Archive for February, 2007
Risk, Uncertainty, and Baseball
| Peter Klein |
Frank Knight meets Abner Doubleday in this this item from the Hardball Times.
When we try to predict the outcome of a baseball season, whether as fans or pretend-general managers, there’s a whole lot of stuff we just don’t know. In fact, if you want certainty, we don’t know anything: any player in major league baseball could blow out his arm, crash into a teammate, or just plain lose the skills necessary to hit a slider.
Of course, most of those things won’t happen. When guessing the outcome of a team’s season, it’s a safe bet that somebody will get hurt, some players will underperform expectations, and others will overperform. One mark of a good general manager is identifying the situations in which those are most likely to happen, and then providing the best insurance he can.
Invoking the Knightian distinction between risk and uncertainty, baseball analyst Jeff Sackmann continues:
In a game of Strat-O-Matic, baseball is risky — you could calculate the likelihood of every event before you roll the dice. In real life, baseball is uncertain — no number of dice (or spreadsheet) is going to tell you Chris Snelling’s 2007 OPS. However, when it comes to the game on the field, there’s a continuum between risk and uncertainty, and that’s what I’m interested in. [Links added by PK for the benefit of our non-baseballophilic readers.]
Returning to Steve Postrel’s thoughts on the value added of management, one can perhaps conceive the problem in Knightian terms. In a world of probabilistic risk, “management” is, in principle, a simple problem of contract design. Nor would there be a reason for entrepreneurs to own assets. In a world of Knightian uncertainty, however, there is a role for managerial skill and for entrepreneurial judgment. Indeed, as Sackman notes, baseball “statheads don’t always agree with general managers” on personnel matters.
NB: If you think this is a rather silly example, you haven’t been keeping up with the literature. The academic analysis of sports is a rapidly growing field. Check out the Journal of Sports Economics, for example. Here is a short sportometric piece by yours truly.
Toyota at the Crossroads
| Steven Postrel |
The recent NYT article (not the Sunday Magazine story but an earlier business sectiion piece by Martin Fackler) describing Toyota’s struggle to transmit its methods and culture to large numbers of foreign workers, in the face of unprecedented recalls and quality problems, provokes a number of thoughts about the company’s past successes and its current problems. (more…)
Chip and Dan Heath on NPR
| Peter Klein |
The Made to Stick guys were interviewed on today’s NPR’s Morning Edition.
In other book news, check out this USA Today review of Phil Rosenzweig’s excellent The Halo Effect, which we blogged about earlier.
Why the Strong May Be Late
| Nicolai Foss |
One of the favorite cases of technology strategy classes is the innovation of the CAT scanner. The first such commercially viable scanner was introduced in 1972 by EMI, by no means a major player in the diagnostic-imaging market. The EMI scanner was leapfrogged by General Electric in 1977. GE dominates the market today along with Siemens. EMI exited already in 1979.
Why was EMI the first to commercialize CAT scanners and not the more established players with the relevant core competencies? Typical explanations of this kind of pattern where strong players avoid pioneering a market involve “stupidity” (because of various biases the strong do not see it coming) or “lock-in” (for various reasons, the strong cannot respond effectively). (more…)
What Did the Legal Realists Believe, Really?
| Peter Klein |
I posted a while back on Karl Llewellyn and legal realism, its recent revival, and what this all means for the O&M crowd. Brian Tamanaha says that the legal realists were not, contrary to popular belief, “proto- or early-day Crits (members of Critical Legal Studies) who exposed the rampant indeterminacy of law and insisted that judging is inevitably infused with and shaped by the subjective views of judges.” Rather, Tamanaha maintains, the Realists favored a common-sense, empirically grounded approach over the overly formal and deductive method preferred by their contemporaries.
Llewellyn’s point was that the Realists were indeed critical of mechanistic accounts of judicial decision-making — as deductive and exclusively rule-focused — but they did not commit the opposite error of suggesting that judging is purely subjective and not legally constrained. Rather, the Realists brought attention to other stabilizing aspects of the craft of law and judicial decision-making besides just the legal rules. While they denied that law was certain to the extent that formalism portrayed, they agreed that there was a great deal of certainty and predictability in law (though not attributable to the legal rules alone). They also argued that in some cases policy decisions were called for and should be done openly by judges, although they recognized that many cases were routine and determined by the legal rules.
Thanks to Orin Kerr for the pointer.
European Entrepreneurship
| Peter Klein |
Europe’s economic problem, writes Nobel Laureate Ned Phelps in last week’s Wall Street Journal, is its lack of dynamism — “how fertile the country is in coming up with innovative ideas having prospects of profitability, how adept it is at identifying and nourishing the ideas with the best prospects, and how prepared it is in evaluating and trying out the new products and methods that are launched onto the market.”
