Archive for March, 2007

University of Illinois Scraps For-Profit Subsidiary

| Peter Klein |

We noted previously the University of Illinois’s Global Campus, a proposed for-profit subsidiary that would offer an innovative, unorthodox program competing with nontraditional institutions like the University of Phoenix. Now I learn from Richard Vedder that the for-profit model has been scrapped due to objections from faculty. States the Chronicle of Higher Ed:

[P]rofessors and trustees never shared [President Joseph] White’s vision. They worried that a for-profit university would be more interested in market share than in academic quality control, and that a less-than-rigorous online wing might damage the reputation of the bricks-and-mortar institution.

Now the skeptics have scored a major victory: Mr. White has scaled back his plans for Global Campus, pitching it as an academic unit within the university, not as a separate corporate entity. The president has also scotched plans to seek independent accreditation for the online institution — a move that would have allowed Global Campus to adopt a fairly freewheeling curricular model by quickly adding and eliminating programs based on student demand.

Vedder draws a more general lesson about institutional culture and organizational inertia:

Changing the culture of existing institutions is nearly impossible. While I am all for strategies, such as bribing faculty, to try to effect a culture of innovation and receptivity to change, I think most of the dramatic new innovations will come from institutions created from scratch outside the rubric of existing universities, private or public.

31 March 2007 at 12:17 am 3 comments

Kicking Some AAS

| Peter Klein |

Bob Sutton may have a clever name with his “No A–hole” project, but here’s an even better one: Kick All Agricultural Subsidies, a.k.a “kickAAS.” It’s a blog, sponsored by the Guardian (UK), seeking the abolition of farm subsidies. Lots of interesting material there.

31 March 2007 at 12:16 am Leave a comment

Jargon Watch: Buckets, Not Silos

| Peter Klein |

I’ve never liked the term “silo,” as used in business administration to describe closed spaces like functional areas, research topics, or approaches. “Economists and sociologists need to come out of their silos and work together.” What are we, sacks of grain? Intercontinental ballistic missles? I long for simpler and less pretentious terms like “areas” or “topics.”

From Tuesday’s WSJ  we now learn that silos are out. The new preferred term is buckets. Dow Chemical CEO Andrew Liveris says that ethanol “doesn’t help the conservation efficiency bucket — it helps the diversity of supply bucket.” Cingular Wireless thinks its new rate plan helps customers “dig into their big bucket of night and weekend minutes.” Is the combined India and US market best conceived “as a whole, or as two buckets?” asks a Citigroup analyst. Why do such silly terms proliferate?

Readers are invited to supply their own favorite examples of business and academic jargon. Perhaps we can hold a contest to choose the silliest.

See also previous entries on adjacencies, wikis, bad cover letters, and bad academic writing

30 March 2007 at 1:02 pm 1 comment

The Kaleidic Career

| Peter Klein |

Old-timers may remember Ludwig Lachmann’s metaphor of the kaleidoscope, popularized in his 1976 essay “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society” (Journal of Economic Literature 14, no. 1: 54-62). Lachmann borrowed the metaphor from G.L.S. Shackle, who wrote of a society “interspersing its moments or intervals of order, assurance and beauty with sudden disintegration and a cascade into a new pattern.” In this fundamentally disorderly system, Lachmann maintained, there are no systematic equilibrating tendencies. As Roger Garrison succinctly put it, “In a kaleidic world, one pattern of prices gives way to another, but there can be no claim that a given pattern is any closer to a general equilibrium, or represents any higher degree of coordination, than the one that preceded it.”

Personally, I find the kaleidic metaphor rather unhelpful. As I’ve noted before, I see the Kirzner-versus-Lachmann debate over the “tendency toward equilibrium” that dominated Austrian economics during the 1980s as a big distraction. The point is not whether markets actually converge to some kind of long-run equilibrium, but whether in the absence of any change in the underlying data prices would tend to converge toward “final” equilibrium values. The founding Austrians such as Menger, Böhm-Bawerk, and Mises thought the profit motive was sufficient to establish such tendencies, but they were not primarily interested in long-run equilibrium prices. Instead, they sought a framework for explaining the actual, day-to-day prices that unfold in historical time. (Look for a paper on this soon.)

