Archive for December, 2006

How to Grade Essay Exams

| Peter Klein |

As students relax and return home for the Christmas holiday, we professors are stuck with grading — not always the most pleasant task. I’m holed up this weekend with two stacks of essay exams. As an experienced teacher, my grading technique is a finely honed skill. For newcomers, however, here is a primer on grading essay exams from Daniel Solove. It covers all the key points — the importance of the toss, the bottom-higher-grade theory, teetering, exam protrusion, and separation. I wish I’d known all this when I was just starting out! (Via Christine Hurt.)

16 December 2006 at 4:25 pm 6 comments

CCSM 2006

| Nicolai Foss |

The Copenhagen Conference on Strategic Management 2006 ended late Wednesday with a wine reception and entertainment by a local (very local) jazz group, “Professors’ All-Stars.” Jay Barney observed that I should be up playing with the band, “playing the trombone. You are a trombone kind of person.” I still have to deconstruct that one!

Apropos Jay his opening talk was a hilarious performance and the great fun event of the conference, but in general, there were many good laughs, fine discussions, and many excellent papers.

I realize that quite a number of the conference participants are regular O&M readers, so this is probably an excellent place to thank once again all who participated. This year’s conference was quite significantly better than last year’s conference, and the average paper quality was above that of other conferences that could be mentioned, the likely exception being Rich Makadok’s Atlanta Competitive Advantage Conference.

16 December 2006 at 2:09 pm Leave a comment


| Peter Klein |

Want to read classics like Capitalism and Freedom or hot new items like Freakonomics but don’t have the time? The Road to Serfdom is available in cartoon form, and you can buy slick (and expensive) summaries of popular management books, but in general you’re out of luck.

Until now. WikiSummaries provides free book summaries that anyone can write and edit. It’s just getting off the ground so there aren’t many summaries yet; besides Capitalism and Freedom and Freakonomics there’s not much to interest the O&M reader (except maybe Good to Great). But it’s only a matter of time before the great books in organization and strategy, like this one, are included.

16 December 2006 at 1:56 pm Leave a comment

The Missing Literature Review

| Peter Klein |

There’s a discussion at Marginal Revolution about Ariel Rubinstein’s paper that I mentioned here. The discussion focuses on the nature of mathematical economics. Does Rubinstein correctly characterize what formal theorists do? What are the strengths and weaknesses of formal methods? Etc.

This is fine, but a secondary issue, which I find particularly interesting, has been missed. It’s that one can write an article on economic methodology for a premier economics journal without knowing any of the literature on economic methodology. Imagine writing a paper on, say, labor economics, describing some features of a particular labor market, analyzing those features, and drawing conclusions, without including a single reference to prior studies of the labor market. A research paper with no literature review! (more…)

15 December 2006 at 11:58 am 3 comments

Is Entrepreneurship a Factor of Production?

| Peter Klein |

When explaining the returns to factors of production economists often define wages as the payment to labor, interest as the payment to capital, rent as the payment to land, and profit as the payment to entrepreneurship. Treating entrepreneurship as a factor of production, earning a return we label profit, poses some challenging problems, however. Does entrepreneurship have a marginal revenue product, corresponding to a firm’s profit? Is there an upward-sloping supply curve for entrepreneurship (more of it is offered to the market when profits rise)? Are there diminishing returns to entrepreneurship?

The answer given by the classic contributors to the economic theory of entrepreneurship such as Cantillon, Say, Schumpeter, Knight, Mises, Kirzner, and others is clearly no. They treat entrepreneurship as ubiquitous, an attribute of the market mechanism that can never be absent. This came out in John Matthews’s paper, “Rents versus Profits: What Are the Appropriate Goals of Strategizing?”, presented Wednesday at the CCSM. (more…)

14 December 2006 at 4:17 pm 10 comments

Academic Insults: CCSM Edition

| Peter Klein |

Time to begin a new thread on academic insults (1, 2, 3). Overhead at the CCSM:

Session chair to audience: “Thank you, [Presenter], for your excellent time management.” [But not your paper.]

