Archive for 2007
Why the Resistance to Prices?
| Peter Klein |
When the quantity demanded exceeds the quantity supplied — causing shortages, delays, congestion, misallocation — the solution is to raise the price. Every freshman economics student knows this. Why, then, are regulators, industry groups, and consumer representatives so often opposed to rationing by the price mechanism? Is it simply Bryan Caplan’s anti-market bias? Is it interest-group politics? Or is there something specific people don’t like, or don’t understand, about prices?
Two examples: (1) Airline landing slots. I worked on this problem with Dorothy Robyn back at the CEA in 2000. The US FAA prices airport landing slots, and access to the air traffic control system, on a per-passenger basis, regardless of time of day, season, overall stress on the system, and so on. In other words, the price charged has no relation to the marginal cost of provision. The obvious solution is some kind of congestion pricing mechanism. But the major players are generally opposed. Mike Giberson provides details on the latest attempt to use prices to reduce air-travel delays. Time-of-day pricing? “We are unalterably, adamantly opposed to it,” says the head of the Air Transport Association, the airlines’ lobby group. (more…)
Reflections on the McQuinn Entrepreneurship Conference
| Peter Klein |
Last week’s McQuinn Center conference on entrepreneurship in Kansas City was a great success, with some 75 participants from places like Nepal, Norway, the UK, and Peru as well as the US and Canada. Keynoters Cornelia Flora, Pierre Desrochers, Sandy Kemper, and Randy Westgren challenged and inspired the group and the papers and discussions highlighted a variety of innovative entrepreneurship research topics, theories, and methods. Papers and presentations are now available on the conference website.
I had the pleasure of offering introductory and closing remarks, and I’ll share here some reflections about the state of the field and suggestions for moving forward. (more…)
Tribute to Bob Higgs
| Peter Klein |
It was a great pleasure watching Robert Higgs accept the 2007 Schlarbaum Award for Lifetime Defense of Liberty at the Mises Institutes’s 25th Anniversary Celebration in New York. Bob is an outstanding scholar whose 1987 book, Crisis and Leviathan, should be required reading for Naomi Klein. He is a fierce defender of political and economic freedom, private property, and the rule of law. Bob also edits the Independent Review, a terrific interdisciplinary journal that values clear exposition as well as academic rigor (a rare combination, these days).
Earlier this year a group of Bob’s friends, colleagues, and former students produced a Festschrift volume, Government and the American Economy: A New History, in his honor. Contributors include Price Fishback (the editor), Gary Libecap, Stanley Engerman, Robert McGuire, Richard Sylla, John Wallis, Jeff Hummel, Robert Margo, Mark Guglielmo, Werner Troesken, Sumner La Croix, Randal Rucker, E. C. Pasour, Jr., Lee Alston, and Joseph Ferrie. The result is “a series of stimulating cameos by a distinguished assemblage of economic historians,” writes reviewer Gavin Wright (himself a distinguished economic historian). Check it out!
Celebrating the Index Card
| Peter Klein |
Old-timers like me learned to write research papers by taking notes on index cards, spreading them out on a table, and placing them in a coherent sequence. Nowadays people just open up Word (or, for geekier types, 
One of my favorite tech blogs, Web Worker Daily, which features retro-analog stuff like the Hipster PDA, offers this list of things you can do with an index card. I’ve tried many of these (not #7 and #13) and have found them quite effective.
I guess you could use something like ndxCards, but would it be as much fun?
Contract Design Capabilities
| Nicolai Foss |
In his thoughtful appraisal of Milgrom and Roberts (1992), Brian Loasby pointed out that the ability to transact and exchange is itself a capability, that firms may differ in terms of such capabilities, but that organizational economics routinely assume that firms have perfect transacting capabilities. This insight has been curiously neglected in the lenghty debate on the relations between transaction costs and capabilities. Former O&M guest blogger Dick Langlois is one of the few scholars who have embraced the insight, mainly from the capabilities side of the debate and casting it in terms of his notion of “dynamic transaction costs.”
A recent line of research initiated by Nick Argyres and Kyle Mayer addresses the issue more from the organizational economics, mainly TCE, side. Thus, Nick and Kyle’s excellent 2004 Organization Science paper, “Learning to Contract,” makes the empirically grounded point that changes in the structure of the contracts that govern a relationship may (for complex contracts in uncertain environments) reflect joint learning rather than the risks of specific assets. (more…)
Nobel Nugget of the Day
| Peter Klein |
Mike Giberson: “In some respects the Nobel is just a beauty contest for academic economists without a swimsuit competition (thank the gods!).”
We do have trading cards and t-shirts, however.
Economists and Sociologists: Can’t We All Just Get Along?
| Peter Klein |
I haven’t blogged much on the Comparative Organizations conference hosted by Dave Whetten, Teppo Felin, and Brayden King. It was a terrific conference and I enjoyed myself very much but, as the lone economist in a group dominated by sociologists, I found the experience a little disorienting. Teppo, Brayden, and Gordon Smith — another non-sociologist participant-observer — have posted their reflections and, when Teppo sent this picture of Gordon and me (riding the chairlift at Sundance and no doubt engaged in deep, philosophical conversation), I remembered that I wanted to write something. So here goes.