Europe, Phelps argues, lacks the economic culture and economic institutions to encourage dynamism. Europe’s economic institutions “typically exhibit a Balkanized/segmented financial sector favoring insiders, myriad impediments and penalties placed before outsider entrepreneurs, a consumer sector not venturesome about new products or short of the needed education, union voting (not just advice) in management decisions, and state interventionism.”
Man, how simplistic and comical can you get?
Does Catholic Social Teaching Matter in the Classroom?
| Cliff Grammich |
Starting with Leo XIII’s encyclical Rerum Novarum and continuing notably in the writings of Pius XI and John Paul II (and, to be sure, others as well), the Catholic Church has fostered a tradition of social teaching for application to modern business organizations. During John Paul II’s pontificate, the Church also sought to strengthen the identity and clarify the mission of Catholic higher education.
So what impact does the Church’s social teaching have in the undergraduate business classrooms of Catholic institutions? Roland and Linda Kidwell suggest it is muted; indeed, they “conclude that if Catholic institutions wish to provide an ethics-based business education, familiarity with and use of [Catholic social teaching] appear to be unnecessary at AACSB-accredited schools.” (more…)
18 February 2007 at 10:11 pm Clifford Grammich Leave a comment
The Dark Side of Charisma
| Peter Klein |
Entrepreneurship has been described as charismatic leadership or charistmatic authority. But what exactly is charisma?
The WSJ’s Saturday edition reviews Philip Rieff’s posthumously published Charisma: The Gift of Grace, and How It Has Been Taken Away from Us. Rieff, the distinguished cultural sociologist who taught at Brandeis, Berkeley, Harvard, and Penn, began the book in the late 1960s but went on to other projects, completing it just before his death earlier this year. Reviewer Adam Wolfson describes the book as a jeremiad against popular culture, much like Allan Bloom’s Closing of the American Mind. (more…)
Three Great Austrian Economists in One Book!
| Nicolai Foss |
My co-blogger abundantly possesses that increasingly scarce resource: Modesty. So, I suppose it falls on my shoulders to announce to the blogosphere that the Mises Institute has just published a beautiful new edition of Carl Menger’s Principles of Economics with a foreword by Peter. (more…)
Nerd Alert, Part II
| Peter Klein |
Though we often tease our colleagues in the MathEcon tribe, we hope to make O&M a comfortable place for them. Henceforth, we proudly announce, for you math geeks out there, that our server now knows how to process 
While management working papers are almost always written in Word,
or the definition of Bayesian Nash equilibrium,
then O&M is the blog for you!
The Vertical Dis-Integration of Organized Crime
| Peter Klein |
It’s said to be happening in manufacturing, services, and even higher education; why not organized crime? The Financial Times reports that Japanese gangs are relying increasingly on part-time mobsters. According to Japanese police statistics part-timers now make up 51 percent of total gang membership, up from 33 percent in 1991.
One explanation: the Dilbert-style bureaucracy of the established gangs:
Part-time gang members may also be opting out of the hierarchical world that full-time membership entails. Onerous duties include making cash payments to the oyabun, a young hoodlum’s father-figure boss, and keeping long hours, for instance by preserving a henchman’s precious parking space.
Similarly, in regular business, many young Japanese prefer bouncing between part-time jobs to joining a rule-bound company. Like yakuza gangs, Japanese businesses tend to be hierarchical, with strict dress codes, mind-numbing duties and compulsory overtime.
Would these mob Bosses pass Bob Sutton’s test?
Responding to such pressures, the gangs have learned to outsource (presumably “non-core”) tasks to contract workers. Says one Japanese lawyer familiar with underworld issues: “These guys are the best entrepreneurs in the country, certainly the most responsive to change in business conditions.” (HT: PSD Blog)
Call for Papers: Law and Economic Development
| Peter Klein |
The Global Economic History Network is sponsoring a conference at Utrecht University, 21-23 September 2007, on “Law and Economic Development: a Historical Perspective. Abstracts are due 31 March 2007. From the call for papers:
This conference aims to bring a truly global and multi-disciplinaryperspective to the relationship between law and long-term economic growth. We focus on formal legal rules, procedures and institutions in the wide context of legal traditions and their relationship with contract enforcement and property rights. We aim to broaden the scope of our discussion with a global perspective that includes both Western and important non-Western legal traditions such as the Chinese, Islamic or Hindu that have been largely neglected in the”legal origin” debate.
The legal origin debate, if you’re not familiar with this literature, began with the influential paper by La Porta, Lopez-de-Silanes, Shleifer, and Vishny, “Law and Finance” (JPE, 1998). LLSV argued for a strong correlation between a nation’s financial-market development and the origin of its legal system. (English common-law countries fare the best, while countries with a legal system based on — you guessed it — French civil law are the worst.) This paper, and a series of follow-up studies by the same authors, established a new strand of literature on economic development using large, cross-country panel datasets containing various measures of legal, poltical, social, and cultural institutions.
