Archive for April, 2007

Athey on Organizational Complementarities

| Peter Klein |

Harvard’s Susan Athey has won the John Bates Clark medal. Commentators are hailing her age (one of the youngest Clark medalists at 36), gender (the first female winner), and reputation (profiled in the New York Times as a 24-year-old PhD candidate). Here I’ll offer a few remarks about one of her most important papers for organizational scholars, “An Empirical Framework for Testing Theories About Complementarity in Organizational Design” (with Scott Stern). (An NBER version of the paper is here; as far as I know it is still unpublished.)

I blogged recently about complementarities among organizational form, technology, and market conditions. Athey and Stern’s paper tackles the problem of measuring complementarities among organizational practices. If particular practices occur in clusters (as modeled, for example, by Holmstrom and Milgrom, 1994), it is difficult to estimate the marginal impact of adopting any particular practice. Moreover, the endogeneity of the decision to adopt individual practices makes it difficult to judge whether practices are in fact complementary (i.e., performance enhancing). Athey and Stern develop a method for identifying complementarities by constructing “activity-specific instruments” that control for unobserved heterogeneity. The proposed approach, which jointly estimates the adoption decision and the productivity effect of organizational practices, is becoming increasingly influential in the empirical literature on organizational design. (more…)

21 April 2007 at 3:48 pm 1 comment

Does Your Neighborhood Really Need Traffic Signs?

| Chihmao Hsieh |

A month ago, I was traveling and spotted on a newsstand the then-current issue of US News & World Report, the one where the cover story addresses what societal lessons the USA could learn from the rest of the world. Being born and raised in the USA for 30 years, I found this to be one of the unusually humble headlines by a US publication, and picked a copy up.

The news article reports on 30 short accounts of societal behaviors or conditions elsewhere, which the US should envy. Major differences in sociocultural norms and regulatory policies are evidenced.

The first such account profiles recent policymaking in Ipswich, England, where that city’s traffic planner has removed all traffic signs (including traffic lights and even curbs!) in an effort to reduce traffic accidents. (more…)

21 April 2007 at 3:22 pm 9 comments

Communication Channels, Asset Specificity, and Some Humor

| Chihmao Hsieh |

First off, I’d like to thank Nicolai and Peter for adding me on as a guest blogger at O&M. I have admired it from afar. Hopefully I can introduce other provocative topics universal to the esteemed readership, but also practice my more text-oriented sense of humor. Ergo, this opening post…

Last week I gave a lecture to my undergrad class that included remarks about the differential ability of communication channels in handling messages of varied complexity or “equivocality.”

The research cited (Lengel and Daft, 1988) during the lecture categorizes communication channels into 3 groups: email, fax, voice mail; telephone and video conferencing; and face-to-face interaction. I independently argued that these 3 categories distinctly varied in terms of their relation to asset specificity: excepting underdeveloped countries, email, fax, and voice mail each involve investments low in asset specificity (no need for shared location, no need for shared timing); (more…)

20 April 2007 at 6:26 pm Leave a comment

Introducing Guest Blogger Chihmao Hsieh

| Peter Klein |

It is a pleasure to welcome Chihmao Hsieh as our newest guest blogger. Chihmao is an assistant professor in the Department of Business Administration at the University of Missouri-Rolla. He received his PhD in strategy from Washington University, St. Louis, where he worked with O&M favorites Jackson Nickerson and Todd Zenger. (A sample of their joint work is here.) Chihmao’s research applies entrepreneurship to R&D, organizational economics, cognitive psychology and instructional science, and informetrics. He has been a regular participant in the comment threads at O&M and we’re pleased to add him to the line-up.

20 April 2007 at 4:38 pm 1 comment

The Division of Labor in Artistic Production

| Peter Klein |

Delegation, agency, team production, monitoring, group entrepreneurship — these issues and more suffuse David Galenson’s new paper on the division of labor in artistic production, “Painting By Proxy: The Conceptual Artist as Manufacturer.”

In 1958, the French philosopher Etienne Gilson observed that painters are related to manual laborers by a deep-rooted affinity that nothing can eliminate, because painting was the one art in which the person who conceives the work is also necessarily the person who executes it. Conceptual innovators promptly proved Gilson wrong, however, by eliminating the touch of the artist from their paintings: in 1960 the French artist Yves Klein began using living brushes — nude models covered with paint — to execute his paintings, and in 1963 Andy Warhol began having his assistant Gerard Malanga silkscreen his canvases. Today many leading artists do not touch their own paintings, and some never see them. This paper traces the innovations that allowed a complete separation between the conception and execution of paintings. The foundation of this separation was laid long before the 20th century, by conceptual Old Masters including Raphael and Rubens, who employed teams of assistants to produce their paintings, but artists began exploring its logical limits during the conceptual revolution of the 1960s and beyond. Thus by the end of the twentieth century Jeff Koons explained that he did not participate in the work of painting his canvases because he believed it would interfere with his growth as an artist, and Damien Hirst defended his practice of having his paintings made by assistants on the grounds that their paintings were better than his. Eliminating the touch of the artist from painting is yet another way in which conceptual innovators transformed art in the twentieth century.

