Archive for December, 2007

Experimental Methods in Development Economics

| Peter Klein |

Readers interested in the J-PAL approach to development may enjoy an upcoming conference on “New Techniques in Development Economics,” 19-20 June at Australian National University. “[T]he conference will focus on new methodological approaches to development economics research, particularly field experiments and natural experiments.” Details, courtesy of SSRN, are below the fold. (more…)

15 December 2007 at 1:58 pm Leave a comment

Impact of the Commodore 64

320px-commodore64.jpg| Peter Klein |

If Nicolai’s calculator fetish isn’t nerdy enough for you, check out this videotaped lecture on the impact of the Commodore 64 computer. A panel of industry pioneers (including Steve Wozniak) explain the Commodore 64’s impact on the computer industry.

For a more scholarly treatment of this industry’s evolution see Dick Langlois’s “Cognition and Capabilities: Opportunities Seized and Missed in the History of the Computer Industry,” in Garud, Nayyar, and Shapira, eds., Technological Innovation: Oversights and Foresights (Cambridge University Press, 1997).

14 December 2007 at 10:41 pm Leave a comment

The Logic of Appropriateness

| Nicolai Foss |

To paraphrase Fritz Machlup, the rational-choice model has been a sort of “universal bogey” for many scholars in sociology, psychology, and management. The nature of the alternative(s) has, however, seldom been clarified. Thus, most models of bounded rationality are really variations on the basis RC model. 

However, a much-cited attempt to characterize an actual alternative is James March’s notion of the “logic of appropriateness,” which may be characterized thus: 

The logic of appropriateness is a perspective that sees human action as driven by rules of appropriate or exemplary behavior, organized into institutions. Rules are followed because they are seen as natural, rightful, expected, and legitimate. Actors seek to fulfill the obligations encapsulated in a role, an identity, a membership in a political community or group, and the ethos, practices and expectations of its institutions. Embedded in a social collectivity, they do what they see as appropriate for themselves in a specific type of situation” (quoted from this paper).

In in a logic of appropriateness, the agent/actor does not begin by identifying alternatives, preferences, etc. as in the rational choice model, but rather asks, “What kind of situation is this? Who or what am I? What is the appropriate thing to do given who I am?”  (more…)

14 December 2007 at 7:52 am 11 comments

Et Tu, Opera?

| Peter Klein |

Opera is an innovative company that makes a fine web browser and has a devoted following. I use Opera Mini, which is in many ways superior to the native browser on my BlackBerry. So I was dismayed to learn that Opera has adopted the “if you can’t beat ’em, file an antitrust suit against ’em” approach to its dealings with Microsoft. Happily for Opera, the company is based in Norway, allowing it to make its case before the Microsoft-unfriendly European Commission without being accused of forum-shopping. But, really, haven’t we been through all this already?

13 December 2007 at 1:25 pm Leave a comment

Accountics in Japan

| Peter Klein |

We discussed earlier the increasingly quantitative nature of accounting research, what some call accountics. (When I hear that term I’m reminded of a cartoon I once saw showing a woman dressed as a dominatrix standing before a company reception desk: “Oh, you must be the new accountrix.”)

Tomo Suzuki’s paper, “Accountics: Impacts of Internationally Standardized Accounting on the Japanese Socio-economy” (Accounting, Organizations, and Society, April 2007), argues that the postwar spread of Western accounting practices “directed new courses of the Japanese economy and firms through the development of ‘statistical habits of thought.’ ” A follow-up paper (same journal, August 2007 issue) traces the history of Japanese accounting practices in more detail, emphasizing the role of academic accountants in fostering the postwar accounting revolution. (See, professors can make a difference!)

