Archive for November, 2007
Hayek and Entrepreneurship
| Peter Klein |
At the Kauffman data symposium participants were given little notebooks with the Kauffman logo and a quote from Hayek — “Society’s course will be changed only by a change in ideas” — on the cover. It’s a nice line and certainly in the spirit of Hayek’s views on social change as expressed in The Road to Serfdom, “The Intellectuals and Socialism,” and other works, though the exact quotation does not seem to appear in Hayek’s writings. (The line is attributed to Hayek by John Blundell, recounting a conversation between Hayek and IEA founder Antony Fisher. In “The Rediscovery of Freedom,” written in 1983, Hayek puts it this way: “A young English pilot who had returned from the war and had made a great deal of money in a few years as an entrepreneur came to me [around 1947] and asked me what he could do to thwart the ominous growth of socialism. I had considerable trouble persuading him that mass propaganda was futile and that the task consisted rather of convincing intellectuals.”)
The Kauffman Foundation focuses on entrepreneurship, not opposition to socialism, so I started thinking about the influence of Hayek on entrepreneurship research. Kirzner’s theory of entrepreneurial discovery builds directly on Hayek’s notion of an economy characterized by dispersed, tacit knowledge, an economy in which “competition” is a process of coordination and equilibration, rather than a set of conditions (as in Walrasian competitive general equilibrium). However, Hayek did not develop a theory of the entrepreneur per se. (more…)
I’m Not Narcissistic, Just Really Important
| Peter Klein |
If you have the kind of sophisticated sense of humor I have, you enjoy Bud Light’s “Real Men of Genius” series. Yesterday I heard the salute to “Mr. Stadium Scoreboard Marriage Proposal Guy”:
You’ve combined the three things you love most in the this world:
Your girlfriend, your team, and lots and lots of attention.
I thought of that when reading Arijit Chatterjee and Donald Hambrick’s recent ASQ paper, “It’s All About Me: Narcissistic CEOs and Their Effects on Company Strategy and Performance” (working-paper version here).
This study uses unobtrusive measures of the narcissism of chief executive officers (CEOs) — the prominence of the CEO’s photograph in annual reports, the CEO’s prominence in press releases, the CEO’s use of first-person singular pronouns in interviews, and compensation relative to the second-highest-paid firm executive — to examine the effect of CEO narcissism on a firm’s strategy and performance. Results of an empirical study of 11 CEOs in the computer hardware and software industries in 1992-2004 show that narcissism in CEOs is positively related to strategic dynamism and grandiosity, as well as the number and size of acquisitions, and it engenders extreme and fluctuating organizational performance. The results suggest that narcissistic CEOs favor bold actions that attract attention, resulting in big wins or big losses, but that, in these industries, their firm’s performance is generally no better or worse than firms with non-narcissistic CEOs.
Remember, there’s no “I” in “team” — but if you look closely, you’ll find a “me.”
Qualitative Comparative Analysis
| Peter Klein |
I learned about Qualitative Comparative Analysis (QCA) from Peer Fiss at last month’s Sundance conference on comparative organizations. QCA is a kind of cluster analysis that is said by its proponents to be superior to linear regression for identifying causal relationships among variables in small samples. Kogut, MacDuffie, and Ragin (2004) and Fiss (2007) apply QCA to organizational problems. If you’re interested in learning more you might drop by the EGOS Colloquium in Amsterdam next July for a special session on QCA and similar methods, “Comparing Organizations: New Approaches to Using Case Study, Small-N, and Set-Theoretical Methods.”
NB: I was reminded of the Sundance conference, and the relations between economists and sociologists, when I had dinner with a prominent labor economist at last weekend’s Kauffman symposium on entrepreneurship data. He said he was tired of labor economics meetings — “all anyone talks about is identification, identification, identification” — and was thinking about attending the Academy of Management conference to broaden his perspective. I responded that after a few days at the AoM he might be dying for someone to mention identification!
Demsetz, Coase, Postrel, and Williamson
| David Hoopes |
A recent post by Nicolai ponders Demsetz’s approach to transaction costs. My understanding (interpretation) of Demsetz’s “The Theory of the Firm Revisited” is quite different from Nicolai’s. Here’s how I remember that paper.