The paper is gated for NBER subscribers here.

20 April 2007 at 12:45 pm Leave a comment

Things You Shouldn’t Say at Your Dissertation Defense

| Peter Klein |

Kerry Soper’s classic from the July 7, 2000 Chronicle of Higher Education (click the image for the whole thing). Sent to me by Matt Elliott.


And of course there’s Matt Groening’s classic “Grad School” edition of his “Life in Hell” series.

19 April 2007 at 1:34 pm 3 comments

New Paper by Hart and Moore

| Peter Klein |

I blogged previously about Oliver Hart’s work (with John Moore) on “partial contracts.” The paper has been revised and retitled “Contracts as Reference Points” and is available for NBER subscribers here. Abstract:

We argue that a contract provides a reference point for a trading relationship: more precisely, for parties’ feelings of entitlement. A party’s ex post performance depends on whether he gets what he is entitled to relative to outcomes permitted by the contract. A party who is shortchanged shades on performance. A flexible contract allows parties to adjust their outcome to uncertainty, but causes inefficient shading. Our analysis provides a basis for long-term contracts in the absence of noncontractible investments, and elucidates why “employment” contracts, which fix wage in advance and allow the employer to choose the task, can be optimal.

19 April 2007 at 9:25 am Leave a comment

Unintended Consequences and the Social Sciences

| Nicolai Foss |

According to a prominent tradition in economics and classical liberal thought, the social sciences (particularly economics) are primarily concerned with explaining unintended phenomena, whether more temporary outcomes, such as market phenomena, or more permanent ones, such as institutions, in terms of the intentional actions of multiple interacting agents.  In contrast, the social sciences are not really taken up with explaining individual action per se.

This is an understanding, or perhaps even doctrine, that is perhaps most famously associated with Hayek, but it has also been echoed by Ludwig Lachmann (among Hayek’s contemporaries) and by many modern Austrians, as well as by philosophers, notably Karl Popper, Michael Polanyi, and Edna Ullman-Margalitt, and (non-Austrian) economists such as Andrew Schotter (in his 1981 book on institutions). (Of course, the notion of unintended consequences itself is by no means unique to classical liberal economists but can be found in the thought of most major thinkers on social science and political philosophy).

However, there are several problems with the doctrine that the social sciences are mainly about unintended consequences. Here are two that seem to have not been previously noticed: (more…)

18 April 2007 at 3:57 pm 13 comments

The As-Is Journal Review Process

| Peter Klein |

Eric Tsang and Bruno Frey urge editors to dump the revise-and-resubmit option, using “as-is” reviews instead. (Published version here, SSRN version here.)

[A] manuscript should be reviewed on an “as is” basis. Similar to developmental review, the process is double-blind and referees are encouraged to provide constructive comments on a manuscript. In contrast with developmental review, referees are given only two options when advising the editor regarding whether the manuscript should be published: accept or reject. The option of (minor or major) revision and resubmission is ruled out. Based on the referees’ recommendations, and his or her own reading of the manuscript, the editor makes the decision to accept or reject the manuscript. If the editor accepts the manuscript (subject to normal copy editing), he or she will inform the authors accordingly, enclosing the editorial comments and comments made by the referees. It is up to the authors to decide whether, and to what extent, they would like to incorporate these comments when they work on their revision for eventual publication. As a condition of acceptance, the authors are required to write a point-by-point response to the comments. If they refuse to accept a comment, they have to clearly state the reasons. The editor will pass on the response to the referees. In sum, the fate of a submitted manuscript is determined by one round of review, and authors of an accepted manuscript are required to make one round of revision.

Tsang and Frey identify four potential advantages to as-is reviewing: (1) authors don’t have to incorporate silly reviewer suggestions; (2) published papers reflect more closely the views of their authors, reducing “intellectual prostitution”; (3) the review process proceeds more quickly; and (4) authors are more likely to provide frank feedback to reviewers, improving the quality of the dialogue between peers. (Certainly this would eliminate the gratuitous “Thank you so much for your insightful comments” that begins every author response to referees.) There are drawbacks too, of course, but Tsang and Frey make a strong argument that the advantages outweigh the disadvantages. What do readers think?

