patterns emerge. (more…)

31 December 2006 at 10:07 am Leave a comment

We Happy Danes

| Nicolai Foss |

As indicated by the World Map of Happiness Denmark is #1 in the World in terms of happiness — and appears to have held that position for about three decades. Here is a great tongue-in-cheek paper that explains this fact in terms of such factors as hair color and prowess in sport. The paper concludes:

Our analysis points to two explanatory factors. The Danish football triumph of 1992 has had a lasting impact. This victory arguably provided the biggest boost to the Danish psyche since the protracted history of Danish setbacks began with defeat in England in 1066, followed by the loss of Sweden, Norway, Northern Germany, the Danish West Indies, and Iceland. The satisfaction of the Danes, however, began well before 1992, albeit at a more moderate level. The key factor that explains this and that differentiates Danes from Swedes and Finns seems to be that Danes have consistently low (and indubitably realistic) expectations for the year to come. Year after year they are pleasantly surprised to find that not everything is getting more rotten in the state of Denmark.

31 December 2006 at 8:09 am 2 comments

We Luddites

| Nicolai Foss |

In permanent shock since he learned that I own but never use a cellular phone (a middle-management tool if there ever was one!), my co-blogger often argues that I am a Luddite, and claims that this, rather than my significantly higher teaching and administration load, accounts for my relatively low blogging frequency (guess who is also maintaining the more technical aspects of O&M?). I plead partly guilty to the charge, but wish to point out that there are much great sinners than me. Enter NYU Professor and prominent Austrian Mario Rizzo.  (more…)

31 December 2006 at 8:02 am 2 comments

Underappreciated, But Proud

| Peter Klein |

Thanks to The Bayesian Heresy for including us among “Favorite Economics Blogs of Year 2006.” We’re make the “Underappreciated” category (other categories include “Heavy Weights,” “New Comers,” and “Used to be Very Good”). Many fine blogs on the list, and we’re proud to travel in such good company (Bayesian Heresy included).

30 December 2006 at 11:16 am Leave a comment

Weirdest Abstract I Read Today

| Peter Klein |

From the April/June 2006 issue of Food and Foodways:

Towards Queering Food Studies: Foodways, Heteronormativity, and Hungry Women in Chicana Lesbian Writing

Julia C. Ehrhardt
University of Oklahoma Honors College, Norman, Oklahoma, USA

As the nascent field of food studies takes shape, insights from queer studies have the potential to enrich our understandings of the interrelationships among food, gender, and sexuality. The project of queering food studies invites us to consider how food practices and beliefs reinforce and resist heterosexual gender ideologies. In this article, I analyze foodways in recent Chicana lesbian literature, examining writings that illustrate the cultural endurance of heteronormative constructions of gender even as they demonstrate how these beliefs are disrupted, destabilized, and transformed in queer literary kitchens. Poetry and essays by Chicana lesbians challenge dominant models of Chicana culinary roles by emphasizing women’s efforts to satisfy their physical and sexual appetites.In particular, Carla Trujillo’s 2003 novel, What Night Brings, highlights the figure of the hungry lesbian as a provocative counterpoint to the literary image of the Chicana as cook. Literature by Chicana lesbians not only invites scholars to question heteronormative assumptions about food, gender, and identity, but also demonstrates the potential of queer studies to enrich a variety of topics in food scholarship.

Food and Foodways 14, no. 2 (April-June 2006): 91-109.

(Thanks to Pierre Desrochers for the pointer.)

30 December 2006 at 12:32 am 2 comments

96K on the 96th: Happy Birthday, Ronald Coase

| Peter Klein |

Ronald Coase turns 96 today. In honor of his birthday, the Contracting and Organizations Research Institute (CORI), whose mission and programs grow out of Coase’s work, announces the addition of the 96,000th contract to its online, full-text searchable database of contracts. Writes Director Michael Sykuta:

December 29, 2006, marks the 96th birthday of Professor Ronald Coase, the Nobel Prize winning economist whose pathbreaking work on transaction costs and property rights continues to inspire CORI’s vision and programs. Professor Coase has been more than just a intellectual inspiration for CORI, having supported CORI’s early development with contributions of his time and resources and having served on the Academic Advisory Board.

December 29, 2006, also marks the day the CORI K-Base reached 96,000 contracts, an appropriate milestone on this important day in the history of economic thought and the history of CORI. And we’re not finished growing! In fact, we’re just getting started on a new phase of expansion to make the CORI K-Base an even more valuable resource to reduce the transaction costs of doing research on the economic system and of doing the business of contracting.

29 December 2006 at 10:37 am Leave a comment

Institutions and Avner Greif

| Peter Klein |

Avner Greif is one of the leading contributors to the “institutional environment” branch of the New Institutional Economics. His work on the emergence of long-distance trade in the medieval Mediterranean world changed the way many social scientists think about reputation, trust, and the role of decentralized, non-state institutions in supporting commercial activity.