Anyway, the kaleidic metaphor eventually fell out of favor with Austrian economists. But now it’s back, in the context of the “kaleidic career.” (more…)

30 March 2007 at 12:19 am Leave a comment

More on Prematurity

| Peter Klein |

We noted before some work on prematurity, the phenomenon in which scientific discoveries are initially resisted because they lie too far outside the mainstream consensus.

Here is a paper — appropriately enough, not yet published — listing discoveries resisted, and scientific papers rejected, even though their authors would go on to win Nobel prizes for these same discoveries. (HT: Bayesian Heresy.) All the examples are from the hard sciences, but I was reminded of Joshua Gans and George Shepherd’s “How Are the Mighty Fallen: Rejected Classic Articles by Leading Economists” (Journal of Economic Perspectives, Winter, 1994). Akerlof’s “Market for Lemons” was rejected by three journals before the QJE agreed to publish it in 1970. Robert Lucas’s “Expecations and the Neutrality of Money” (1972) was dismissed by the AER as too technical. William Sharpe’s 1964 paper introducing the CAPM model was rejected by the Journal of Finance because of its “preposterous” assumption that investors share common beliefs (a new set of editors subsequently accepted a revised version). There are many other examples.

These stories are interesting, but I’m not sure they tell us much about the journal publication process, or scientific discovery, more generally. After all, there are surely many more examples of Type II error than these examples of Type I error — pick up the current issue of your favorite academic journal if you don’t believe me! Would a different system of peer review, or an alternative sociology of science, produce a better overall result?

29 March 2007 at 3:13 pm 6 comments

See, We Can Study Religion Too

| Peter Klein |

Dan Hammond shows how economists approach religion with this cheeky  summary of Ekelund, Hébert, and Tollison’s Marketplace of Christianity (MIT, 2006).

The Roman Catholic Church had an enviable monopoly for centuries, so powerful that it was able to engage in first degree price discrimination. Like all monopolists, though, it struggled with technical inefficiency and potential entry. The former manifested itself in excess capital investment in beautiful cathedrals and paintings. To forestall entry it practiced usual monopolistic techniques such as limit pricing, but also tortured and killed competitors. By the end of the fifteenth century the Vatican’s pursuit of ever larger monopoly rents against the background of technological progress (the printing press) set the stage for successful entry by an entrepreneurial monk named Martin Luther. Once Luther’s firm got a foothold, all hell broke loose. Actually, it was not all hell; it was all heaven. For as every student of economics learns, when monopoly gives way to competition consumer surplus expands. There were direct gains for consumers as the price fell from the breakup of the Catholic monopoly and, in addition, the entrants lowered real production costs.

The latter welfare gains warrant explanation. What happened is that the entry of Protestant firms reduced the real cost of itch relief by doing away with ornate churches, daily masses, pilgrimages, sacraments, and middlemen confessors. This is a classic case of efficiency gains from entrepreneurial innovation, not unlike the more recent case of Wal-Mart.

And you wonder why people worry about economic imperialism?

29 March 2007 at 11:18 am 1 comment

Design Puzzles

| Steven Postrel |

So you’ve purchased your coffee and chosen to sit at one of those round outdoor tables. As you lean on the table to write comments on a paper, it rocks annoyingly, possibly spilling some of your coffee. You try moving the table slightly on the uneven pavement, hoping to stumble into a stable configuration for its four feet, but several attempts fail. Eventually you resort to shimming one of the table feet with a piece of folded up paper, or a stack of sweetener packets, and this creates at least a metastable condition. Looking around, you notice that many other tables have similar combat repairs, so that the cafe looks like a furniture trauma ward. (more…)