Critics argue that financial-market development and overall economic performance are driven not by legal origin but by politics, culture, and geography, among other factors, and that LLSV oversimplify the causal relationships between institutions and growth. (The chapter by Thorsten Beck and Ross Levine in the Handbook of New Institutional Economics — which also contains a very nice chapter on the make-or-buy decision, by the way — provides a useful overview and critique of this literature.)
Taxi Drivers in Nam
| Nicolai Foss |
It is always lovely to witness our theories come alive. So, here is an illustration of the agency problem for the benefit of our non-American readers (the example will be lost on Americans for reasons that will become clear :-)). A favorite examplification of agency problems are taxis (not Hayekian ones — real ones), because of the complex ownership arrangements of these assets.
When I visited Vietnam in January with my family, the way we got around in the cities was mainly using the private and extremely inexpensive taxis (there is virtually no public transportation in this supposedly commie country). Most other transport options (certainly bikes, “cyclos”, motorbikes, even walking) increase the death risk rather dramatically in the horrendous Vietnamese traffic. (more…)
Life Among the Econ
| Peter Klein |
A colleague and I were just discussing Axel Leijonhufvud’s delightful ethnographic satire, “Life Among the Econ” (Western Economic Journal 11, no. 3, September 1973: 327-37). (Can’t find it on JSTOR; here is a scanned PDF version with a few minor errors.) Though slightly dated, Leijonhufvud’s essay remains a treasure trove of wit and wisdom on economics and economists. Here are a few passages dealing with issues recently debated at O&M: (more…)
An Un-Valentine’s Market
| Cliff Grammich |
Earlier today I followed up an earlier post of Peter’s on the business of weddings. It appears that’s not the only business that might boom around Valentine’s Day — my friend Liz Birge reports the divorce (legal) services market does as well . . .
The Weatherhead School’s Tumor
| Peter Klein |
Case Western Reserve University’s Peter B. Lewis Building, the Frank Gehry-designed home of the Weatherhead School of Management, recently made critic James Howard Kunstler’s Eyesore of the Month list. “If your dog had a tumor like this,” writes Kunstler, “the vets would just shake their heads and put him to sleep.” (HT: Max Goss)
New Entrepreneurship Society and Journal
| Peter Klein |
Here is the webpage for the Southern Entrepreneurship Journal, to be published by the newly formed Southern Academy of Entrepreneurship. From the mission statement:
Our dream is to offer an eclectic, cross-disciplinary entrepreneurship research experience. We do not care what your field may be. Our only concerns are (a) do you have something interesting to say about the theory or practice of entrepreneurship, and (b) do you have any evidence that supports you? We also want to be open minded about evidence. The Journal will be open to a range of evidence, including case studies, qualitative research broadly defined, as well as statistical analyses.
Thanks to Ed Lopez for the pointer.
Nerd Alert!
| Nicolai Foss |
What can possibly be more relevant for an econ-oriented blog than to wax lyrical about calculators? Do you remember Hewlett-Packard’s ill-fated experiments with Reverse Polish Notation? Or their excellent HP 41 model? (We will forget about their wristwatch-calculator.) Did you own a TI-57 and its excellent successors TI-58 and 59? Or, did you have to manage with a crappy TI-30? And what about the super-innovative Casios? Chances are that if you are old enough and are reading this blog, you were part of the great calculator craze of the 1970s and 1980s.
Receiving my first electronic calculator from my grandparents on my 9th birthday in 1973, I acquired a taste for these great gadgets and probably owned around 50 of them from 1973 to 1983 at which point of time I completely lost interest (unlike this über-nerd — who is even German). Those of you who harbor nostalgic memories, check out The Old Calculators Web Museum or the Pocket Calculator Show.
More on the Business of Weddings
| Cliff Grammich |
In an earlier discussion of the business of weddings, Peter, responding to one commenter, expressed hope that by the time his “daughter is of marryin’ age, some kind of ‘peasant weddings’ will be in style.” I might even encourage elopement, although it’s fascinating how this assumedly cheap option has apparently evolved into the less cheap “destination wedding.” (more…)
15 February 2007 at 10:21 am Clifford Grammich Leave a comment
Intellectual Property: Who Needs It?
| Peter Klein |
Michele Boldrin and David K. Levine provide a succinct overview of the economic argument against strong IP in the January 2007 issue of the Freeman. In “Open-Source Software: Who Needs Intellectual Property?” Boldrin and Levine argue that open-source developers benefit primarily not from writing code, but from selling complementary services such as support, and that these incentives, not altruism, are responsible for the substantial innovations coming out of the open-source community. They conclude:
[T]he market for software is not unique. Innovation and competition unprotected by patent and copyright have gone hand in hand in other industries, from financial securities to fashion. The message of open-source software is a message for all industries: IP not needed for innovation here.
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