The January 2007 issue of Reason features a review essay of Greif’s recent book, Institutions and the Path to the Modern Economy (Cambridge, 2006). The review provides a solid, non-technical overview of Greif’s work. (more…)

29 December 2006 at 12:45 am Leave a comment

Yale’s New MBA Curriculum: “Perspectives,” Not Functions

| Peter Klein |

Several wire stories and bloggers are reporting on Yale’s new first-year MBA curriculum. Increased study-abroad requirements are getting the most attention, but the reorganization of the core curriculum may be more significant. Says Yale:

In the last thirty years, while the management profession has changed significantly, management education has not. Most business school curricula remain compartmentalized by discipline — Marketing, Finance, Economics, and so forth. This model made sense when a successful career was characterized by vertical advancement in a single field within a large, functionally divided corporate bureaucracy. But today, managerial careers cross the boundaries of function, organization, and industry, as well as cultural and political borders. Even managers in large organizations must be entrepreneurial in the sense that their success depends on their ability to synthesize disparate information, analyze competing functional priorities, and draw together and coordinate resources and individuals in a context that is often fluid and decentralized.

Now, [Yale’s School of Organization and Management] is breaking down traditional management disciplines just as contemporary organizations blur the distinctions among management functions. Rather than teaching management concepts in separate, single-subject courses like Finance or Marketing, Yale’s approach teaches management in an integrated way — the way in which most managers must function every day to achieve success.


28 December 2006 at 10:51 am 5 comments

Peer-to-Peer Microfinance

| Peter Klein |

US company, and its UK predecessor Zopa, match small borrowers and lenders — no collateral or credit check required — just as eBay matches small sellers and buyers. Given the hype surrounding both peer-to-peer models and microfinance (despite some qualms), it was just a matter of time.

27 December 2006 at 10:15 am 1 comment

Jacques Barzun

| Peter Klein |

Rafe Champion offers a thoughtful tribute to Jacques Barzun (1907-), the great historian of ideas, culture, and education whose magnum opus From Dawn to Decadence: 1500 to the Present: 500 Years of Western Cultural Life appeared in 2000. Unlike Joseph Schumpeter, who believed that a scholar must make his key contributions during the “golden decade” of his 20s, Barzun began this ambitious work a bit later in life:

When I was just beginning to teach, about 1935, I thought I would write a history of European culture from 1789 to the present. I was dissuaded from it by a friend of my father’s who was the director of the Bibliotheque Nationale. I was doing research there and he asked me what I was doing, and I told him, and he said, “Oh, young man, please don’t do any such thing. You’ll write about things that you know at first hand, and you will fill the rest out with things you get out of secondary texts. There’s no need of that at any time.” So I said, “How long should I study original works before I begin?” He said, “Well, why don’t you wait until you are 80.” I think I waited until I was 84, 85.

26 December 2006 at 11:32 pm Leave a comment

Putting “Corporate Scandals” in Perspective

| Peter Klein |

Enron, WorldCom, Arthur Andersen, Parmalat. . . . The list goes on and on. Maybe you didn’t hear about this one though:

The largest employer in the world announced on Dec. 15 that it lost about $450 billion in fiscal 2006. Its auditor found that its financial statements were unreliable and that its controls were inadequate for the 10th straight year. On top of that, the entity’s total liabilities and unfunded commitments rose to about $50 trillion, up from $20 trillion in just six years.

If this announcement related to a private company, the news would have been on the front page of major newspapers. Unfortunately, such was not the case — even though the entity is the U.S. government.

This is from a letter by the US Comptroller General appearing in the 24 December Washington Post (via Don Boudreaux). See also James Sheehan’s prescient 2002 article, “Real Accounting Fraud,” about the post-Enron frenzy in Washington, DC. “It is particularly frightening that a group of people skilled mainly at feeble speechifying and crass fund-raising would consider itself qualified to stand in judgment of corporate accounting scandals. All members of Congress are direct participants in the biggest accounting fraud going — the federal government — and have never lifted a finger to bring it under control.”

26 December 2006 at 11:58 am 2 comments

Re: Christmas Reading

| Peter Klein |

I don’t like to compete with Nicolai in the “what-I’ve-been-reading” department — he consumes a dozen books for every one I manage to read (or color) — but he broke the ice so I might as well follow suit.

1. Jack Weatherford, Genghis Khan and the Making of the Modern World (Crown, 2004). Genghis is rehabilitated as not a barbarian at all, but a great military commander, skilled administrator, and “progressive” leader, at least by the standards of his age. The author much admires the Great Khan for practicing religious toleration, funding universal public education, establishing a post office, and the like (what else would you expect from an American college professor?). Plenty of plunder and pillage too, of course. Anyway, an interesting and well-written piece of revisionist history.

