Archive for December, 2007

Most Popular Posts of 2007

| Peter Klein |

Our most popular posts of 2007:

  1. Physics Envy and All That
  2. Design Puzzles
  3. Contronymns
  4. Taxes al Carbon
  5. The University of Phoenix and the Economic Organization of Higher Education
  6. How Does Management Affect Capabilities?
  7. Market-Based Management
  8. Agency Theory in Management
  9. Has Corporate Corruption Increased?
  10. The SWOT Model May Be Wrong
  11. Management Journal Impact Factors 2005
  12. PhD Candidate Shortage in Accounting
  13. Things You Shouldn’t Say at Your Dissertation Defense
  14. Do We Need a Project Project?
  15. The Legacy of Max Weber
  16. The Language of Economists (and Sociologists)
  17. Accounting: A Brief History
  18. Is Entrepreneurship a Factor of Production?
  19. The Galileo Legend
  20. The New Bashing of Economics: The Case of Management Theory

What makes a popular post? The main determinant seems to be an incoming link from a high-traffic site; items 1-4, 6, and 13-15 above were all linked from sites like Instapundit, the Dynamist Blog, Greg Mankiw, and Marginal Revolution. Items 5, 9, 12, and 17 come up often in search -engine results. My guess that items 7, 8, 10, 16, 18, and 20 were the most popular among our regular readers.

31 December 2007 at 1:50 pm 3 comments

Sociology Quote of the Day

| Peter Klein |

Jeremy Freese, trolling the comment threads at our good twin site:

As for sociology, it’s been more a cloud/confederacy than a discipline for more than 30 years anyway, bound together by a determined resolution to ignore the wild number of pairwise combinations of self-described sociologists who have nothing whatsoever in common intellectually except leftward politics.

Now, you can bet that if I’d written that I’d be hearing from the boys over at orgtheory.

29 December 2007 at 10:21 am 1 comment

My Pet Peeve

| Steve Phelan |

One of my pet peeves is when academics assume that people in industry are a little “dim.” For instance,

It would be churlish to point out that the fact that one should be extremely leery of arguments that diversification radically improves the safety of bond investments was well known back by Edgar L. Smith and others back in 1923.

This quote from Brad De Long here

I’m not picking on Brad because it happens quite a bit in my experience. The “oh my gosh, we academics have known since 1923 that diversification of bonds does not reduce systematic risk that much, you dumbasses.”

Contrast this view with the fact that the brightest minds in a generation have been taking jobs on Wall Street. So the smartest people are the biggest dumbasses???

In these matters, I prefer to assume plausible deniability. Reducing systematic risk by combining geographically diversified BBB bonds sounds just plausible enough to avoid litigation for fraud and/or negligence. Now that’s smart!

28 December 2007 at 11:54 pm 5 comments

Starbucks Is Good for Mom and Pop

| Peter Klein |

The WSJ ran a piece a few years back showing that independently owned coffeehouses do better after Starbucks moved to town. Taylor Clark (of Starbucked fame) provides similar figures in today’s Slate:

In its predatory store placement strategy, Starbucks has been about as lethal a killer as a fluffy bunny rabbit. . . . According to recent figures from the Specialty Coffee Association of America, 57 percent of the nation’s coffeehouses are still mom and pops. Just over the five-year period from 2000 to 2005 — long after Starbucks supposedly obliterated indie cafes — the number of mom and pops grew 40 percent, from 9,800 to nearly 14,000 coffeehouses. (Starbucks, I might add, tripled in size over that same time period. Good times all around.)

The theory is that Starbucks’s rapid growth (maybe not this rapid) has boosted the demand among US consumers for premium coffee, a demand that Starbucks alone cannot satisfy. Three cheers for positive spillovers! (Greg Mankiw, how about Pigouvian subsidies for poor old Howard Schultz?)

28 December 2007 at 4:34 pm Leave a comment

Markets in Everything, Gift Card Edition

| Peter Klein |

A new secondary market for gift cards, those ubiquitous plastic goodies that so many of us found in our Christmas stockings this year (via WWD). Lisa Fairfax provides more examples and some discussion. And don’t miss Jennifer Offenberg’s work.

28 December 2007 at 2:38 pm 1 comment

New Videos: Roth, Tirole

| Peter Klein |

Boston University has put the last two Rosenthal Memorial Lectures online. Here’s Alvin Roth on “What Have We Learned From Market Design” (no, it’s not supposed to be self-contradictory) and Jean Tirole on “Economic Incentives, Self Motivation, and Social Pressure.” (HT: Marshall Jevons)

28 December 2007 at 12:30 pm Leave a comment

Open Source and Spontaneous Order

| Peter Klein |

Open-source software is often cited as an example of what Hayek termed spontaneous order, the organic, bottom-up, decentralized form of organization that characterizes the market system. Giampaolo Garzarelli, in an explicitly Hayekian analyis, says open-source projects are defined by “no hierarchy, self-organization, self-regulation, and no ownership structure.” Is this an accurate characterization?