17 April 2007 at 4:31 pm 6 comments

The Excuse Doctrine in Contract Law: Country and Western Edition

| Peter Klein |

Tom Bell entertains his contract law class with a country-and-western song illustrating the excuse doctrine. Tom says he performs the song every year wearing cowboy boots and a bolo tie, then makes the students take a not-so-fun quiz to make sure they got the point. Not at the level of the Glenn Hubbard music video, but still pretty good for a stodgy law professor.

Promises, promises, I made to you,
And you, Darlin’, promised right back at me, too.
But my commitment is over. I’m cuttin’ you loose.
I owe you nothin’! Here’s my excuse:

(refrain 1:)

Mistake, frustration, impratiCAbility:
Thanks to these reasons, I am now are free.
Mistake, frustration, impratiCAbility!
The whole deal is OFF, between you and me.


16 April 2007 at 11:41 pm Leave a comment

Org Bloggers Peace Summit

| Peter Klein |

Helsinki, 1969. Camp David, 1978. Oslo, 1993. To this list of historic summits we can add “Columbia, Missouri, 2007.” That’s the year my home institution, the University of Missouri, hosted bloggers Brayden King, Fabio Rojas, and Teppo Felin, as well as my co-blogger Nicolai Foss. Well, not all at the same time. But still: Brayden presented his paper on “Contracts as Organizations” at last week’s CORI seminar series, and today Fabio discussed his work on Black Studies programs in a seminar jointly sponsored by the Division of Applied Social Sciences and McCEL. Teppo will visit McCEL in May to present his paper “The Political Economy of Entrepreneuring.” And Nicolai will be here in May as well. Who says economists and sociologists can’t work together for a better world?

16 April 2007 at 4:18 pm 3 comments

Interview with Bill Starbuck

| Peter Klein |

The March 2007 Academy of Management Learning & Education features Michael Barnett’s interview with William H. Starbuck, recently retired as ITT Professor of Creative Management at NYU. (SSRN version of the interview here.) Topics: statistical significance versus “substantive importance” (à la McCloskey — but see Siegler and Hoover 2005); complex versus simple forecasting techniques; keys to organizational learning (and “unlearning”); organizational design as process, not outcome; the relationship between management research and social issues more broadly; and more. A good read.

16 April 2007 at 9:54 am Leave a comment

Managerial Economics: A Problem-Solving Approach

| Peter Klein |

I just received a copy of Luke Froeb and Brian McCann’s new MBA textbook, Managerial Economics: A Problem-Solving Approach (South-Western, 2007). I’m impressed. It looks and feels very different from the established managerial economics texts. First, it’s slim — 400 pages of decent-sized type (the latest edition of the Brickley, Smith, and Zimmerman text I’ve been using weighs in at 752 pages). Second, like Lee and McKenzie’s Microeconomics for MBAs, it’s light on graphs and equations. “Theory based but not theory emphasized,” says an editorial blurb. The book “includes less math and technical models, as well as fewer graphs and figures, than traditional managerial economics books. It teaches students to solve problems rather than learn models.” Third, it comes with endorsements from Bob Litan and P. J. O’Rourke. Any text approved by O’Rourke is certainly worth a serious look.

Perhaps most impressive, the authors are readers of O&M, which shows they have discriminating tastes.

15 April 2007 at 11:05 pm Leave a comment

Life After Death By PowerPoint

| Peter Klein |

Comedian Don McMillan demonstrates how not to use PowerPoint (via Volokh).

14 April 2007 at 11:54 pm 2 comments

Conceptual and Theoretical

| Nicolai Foss |

A few days ago Peter drew attention to the misuse in many academic papers of the word “methodology” (which is too often used when authors really mean “method”).

My personal pet peeve is the misuse of the word “conceptual,” particularly by management scholars. What is usually meant is “theoretical” (in fact, the word is often used in a derogatory manner — “Ah, Prof. NN, well, he mainly [meaning ‘merely’] does conceptual work” — something I once overheard being said of myself (in spite of several recent empirical papers — grrrr …. )). 

Of course, management scholars are sometimes taken up with analyzing concepts per se — such as discussing alternative notions of competitive advantage — but usually conceptul analysis is the business of philosophers, and few management scholars publish in Metaphysica and similar places. (However, those management scholars who in fact do wish to undertake “conceptual work” may be interested in this newly started journal).