28 March 2007 at 2:54 pm 49 comments

Reader’s Reports on The Road to Serfdom

| Peter Klein |

A new edition of The Road to Serfdom is coming out this year, positioned as volume 2 of The Collected Works of F. A. Hayek. Like all the volumes in the Collected Works, it includes a new foreword (here by series editor Bruce Caldwell), standardized and corrected notes and references, and previously unpublished supplementary material. This week’s Chronicle of Higher Education features some excerpts from the new material. Here, for example, are the reader’s reports on the manuscript, solicited by the University of Chicago Press in 1943 from Frank Knight and Jacob Marschak: (more…)

28 March 2007 at 2:44 pm 1 comment

March & Simon: Early Socialist Calculation Revisionists

| Nicolai Foss |

It is now commonly recognized that the majority of the economics profession for about four decades held an erroneous view of the nature of the “socialist calculation debate.” In particular, the nature of the arguments put forward by Mises and Hayek were misconstrued.

Revisionism took off in the mid 1980s with the work of Peter Murrell (e.g., here) and Don Lavoie (e.g., here). From a mainstream perspective, Murrell argued that the Austrians had developed sophisticated insights in property rights economics and the agency problem and had applied these insights to the problem of socialist calculation. Lavoie highlighted the distintive Austrian knowledge argument in the calculation debate, in particular emphasizing Hayek’s contribution. A bit later, Salerno and others emphasized the distinctiveness of Mises’ contribution. Thus, whereas Mises stressed the need for a distributed process of entrepreneurial judgment in the context of a private ownership economy characterized by uncertainty, Hayek put more of an emphasis on the impossibility under socialism of harnessing and processing massive amounts of knowledge, particularly under dynamic conditions. (more…)

28 March 2007 at 9:40 am 1 comment

Two Papers on Entrepreneurship

| Peter Klein |

Joe Salerno, “The Entrepreneur: Real and Imagined.” Contrasts Kirzner’s concept of the pure entrepreneur, an agent who possesses superior alertness to profit opportunities but himself owns no resources, with an alternative concept of the entrepreneur as property owner, a concept with equally strong roots in the Austrian tradition. Complements the Knightian approach emphasized in several of these papers.

Steve Phelan, “Entrepreneurship as Expectations Management.” Starting from the resource-based view of the firm, explores how firms can influence market participants’ beliefs about the value of resources it possesses. An interesting attempt to integrate entrepreneurship into the RBV.

27 March 2007 at 9:18 pm 1 comment

Management by the Really Big Numbers

| Peter Klein |

Management by the numbers may work after all. But what about management by the really big numbers?

Paul Slovic, writing in Foreign Policy about genocide, says we are “numbed by numbers” — really big numbers, that is.

Why do good people ignore mass murder and genocide?

The answer may lie in human psychology. Specifically, it is our inability to comprehend numbers and relate them to mass human tragedy that stifles our ability to act. It’s not that we are insensitive to the suffering of our fellow human beings. In fact, the opposite is true. . . .

The psychological mechanism that may play a role in many, if not all, episodes in which mass murder is neglected involves what’s known as the “dance of affect and reason” in decision-making. Affect is our ability to sense immediately whether something is good or bad. But the problem of numbing arises when these positive and negative feelings combine with reasoned analysis to guide our judgments, decisions, and actions. Psychologists have found that the statistics of mass murder or genocide — no matter how large the numbers — do not convey the true meaning of such atrocities. The numbers fail to trigger the affective emotion or feeling required to motivate action. In other words, we know that genocide in Darfur is real, but we do not “feel” that reality. In fact, not only do we fail to grasp the gravity of the statistics, but the numbers themselves may actually hinder the psychological processes required to prompt action.

Here is a longer version of Slovic’s piece, with references.

Are managers, likewise, unable to extract meaningful information from really big numbers? Is this a cost of centralized decision-making, or a limit to firm size or scope for a given degree of centralization? What would Harold say?

