Archive for March, 2007
Accounting: A Brief History
| Peter Klein |
Despite widespread rumors to the contrary, we agree with Monty Python that accounting is not boring. After all, Ludwig von Mises was fond of quoting Goethe’s remark that double-entry bookkeeping was “one of the finest inventions of the human mind.” Who can disagree?
In this spirit, I’d like to share a terrific bibliography on the history of accounting provided by Sudha Shenoy, responding to a listserv query on the “organic” emergence of accounting practice. Someone asked whether accounting conventions can be interpreted as a kind of “spontaneous order,” in Hayek’s sense, or if the standard rules are the result mainly of state intervention. Sudha replied with these reading suggestions (lightly edited by me): (more…)
Scandinavian Economists
| Peter Klein |
Frederic Sautet reports on a reception honoring Gordon Tullock at George Mason University Law School. When someone wondered aloud why Tullock didn’t share the 1986 Nobel Prize with James Buchanan, Tullock responded that he blames a remark he made around that time that “there were more good economists in the state of Virginia than in all of Scandinavia.” The sensitive Swedes must not have been familiar with Tullock’s style.
Is Game Theory in Trouble?
| Peter Klein |
Yes, say John Quiggin and Flavio Menezes, and it cannot be saved. Game theory, they write, “has failed to deliver on its original promise of generating sharp predictions of behavior in situations where neoclassical microeconomics has little to say. . . . Experience has shown that in most situations, it is possible to tell a game-theoretic story to fit almost any possible outcome.”
Taken cumulatively, the folk theorem, the Klemperer-Meyer analysis of oligopoly and the more general analysis of economic interactions presented here demonstrate that, given a description of an economic interaction and a feasible outcome consistent with individual rationality, a strategy space can be chosen for which the given outcome is a Nash equilibrium (under fairly weak conditions, the unique Nash equilibrium). Any symmetric outcome for a typical aggregative game can be represented as an Nash equilibrium for strategies defined by some strategic variable that may be interpreted as a function of price and quantity, and there is in general, no warrant for preferring any particular choice of strategic variable.
See the commentary and discussion here and a related exchange here. One possible response, which I haven’t seen raised in the discussion, is that even if game theory is not useful for prediction, it could be valuable for understanding. (Not everyone appreciates the distinction, however.)
TCE Workshop in Bergen, 15-16 November 2007
| Nicolai Foss |
In 2004, my colleagues at the Norwegian School of Economics and Business Administration, professors Sven Haugland and Svein Ulset, and I organized a “Nordic Workshop on Transaction Cost Economics in Business Administration.” Oliver Williamson and my co-blogger gave keynote speeches. The best papers, including a paper by Williamson, were published in a special issue of the Scandinavian Journal of Management in 2005.
With Professor Arne Nygaard, Sven Haugland and I now plan a new workshop, no longer “Nordic,” on the application of TCE in business administration. (more…)
Economists Try Open-Source Peer Review
| Peter Klein |
It didn’t work so well for Nature, but a new economics journal, e-conomics, is giving open-source peer review a try. The journal, associated with the Kiel Institute, “adopts a ‘Linux approach’ to publication, viewing research as a cooperative enterprise between authors, editors, referees and readers.” After a paper is submitted, it is posted on the journal’s site and registered readers are invited to comment and to rate other readers’ comments. Formal referee reports are also solicited and, when received, published on the site, along with author responses to the reader discussion and to the referees. If the paper is accepted, this history is preserved along with the final version of the paper, which remains freely available.
There are already some good submissions available for public review, including Oliver Williamson’s “Transaction Cost Economics: An Introduction,” a revised version of which will also constitute the introduction to the Elgar Companion to Transaction Cost Economics.
Hayek and Wikipedia
| Peter Klein |
This passage from a 2006 New Yorker essay on Wikipedia caught my eye:
As an undergraduate, [Wikipedia founder Jimmy Wales] had read Friedrich Hayek’s 1945 free-market manifesto, “The Use of Knowledge in Society,” which argues that a person’s knowledge is by definition partial, and that truth is established only when people pool their wisdom. Wales thought of the essay again in the nineteen-nineties, when he began reading about the open-source movement, a group of programmers who believed that software should be free and distributed in such a way that anyone could modify the code. He was particularly impressed by “The Cathedral and the Bazaar,” an essay, later expanded into a book, by Eric Raymond, one of the movement’s founders. “It opened my eyes to the possibility of mass collaboration,” Wales said.