13 December 2007 at 12:47 pm Leave a comment

A Critique of Economics from an Unusual Direction

| Steve Phelan |

Charlie Munger, the second largest shareholder in Berkshire Hathaway after Warren Buffett (and a member of the Forbes Wealthiest 400) gave a speech at UCSB a few years ago. The full transcript of his speech can be found here. (more…)

12 December 2007 at 6:41 pm 3 comments

More Econ Bashing

| Nicolai Foss |

A topic that has frequently been discussed on O&M is the bashing of economics that appears to have become a favorite pastime of management writers such as Jeffrey Pfeffer, Henry Mintzberg, (the late) Sumantra Ghoshal, and others (e.g., here, here, and here). The most radical statement of that recent wave is the Ferraro, Pfeffer, and Sutton 2005 paper in the Academy of Management Review (here is a selection of O&M posts on this paper). Or, so we thought …

Max Bazerman and Deepak Malhotra, both of Harvard University, have contributed a chapter, tellingly titled “Economics Wins, Psychology Loses, and Society Pays,” to a recent edited volume, Social Psychology and Economics (check Herbert Gintis’ review of the book on Amazon) (here is the Google copy). What they say is so uncompromising (and cranky) that it has to be read to be believed. Here is a sample:

Recent history has witnessed the financial distress of companies such as Enron, Adelphia, Global Crossing, Halliburton, Xerox, Worldcom and Tyco. Millions of jobs and tens of millions of retirement plans have been lost. Shortcomings in U.S. security policies were at least partially responsible for the tragedies involved with 9/11. Eleven of the 17 major fisheries in the world are commercially extinct. The United States needlessly allows thousands of people to die each year because of an ill-conceived organ donation system. Behind each of these disasters is the hand of economic logic, the dominance of this logic to the exclusion of other useful social sciences (p.264).

The solution? A Council of Psychological Advisers to parallel (or trump?) the Council of Economic Advisers. Yes, that’s right.

12 December 2007 at 2:51 pm 6 comments

Summer Workshop on Social Norms

| Peter Klein |

It’s hosted by Spain’s Urrutia Elejalde Foundation and takes place in San Sebastián, 14-17 July 2008. (Basque Country, not Spain, if you prefer.) The impressive speaker list includes Jon Elster, Diego Gambetta, Herb Gintis, Russell Hardin, and Edna Ullmann-Margalit, among others. Details here.

12 December 2007 at 12:44 pm Leave a comment

Ben Hermalin’s Teaching Materials

| Peter Klein |

Many years ago I had the pleasure of taking Ben Hermalin’s class on mechanism design and agency theory. In those days (around 1990) Ben was a baby-faced assistant professor (now a baby-faced chaired professor), just arrived from MIT where, according to rumor, he had single-handedly proofread — and therefore solved — all the exercises in Tirole’s Theory of Industrial Organization. Naturally, this gave him a certain aura among the PhD students. I also recall that, during Ben’s first year at Berkeley, George Akerlof audited his mechanism design course, leading Ben to joke that he would always remember Akerlof as one of his brightest students.

I happened to be on Ben’s website today and discovered that he’s posted a set of lecture notes (see the bottom of this page) from his PhD theory courses. See, in particular, his notes from Economics 201B, the second course in the first-year micro theory sequence. Very useful material for economics PhD students (and their instructors).

Also worth a read is this entry on contract law by Hermalin, Avery Katz, and Richard Craswell (in the new Handbook of Law and Economics, not to be confused with the earlier Encyclopedia of Law and Economics). Check it out.

11 December 2007 at 3:33 pm Leave a comment

Most Expensive Cities

| Peter Klein |

Luanda, Angola tops this year’s list, followed by Oslo and Moscow. Tokyo has dropped out of the top ten, replaced by London. Unfortunately for Nicolai’s purchasing power Copenhagen has moved up two spots to #5.

11 December 2007 at 2:07 am Leave a comment

Entrepreneurship and Dyslexia

| Steve Phelan | 

Strange story in the NY Times on Dec 6 (HT: Freakanomics).

Some of the highlights:

The report, compiled by Julie Logan, a professor of entrepreneurship at the Cass Business School in London, found that more than a third of the entrepreneurs she had surveyed — 35 percent — identified themselves as dyslexic.


“Entrepreneurs are hands-on people who push a minimum of paper, do lots of stuff orally instead of reading and writing, and delegate authority, all of which suggests a high verbal facility,” Mr. Dennis said. “Compare that with corporate managers who read, read, read.”

Indeed, according to Professor Logan, only 1 percent of corporate managers in the United States have dyslexia.