26 March 2007 at 11:58 am Leave a comment

Process Explanation: What Is It, Really?

| Nicolai Foss |

As I have recounted on an earlier occasion (here), my interest in economics was, after about 1.5 years of a somewhat unsuccessful economics study, finally stimulated by discovering what may broadly be called “process approaches” to economics, particularly the work of Axel Leijonhufvud, and Austrian and evolutionary approaches. I was captivated by the claims inherent in these approaches of studying “real” market “processes” in “time,” taking account of “genuine uncertainty,” “surprises,” “ignorance,” etc. — all in contrast to the (I then thought) mindless neoclassical obsession with equilibrium states.

Clearly, the Austrian marketing effort seemed much superior to the mainstream one, much less dull and much more concerned with reality. (more…)

24 March 2007 at 11:36 am 1 comment

Pomo Periscope X: Foucault Deconstructed

| Peter Klein |

This week’s Times Literary Supplement includes Andrew Scull’s review of a new translation of Foucault’s History of Madness, the book that launched the French philospher’s public career. (HT: A&L Daily.) The first English edition, Scull notes, had the great merit of brevity, if not accuracy.

Madness and Civilization was not just short: it was unhampered by any of the apparatus of modern scholarship. What appeared in 1965 was a truncated text, stripped of several chapters, but also of the thousand and more footnotes that decorated the first French edition. Foucault himself had abbreviated the lengthy volume that constituted his doctoral thesis to produce a small French pocket edition, and it was this version (which contented itself with a small handful of references and a few extra pages from the original text) that appeared in translation. This could be read in a few hours, and if extraordinarily large claims rested on a shaky empirical foundation, this was perhaps not immediately evident. The pleasures of a radical reinterpretation of the place of psychiatry in the modern world (and, by implication, of the whole Enlightenment project to glorify reason) could be absorbed in very little time. Any doubts that might surface about the book’s claims could always be dismissed by gestures towards a French edition far weightier and more solemn — a massive tome that monoglot English readers were highly unlikely, indeed unable, to consult for themselves, even supposing that they could have laid their hands on a copy.

From the extended edition, published now in English for the first time, we learn that Foucault’s primary sources were narrow, outdated, and superficial. (more…)

24 March 2007 at 11:23 am Leave a comment

Measuring the Institutional Environment

| Peter Klein |

An central problem in empirical research on institutions is the difficulty of measuring key attributes of the institutional environment. Secure property rights, respect for the rule of law, transparency, free markets, norms of fairness and reciprocity, and similar characteristics are held to be critical for economic development. But how do you know them when you see them?

Most of the literature has used indicators derived from secondary data, such as the economic freedom measures produced by the Fraser Institute and Heritage Foundation, Witold Henisz’s polcon database, the World Bank’s database of political institutions, various indexes of shareholder and creditor rights compiled by the La Porta gang, and the like. These measures have much to recommend them, but may proxy only indirectly for the real institutional constraints of interest.

This paper by Jan Svejnar and Simon John Commander takes a different approach: it asks. The authors use primary data from the Business Environment and Enterprise Performance Survey (BEEPS), in which managers of several thousand firms in 26 transition countries are asked for their subjective perceptions about tax and regulatory policy, uncertainty about regulatory change, macroeconomic stability, the effectiveness of the judiciary, corruption, crime, infrastructure, and other institutional characteristics. (The authors conclude that most of the variation in firm performance is explained by time-invariant country fixed effects, and that individual institutional variables have little explanatory power, suggesting that existing studies using secondary measures of institutional characteristics may overstate their effects.)

23 March 2007 at 9:39 am 1 comment

Galileo in Popular Culture

| Peter Klein |

Brief follow-up to our earlier post on the Galileo Legend. Happened to catch on the radio today “Galileo” by the Indigo Girls, from their 1992 album Rites of Passage. The song opens thusly:

Galileo’s head was on the block
the crime was looking up for truth
and as the bombshells of my daily fears explode
I try to trace them to my youth

The chorus, a fortiori, makes Galileo into a sort of secular saint:

How long till my soul gets it right
can any human being ever reach that kind of light
I call on the resting soul of Galileo
king of night vision, king of insight

I’ll buy the “king of night vision” part — Galileo’s greatest achievement, after all, was his improvements to the telescope — but “king of insight” seems a little extreme. (It’s a catchy tune, however.)