1. Organizational economists and organizational sociologists are generally interested in the same phenomena. What are the characteristics and performance attributes of various forms of organization? How do social and market conditions, formal institutions, government policy, culture, and the like affect organizations? How do organizations change through time?
2. We differ profoundly, however, in how we try to answer these questions. (more…)
Podcasts with the Big Boys
| Peter Klein |
O&M tells you all you need to know about mechanism design. For outside opinions, however, listen to these Bloomberg on the Economy podcasts with Paul Samuelson, Kenneth Arrow, Amartya Sen, and Thomas Schelling, commenting on the implications of mechanism design and game and information theory more generally. Supposedly they know something about this stuff.
A Truly Noble Nobel — Should Gore Really Have Gotten This Prize?
| David Hoopes |
So, my last use of the word noble was a typo, but I left it in case someone might think I’m clever.
Am I the only one who finds Vice President Gore’s prize to be a trifle disturbing?
Former guest blogger extrodinaire Steve Postrel’s post “Taxes al Carbon” raised a number of issues regarding common assumptions on the extent and causes of global warming.
Many people seem to concede (including Gore) that his movie is often incorrect. However, this is rationalized because the issue merits more attention than it gets.
Does anyone else wish the peace prize had more to do with peace?
More on the Noble Prize (or the Economics Prize in Memory of Nobel)
| David Hoopes |
Since the O&Mers have been so quiet about the N prize I guess I’ll ramble a bit. In a comment on one of Peter’s posts I mentioned Demsetz and Alchian. For some reason I had it in my head that A.A. had already won. That’s what I get for staying at UCLA for so long (Alchian had just quit teaching when I got there).
I don’t know why I thought Alchian had won it. “Production, Information costs and Economic Organization” (with Harold Demsetz), American Economic Review 62 (1972): 777-95 is a pretty amazing paper. And “Vertical Integration, Appropriable Rents, and the Competitive Contracting Process” (with Robert Crawford and Bejamin Klein), Journal of Law and Economics (1978) has been very influential. Though I think people think of Ben Klein for that paper. As noted above, Alchian is very well known for (and thought of because of ) “Uncertainty, Evolution and Economic Theory,” Journal of Political Economy 58 (1950): 211-21.
Having said all that, I think srp is correct in that Alchian’s best chance is going in with Nelson and Winter for evolutionary economics or Demsetz and Williamson or Oliver Hart for theory of the firm. It’s hard to imagine that evolutionary economics is that appreciated. I think Sid Winter is grossly underrated. His body of work in economics and strategy is pretty amazing.
As readers of my posts might guess, I am a pretty big fan of Demsetz. I don’t know that Harold is as productive or quantitative as most award givers might like. Stilger and Coase were pretty big fans. But, Hart and Williamson seem more likely award winners.
Over at orgtheory.net they’ve been discussing sociologists and management people who (in some alternate universe) might win. There are not too many Herb Simons out there.
Berkeley Online Classes
| Peter Klein |
UC-Berkeley is offering several Fall 2007 classes in free, online versions. Here are some that may interest O&M readers:
Shameless Self-Promotion
| Nicolai Foss |
The European Management Review has started a series of portraits of innovative research environments in management in Europe. The first such environment to be portrayed was the Institute of International Business at the Stockholm School of Economics and Business Administration (here). The Winter 2007 issue will feature a narrative that focuses on the Center of Strategic Management and Globalization which I am heading here at Copenhagen Business School. You can read the paper, “Knowledge Governance in a Dynamic Global Context: the Center for Strategic Management and Globalization at the Copenhagen Business School” here. Oh, did I mention that I wrote the paper myself?
Nye on Wine and Trade
| Peter Klein |
John Nye is a very interesting economic historian. I still remember his fiery (and controversial) talk at the inaugural ISNIE conference in 1997, in which he urged new institutional economists to separate themselves from their brothers and sisters in mainstream economics. (Other participants, such as Paul Joskow, thought this was a bad idea.)
John’s new book, War, Wine, and Taxes: The Political Economy of Anglo-French Trade, 1689-1900 (Princeton, 2007) argues that Britain was not, contrary to popular perception, devoted to free trade after the repeal of the Corn Laws in 1846. The British retained high tariffs on French wine, among other goods, leading to substantial welfare losses among Britons. (more…)
Mechanism Design and the Theory of the Firm
| Peter Klein |
I’ve been asked a few times today what I think of the Nobel Prize to Hurwicz, Maskin, and Myerson for mechanism design. (And, more than once, “What the heck is mechanism design?”) Briefly, mechanism design is the study of rules or contracts (“mechanisms”) that give agents incentives to do what a designer wants — for instance, revealing private information. A simple example is the ticket-pricing rules used by airlines. To maximize revenue, airlines want to charge high prices to business travelers (with presumably inelastic demands) and lower prices to leisure travelers (with more elastic demands). But airlines don’t know which travelers are which type. They can’t can’t simply ask, upon booking, “Are you going on a business trip?” because people would lie. Instead, the airlines give lower-priced tickets to travelers who buy their tickets in advance, will take a non-refundable ticket, are willing to stay over a Saturday night, and so on, assuming that people willing to abide by those restrictions are probably leisure travelers. These rules constitute a mechanism that provides incentives for agents to reveal their types to the principal (or “proposer”).