Commercial law, manifest in the medieval law merchant or lex mercatoria, is another important example of spontaneous order in the literature (see Harold Berman and Bruce Benson). Fabrizio Marrella and Christopher Yoo use the law merchant as a benchmark, asking “Is Open Source Software the New Lex Mercatoria?”They think not, arguing that focal firms, individuals, and groups play a more important role in guiding the evolution of open-source projects than is usually recognized. As a result, “[o]pen source has not achieved the type of universality or uniformity of principles envisioned by proponents of the lex mercatoria.” (more…)

28 December 2007 at 12:00 pm 3 comments

New Papers on the Economic Analysis of Religion

| Peter Klein |

The economic analysis of religion is a rapidly growing area of applied microeconomics. To some, it represents creative and clever applications of economic theory to social, cultural, and institutional phenomena. Others see it as a crude form of economic imperialism. Only economists could take the spirit out of spirituality!

The October 2007 issue of the American Journal of Economics and Sociology contains some examples of this genre:

John H. Beck, “The Pelagian Controversy: An Economic Analysis.” The present study analyzes the decision of church authorities in the early fifth century to reject the doctrine advanced by Pelagius in favor of the position taken by Augustine. Accounts of the controversy reveal two self-interested motives for the church hierarchy to reject the Pelagian doctrine: (1) the Pelagian view would have undermined the authority of the church hierarchy; and (2) by making greater demands for moral conduct, it would have raised the “cost” of being a Christian and thereby discouraged growth in church membership, particularly among the Roman upper class. (more…)

26 December 2007 at 1:19 pm 3 comments

Christmas Classics

| Peter Klein |

tree2.jpgIt’s that magical season, time to enjoy your favorite Christmas classics — not The Night Before Christmas or It’s a Wonderful Life, but “In Defense of Scrooge” and “Economics of Santa’s Workshop” by Michael Levin from the old Free Market newsletter. Steve Landsburg’s 2004 piece on Scrooge is not as penetrating as Levin’s, but who can disagree with his conclusion: “Its taxes, not misers, that need reforming.”

Warmest holiday wishes to you and yours from the O&M crew!

25 December 2007 at 10:52 am 3 comments

Performance-Enhancing Drugs and Competitive Advantage

| Peter Klein |

Once again, performance-enhancing drugs are in the news. In a highly competitive environment some people will do anything to gain an advantage, despite the potential long-term health risks. How widespread is the problem, and what should be done about it?

No, not baseball. I’m taking about professors popping “smart pills” to improve their cognitive performance. Two Cambridge researchers report in Nature that colleagues studying brain disorders are themselves using drugs like Modafinil “to counteract the effects of jetlag, to enhance productivity or mental energy, or to deal with demanding and important intellectual challenge.”

Is this acceptable? “Should the life of the mind be chemically enhanced,” asks the Chronicle, “when, say, a professor needs to crank out a tenure-worthy paper?” Many of us consume massive quantities of caffeine already; perhaps Modafinil isn’t really all that different. Others see the practice akin to Ritalin abuse by college students. “It smells to me a lot like taking steroids for physical prowess,” says one critic.

My questions: If we discover that particular scholars are using these substances, should we put asterisks by their publications in reference lists? Should we deny them places in the academic Hall of Fame?

22 December 2007 at 7:35 pm 7 comments

The Journal of Human Capital

| Nicolai Foss |

Although human capital theory goes back to at least the 1950s, and is a thriving area that has yielded at least two Nobels, the field hasn’t had a dedicated journal. That is, until two days ago when Chicago Journals announced the inaugural issue of the Journal of Human Capital. The papers look controversial and therefore interesting, such as Todd and Wolpin’s finding that the main determinant of differences in educational performance is the home environment, as measured by the mother’s score on the Armed Forces Qualification test. (more…)

22 December 2007 at 6:40 am Leave a comment

A False Dichotomy?

| Steve Phelan |

John Mathews recently sent me a conference paper on Kirznerian, Schumpeterian, and Ricardian approaches to entrepreneurial dynamics.

Aside from questioning the resource-based theory of entrepreneurship, the paper also attempts to resolve the Kirznerian/Schumpeterian schism in entrepreneurship — namely whether entrepreneurs drive the economy towards equilibrium (Kirzner) or disequilibrium (Schumpeter). (more…)

20 December 2007 at 9:10 pm 1 comment

Rent and Quasi-Rent

| Steve Phelan |

In a recent paper in the Journal of Business Venturing, Sharon Alvarez attempts to construct a theory of entrepreneurship and the firm. The central question is why new resource combinations are sometimes carried out by entrepreneurs starting new ventures rather than within established firms. (more…)

20 December 2007 at 3:22 pm 3 comments

EU Research Productivity

| Steve Phelan | 

Interesting post over at Vox EU on EU Research Productivity. Basically a recent study examines the ISI List of Highly Cited Researchers (HCRs) by country,

the United States gets the lion’s share with 66% of the total number of HCRs, while the EU17 (EU15 plus Norway and Switzerland) has 22.3%.

They then use an econometric model to estimate the effects of R&D expenditure as % of GDP, GDP per capita, Anglo-Saxon academic institutions, and the proportion of English speakers.

Raising R&D to 3% of GDP was predicted to increase EU share to only 28%. Interestingly, university governance reforms were predicted to increase performance the most (by an additional 9%).