14 April 2007 at 10:44 am 5 comments

Jargon Watch: Paradigm Shifts

| Peter Klein |

Don’t you sometimes wish Thomas Kuhn had chosen another term?


Via the New Yorker’s outstanding cartoon archive.

14 April 2007 at 8:57 am Leave a comment

Mel Gibson and Social Category Bias

| Peter Klein |

Back to cognitive biases and heuristics. One interesting and common example is a sort of stereotype or social category bias. To make sense out of complex information about people we often think in terms of clusters of attributes, assuming that individuals possessing one trait in the cluster possess the other traits as well. Economics professors, for example, tend to be logical, systematic, nerdy, and socially awkward. If we meet someone who is logical, systematic, and nerdy, we assume he is also socially awkward, even without knowing anything specific about his social skills.

This came to my mind last fall when when reading about Mel Gibson’s film Apocalypto. Gibson’s Passion of the Christ made him a hero among conservative Christians. In promoting Apocalypto, an action-adventure set during the twilight of the Mayan empire, Gibson was harshly critical of the Bush White House, likening the US invasion and occupation of Iraq to Mayan imperialism and the death of US soldiers to Mayan human sacrifice. In response, the conservative film critic Michael Medved accused Gibson of selling out to “Hollywood liberals.” (more…)

13 April 2007 at 11:12 pm 4 comments

Organizational Innovation: Evidence from Food and Agriculture

| Peter Klein |

Just in time to address some of the issues raised in Nicolai’s provocative post, my colleagues Harvey James, Mike Sykuta, and I have revised our paper, “Markets, Contracts, or Integration? The Adoption, Diffusion, and Evolution of Organizational Form,” which focuses on organizational innovation in US agriculture. Here is the abstract:

The rise of contract farming and vertical integration is one of the most important changes in modern agriculture. Yet the adoption and diffusion of these new forms of organization has varied widely across regions, commodities, and farm types. Transaction cost and other modern theories of the firm help explain the advantages of contracting and integration over reliance on spot markets and commodity brokers. However, these theories do not address the variation in adoption rates of new organizational forms. This paper lays out a more dynamic framework for understanding the evolution of organizational practices in U.S. agriculture, drawing on theories of the diffusion of technology and organizational complementarities. Using recent trends as stylized facts we argue that the agrifood sector is characterized by strong complementarities and that identifying and describing these complementarities more fully sheds considerable light on the organizational structure of agricultural production. We illustrate our arguments with case studies from the oilseed, poultry, and hog industries.

This is a draft, and comments are most welcome.

12 April 2007 at 11:37 pm 1 comment

Empowerment at Netflix

| Peter Klein |

Strong delegation, despite potential drawbacks, can be effective in particular circumstances. DVD-by-mail pioneer Netflix has gone this route, with apparent success:

Netflix’s time off rules — or lack thereof — are part of a broad culture of employee autonomy instilled in the company when [CEO Reed] Hastings founded it a decade ago. The executives trust staffers to make their own decisions on everything — from whether to bring their dog to the office to how much of their salary they want in cash and how much in stock options. Workers are treated, as Chief Talent Officer Patty McCord likes to say, as adults.

“We want our employees to have great freedom — freedom to be brilliant or freedom to make mistakes,” Hastings said.

Curiously, there is nothing in the news story about how output is measured, how employees are compensated, or other elements of the firm’s organizational architecture. What happens, for instance, when employees make mistakes? As argued by Brickley, Smith, and Zimmerman in their 1995 article (and textbook), decentralization works only when bundled with appropriate compensation and performance evaluation systems. Or, in the words of that great philosopher, Spider-Man’s Uncle Ben, “With great power comes great responsibility.”

Thanks to Eddie Garrett for the tip.

12 April 2007 at 1:52 pm 2 comments

Organizational Innovation

| Nicolai Foss |

Organizational economists, new institutional economics, contract theorists, etc. are taken up with assessing alternative feasible allocations of decision and income rights, contracts, governance structures and institutions in terms of their impact on value creation for a relevant social system, whether a dyad, a multi-person firm, an industry, or a whole economy. 

However, they usually assume that the set of alternatives is given to the choosing agent or set of agents. For example, in the Grossman/Hart/Moore property rights view, agents may not entirely understand the sources of payoffs, but they know exactly how alternative allocations of property rights impact payoffs. Of course, this is entirely in line with what we — given Peter’s post on Lionel Robbins below — may call “Robbinsian maximizing” in which the discovery and/or creation of new alternatives is deliberately disregarded. (more…)

10 April 2007 at 11:57 pm 10 comments

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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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