The WSJ offers this roundup of economics commentary on the Prize. You can find plenty more using your search engine of choice. What does any of this have to do with organizational economics, the theory of the firm, institutions, entrepreneurship, and other topics enjoyed here at O&M? Here are some random thoughts (I hope Nicolai and Dave will chime in soon with their own reactions). (more…)
Another Use for PowerPoint
| Peter Klein |
From yesterday’s Lockhorns strip, for our fun with PowerPoint series.
A Professor’s Influence
| Peter Klein |
As a professor, you never know how much influence you have. Sometimes you hear from former students, years later, thanking you for some remark you made in class, for challenging or inspiring them, for helping them see things in a different way. (You rarely hear from the ones you damaged for life, but forget the sample bias. . . .)
Most of us don’t get thanked on national TV, however. During the fourth quarter of last weekend’s Tennessee-Georgia game the ESPN crew showed an old picture of Tennessee head coach Philip Fulmer from his playing days in the 1970s, then mentioned former history professor Milton Klein, described by head announcer Ron Franklin as Fulmer’s mentor, a professor who “took a young Philip Fulmer under his wing and helped guide him” through his student days. Way to go, Dad! (Thanks to my brother Ed, whose company created ClipShack, host of the clip linked above.)
Update (26 October): Mom gives the football team a back-handed compliment in the local paper (scroll down to the second letter).
Pomo Periscope XV: Orientalistic Pomo
| Nicolai Foss |
One of most influential modern disciples of pomo was the late Edward Saïd, a follower of Michel Foucault and Jacques Derrida. His famous, highly problematic, but surprisingly widely accepted thesis in Orientalism concerns the (alleged) European construction of the Islamic orient as a something radically different from Europe, a construction that developed from the 18th century on and became an instrument of European colonialism and imperialism vis-a-vis the Orient. However, the construction was just that, a mere construction; “Orientalism” was at best a mirror of Europe and not of the Islamic “Orient.” (Here is an intro to the critique of Saïd, and here is a forthcoming bashing). (more…)
Why Are Markets So Scary? Some Things (Liberal) Academics Get Wrong
| David Hoopes |
Many people make incorrect assumptions about capitalism. Some would have us believe that capitalism is based on greed, selfishness, and promotes behavior that is completely self-centered. This is a common interpretation of Smith’s advice to allow people to make decisions based on self-interest. Examples are easy to find in the many organization theory-based papers complaining about economics and economists.
Two very good papers can aid in a deeper understanding of the invisible hand. First is James Q. Wilson’s “Adam Smith on Business Ethics.” A central point Wilson makes is that Adam Smith assumed people will behave with a moral sense. Wilson, “A moral man is one whose sense of duty is shaped by conscience; that is, by that impartial spectator within our breast who evaluates our own actions as others would evaluate it.” By suggesting people be allowed to make decisions based on their own self interest Smith was not advocating selfishness and greed. What then was he advocating?
This leads to the second paper, Harold Demstez’s “The Theory of the Firm Revisited.” In the third paragraph Demsetz notes that the debate between mercantilists and free traders was over the role of the government in the economic affairs of the state. “Is central economic planning necessary to avoid chaotic economic conditions?” The great achievement of the perfect competition model, what Demsetz argues should be called perfect decentralization, is its abstraction from centralized control of the economy.
Thus, the central element to capitalism is that decision making is pushed down as far as possible. (more…)
Hagel on Institutional Innovation
| Peter Klein |
Here is John Hagel with a nice post on institutional innovation. Product, process, and management innovation are important, he notes, but institutional innovation — that which “redefines roles and relationships across independent entities to accelerate and amplify learning and reduce risks” — is the key to long-term value creation. Hagel names diversity, relationships, modularity, federated decision-making, reputation mechanisms, feedback loops, and incentive structures as the design principles underlying institutional innovation.
Hagel is clearly right to emphasize institutional innovation as a key driver of long-term firm, industry, and overall economic performance. He names the creation of the joint-stock company as a primary example. We could perhaps add the M-form structure, the franchise arrangement, relational contracting, the loosely organized network, and the venture-funded startup to this list.
And yet, there is a lot we don’t know about institutional innovation. (more…)
NASA’s Ambitious Plans, Courtesy of the Onion
| Peter Klein |
It’s easy to poke fun at NASA. Has there every been a clearer example of Bastiat’s broken window fallacy? But I wish I could do it as cleverly as the Onion, which breathlessly reports NASA’s ambitious ambitious plan to install wi-fi by 2017. (Via Anthony Gregory)
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