Discussant to presenter: “Your paper is beautifully written. When I got to the end I realized that I totally disagree with it, but I couldn’t remember where in the paper you started to go wrong.”

Audience member to presenter: “Your paper reminds me of my lecture on fallacies of strategic management research. You committed every one of them.”

13 December 2006 at 7:22 am 7 comments

CCSM: Reflections on Day One

| Lasse Lien |

Nicolai recently accused me of being overly positive, and he also committed me to providing real-time reports from the CCSM. So here goes my attempt to display my dark side.

We started out Tuesday with Jay Barney identifying Nicolai’s advantage as his sauce (a TCE sauce, presumably) and advising that the sauce should be bottled (see below). Next the CEO of Lego asked us what would be missed if we — or our organizations — died tomorrow. This produced some unorthodox facial expressions among a lot of the academics present, myself included. Next Peter Lorange of IMD advised businesses to keep things simple, followed by José Santos arguing that firms should become meta-national. I’m not going to take sides, but neither being or becoming meta-national strikes me as particularly simple. This was followed by an over lunch talk by the US Ambassador, a session I couldn’t attend due to neurosis about my own presentation.

We moved on to a discussion of the scientific progress in strategic management. The presentations here ranged from arguing that by way of analogy we are moving beyond the stage of the standard model of particle physics (the R2 of the standard model is so large that it would take a page or so to write down the number), to Peter Abel telling us that knowledge accumulation in strategic management is not significantly different from zero. We then went into paper sessions, were in my opinion we proved both of these assessments wrong. I cannot summarize all the papers presented in the session, but my feeling is that the average quality of the papers presented was at least as high as in the bigger conferences, such as AoM and SMS, but with a much lower variance. So there goes my attempt to come across as negative. . . .

13 December 2006 at 7:03 am Leave a comment

The Foss Sandwich Shop

| Peter Klein |

Our first report from the CCSM is a humorous one. Jay Barney opened the conference with a plenary address offering an RBV approach to “strategic renewal.” As this was a practitioner-oriented session, and some audience members may have been unfamiliar with the VRIO framework, Jay began by analyzing the “Nicolai Foss Sandwich Shop,” identifying factors that might be sources of sustained competitive advantage. (Best candidate: Nicolai’s great-great-great-grandmother’s secret sauce.)

The example was obviously a joke (Rich Makadok’s attempt to sing the Foss Sandwich Shop jingle helped establish the mood). And yet, later in the afternoon, we discovered from our blog stats page that at least two web surfers had found O&M by searching for “Nicolai Foss sandwich.” Looks like lots of people are after that secret-sauce recipe!

12 December 2006 at 12:19 pm Leave a comment

Awards — Cont’d

| Nicolai Foss |

OK — this will be my last entry on the economics of awards. Promise. Here goes:

We usually take awards to be non-material in nature. In his work on awards, Frey explicitly makes this point by assuming that awards are non-material kinds of compensation (here and here).

Frey does note, however, that sometimes awards are accompanied by money. Indeed, we are all familiar with those pictures in the newspaper of a happy prize recipient presenting a 2,5 x 1 meter cheque with the amount of money very clearly visible.

Thus, note that non-material compensation in the form of awards may have material implications. A distinction, such as a Knighthood bestowed upon a businessman may conceivably do good things to his business, because it may allow him to access networks he could not access earlier and influence decision-makers in favourable ways. A Nobel Prize winner can afterwards enter the highly lucrative lecturing circuit. Many books are advertised on the basis of their winning prestigious awards which of course also impacts the income of the prize winner/author. Etc. (This kind of reasoning is akin to Lerner and Tirole’s discussion of motivation in open source production). (more…)

12 December 2006 at 8:45 am Leave a comment

EH.Net Classic Review: Usher’s A History of Mechanical Invention

| Peter Klein |

George Grantham reviews Abbott Payson Usher’s A History of Mechanical Invention (1929), the first book to “establish logical foundations for an empirically based explanation of economic change.”