I guess we can call this a compensatory theory of entrepreneurship. Professors are doomed as readers, too, I guess.

10 December 2007 at 12:52 pm 1 comment

Best Web-Themed Passage I Read Today

| Peter Klein |

A succinct summary of government’s attitude toward the web, courtesy of today’s NY Times:

[M]any in the business world . . . understood years ago that the Web represented not simply another mass medium to be gamed but also a fundamental shift in the once static relationship between producer and consumer. It is by nature a participatory medium, in which customers demand a more personal stake in the products they consume. . . . Companies have realized that since they can no longer expect to unilaterally define the market the way they once did, they might as well let the market have some control over designing and branding the product.

Perhaps only in Washington, where so few people have dominated so much for so long, is this trend viewed as inherently negative.

From a short piece on the spontaneous, decentralized, web-fueled Ron Paul campaign (via Lew Rockwell). See more here and here.

9 December 2007 at 5:43 pm Leave a comment

Pomo Periscope XVII: Intellectual Property as Narrative

| Peter Klein |

[T]here remains a dissatisfying lack of a comprehensive explanation for the value of intellectual property protection. This is in part because the economic analysis of law tends to undervalue the humanistic element of intellectual property. This Article aims to fill that void. It offers a new explanation for intellectual property rooted in narrative theory. Whereas utilitarianism and natural rights theories are familiar, there is at least another basis for intellectual property protection. This Article contends that all the U.S. copyright, patent and trademark regimes are structured around and legitimated by central origin myths — stories that glorify and valorize enchanted moments of creation, discovery or identity. As a cultural analysis of law, rather than the more familiar economic theory of law, this Article seeks to explain how these intellectual property regimes work the way they do.

This is from Jessica M. Silbey’s paper, “The Mythical Beginnings of Intellectual Property,” in of the Berkeley Center for Law and Technology working-paper series. Postmodernism has had a growing influence in legal theory since at least the critical legal studies (CLS) movement of the 1970s. Proponents of that movement, according to the Legal Information Institute’s dictionary, “believe that logic and structure attributed to the law grow out of the power relationships of the society. The law exists to support the interests of the party or class that forms it and is merely a collection of beliefs and prejudices that legitimize the injustices of society.” (more…)

9 December 2007 at 12:03 pm 1 comment

New Paper on Law and Entrepreneurship

| Peter Klein |

Gordon Smith and Darian Ibrahim’s paper “Entrepreneurs on Horseback: Reflections on the Organization of Law,” is up on SSRN. The paper surveys the emerging field of law and entrepreneurship and urges legal scholars to pay closer attention to the entrepreneurship literature. “In making our case, we argue that research at the intersection of entrepreneurship and law is distinctive. In some instances, legal rules and practices are tailored to the entrepreneurial context, and in other instances, general rules of law find novel expression in the entrepreneurial context.”

(The paper’s title alludes to an inside joke about the mythical “law of the horse,” a hyper-specialized branch of legal theory no serious law school would include in its curriculum. Law and entrepreneurship, in other words, is not quite as silly as the law of the horse.)

7 December 2007 at 3:44 pm Leave a comment

New Challenges for Business Educators

| Peter Klein |

Tuesday’s WSJ ran an interview with Daphne Atkinson, vice president for industry relations at the Graduate Management Admission Council (the organization that owns and administers the GMAT and provides various recruiting services for business schools). The interviews focuses on the challenges schools face in attracting and educating the newest generation of MBA students (the so-called Millennials). A few passages caught my eye:

[The current generation has] the sense that it is either irrelevant or meaningless to “pay dues.” It can be disappointing to find out that you won’t be president of the company in two years. Millennials want their dream job as early as possible. But entry-level jobs are seldom dream jobs, although they may be at dream companies or in dream industries.