23 March 2007 at 9:04 am 1 comment

Socrates’s Teaching Evaluations

| Peter Klein |

Thomas Cushman finds them in Socrates’s private papers. Where’s that hemlock when you really need it? (Via A&L Daily.)

22 March 2007 at 2:05 pm Leave a comment

The Danger of Under-Management

| Peter Klein |

As we’ve noted before, the hype about flatter hierarchies, modular organizational architectures, worker-managed teams, and the like tends to obscure the costs of decentralization or, conversely, the benefits of hierarchy. Sure, we can worry along with Bob Sutton about abusive bosses. But what about bosses who exercise too little authority?

WebWorkerDaily is running an open thread on under-management. Notes Anne Zelenka:

Books like The Starfish and The Spider: The Unstoppable Power of Leaderless Organizations promote the idea that decentralized loosely-managed organizations can be more successful than hierarchical traditionally managed organizations. Starfish organizations, so the claim goes, work mainly via flat and collaborative peer networks, not by the practice of top-down leadership or management. This might make you think that management isn’t necessary in the new world of work and business enabled by the web. Yet even so-called starfish organizations like Wikipedia and Craigslist rely on some sort of governance structure and effective leadership to succeed.

22 March 2007 at 9:05 am 6 comments

CORI’s Contracts Database: More Documents, Faster

| Peter Klein |

Researchers in organizational economics and strategy who rely on CORI’s online contracts database — and c’mon, who doesn’t? — will be happy to know that the collection is growing faster than ever before:

SEATTLE — (BUSINESS WIRE) — QL2 Software today announced that the Contracting and Organizations Research Institute (CORI), one of the world’s leading research organizations on contracts, has deployed QL2’s flagship product, WebQL. CORI will leverage the on-demand power of WebQL to automate the Web data extraction process from the Securities and Exchange Commission’s (SEC) database, EDGAR, to enhance the Institute’s knowledge base of contract information (K-Base). As a result of the implementation, CORI has been able reduce the document upload process to CORI’s K-Base from 15 hours to two hours; a productivity increase of 750% per day.

Based at the University of Missouri-Columbia, CORI’s goal is to build upon its collection of more than 250,000 contracts and other documents of interest to support studies conducted by academic researchers and professional clients focused on best practices as well as economic enterprise structure. Prior to QL2, document search and collection was being performed manually by students at the University, a process of copying and pasting new filings which often took more than 15 hours per EDGAR-filing day. Students also served as taxonomists, responsible for assigning each document to a particular category or associating it with certain search terms.

“WebQL allowed us to replace a slow, tedious and costly process with an automated solution that dramatically improves the speed, quality and consistency of the data extracted from EDGAR,” said Dr. Michael Sykuta, Associate Professor of Agribusiness and Director of CORI. “The solution has also helped reduce the drain on our network bandwidth, processing capacity and archival storage, and allowed the students to focus on processing and categorizing the documents downloaded by the WebQL-enhanced system. With nearly 50,000 documents waiting to be reviewed, we are certainly ahead in our data extraction and downloading.”

We hope users will enjoy the increasing breadth of the collection (and appreciate our contribution to the Marxist process of labor displacement). And if you haven’t seen CORI’s new search interface, you’re in for a treat. 

21 March 2007 at 5:18 pm Leave a comment

Paging the Pigou People

| Steven Postrel |

It looks like the rent-seekers at US-CAP are way ahead of the Pigou Club on CO2 restriction policy. So it looks like I’ll be able to oppose CO2 restriction not just on its own merits but because the policy instrument will be inferior.

21 March 2007 at 2:24 pm 2 comments

Syllabus Exchange II

| Peter Klein |

More material for our syllabus exchange:

If you have a syllabus to share, let us know.

20 March 2007 at 11:01 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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