Archive for August, 2007
Papers for São Paulo Workshop
| Peter Klein |
Papers for the II Research Workshop on Institutions and Organizations in São Paulo are now available here.
Keynote speakers Jackson Nickerson and I are headed to Brazil today. If I have time this morning I’ll post “My Favorite Things St. Louis Airport.”
Update (1 September): Here we are at PENSA, in a somewhat narcissistic pose, shortly after arrival.
Teaching Game Theory
| Nicolai Foss |
Game theory is fun to teach because the real world applications, exemplifations, etc. are legion, and the theory so often does more than merely redescribe the situation, but actually brings new insight. If, however, you are out of good examples, you may want to check out Game Theory.net’s list of game theory in film, music and fiction.
The Anti-Blog
| Nicolai Foss |
One consequence of the expansion of the blogosphere is, in accordance with the basic Hegelian scheme, the emergence of the anti-blog. Here is the Anti-Becker-Posner-blog dedicated to smashing, well, you guessed it (and here is an alternative conception of what an anti-blog entails).
O&M has been accused of doing “right-wing craponomics,” Peter’s economics has been attacked by Sraffian Robert Viennau, and my comments about pomo and sociologists have often provoked angry reactions. I wonder when the Anti-O&M-Blog will appear? (Hmm, perhaps we shouldn’t play with fire; remember the Corsair Affair involving Søren Kierkegaard? (Tyler will know what I mean)).
Thoughts on Capabilities From the Interesting Sutton
| Nicolai Foss |
We have spent too much time on this blog discussing Bob Sutton. A much more interesting Sutton is John Sutton, the Sir John Hicks Professor of Economics as the London School of Economics. Sutton is the author of numerous papers and books (e.g., the highly influential Sunk Costs and Market Structure). He has had some influence on strategic management thinking, mainly (obviously) among those who base strategic management on industrial economics. (more…)
Reports of My Assistant’s Death Are Greatly Exaggerated
| Peter Klein |
Received this email today from Harvard Business Online:
One of your course planning assistants, Mary E____, will be expiring on 09/12/2007.
Was she told? Does her husband know? Does the insurance company know?
Oh, wait: “This means that your assistant will no longer have access to your courses or be able to assist you with course planning in any way.” Whew!
New material for those funny lists you see from time to time.
SDAE Sessions
| Peter Klein |
Sessions from the SDAE section of the upcoming Southern Economic Association annual meeting (New Orleans, 18-20 2007) that may interest our readers:
- Peter Lewin (University of Texas at Dallas) and Howard Baetjer Jr. (Towson University),“Can Ideas be Capital? Can Capital Be Anything Else?”
- Per-Olof Bjuggren and Johanna Palmberg (Jönköpings International Business School), “Swedish Listed Family Firms and Entrepreneurial Spirit”
- Joseph T. Salerno (Pace University), “The Entrepreneur: Real and Imagined” (more…)
Pomo Periscope XIII: The Theology of Relativism
| Nicolai Foss |
OK, time to revitalize our successful Pomo Periscope series (seriously, the PP posts are among the most read O&M posts). I am reading Roger Scruton’s recent brilliant A Political Philosophy: Arguments for Conservatism at the moment. The book is an extremely articulate expression of true Burkean conservatism, and very far indeed from both neoconservatism and libertarianism. Anyway, these days Scruton seems unable to write anything without lashing out at pomo. Luckily, because what he says is correct and it must be said. (more…)
How Would You Know Him from Any Other French Professor?
| Peter Klein |
Phantom French Professor Claims Salary for 15 Years
PARIS (Reuters) — A French tax official cheated the government out of 600,000 euros (407,000 pounds) by creating a phantom identity as a university professor and claiming a salary for some 15 years, the government said on Monday.
Sorry, I couldn’t resist. But I’m excused.
Corporate Asset Purchases and Sales
| Peter Klein |
There’s a huge literature on mergers and sell-offs (see this excellent, if slightly dated, survey) but less work on the purchase and sale of corporate assets short of full acquisition or divestiture. Studying asset purchases and sales is a good way to learn about firms’ growth and retrenchment strategies because these transactions are not complicated by issues of corporate control.