Could the current emphasis on entrepreneurship, creativity, and the like — we are all entrepreneurial and creative, we just have to discover and nurture our inner entrepreneur — be partly responsible? (more…)

6 December 2007 at 12:35 pm 6 comments

Strange Email Fact of the Day

| Peter Klein |

Donald Knuth, creator of \TeX and generally considered World’s Greatest Living Computer Scientist, hasn’t had an email address since 1990. “I’d used email since about 1975, and it seems to me that 15 years of email is plenty for one lifetime.” Hmmm, I got my first email address in 1989, so maybe I’m due for a break. I don’t think snail-mail will do it for me, however.

Jeff Tucker finds gmail revolutionary, but I think it has important weaknesses as well as strengths. I use imap and archive really old messages to my local workstation, where they are indexed for easy search by Google Desktop. Of course no protocol is perfect, and I’m eager to see what the market will come up with next.

6 December 2007 at 10:30 am Leave a comment

Do Transactional Lawyers Add Value?

| Peter Klein |

What do bosses do? asked Stephen Marglin in his famous 1974 article. Nothing productive, he said; they create hierarchies with task specialization to extract value from laborers. Despite heroic efforts by David Landes and others to set the record straight, the myth has persisted, in some quarters, that “management” — including intermediation, market-making, the facilitation of transactions, etc. — does not create economic value, but merely redistributes it. Making widgets is OK, but merely facilitating widget transactions is wasteful or redundant.

How about transactional lawyers? Do they add value by reducing transaction costs, minimizing the chance of ex post litigation, reducing regulatory burdens, acting as reputational intermediaries, providing confidentiality, or exploiting economies of scope? Or do they simply extract value from the transacting parties?

An interesting paper by Steven Schwarcz, “Explaining the Value of Transactional Lawyering,” uses survey data to examine this question and finds that reducing regulatory costs appears to be the main source of added value. The results “present a very different picture of how business lawyers add value than that portrayed by existing scholarship, challenging the reigning models of transactional lawyers as ‘transaction cost engineers’ and ‘reputational intermediaries,'” activities in which lawyers do not necessarily have a comparative advantage. Instead, suggests Schwarcz, it is precisely lawyers’ expertise in (business) law that gives them a role in the contracting process. (The broader question of whether legislators, most of whom are also lawyers, deliberately design rules of contract law, regulation, administrative procedure, and the like so that only other lawyers can understand them, is not addressed.) (more…)

5 December 2007 at 1:35 am 5 comments

Doing Business Blog

| Peter Klein |

The World Bank’s Doing Business group, which provides valuable information on business regulation and enforcement across the globe, has a new blog. (Via PSD.)

4 December 2007 at 1:25 pm Leave a comment

This Week’s Sign of the Apocalypse

| Peter Klein |

The University of Chicago’s Graduate School of Business now requires prospective students to submit a PowerPoint presentation as part of their applications (via Cliff). “We wanted to have a freeform space for students to be able to say what they think is important, not always having the school run that dialogue,” says Rose Martinelli, associate dean for student recruitment and admissions. “To me this is just four pieces of blank paper. You do what you want. It can be a presentation. It can be poetry. It can be anything.” I suppose requiring a written essay, in English prose and following conventional rules of grammar and style, would be unduly confining.

According to Dean Martinelli, as reported in the Washington Post, students “won’t be judged on the quality of their slides. Rather the slides are an outlet for judging the kind of creativity the business world needs.” Adds second-year MBA student Michael Avidan: “If there’s one foundation of business, it’s innovation, and this is your chance to elevate yourself and show you can do something innovative.” Huh?

4 December 2007 at 10:05 am 4 comments

Ratings Agencies

| Steve Phelan |

One of my hobbies is to perform counterfactual exercises in organization design (yes, sad, I know). Here is my current challenge. Ratings agencies like Moody’s are paid by the issuers of securities rather than the purchasers of the securities. This creates an agency problem because the rater has an incentive to give high ratings to stay in the good graces of the issuer — who will presumably “shop around” to get the best ratings.

Assuming this arrangement is efficient then what are the counterbalancing factors that offset the agency costs? How much would agency costs have to increase to trigger an adjustment in design? Was the the subprime fiasco such a trigger? What would the new design look like?

I know that economists are reluctant to second-guess how the market will work out its problems — but strategists are in the business of being proactive about these things :-)

3 December 2007 at 2:39 pm 6 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).