Archive for 2007
The Social Transformation of American Business Schools
| Peter Klein |
Is management a profession? Are collegiate schools of business legitimate professional schools? The answers Rakesh Khurana’s book provides to both questions are “not yet” and “maybe never.”
Thus opens Donald Stabile’s EH.Net review of Rakesh Khurana’s From Higher Aims to Hired Hands: The Social Transformation of Business Schools and the Unfulfilled Promise of Management as a Profession (Princeton, 2007). Business schools, argues Khurana, emerged in the late 19th and early 20th centuries to provide “legitimacy” to management, giving it the same professional status as medicine or law. In Khurana’s account, this project failed largely because business schools, under the influence of powerful foundations such as Carnegie, Rockefeller, and Ford, promoted a curriculum focused on quantitative methods rather than the softer elements of ethics and social responsibility. (The main culprit: economics, or at least a 1970s-era Chicago school caricature of economics, as we’ve seen many times before.)
For additional commentary and discussion see Jim Heskett’s HBS Working Knowledge piece and this article from Business Week.
Old JITE Symposia Now Online
| Peter Klein |
Old issues of the Journal of Institutional and Theoretical Economics (JITE) — by “old” I mean issues from the 1980s and 1990s, not the really old ones from the 19th century, when it was called Zeitschrift fuer die gesamte Staatswissenschaft — are finally online courtesy of the German site DigiZeitschrifte. Access is limited to members of subscribing universities (which, unfortunately, doesn’t include my own) but some of you, particularly in Europe, may be in luck. (If anyone knows other distribution channels please let me know.)
In 1986 editors Rudolf Richter and Eirik Furubotn began devoting each volume’s first issue to a symposium on the New Institutional Economics (the tradition continues today). There are terrific issues from the late 1980s and early 1990s with articles, comments, and replies by Williamson, North, Coase, Alchian, Demsetz, Tullock, Manne, Libecap, Masten, Frey, Teece, Goldberg, Alston, Wallis and many other NIE luminaries. Even T. W. Hutchison makes a couple of appearances. And don’t miss the classic Posner-Coase-Williamson exchange from 1993 (1, 2, 3, 4).
Those of us without online access might try that building — what is it called? — oh, yes, the “library.”
The Organizational Implications of Creativity
| Peter Klein |
This paper, forthcoming in Organization Studies, asks how entrepreneurs can structure firms to encourage employee creativity and discovery while discouraging unproductive rent-seeking. The former requires delegation and the latter requires close monitoring and control; managing these trade-offs is a key to successful entrepreneurial performance.
In “The Organizational Implications of Creativity,” Richard Gil and Pablo Spiller examine a similar trade-off: the choice between internal and external procurement of creative activities. The nature of these activities makes them difficult to manage internally, but buying creative content on the market subjects the buyer to the winner’s curse. Here’s the abstract:
We develop a basic framework to understand the organization of highly creative activities. Management faces a fundamental tradeoff in organizing such activities. On the one hand, since creativity cannot be achieved by command and control or by monetary incentives, internal/contractual production of creative products is plagued by hazards arising from their fundamental characteristics: extremely high input, output and market uncertainty, and the inherent informational advantages of creative talent. Procuring highly creative products in the market place, though, exposes the distributor to a fundamental risk: independently produced creative goods are generic distribution-wise. Thus, in procuring creative products in the marketplace, distributors face the unavoidable winner’s curse risk. Since this risk is, to a large extent, independent of the creative nature of the product, the higher the creative content, the higher the relative hazards associated with internal or contractual production. Thus, internal/contractual production of creative goods will tend to be less prevalent the higher the creative content associated with its production. We apply this insight to the evolution of the U.S. film industry in the mid-XXth century. We exploit two simultaneous natural experiments — the diffusion of TV and the Paramount antitrust decision forcing the separation of exhibitors from distributors and prohibiting the use of block-booking. Both events increased the demand for creative content in movies. We develop empirical implications which we test by analyzing in detail the decision by distributors to produce films internally or to procure then in the market place, in the face of an increase in the demand for creative content.
Monty Python and the Health Insurance Business in California
| David Hoopes |
My wife was talking to our dental insurance company the other day and John Cleese, Michael Paline, Eric Idle et al. came to mind.
Wife (Chris): I don’t understand why you haven’t paid us for this.”
Dental non-insurer: “You went over your limit.”
C: “It was our first visit.”
DN: “Sorry.”
“You don’t pay for teeth cleaning?”
“Oh yes. We do.”
“But you are not going to pay for this visit for teeth cleaning?”
“No, I’m sorry but you can only do it so many times per year.”
“That was the first time.”
“Sorry.”
“Can you tell me why you haven’t paid the January visit?”
“I don’t think we’ve received the claim.”
“I’ve sent you that claim five times”
“Oh, that’s right. Sorry. We need to see the x-rays.”
“The dentist sent you the x-rays 10 months ago.”
“Well, we don’t have them anymore.”
“Where are they?”
“We sent them back.”
“Where did you send them? I didn’t get them.”
“We sent them to who[m]ever sent them to us.”
“Who was that?”
“Whoever we sent them to.” (more…)
The Curious Case of Hans Werner Gottinger
| Peter Klein |
From Joshua Gans I learn that Research Policy has officially retracted a 1993 article by Hans Werner Gottinger which copies substantial passages from a 1980 article published in the Journal of Business. A lengthy editorial in the September 2007 issue of Research Policy explains the case. Apparently Gottinger is a serial plagiarist who has regularly copied material from previously published papers, without acknowledgement, and has falsified his CV by listing positions and affiliations with universities and institutes that never existed or never employed him. This article in Nature provides details (the Research Policy editorial will be gated for some readers).