The Hayek-Wikipedia connection has been noted before (e.g., this post by Cass Sunstein on Larry Lessig’s blog — scroll down for a comment by Jimmy Wales himself). While there’s no reason to doubt that Hayek was a significant influence on the wiki model, the passage above has an apocryphal ring. If “The Use of Knowledge in Society” made an impression on Wales as an undergraduate, I’m impressed; it’s not exactly an easy read. (I gave up assigning it in my classes a few years ago, substituting Jensen and Meckling’s “Specific and General Knowledge, and Organizational Structure” instead.) And who would describe Hayek’s rather dry, technical paper as a “free-market manifesto”?
NB: The New Yorker article is getting a lot of airplay this week because of a serious attribution error, discussed here.
New Foss Hobby Blog
| Peter Klein |
Tyler Cowen has his ethnic dining guide, Teppo Felin has his photography page, and now my co-blogger too has a hobby site: Jazz & Archtops. If you don’t know what an archtop is you’re probably not in the target demographic.
So, if you’ve been wondering why Nicolai doesn’t have time to blog more often on O&M, now you know!
(Looks like I need to add another entry to this list.)
Aoki on Institutional Change
| Peter Klein |
The April 2007 issue of the Journal of Institutional Economics (3:1) features Masahiko Aoki’s paper “Endogenizing Institutions and Institutional Changes.” Abstract:
This paper proposes an analytical-cum-conceptual framework for understanding the nature of institutions as well as their changes. First, it proposes a new definition of institution based on the notion of common knowledge regarding self-sustaining features of social interactions with a hope to integrate various disciplinary approaches to institutions and their changes. Second, it specifies some generic mechanisms of institutional coherence and change — overlapping social embeddedness, Schumpeterian innovation in bundling games, and dynamic institutional complementarities — useful for understanding the dynamic interactions of economic, political, social, organizational, and cognitive factors.
Other papers from the same issue that look interesting include “Hayek and Popper on Ignorance and Intervention” by Celia Lessa Kerstenetzky, “Why Are Cooperatives Important in Agriculture? An Organizational Economics Perspective” by Vadislav Valentinov, and David Reisman’s review of Richard Swedberg’s New Developments in Economic Sociology.
ACAC 2007 — Submission Deadline Approaching
| Nicolai Foss |
I have attended only two truly excellent conferences. The first one was the 1997 inaugural conference for the International Society of New Institutional Economics. For me much of the excitement of that conference was seeing Ronald Coase, Oliver Williamson, Harold Demsetz, Mancur Olson, and other luminaries for the first time. To keep flight costs, my wife and I had to stay for 10 days in St. Louis, but it was worth it ;-)
The second truly excellent conference I have experienced was the 2005 ACAC which had an equally impressive line-up, only from strategic management, (e.g., Jay Barney, Kathleen Eisenhardt, Pankaj Ghemawat, etc.) as well as great papers and discussions. (more…)
The Stand-Up Economist
| Peter Klein |
A very funny translation of Mankiw’s Ten Principles of Economics by Yoram Bauman, billed as “the world’s first and only stand-up economist.” (Thanks to Eddie Garrett for the link.)
It’s good stuff, but not nearly as funny as a principles lecture by Bill Breit. I attended this session in honor of Breit at the 2001 Southern Economics Association annual meeting. You’ll notice in the transcript of Ken Elzinga’s remarks the note “Excerpts from the Spring 1969 Breit lectures played.” Omigosh (as my students would say) — Breit’s routine was as funny as anything I’ve ever seen on HBO or Comedy Central. The other people in the session were literally doubled over with laughter. And this was a lecture on Adam Smith! (I’ve since asked Elzinga if he would make the recording available but he didn’t feel comfortable doing so. Perhaps a groundswell of requests from the O&M readership would convince him to change his mind.)
John Stuart Mill in Math
| Peter Klein |
When I teach Bayes’s Theorem to my graduate students I use the Monty Hall paradox for illustration.
- Priors:
- Suppose you choose door 3; Monty reveals door 2.
- What’s
?
It’s
So you should switch doors!
