Archive for 2007
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.
David Laidler
| Nicolai Foss |
I have been shocked to realize that the young modern macro-economists I’m acquainted with have no knowledge of the work of David Laidler. There was a time when Laidler was seen as primary spokesman for monetarism, as one of the world’s pre-eminent monetary theorists, and as an eminent historian of monetary thought. Laidler was one of my early influences; in particular, I remember being impressed by his excellent 1981 Economic Journal article, “Monetarism: an Interpretation and an Assessment.” Anyway, Laidler (b. 1938) is still very active, and his work is very much worth looking at if you entertain an interest in the theory and history of money, and the doctrinal history of monetary theory. Here is Laidler’s homepage at the University of Western Ontario. And here is the Wiki.
Two Entrepreneurship Papers
| Peter Klein |
- “International Financial Integration and Entrepreneurial Firm Activity” by Laura Alfaro and Andrew Charlton. Evidence from a large cross-country dataset establishes a strong correlation between entrepreneurial activity (what I call “structural entrepreneurship,” the proportion of new and small firms to total firms) and various measures of international financial integration. Suggests that international capital flows are good for economic growth (take that, neo-mercantilists!). See Maury Obstfeld’s 1998 JEP paper for some background.
- “Charles Le Maistre: Entrepreneur in International Standardization” by JoAnne Yates and Craig Murphy. Le Maistre was a pioneer of voluntary, international cooperation on technical standards. Summarizing Le Maistre’s accomplishments, Yates and Murphy argue that “industrial standardization, usually thought of as a staid field that limits, rather than promotes, innovation, is populated by multiple individuals who can be seen as entrepreneurs of standardization, either in a particular technical arena or on a broader, organizational level. “
Entrepreneurship, Arbitrage, and Capital
| Peter Klein |
Over the years I’m increasingly convinced that Israel Kirzner’s metaphor of entrepreneurship as costless discovery — a form of arbitrage, exploiting differences between actual prices and their Walrasian equilibrium values — is a misleading way to think about entrepreneurship. Emphasizing knowledge, the awareness of facts that other market participants do not possess, the metaphor leads our attention away from action, the employment of scarce means to achieve economic ends. I’ve argued in a series of papers (1, 2, 3) that opportunity exploitation, not opportunity discovery, drives the market process.
A key problem for the Kirznerian metaphor is that entrepreneurship does, in practice, involve capital investment, despite Kirzner’s insistence that “pure entrepreneurship” does not require ownership of resources. (As Joe Salerno reminds us, favorable reviews of Kirzner’s Competition and Entrepreneurship by Austrians Murray Rothbard, Henry Hazlitt, and Percy Greaves all pointed to the separation of entrepreneurship and property ownership as the lone weakness in Kirzner’s otherwise excellent exposition.) But what about financial-market arbitrage, an example often cited in the Kirznerian literature? Isn’t arbitrage an example of costless discovery of pure profit? Doesn’t the arbitrageur operate without capital? (more…)
Managing the Philanthropic Enterprise
| Peter Klein |
McKinsey’s Luis Ubiñas will become Ford Foundation CEO next year, reports the Chronicle. This is an unusual move because philanthropic foundations have traditionally chosen career insiders for top management posts. “It runs counter to the idea that grant making is a closed profession, that you stay in this field and you simply move through the field,” says UT-Austin’s Peter Frumkin, quoted in the Chronicle piece. Have foundations decided, like many US corporations, that functional expertise is less important than general managerial skill?
Software for Deconstructionists
| Peter Klein |
Software developer Andy Brice performs a Sokal experiment, with similar results.
Agency Theory in Management
| Nicolai Foss |
I believe that agency theory is one of the most informative, useful, and interesting theories coming out of economics ever. It is surely also one of the most influential econ theories in management. Agency theory is, however, fundamentally complicated, and difficult to teach. I find it impossible to teach without making use of at least some math (specifically, simple versions of the linear model). In particular, grasping the role that the risk premium plays in the theory, and, in this connection, what is really the source of the agency loss, is often very difficult for students.
However, not only students but also management academics have difficulties understanding the theory. (more…)
Publish or Perish 2.2
| Peter Klein |
Anne-Wil Harzing’s Publish or Perish software, discussed here by Nicolai, is available in a new version. Anne-Wil notes that “[t]he choice for Google Scholar is particularly relevant for Management scholars as many good journals in our field are not ISI listed and hence citations in these journals are not counted by ISI.”
Euro Reward Management Conference
| Nicolai Foss |
The First European Reward Management Conference, organized by the European Institute for Advanced Studies in Management, will take place in Bruxelles Dec. 17-18 this year. Deadline for paper submission is Sept. 4. Who knows, perhaps Alfie Kohn will show up.
More Podcasts: Gordon, Weingast, Salerno-Klein
| Peter Klein |
- The History of Political Philosophy: From Plato to Rothbard by former O&M guest blogger David Gordon. A ten-lecture series delivered in June 2007 covering Plato, Aristotle, Aquinas, Hobbes, Locke, Rousseau, Kant, Hegel, Mill, Spooner, Spencer, Rawls, Nozick, Rothbard, and more. Only David Gordon could be an expert on all of these.