By what intellectual and social processes do new methods of production, new products, and new patterns of behavior become objects of choice in the stream of economic and social life?

Historians traditionally answered this question in two ways. The first was that inventions are inspired intuition given to exceptionally gifted persons. This approach stressed the discontinuity of inventions and the importance of a small number of inventors in creating the modern world. Usher deemed it “transcendental,” because in taking invention to be what amounts to a miracle, it puts the event logically outside time, so that it can have no mere historical explanation. The second approach took the opposite tack of holding that inventions occur continuously in small steps induced by the stress of necessity, somewhat like Darwinian evolution. Usher termed this approach “mechanistic,” because it relegated the inventor to the status of “an instrument or an expression of cosmic forces.” Neither the transcendental nor the mechanistic account of invention, then, was historical in the sense that explanation necessarily takes the form of a narrative. To the transcendentalist, inventions just happen (and we should all be grateful they do); to the mechanist, they occur automatically in the fullness of time. Neither explains how inventions happen. . . .


12 December 2006 at 8:29 am Leave a comment

Who Are (Really) the Cheese-Eating Surrender-Monkeys?

| Nicolai Foss |

My co-blogger is very fond of France, the French, etc. (And me? Well, I have actually lived there ;-)). In a recent post, Peter cited the familiar neo-con characterization of the French as “cheese-eating surrender-monkeys.” Here is Mark Steyn reflecting on who the real CESM are:

I’ve never subscribed to that whole “cheese-eating surrender-monkeys” sneer … As a neo-con warmonger, I yield to no one in my contempt for the French, but that said, cheese-wise I feel they have the edge. … In America, unpasteurized un-aged raw cheese that would be standard in any Continental fromagerie is banned. Americans, so zealous in defense of their liberties when it comes to guns, are happy to roll over for the nanny state when it comes to the cheese board. … The French may be surrender-monkeys on the battlefield, but they don’t throw their hands up and flee in terror just because the Brie’s a bit ripe (pp. 181-182 in America Alone, Regnery Publishing, 2006).

France may be the most commie nation in the World, but CESM they ain’t!

11 December 2006 at 2:49 pm Leave a comment

Awards in Firms?

| Nicolai Foss |

This is the third post on the economics of awards (see here and here), prompted by Bruno Frey’s recent work on the subject.

When we think of awards, most of us can easily come up with examples from public hierarchies, the military, sports, and volunteering, humanitarian and religious organizations, where awards are bestowed upon employees or members, or to public organizations/the state/the monarch bestowing awards upon citizens.

The only example that comes immediately to mind from for-profit organizations is that of employee-of-the-month awards. (more…)

11 December 2006 at 11:10 am Leave a comment

Interview with Oliver Williamson

| Peter Klein |

Here is Oliver Williamson, interviewed on video by Ken Train (requires RealPlayer).

Others in the series include Nobel Laureates George Akerlof and Dan McFadden as well as David Card, Hal Varian, and Janet Yellen. (Thanks to Michael Greinecker for the tip.)

11 December 2006 at 10:24 am Leave a comment

CCSM 2006

| Nicolai Foss |

In case you have been wondering why O&M star blogger, Peter Klein, has only blogged once over the last couple of days — unheard of in the history of O&M — here is part of the reason: Peter is on his way to the Copenhagen Conference on Strategic Management which will begin tomorrow (Tuesday), organized by the Center that I direct here at CBS. 

The CCSM will feature several great speakers, such as Jay Barney, Rich Makadok, Yves Doz, Peter Lorange, Alan Rugman, and my co-blogger.  It is the second time we are doing the CCSM. The format is to have about 70-80 participants with high-quality papers. 

Not only is my co-blogger joining me for the CCSM, guest blogger Lasse Lien will also be in Copenhagen for the event.  Lasse has promised to deliver some real-time blogging from the conference.