Missaka Warusawitharana, a recent Wharton PhD now at the Federal Reserve Board, is doing interesting work in this area. In a forthcoming Journal of Finance paper he finds strong evidence that efficiency, not agency, considerations drive most asset purchases and sales. This contrasts with the M&A literature, in which the evidence on investment efficiency is mixed. A companion paper (with Sugata Ray) compares the sensitivity of acquisition returns to transaction value for both asset purchases and full acquisitions, finding evidence for value creation when corporate assets are purchased but not when an entire firm is acquired.
Write Like a Management Consultant
| Peter Klein |
With Mike Shor’s MBA Sentence Generator you can craft fine prose like this: “To proactively manage profit, our frictionless infrastructure parallels our world-class thought leadership.” You don’t even need an MBA!
HT to Luke Froeb, who also recommends Fred Kahn’s “My War Against Bureaucratese.”
Think Globally, Drink Locally
| Peter Klein |
Railing against corporate dictatorship, delocator.net helps consumers find locally-owned cafes, bookstores, and movie theatres in their area — alternatives to the “invasion” of Starbucks, Borders, and their ilk. The site itself is actually quite an interesting capitalist idea in its freshness and creativity, and people certainly should eat or drink or shop where they are most comfortable. That’s the beauty of competition! And the kind of community-building that often takes place at familiar, time-tested, local shops is to be encouraged.
But to say local businesses possess some kind of moral magic simply by virtue of being family-owned and homey is preposterous.
That’s Brooke Levitske, writing on the Acton PowerBlog. Recently a friend asked what I thought of Wendell Berry and his agrarian, anti-industrial philosophy. My response was similar: If people wish to live according to these principles, more power to them. I object only when materialist urbanites are forbidden by law from pursuing their own path to enlightenment.
Incidentally, does anyone remember the WSJ article a few years back suggesting that local cafes benefit when Starbucks moves to town? The theory is that the presence of a Starbucks increases local demand for premium coffee, providing spillover benefits to local stores. I haven’t seen any systematic evidence on this, however.
Summary of Kirzner’s Contributions
| Peter Klein |
Israel Kirzner received the 2006 International Award for Entrepreneurship and Small Business Research. Here is an article by Robin Douhan, Gunnar Eliasson, and Magnus Henrekson from the current issue of Small Business Economics summarizing Kirzner’s contributions to entrepreneurship theory.
Investor Protection and Firm Governance: Substitutes or Complements?
| Peter Klein |
The new institutional economics often treats the institutional environment and institutional arrangements as substitutes. In countries with stable legal institutions, relatively efficient courts, and reasonable default rules for contract terms, for example, contracts tend to be less complete. If contracting parties can trust the courts to fill in the gaps, why bother to write out every contingency? Likewise, if a country has an efficient external capital market, firms can be small and specialized, relying on the capital markets to allocate resources among business units, but if the external capital market performs poorly, diversified business groups may arise to exploit their internal capital markets.
It is thus surprising to learn, from a new paper by Reena Aggarwal, Isil Erel, René Stulz, and Rohan Williamson, that firms tend to establish better mechanisms for corporate governance in countries that already have strong rules for investor protection. “[O]ur evidence suggests that firm-level governance attributes are complementary to rather than substitutes for country-level investor protection, so that better country-level investor protection makes it optimal for firms to invest more in internal governance.” The better the institutional environment, in this case, the more effort agents put into designing efficient institutional arrangements.
Clearly more work is needed to understand the interactions between “macro” and “micro” institutions. What are some other good papers in this area?
Does Management Research Need to Become More Empirical?
| Nicolai Foss |
Or, to put it more precisely, does management research (i.e., the journals) need to become more empirical in the specific sense of allowing for research that is pre-theoretic, but addresses an issue of relevance or detects a pattern to organizational stakeholders, that is, identifies a potentially important stylized fact? (more…)
Me in Chinese
| Peter Klein |
Here is a Chinese translation of my 1996 article “Economic Calculation and the Limits of Organization,” one of my favorites. It appears in Comparative Economic and Social Systems 116, no. 6 (2004): 70-78. The journal is edited by Wu Jinglian, an important Chinese economist specializing in economic reform. (Thanks to Chenhua Li for the translation and Kuo-Yang Tang for background information.)
Outsourcing Bleg
| Peter Klein |
A friend asks for good examples of companies outsourcing core functions or selling core technology and brands. Suggestions?