The article is very vague about the supposed institutional benefits conferred by the US/UK academic system that generate the higher performance. If this result is true, then what is the reason? Is it more efficient incentives such as an up-or-out promotion based on top tier publications? Is it better PhD training? Is it higher rewards for top performers?

That being said, is the “the list of highly cited researchers on ISI” an appropriate dependent variable to measure comparative research performance?  Is it biased towards US researchers? Note that English proficiency only explained 3-4% of the performance gap.  

20 December 2007 at 12:55 pm 5 comments

Adam Smith: Proto-Austrian?

| Peter Klein |

Austrian economists have mixed views on Adam Smith and classical economics. Mises and Hayek admired Smith as a social theorist and system builder while rejecting much of his technical apparatus, especially the labor theory of value. Menger taught Smithian political economy to his most famous pupil, Crown Prince Rudolf. Rothbard considered Smith grossly overrated. More generally, Austrian economists have tended to distance themselves as much from the classical system as from its neoclassical descendant. (Kirzner’s review of George Reisman’s Capitalism, which tries to synthesize Austrian and Ricardian economics, is worth reading in this regard.)

A new paper by Michael Bradley argues that the distinction between classical and Austrian analysis is overdrawn, at least with regard to competition theory. (more…)

19 December 2007 at 3:52 pm 1 comment

Economists on Economics

| Peter Klein |

We’ve blogged on some of these papers already (1, 2), but it’s worth mentioning that the April 2007 issue of the American Journal of Economics and Sociology includes a symposium called “Reflections and Self-Reflections on the Economics Profession”:

  • “Economists’ Opinions of Economists’ Work” by William L. Davis
  • “The Input Relationship Between Co-Authors in Economics: A Production Function Approach” by Marshall H. Medoff
  • “Is There a Free-Market Economist in the House? The Policy Views of American Economic Association Members” by Daniel B. Klein and Charlotta Stern
  • “What Do Economists Talk About? A Linguistic Analysis of Published Writing in Economic Journals” by Nils Goldschmidt and Benedikt Szmrecsanyi

Good reading for the narcissistic economist (is there another kind?).

18 December 2007 at 9:53 am 1 comment

O&M Classic: Grading Essay Exams

| Peter Klein |

This classic post from last year deserves another go.

17 December 2007 at 12:22 pm 4 comments

Economic Advisers to Presidential Candidates

| Peter Klein |

Last week’s Freakonomics column in the NY Times asked “What Does A Presidential Candidate’s Economic Adviser Actually Do?” McCain adviser Douglas Holtz-Eakin gives the best (facetious) response: “The first thing that the economics adviser brings to any campaign staff is a hip coolness and bling.” The serious answers are interesting too.

Several high-profile academic economists are involved with the 2008 campaign: Greg Mankiw and Glenn Hubbard are advising Romney, Micheal Boskin works for Giuliani, and Austan Goolsbee is helping Obama. Maverick Republican Ron Paul hasn’t announced any official economic advisers — “my advisers [are] Mises and Hayek and Sennholz,” he told Business Week — but this list of academic supporters includes some distinguished economists (scroll down to the Ks).

17 December 2007 at 10:08 am 6 comments

Open-Source Chinese Food

| Peter Klein |

“And bring me a side of Mozilla.”


Mark Liberman explains how this likely happened. My advice: check the “history” tab before ordering. (HT: NameWire)

16 December 2007 at 10:50 pm 2 comments

Opera and Mandated Standards

| Peter Klein |

More on Opera and Microsoft. Besides demanding that Internet Explorer be unbundled from Windows, Opera wants the European Commission “to require Microsoft to follow fundamental and open Web standards accepted by the Web-authoring communities.” But what standards? Determined how, and by whom? “[S]peaking as a web developer,” writes Mike Gunderloy on WebWorkerDaily, “I do not believe that I want the courts stepping in to determine what standards must be implemented in shipping products.” He notes:

  • It’s not at all clear just what are the “fundamental and open Web standards.” Some sites are already experimenting with HTML5 and CSS3, even though the standards are in flux and not thoroughly implemented. Are these fundamental yet? Are things like MathML fundamental? Who decides?
  • No browser is perfect. Depending on how closely your read the standards and interpret them, you can always find a test to break any given browser. Will some other vendor turn around and demand that Opera be pulled until it fixes its own rendering bugs? If the end result is that only perfect browsers can be shipped, we will have no browser at all.
  • Once they get involved, why would the courts stop at regulating browsers? Imagine a takedown order aimed at a site you just deployed because it won’t validate. There are people out there determined to make the Internet a better place by forcing us all to be less sloppy. I’m not sure I want them to end up in control.

As the critics of Microsoft’s critics have frequently pointed out, asking the courts to determine optimum technical standards makes no sense — and neither does asking the courts to determine the optimum bundle (“you can buy a suit coat and a pair of suit pants, but not a suit”), the optimum set of vertical contractual restraints (“software licenses are OK, per-processor licenses aren’t”), and so on. Why can’t we let the market decide?

16 December 2007 at 12:39 am 2 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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