11 December 2006 at 7:00 am 4 comments

Dilemmas of Formal Economic Theory

| Peter Klein |

In “Dilemmas of an Economic Theorist” (Econometrica, July 2006) Ariel Rubinstein reflects on the meaning, implications, and relevance of formal economic modeling:

What are we trying to accomplish as economic theorists? We essentially play with toys called models. We have the luxury of remaining children over the course of our entire professional lives and we are even well paid for it. We get to call ourselves economists and the public naively thinks that we are improving the economy’s performance, increasing the rate of growth, or preventing economic catastrophes. Of course, we can justify this image by repeating some of the same fancy sounding slogans we use in our grant proposals, but do we ourselves believe in those slogans?

Rubinstein goes on to identify four dilemmas facing the formal economic theorist: (more…)

11 December 2006 at 4:09 am Leave a comment

More on Awards

| Nicolai Foss |

In his work on awards (see below), Bruno Frey tells a sophistiscated story of how awards function by providing “soft,” extrinsic motivation and help to solve agency problems that more conventional instruments cannot solve. However, casting awards in a purely motivational framework arguably leaves out some possible economic functions of awards. (more…)

10 December 2006 at 10:21 am Leave a comment

Price as a Signal of Quality

| Nicolai Foss |

Here is the evidence.

Update I: I have a few copies left of this book.  I am offering it at the competitive price of 195 Pounds.  First come, first served.

Update II: Here is another ridiculously under-priced offer.

Update III: In a more serious vein, what is the economics behind these prices? Not even a hardcore Foss sycophant would pay almost 200 quid for my 1994 collection of essays. Are they phishing for that Japanese university library that just must have a complete collection of books on Austrian economics (cf. Joe Mahoney’s comment)?

9 December 2006 at 3:11 pm 3 comments

Friendship is Cheap

| Peter Klein |

File under “pet peeves.” I recently received an invitation to attend a reception for a particular journal at the upcoming ASSA meeting. It began “Dear Friend of [Journal].” I’m not a subscriber, am not on the editorial board, and have never reviewed for this journal. Our only relationship is that I’ve twice had papers rejected there. Some friendship!

9 December 2006 at 2:17 pm Leave a comment

Open-Source National Security

| Peter Klein |

US defense officials are relying increasingly on decentralized, open-source methods of gathering and processing intelligence information. This weekend’s New York Times features a lengthy profile. And here is Calvin Andrus’s paper “The Wiki and the Blog: Toward a Complex Adaptive Intelligence Community,” which won a CIA-sponsored competition to develop new ideas on information sharing.

For organization theorists, the key question is whether government bureaucracies can effectively implement a highly decentralized system for knowledge management. Besides the problems faced by any organization using market-based management, government agencies face the fundamental problem identified by Mises in 1944 that their output is not sold on markets, making it impossible to measure performance using market signals of customer satisfaction.

8 December 2006 at 1:27 pm Leave a comment

The History of Marketing

| Peter Klein |

History has been defined as “one damn thing after another.” What, then, would you call the history of marketing — one damn advertising campaign after another?

If you want to know, come to this symposium at the University of Glasgow, “The Value of the Past: A Symposium on Marketing and History.” The event, 19 January 2007, examines “both the history of marketing and the marketing of company histories.”

We will emphasise the ways in which historical artefacts of trade (such as advertisements and illustrations in a variety of media, trade cards and catalogues, pamphlets, consumer education campaigns, testimonials and endorsements) are useful both in crafting business history and also as contemporary marketing tools. As marketing materials often reflect the relationship between firms and consumers, they are also sites to learn more about consumer response to products and services over time. We will explore the value of documents originally intended to be ephemeral, and discuss conservation of and access to these materials in corporate and other archives or in other forms such as the internet.

Sounds interesting. I believe it was Santayana who said: “Those who cannot remember their past marketing campaigns are condemned to repeat them.”

8 December 2006 at 9:03 am 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).