- Russ Roberts’s interview with Barry Weingast about the new book by North, Wallis, and Weingast, A Conceptual Framework for Interpreting Recorded Human History (what a title!). Weingast has become so prominent in political science it is easy to forget that he has an economics PhD (from Cal Tech) and started his career as an economics professor at Washington University in St. Louis. (His critics have not forgotten.)
- Fundamentals of Economic Analysis: A Causal-Realist Approach. Economics in the tradition of Carl Menger, starting with the basics of scarcity, choice, value, and exchange then moving to pricing, entrepreneurship, capital, competition, money, banking, and the business cycle. Joe Salerno and I give the lectures. You can also get these as videos in a handsome DVD set.
Christian Asmussen Receives the Haynes Prize
| Nicolai Foss |
My colleague at CBS’s Center for Strategic Management and Globalization, Dr. Christian Geisler Asmussen, received the highly prestigious Haynes Prize, awarded to “Most Promising Scholar” at this year’s Academy of International Business Meetings, for his paper “Local, Regional or Global? Quantifying MNC Geographic Scope”. The Committee was chaired by Peter Buckley and the selection was made among 700 papers.
Christian started work at the Center as an Assistant Professor 2 months ago. With already 2 accepted articles in Journal of International Business Studies, and a string of book chapters and papers, Christian is unusually talented, a nice guy, and we are most lucky and happy to have him here at CBS-SMG. (Pls, no US offers ;-)).
Machlup-Klein Day
| Peter Klein |
You all know about Hayek-Klein day. Did you know today is Machlup-Klein day? Economist Fritz Machlup, student and friend of Ludwig von Mises, contemporary of F. A. Hayek, and mentor to Edith Penrose, was born 15 August 1902. My dad’s birthday is also today, August 15! What is it about Kleins and great Austrian economists?
Economists and the Economy
| Peter Klein |
Chris Dillow, channeling yours truly, writes:
Economists are everywhere. Steve Levitt, Tim Harford and Steven Landsburg use newspaper columns and best-selling books to show how economics can account for why drug dealers live with their mums, why you can’t find space to park, why school teachers cheat, why people share umbrellas and why sexually transmitted diseases are so rife. Simple economics, it seems, can explain everything.
Everything, that is, except the economy. Although orthodox economics can do a good job of explaining why people get a divorce or the clap, it does a much worse job of accounting for what people think it should explain.
Dillow’s essay in the Times goes on to focus on the prediction problem. (more…)
Mind Mapping
| Peter Klein |
Most academics I know take notes in a fairly linear, textual fashion. At your next conference, seminar, workshop, or committee meeting, why not try mind mapping instead?
The Internet, Plagiarism, and Fabulism
| Nicolai Foss |
What is the net effect of the internet on the amount (and type) of plagiarism? Many people have predicted the demise of plagiarism as internet search engines make that nasty activity increasingly easy to detect. However, as any university teacher knows from sad experience with students who got tempted to cheat, the internet also prompts plagiarism because it strongly expands the set of texts that can be plagiarized at little direct cost. (more…)
São Paulo Workshop on Institutions and Organizations
| Peter Klein |
Three Brazilian institutions — Fundação Getúlio Vargas São Paulo, IBMEC São Paulo, and the University of São Paulo — are jointly sponsoring a “Research Workshop on Institutions and Organizations” in São Paulo, 2-4 September 2007. Keynote speakers are Jackson Nickerson, Armando Castelar, and me. From the blurb:
Seminar participants will discuss recent developments in the analysis of institutions and organizations through the lenses of Economics, Management, Sociology, Law and other social sciences. Instead of focusing on the contributions of specific disciplines dealing with institutions and organizations, workshop participants will emphasize differences and commonalities among different approaches, leading to potential advances and refinements in the field.
Here is registration information and a preliminary schedule.
Who Are Those Young Libertarian Org Scholars?
| Nicolai Foss |
In his keynote address to the 2006 meeting in Bergen (Norway) of the European Group for Organizational Studies, Jim March notes that “European organization studies were influenced deeply by the fact that expansion occurred in the decades following the protest and counterculture movements of the 1960s and 1970s . . . [as seen] . . . in such things as qualitative research on culture, gender, sense-making, social construction and power” (p. 14). (more…)
Economic Freedom and Entrepreneurial Activity
| Nicolai Foss |
Christian Bjørnskov and I have just had our paper with the above title accepted for publication in Public Choice. I was very favorably impressed with the review process, which was comparable to the process at the top academy journals in terms of speed and thoroughness. Mail me at njf.smg@cbs.dk if you want a copy of the paper. Here is the abstract:
While much attention has been devoted to analyzing how the institutional framework and entrepreneurship impact growth, how economic policy and institutional design affect entrepreneurship appears to be much less analyzed. We try to explain cross-country differences in the level of entrepreneurship by differences in economic policy and institutional design. Specifically, we use the Economic Freedom Index from the Fraser Institute to ask which elements of economic policy making and the institutional framework are conducive to the supply of entrepreneurship, measured by data on entrepreneurship from the Global Entrepreneurship Monitor. We find that the size of government is negatively correlated with entrepreneurial activity and sound money is positively correlated with entrepreneurial activity. Other measures of economic freedom are not significantly correlated with entrepreneurship
Organizations and Markets 
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