Knightian Financial Markets
| Peter Klein |
Frank Knight knew in 1921 what the world’s most sophisticated mathematical models could not capture today. That is, there is a fine line between risk with mathematical probabilities and uncertainty that cannot be measured. Although investors have no difficulty in pricing all sorts of risks, the “immeasurable” uncertainty and information asymmetries make them shy away from all forms of risk, especially in times of global anxiety. In our view, this is exactly what has happened in the past couple of weeks in financial markets, as credit risks linked to the US subprime-mortgage market spread out (through highly leveraged derivatives and structured instruments) and triggered a volatility wave across the world.
That’s Morgan Stanley’s Serhan Cevik and Katerina Kalcheva, writing in yesterday’s Global Economic Forum. Kudos to Cevik and Kalcheva for reminding investors (or, more likely, economists) that some risks cannot be measured and priced. But keep in mind that Knight treated uncertainty as ubiquitous, not some parameter that rises and falls with market conditions. “Profit arises out of the inherent, absolute unpredictability of things, out of the sheer brute fact that the results of human activity cannot be anticipated and then only in so far as even a probability calculation in regard to them is impossible and meaningless,” as he famously put it. (BTW you can get the full text of Risk, Uncertainty, and Profit online, courtesy of EconLib.)
Act versus Rule Self-Interest
| Peter Klein |
Ethicists commonly distinguish between “act” and “rule” utilitarianism. Act utilitarians believe that individual actions should be evaluated according to some standard of overall well-being, while rule utilitarians maintain that such standards need apply only to general rules, not specific acts. (Here is an argument that Ludwig von Mises was the latter type of utilitarian.)
By analogy, one can think of act and rule self-interest. Consider the standard repeated prisoner’s dilemma game in which a player can increase his payoff in the current period by defecting, but in doing so would trigger a matching response by his opponent, thus reducing his overall payoff relative to that in the Nash equilibrium in which each player cooperates every period. A merchant may refrain from cheating his customers today not out of moral obligation, but because the long-term gains from establishing a reputation for trustworthy behavior outweigh the short-term losses from honest dealing. (more…)
We’re #28!
| Peter Klein |
Not that we’re obsessed with rankings or anything, but O&M ranks 28 out of 125 economics blogs studied here. Most of those ranked higher are general-interest sites like Freakonomics, Marginal Revolution, Mankiw, DeLong, etc., so we’re not doing too badly as a fairly specialized management blog. Thanks to all our readers for their support!
Men of Wealth
| Peter Klein |
John T. Flynn’s 1941 classic Men of Wealth is back in print, courtesy of the Mises Institute. I’ve had an old copy on my shelf for years, having once stumbled across a rare first edition at Bell’s Books in Palo Alto. The book profiles Jacob Fugger, John Law, the Rothschilds, Robert Owen, Cornelius Vanderbilt, Henry Green, Hachirobei Mitsui, Cecil Rhodes, Basil Zaharoff, Mark Hanna, John D. Rockefeller, and J. Pierpont Morgan. Unlike the typical business history text (ahem), it is written in a lively and engaging style. To get the flavor, consider this excerpt from chapter 9 on the little-known but highly influential arms dealer Basil Zaharoff:
Zaharoff played a leading, if not the leading, role in that strange world comedy of the arms makers leading the double life of chauvinists and internationalists. They gave us the spectacle of Boers mowing down English regiments with Vickers’ pom-poms, Prussian surgeons picking out of Prussian wounded Austrian shrapnel fired by Krupp’s cannon, French poilus massacred by shot poured out of guns made in Le Creusot, English Tommies killed by weapons produced by Armstrong and Vickers, and American ships sent to the bottom by U-boats built on models supplied by American submarine builders. Zaharoff was the master of what one biographer has called the “principle of incitement,”under which war scares were managed, enemies created for nations, airplanes sold to one nation and antiaircraft guns to her neighbors, submarines to one and destroyers to another. He did what the cigarette people did, what the liquor industry, the beauty industry did — created a demand for his merchandise. The armament industry became a game of international politics, the arms salesman a diplomatic provocateur, the munitions magnates of all nations partners in cartels, combines, consolidations; exchanging plans, secrets, patents. He was the greatest of all the salesmen of death, and, as one commentator has observed, if you would see his monument, look about you at the military graveyards of Europe.
You can read the rest of the chapter here.
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