2. Orhan Pamuk, The White Castle (George Braziller, 1991). A thoughtful and engaging meditation on the nature of identity, wrapped inside a historical novel about a 17th-century Venetian captured by Turks and sent to Constantinople as a slave and tutor to a young Turkish scholar. Good reading for the identity theory crowd.

3. Michael Ruhlman, The Soul of a Chef: The Journey Toward Perfection (Viking, 2000). You’ve heard of chick lit? Now there’s food lit, a new genre for foodies. A group of chefs spends a grueling week at the CIA (no, not that one, the Culinary Institute of America) seeking the title Certified Master Chef. The exams make comprensive PhD examinations look easy by comparison. Perhaps you have to be a foodie to enjoy the book fully, but there’s interesting information on the economic organization of the food and restaurant industry.

4. Neal Stephenson, Quicksilver (William Morrow, 2003). A prequel, of sorts, to Stephenson’s highly successful Cryptonomicon, which I enjoyed tremendously. Interesting historical fiction about the birth of modern science. At nearly a thousand pages — and just volume 1 of the three-volume Baroque Cycle — it makes Human Action and Foundations of Social Theory look like novellas.

25 December 2006 at 5:10 pm Leave a comment

Christmas Reading

| Nicolai Foss |

Not much is usually happening during Christmas, so why not engage a bit in the narcissistic (and non-creative) blogger’s delight — the “what I am reading at the moment” list:

1. Charles C. Ragin and Howard S. Becker, eds. 1992. What is a Case? Exploring the Foundations of Social Inquiry. This is a collection, mainly by thoughtful (in fact, extremely thoughtful) sociologists (yes, they do exist) on the methodological/ philosophical foundations of qualitative research, a subject that I have become increasingly interested in.

2. Yoram Barzel. 2002. A Theory of the State. As the resident Barzel fan here at O&M, I have surely waited too long before I began reading this book, published back in 2002. Barzel applies his highly original ideas on property rights economics to the state. However, the result strikes me as less original than Barzel’s other work.

3. Steve Berry: The Templar Legacy. Yes, I do have a weakness for this kind of templar pulp (this one comes endorsed by Dan Brown, so you know it is going to be bad). The Templar Legacy is one of the better ones (certainly better than this one). And parts of the story takes place in Denmark. I have toyed with writing a Templar novel myself. The title? Frank Knight’s Templars.

4. Rodney Stark. 1996. The Rise of Christianity: How the Obscure, Marginal Jesus Movement Became the Dominant Religious Force in the Western World in a Few Centuries. I enjoyed The Victory of Reason and this one is perhaps better. It is certainly less speculative, its reasoning seems stronger.

25 December 2006 at 11:57 am 1 comment

Steyn on Government Failures of Fighting Terrorism

| Nicolai Foss |

My favorite conservative commentator, Mark Steyn, has these acute observations on how private entrepreneurship may trump government action in the fighting of terrorism:

Most of what went wrong on September 11 we knew about in the first days after. Generally, it falls into two categories:

1. Government agencies didn’t enforce their own rules (as in the terrorists’ laughably inadequate visa applications.


2. The agencies’s rules were out of date — three out of those four planes reached their targets because their crews, passengers and ground staff all blindly followed the FAA’s 1970 hijack procedures until it was too late, as the terrorists knew they would.

… But on the fourth plane, they didn’t follow the seventies hijack rituals. On Flight 93, they used their cell phones, discovered that FAA regulations weren’t going to save them, and then acted as free men, rising up against the terrorists and, at the cost of their own lives, preventing that flight carrying on to its target in Washington. On a morning when big government failed, the only good news came from private individuals. The first three planes were effectively an airborne European Union, where the rights of the citizens had been appropriated by the FAA’s flying nanny state. Up there where the air is rarified, all your liberties have been regulated away: there’s no smoking, there’s 100 percent gun control, you’re obliged by law to do everything the cabin crew tell you … For thirty years, passengers surrendered their more and more rights for the illusion of security, and, as a result, thousands died. On the fourth plane, Todd Beamer and others reclaimed those rights, and demonstrated that they could exercise them more efficiently than government” (pp. 184-85, America Alone).

25 December 2006 at 11:08 am 1 comment

Raico on the European Miracle

| Peter Klein |

Ralph Raico, in a 1994 essay that has just been put online, offers a concise summary of the New Institutional explanation for the “European miracle,” the unprecedented, long-term rise in living standards beginning in late-medieval Europe.

