Archive for February, 2007
“Disturbances” in Transaction Cost Economics
| Nicolai Foss |
One of Oliver Williamson’s key and most cited contributions is his 1991 paper in the Administrative Science Quarterly, “Comparative Economic Organization: The Analysis of Discrete Structural Alternatives.” The paper introduces a number of themes that had until then only been present in a rather embryonic form in Williamson’s work (e.g., the 1985 locus classicus, The Economic Institutions of Capitalism: 1) Governance structures are fully characterized as discrete structural alternatives, 2) full(er) account is taken of “hybrids,” and 3) economic organization is cast in a dynamic setting, the discussion of which seems heavily inspired by Hayek’s work on economic change and the use of knowledge in society. (more…)
Market-Based Management: Two Blogs and a Book
| Peter Klein |
Here are two blogs on market-based management: one official (more content, please!) and one unofficial. And here’s a forthcoming book on Koch Industries, birthplace of MBM (appears to be an inside job, unfortunately).
Here are our own reflections on MBM. (Thanks to Tyler Cowen for the link to the unofficial blog.)
Update: Charles Koch himself has a forthcoming book.
HBR’s Breakthrough Ideas for 2007
| Peter Klein |
The February 2007 issue of Harvard Business Review features the annual breakthrough ideas list. Duncan Watts says viral ideas are spread by everyone (like me!), not just “influentials” (contra Malcolm Gladwell). Eric von Hippel likes Denmark’s national innovation policy (Nicolai? Bo?). Michael Schrage says firms need to recover their Old Math. (“As computing gets ever faster and cheaper, yesterday’s abstruse equations are becoming platforms for tomorrow’s breakthroughs.”) Geoffrey B. West says innovation isn’t really modular (“the existence of superlinear scaling that links size and creative output . . . challenges the conventional wisdom that smaller innovation functions are more inventive, and perhaps explains why few organizations have ever matched the creativity of a giant like Bell Labs in its heyday”). Lots of interesting stuff.
New Paper by Mario Rizzo
| Nicolai Foss |
Just back from a loooong vacation in Vietnam, involving plenty of trashy crime novels; what better way is there to recover intellectually than reading a characteristically thoughtful paper by Mario Rizzo?
In “Paternalist Slopes,” Mario and his co-author Glen Whitman take issue with those who use arguments from the “biases” part of the bounded rationality literature to justify interventionism. Here is the abstract:
A growing literature in law and public policy harnesses research in behavioral economics to justify a new form of paternalism. Contributors to this literature typically emphasize the modest, non-intrusive character of their proposals. A distinct literature in law and public policy analyzes the validity of “slippery slope” arguments. Contributors to this literature have identified various mechanisms and processes by which slippery slopes operate, as well as the circumstances in which the threat of such slopes is greatest. The present article sits at the nexus of the new paternalist literature and the slippery slopes literature. We argue that the new paternalism exhibits many characteristics identified by the slopes literature as conducive to slippery slopes. Specifically, the new paternalism exhibits considerable theoretical and empirical vagueness, making it vulnerable to slopes resulting from altered economic incentives, enforcement needs, deference to perceived authority, bias toward simple principles, and reframing of the status quo. These slope processes are especially likely when decisionmakers are subject to cognitive biases – as the new paternalists insist they are. Consequently, soft paternalism can pave the way for harder paternalism. We conclude that policymaking based on new paternalist reasoning should be considered with greater trepidation than its advocates have suggested.
The Business of Weddings
| Peter Klein |
The wedding business is a $70 billion industry in the US. Vicki Howard’s Brides, Inc.: American Weddings And the Business of Tradition (University of Pennsylvania Press, 2006) explains how it got this way. Janice Traflet’s review for EH.Net focuses on the industry’s great marketing achievement:
As Howard expertly highlights, it was no easy task for businesses to supplant certain older wedding practices (which often held religious and ethnic significance) with newer ones that held more profit potential for them. Doing so required the creation of “invented traditions,” to borrow historian Eric Hobsbawm’s phrase. To make new practices (like diamond engagement rings and the groom’s band) acceptable and desirable, the wedding industry needed to make them appear as if they were rooted in ancient customs. At the same time, the industry also sought to subtly encourage the public to jettison practices that were not conducive to growing their businesses — such as the bride wearing an heirloom ring or a handed-down dress.
But the book does not support the Galbraithian image of consumers as hapless dupes. Notes Traflet:
It is interesting to contemplate (as Howard does) the degree to which consumers had the power to accept or reject the wedding industry’s “strategies of enticement,” to borrow William Leach’s term. Howard insists, “Women, who were understood to be the main consumers of wedding-related goods and services, were not mere victims of advertising and merchandising campaigns, nor did they simply accept wedding industry advice uncritically” (p. 5). In one example of a failed “invented tradition,” the male engagement ring never caught on, in part because it was unable to transcend contemporary gender mores. Howard also emphasizes the ways in which women, not just men, historically have been involved in marketing wedding products and services.
Don’t get me started on Galbraith, the celebrity “economist” who didn’t know any economics. As Murray Rothbard aptly observed, “Galbraith’s entire theory of excess affluence rests on this flimsy assertion that consumer wants are artificially created by business itself. It is an allegation backed only by repetitious assertion and by no evidence whatever — except perhaps for Galbraith’s obvious personal dislike for detergents and tailfins.”
Do I Need an (Ideological) Affirmation?
| Steven Postrel |
Arnold Kling has proposed that “libertarian conservatives” form an “Ideological Affirmation Task Force” (IATF) and requested comments on an initial draft of such an affirmation. Borrowing the lingo of Internet governance, he calls this an “IATF RFC.” I loosely qualify to be part of the interested group, so here are a few random thoughts, not a systematic treatise, on his first draft (which is a quick read, so you might want to look at it): (more…)
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