Archive for January, 2008

Ken Lay: Not Such a Bad CEO After All?

| Peter Klein |

Jim Brickley combs through the mess of Enron trial materials to examine the behavior and performance of Missouri’s own Ken Lay. His findings may surprise you:

Internal documents released through the Enron litigation allow for a more detailed examination of the activities of top executives than is typically possible. This clinical study of Enron’s Ken Lay highlights the difference between popular opinion on the role and knowledge of CEOs with that suggested by economic theory and evidence. In contrast to popular opinion, the evidence is consistent with the following three hypotheses: 1) Lay performed a role at Enron that is consistent with existing economic theory and evidence, 2) he performed this role with reasonable diligence, and 3) while he was relatively well informed about Enron at a high level, it is unlikely that he would have had detailed information on many of Enron’s transactions — including deals with Fastow’s partnerships. News analysts assert that a positive feature of Lay’s legacy is that CEOs are now spending more time monitoring the details of financial reports and internal controls. This study suggests that the opportunity costs of this change in CEO behavior are higher than these analysts suggest.

On a related note, here is an interview with Gene Fama (via Don Boudreaux) covering principal-agent issues and CEO compensation, as well as efficient-markets theory.

22 January 2008 at 11:19 pm 1 comment

“Let’s Write a Paper”

| Nicolai Foss |

I have noticed that an increasing number of colleagues build up and afterwards desperately try to manage increasingly large portfolios of paper projects. It is very common to have paper portfolios that encompass more than 20 ongoing projects. At any rate, that’s about the size of my own current portfolio.

I have also noticed that a lot of these paper ideas don’t seem to ever come to be written, or, at best exist in a fragmentary form.  I can relate many anecdotes (some from personal experience!) relating to substantial regret over set-up costs (aka pissing your would-be co-author off). It is possible that this may increasingly become a management problem, certainly on the level of the individual scholar, but perhaps also on the level of university managers (mainly dept. heads).

The question is: Is this (personally and socially) wasteful?  The basic problem is that in order to end up with a suitable amount of published papers a certain amount of exploration is necessary.  Co-authoring papers is a Hayekian discovery process. It is pretty hard, perhaps particularly for younger, unexperienced colleagues, to make reasoned decisions on how many papers one should initiate and with whom (given the costs of experimentation, i.e., set-up costs, the risk of ruining your reputation, etc.).  Reputation mechanisms work imperfectly. Big, but lazy, guys may exploit this, hoping for the rookie to do the job. Problems of procastination and melioration may complicate the decision problem. Etc. 

From another point of view,  however, not much has really changed. Whereas scholars in the past may have spent much time discussing research issues over the lunch table, etc., the publication pressure that most of us are subject to nowadays means that many discussions that would previously have simply ended over the lunch table are now turned into paper ideas.  If that is the case, the process appears much less wasteful — and, importantly, in need of less intenvention by well-intentioned, but (naturally!) misguided university bureaucrats.

22 January 2008 at 6:21 am 4 comments


| Peter Klein |

Check out ECHO (Exploring and Collecting History Online), a portal to several thousand websites dealing with the history of science, technology, and industry.

21 January 2008 at 12:01 pm 1 comment

Schools of Thought in Behavioral Economics

| Peter Klein |

Gary Lynne sent me John Tomer’s paper from the June 2007 Journal of Socio-Economics, “What is Behavioral Economics?” Tomer summarizes the various strands of behavioral economics and scores each according to “narrowness,” “rigidity,” “intolerance,” “mechanicalness,” “separateness,” and “individualism.” Coverage includes the Carnegie tradition, Katona’s Michigan school, modern experimental economics, Akerlof’s behavioral macro, and more. Tomer defines the field more broadly than I would — he includes evolutionary economics à la Nelson and Winter, for example — but the commentary is insightful.

20 January 2008 at 10:30 pm 1 comment

Thank You, David!

| Nicolai Foss |

Many thanks to David Hoopes for guest blogging at O&M. David has contributed some excellent blog posts which are among the most viewed ones on the site (particularly this one). We hope David will continue to visit O&M in the future and post comments. Thanks, David, for allowing us to benefit from your fertile mind.

19 January 2008 at 4:31 am Leave a comment

“The Age of Temporary Advantage”

| Nicolai Foss ]

Rich D’Aveni, Gianbattista Dagnino and Ken Smith have just disseminated a call for papers for a special issue of the Strategic Management Journal on the above subject. The purpose of the special issue, they explain, is to “develop theory and empirical evidence about whether and why competitive advantages are becoming less sustainable, and how organizations can successfully compete using a series of temporary or dynamic competitive advantages. The primary goal is to ask: What would the field of strategy look like if the sustainability of competitive advantage was very rare or nonexistent?” (more…)

18 January 2008 at 2:14 pm 2 comments

Kitchen Hierarchy

| Peter Klein |

Before Kitchen Confidential made him a celebrity, Anthony Bourdain was a real chef, working upscale New York kitchens at places like the Supper Club and Sullivan’s. Bourdain’s style is not to everyone’s taste, but he knows how to manage a restaurant crew. A chef, after all, is not primarily an artist, but a manager, facing the same set of organizational challenges — delegation, incentives, monitoring — as any administrator.

I mention this because I recently stumbled upon an interview with Bourdain in the July 2002 Harvard Business Review. Despite several attempts by interviewer Gardiner Morse to get Bourdain to endorse creativity, spontaneity, and empowerment in the kitchen, Bourdain remains an unreconstructed devotee of Escoffier’s “brigade system,” a sort of culinary Taylorism in which each member of the cooking staff has a fixed place in the production chain, a very narrow job description, and an obligation to obey his chef de partie (section leader) and the head chef without question. (more…)

18 January 2008 at 1:57 am 6 comments

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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).