The entire incident is very sad, and suggests that academic dishonesty may be much more common than is usually thought. One low-cost suggestion for improvement: publishers should check key words and phrases from every paper — or even the entire text — against the archives from Google Scholar, JSTOR, Google Books, and other full-text databases of academic publications. That won’t catch everything, but will likely catch at least some cases. Surely the Google cache has made life harder for plagiarists. (Students, beware!)
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.
Funny Things Scientific Researchers Do
| Peter Klein |
- Find oldest living animal, then kill it (via Gary Peters).
- Discover a primitive civilization in the US Midwest.
- Use game theory to analyze the toilet-seat problem.
Halloween Movies for Middle Managers
| Peter Klein |
The Saw movies, writes Grady Hendrix in Slate, are perfect for middle managers. Typical slasher flicks are “id-tickling celebrations of the chaos that ensues when mindlessly violent monsters are unleashed in controlled environments like summer camps, schools, hospitals, and space stations. ” By contrast, Jigsaw — the protagonist-villian of the Saw films — is
a pedant and a bore, a Type A overachiever who is constantly creating “tests” for the other characters and then grading the results. Chaos is his enemy; order and personal productivity are his friends. He’s a management drone leading the cast in a team-building exercise. . . . In Saw III he uses liquefied pigs, death by car wash, and a tricked-out version of the rack to awaken a grieving father to the magic of forgiveness. It’s the liberating figure of the motion picture monster reduced to the status of a self-help guru. And he won’t shut up. “Despite all of the advantages and privileges that you were given at birth, you have returned to prison again and again,” he scolds one of his victims. “Up until now, you have spent your life among the dead, piecing together their final moments. You’re good at this because you are also dead. Dead on the inside,” he preaches at another. It’s like an endless lecture from your mom.
The Saw movies don’t just celebrate traps; they are traps: Fans are lured in with the promise of gore, but they find themselves stuck in their seats, subjected to Jigsaw’s endless stream of numbing pseudo-profundities.
An “endless stream of numbing pseudo-profundities”? Hmmm, sounds like some of the academic journals I read.
Are Transaction Costs a Distraction?
| Nicolai Foss |
Yes, says Harold Demsetz in a paper, “Ownership and the Externality Problem,” which was published in 2003, but which I only read recently (there does not seem to exist an online version; the paper is chpt. 11 in this book).
Consider the steel mill and the laundry of the Traditional Externality Tale. The two firms could merge, in which case externalities per definition would be absent. This, of course, only substitutes (additional) management costs (the costs of reduced specialization) for the transaction costs of market exchange. The former may exceed the latter in which case specialization is preferable, but then externalities emerge. (more…)
Maybe Taylorism Will Come Back
| Peter Klein |
The human race will one day split into two separate species, an attractive, intelligent ruling elite and an underclass of dim-witted, ugly goblin-like creatures, according to a top scientist.
It doesn’t happen for 100,000 years, so today’s management consultants are safe. Of course, my headline refers to the popular conception of “Taylorism,” not actual Taylorism. (HT: Uncommon Descent)
O&M on Facebook
| Peter Klein |
I have an account on Facebook, but I don’t really know what to do with it. (All the cool kids use it, so I figured what the heck.) Anyway, for those of you serious Facebook users, we’ve created a Facebook group for O&M. Besides the usual social-networking features the page has Discussion Board capabilities so you can raise and discuss issues of interest without waiting for an appropriate post to appear here on the blog. Enjoy!
. . . And If You Can’t Teach, Teach Gym
| Peter Klein |
You know the old adage: If you can, do; if you can’t, teach. Is it true for business?
A paper in the August 2007 Academy of Management Perspectives, “Do Business School Professors Make Good Executive Managers?” by Bin Jiang and Patrick Murphy (full text; abstract; press release), identifies 217 firms with former business-school professors in management positions and finds that these firms have higher revenues-per-employee than a control group matched by industry, location, and firm size. Faculty making early exits from their academic careers appear to be the most valuable, while neither academic area nor business-school ranking seem to matter. Conclusion:
Executive managers learn from past experiences when they draw the right lessons from those experiences. But experience alone is not enough. Given the rigorous training professors receive in order to design research that objectively parses error and data, one final supposition is that they may be particularly competent at delineating patterns in complex management and organizational experiences. They may also be especially capable of continually developing innovative questions that lead to information useful for executive decision-making amidst uncertainty.
I enjoyed reading the paper. Certainly I like to think that I’d command a high salary if I chose to give up my cushy professor lifestyle for the real world. However, I don’t find the empirical analysis convincing. Here’s why: (more…)
Insert Your Own Punch Line Here
| Peter Klein |
Brian McCann describes recent experimental work on the ultimatum game:
Unlike humans, who have a tendency to make generous offers when they are the first player and to reject non-generous offers when they are the second players, chimpanzees exhibit the type of rational, profit-maximizing behavior economists would expect.
J-PAL Update
| Peter Klein |
We reported earlier on MIT’s Poverty Action Lab (J-PAL), a research and policy center that advocates using randomized controlled trials instead of traditional econometric methods to evaluate the effects of various programs. J-PAL is featured in this week’s issue of Nature, an unusual recognition for social-science research. (HT: 3quarks)
Organizations and Markets 
Recent Comments