The problem is that few students in their 20s or early 30s have ever seen an episode of Let’s Make a Deal. (I have a college friend whose mother was a contestant on the show, dressed as a giant chicken.)
Glenn Whitman provides another example for illustrating Bayes’s Theorem, based on this quotation from John Stuart Mill: “The Conservatives, as being by the law of their existence the stupidest party. . . . ” Mill subsequently offered this clarification: “I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative.” (more…)
“Right-Wing Crap-onomics”
| Peter Klein |
Charismatic public figures tend to be lightning rods both for criticism and for praise. Ronald Reagan, for example, aroused far more passion among both supporters and detractors than did the first President Bush, just as Bill Clinton was both loved and hated far more than Jimmy Carter.
Thus it’s no surprise to find a discussion of Foss and Klein at the student-run Austrian Economics Forum degenerating into a shouting match. (At least this discussion is more civil.)
And check out the comments to this blog post on microfinance. One commentator links to O&M (this post), to which another commentator replies: “The blog you link espouses right-wing crap-onomics. Note one of the categories listed their is the Austrian school of economics, which is just about as effective as the American school of nation-building.”
Isn’t it nice how the web brings out the best in people?
Enacting Privatization
| Nicolai Foss |
Here at O&M we have often criticized and poked fun at ideas on social construction and their derived notions in management, such as Weickian “enactment.” Still, it is a fundamental tenet of classical liberalism that ideas matter and matter crucially (although some classical liberals, notably George Stigler, have argued that ideas matter much less than economists would like to think). One crucial area where ideas would seem to have mattered a great deal is privatization (a term that seems to have been invented by Peter Drucker).
In a paper, “Palace Wars and Privatization: Did Chicago Beat Cambridge in Influencing Economic Policies,” just published in the European Management Review, J. Muir McPherson adds to his earlier work with Bruce Kogut (this paper; for a related idea diffusion paper, see this), and examines the influence of “the epistemic community of American-trained economists” (based on the number of non-US, US and Chicago PhD degrees in a given country) on privatization policies. The dataset encompasses self-collected data on 13,422 economists. The statistical methodology is a hazard model. The results indicate a clear impact of the frequency of US-trained economists on the probability of privatization, but it is also noteworthy that among theUS economists, “As Chicago ideas won out . . . the difference between Chicago economics PhDs and graduates from other schools could no longer be detected from the general influence of US-trained economists on the decision to privatize.”
Helping Your Kids: It’s Not How Much You Praise, But How
| Peter Klein |
Direct evidence against the Alfie Kohn approach to child-rearing (and, of course, incentive compensation more generally): Praising kids for who they are (e.g., telling them they’re smart) may actually reduce their performance in school, while praising them for what they do (hard work, diligence, effort) makes them perform better. Here’s the link, courtesy of Joshua Gans.
(Apologies to Mike Jensen and Kevin Murphy for my title.)
Call for Papers: Entrepreneurship Research in Food, Agriculture, Natural Resources, and Development
| Peter Klein |
The University of Missouri’s McQuinn Center for Entrepreneurial Leadership, with which I am affiliated, is hosting a conference in Kansas City, 18-19 October 2007, titled “Frameworks for Entrepreneurship Research in Food, Agriculture, Natural Resources, and Rural Development.” Here is the call for papers. Keynote speakers include Jan and Cornelia Flora, Randy Westgren, Pierre Desrochers, and others to be announced.
How to Commercialize Innovation: Sue Everybody
| Peter Klein |
We previously discussed the possibility of turning turn Bell Labs into a profit center. Now it seems that Bell Labs’s new parent, Alcatel-Lucent, has figured out how to commercialize the great Bell innovations of the past: become a patent troll. Here is Michael Perelman, writing at Against Monopoly on Alcatel’s patent-infringement suit against Microsoft:
Bell Labs was once a jewel of American science. After the Justice Department broke up the Bell System, AT&T let Bell Labs deteriorate until it spun them off as part of Lucent. Lucent, in turn, deteriorated until it was bought up by Alcatel, which seems to be now behaving as a patent troll.
Alcatel just won an enormous patent suit against Microsoft — $1.52 billion for using Bell Labs work on the MP3 format. The suit manner may or may not hold up, but I presume that Alcatel is now preparing suits against others, finally figuring out how it can commoditize the work of Bell Labs.
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