One of Demsetz’s complaints about transaction costs economics is that a number of very different events are bundled together under the term “transaction.” Williamson’s take on transaction costs focuses largely on comparative governance costs. How does making sure a supplier doesn’t cheat you compare to making sure your employees don’t cheat you? Coase’s version of transaction costs is very different. Coase tends to talk about a variety of other frictions that can occur independently of governance costs. These are what Demsetz calls management costs. Demsetz thinks (quite correctly) that referring to these two types of costs using the same term is confusing. In his Nobel speech Coase notes how his beliefs were more consistent with Demsetz’s than with those emphasizing governance.
Steve Postrel and I (in disucssing capabilities in SMJ 1999) separate cooperation costs from coordination costs. I think of this as fitting the Williamson versus Demsetz and Coase types of transaction costs (or management costs as Harold says). Costs dedicated to aligning incentives are different from costs of making sure everyone has the same plan. Steve and I go on to differentiate the costs of sharing specialized knowledge from the costs of coordinating. (Notice how I moved from Coase and Demsetz to myself?!).
Back to Harold. Demsetz believes that you needn’t have oppourtunism to have organizations. Postrel (2003) in an earlier version compared knowledge and governance as theories of the firm. Where Demsetz believes firms economize on managerial costs (or Coasian transaction costs) Postrel believes that without opportunism the firm is unnecessary.
I’m more with Harold (at least in my own mind I’m not sure Harold really wants me tagging along).
Waldfogel’s “Tyranny of the Market”
| Peter Klein |
Joel Waldfogel visited our campus last week to discuss his new book, The Tyranny of the Market. I wasn’t sure what to expect. Joel is a creative and original thinker, a careful empiricist, and a nice guy. He’s one of the small (but growing) number of accomplished economists (Steve Levitt, Austin Goolsbee, Greg Mankiw, Brad DeLong, Steve Landsburg, etc.) who take the time to write for a general audience, a particularly meritorious activity. On the other hand, while I haven’t read Joel’s book, I was underwhelmed by this summary in Slate, as was most of the econo-blogosphere (1, 2, 3, 4).
After hearing Joel’s presentation and discussing it with him afterwards I’m more sympathetic to his case, but only slightly. His basic argument is simple: Under increasing returns, if the number of potential users of a particular good or service is sufficiently small, and the fixed costs are sufficiently large, then the good or service will not be produced even though there exist users whose willingness to pay exceeds the marginal cost of production. This Joel characterizes as a market failure, a challenge to the view that market provision, unlike government provision, allows everyone to have his preferences satisfied. If the state provides one color of tie, selected by majority vote, then I may be stuck with a red tie even when I prefer blue, while under market competition we all get the color we want. Not so, says Joel; if only a few of us prefer blue and the fixed costs are high enough then blue won’t be offered for sale. (more…)
The Philips Machine
| Nicolai Foss |
I just spent three days in London. Jolly, indeed. Before going to the London Business School yesterday, where I had a paper expertly demolished and teared apart by Michael Jacobides, I visited for the first, but certainly not last, time the Science Museum on Exhibition Road. The museum is really quite marvelous, and I very strongly recommend it. Even wives are likely to take interest.
I was strolling through the section on computing when — quite unexpectedly, because I had no idea it was on display at the museum — I noticed the famous Philips Machine (here is a pic), essentially a hydro-mechanical analogue computer designed to exhibit the functioning of the economy from the point of a very crude Keynesian perspective. The Machine was constructed by Bill Philips, of Philips curve fame, and was the reason why 1950s macro is sometimes referred to as “hydraulic Keynesianism” (a term that was coined by the brilliant, but now forgotten Alan Coddington). No less than 12 copies were built for teaching purposes and sold to various UK universities. The one that is on display at the museum was resurrected from a LSE lumber room (shockingly, the machine was actually used in teaching until 1992. But then again the macro I was exposed to in the 1980s was no less silly than Philips’ machine). Here is an excerpt from a BBC programme on the machine.
Kauffman Symposium on Entrepreneurship Data
| Peter Klein |
I head to Kansas City today for the Kauffman symposium on entrepreneurship and innovation data, where Mike Sykuta and I will give a presentation on the CORI contracts library. Descriptions of all the data sets to be presented are available at SSRN.
I’m curious to see how the participants will address the issues of measurement and definition that are particularly thorny in entrepreneurship research.
Organizations and Markets 
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