[A] number of scholars concerned with the history of European growth have tended to converge on an interpretation highlighting certain distinctive factors. For the sake of convenience, we shall, therefore, speak of them, despite their differences, as forming a school of thought. The viewpoint may be referred to as the “institutional” — or, to use the title of one of the best-known works in the field — the “European miracle” approach.

The “miracle” in question consists in a simple but momentous fact: It was in Europe — and the extensions of Europe, above all, America — that human beings first achieved per capita economic growth over a long period of time. In this way, European society eluded the “Malthusian trap,” enabling new tens of millions to survive and the population as a whole to escape the hopeless misery that had been the lot of the great mass of the human race in earlier times. The question is: why Europe? . . .


24 December 2006 at 12:29 am Leave a comment

Largest Non-Public Companies

| Peter Klein |

Last week’s Financial Times offers a list of the largest companies you know little about. The Non-Public 150 includes the world’s largest state-owned enterprises, private equity companies, partnerships, mutuals, cooperatives, and other non-publicly traded entities. State-owned energy and utility companies (Aramco, Pemex, Petróleos de Venezuela, etc.) top the list but private firms such as Sparkassen-Finanzgruppe (banking), the Nippon Life Insurance Company, and buyout specialist Kohlberg Kravis Roberts Co. are up there as well. (Thanks to the PSD Blog for the pointer.)

Leaving aside the SOEs, why do these firms choose to avoid the public markets? Many people have the impression that only small, local firms are established as cooperatives or mutuals, but the FT 150 list includes some of the world’s largest financial institutions. Organizational scholars have paid relatively little attention to coops and mutuals (Henry Hansmann being the most obvious exception). Private equity has well-known advantages (nicely summarized in Michael Jensen’s “Eclipse of the Public Corporation”) but there is relatively little empirical work on the choice between private and public equity. More work on family firms is needed as well.

Here is the Times’s analysis (framed as a fresh look at Jensen’s “eclipse” hypothesis).

22 December 2006 at 12:40 am 3 comments

CCSM Pictures

| Peter Klein |

A few pictures from the CCSM. (more…)

21 December 2006 at 1:03 am Leave a comment

The Vertical Dis-Integration of Higher Education

| Peter Klein |

In 1975, 56.8 percent of the teaching faculty at US colleges and universities were tenured or on the tenure track, with 30.2 percent classified as part-time employees. By 2003, tenured and tenure-track faculty comprised only 35.1 percent of the teaching staff, with part-timers making up 46.3 of the total. These data are from the latest AAUP report on faculty employment, sounding an alarm over the rise of what it calls “contingent faculty.” (Thanks to Richard Vedder for the pointer.)

This trend may have important implications for academic freedom, faculty governance, political correctness, and the nature of higher education more generally. From an economic efficiency perspective, it looks like vertical dis-integration, a shift from long-term employment contracts to shorter-term, more flexible arrangements. If the higher-education sector is simply following the private sector’s lead, should we be surprised? And what factors would be driving the changes — a decrease in relationship-specific human capital, an increase in modular methods of production, changes in environmental uncertainty, etc.? (more…)

20 December 2006 at 12:28 pm 2 comments

I Am the Walras

| Peter Klein |

Was Léon Walras a Walrasian? “Walrasian” usually describes general-equilibrium models with instantaneous market clearing (guided by the famous “Walrasian auctioneer”). However, according to Donald Walker, Walras’s main interest was not the systems-of-equations approach for which he is best known, but what Walker calls Walras’s “mature comprehensive model.” This model features disequilibrium, process, path dependence, and is based on observation and experiment, rather than deduction. Maybe it’s time to give Walras a fresh look. (HT: Roger Backhouse)

18 December 2006 at 11:21 pm 1 comment

Make and Buy II

| Peter Klein |

We discussed earlier an emerging literature on dual sourcing or “make-and-buy” decisions. Why do firms simultaneously make a particular input and buy some quantity of this input on the open market? The CCSM featured another paper on this topic, Ranjay Gulati and Phanish Puranam’s “Complementarity and Constraints: Why Firms Both Make and Buy the Same Thing.” (Neither author could make it to Copenhagen, unfortunately, but Tobias Kretschmer gave a fine presentation on their behalf.) The paper presents a simple model in which firms choose plural sourcing because of external complementarities (to mitigate opportunistic behavior from an external supplier or to benchmark the supplier’s performance), capital constraints (that prevent the firm from internalizing all purchases of the input), exit costs (that prevent the firm from outsourcing as much as it would like), and other factors.

A general implication is that theories of optimal or first-best modes of organization may have limited explanatory power in a world of high transaction costs. Seemingly inefficient governance structures may be second-best solutions to capital constraints, regulatory barriers, bargaining problems, and other frictions. Understanding these constraints, and the processes of experimentation, learning, and adaptation that work around them, should be high on the organization theorist’s agenda.

17 December 2006 at 11:34 pm 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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