Archive for February, 2008

Economics of Higher Education: Sophism versus Virtue

| Peter Klein |

Donald R. Stabile’s new book Economics, Competition And Academia: An Intellectual History of Sophism versus Virtue (Elgar, 2007) contrasts the customer-oriented, for-profit model of education (which Stabile calls “sophism”) with the patronage-supported, non-market model (“virtue”). Stabile reminds us that the notion of higher education as a commercial enterprise was invented not by the University of Phoenix, but by the ancient Greeks. The Sophists believed in teaching practical subjects that students wanted to know, while Plato and Aristotle, wealthy aristocrats whose schools didn’t depend on student fees, favored the teaching of timeless truths independent of student demand. Reviewer Donald Frey thinks Stabile’s framework lacks precision; still, the book sounds like an interesting read.

Tyler Cowen’s In Praise of Commercial Culture, which traces the history of patronage (and, its modern-day equivalent, state funding) and market-based approaches in art, music, and literature, is worth consulting in this context. And don’t miss Paul Cantor’s lectures on commerce and culture, which you can listen to here.

The Stabile dust-jacket blurb is below the fold. (more…)

17 February 2008 at 4:35 pm 2 comments

Entrepreneurship and Capital Theory

| Nicolai Foss |

Suppose all capital were what Robert Solow called “Shmoo” (after a Lil’ Abner cartoon; check this for some Shmoo info), that is, a homogenous substance. In such a world, the (intertemporal) coordination problem deals only with selecting the intensity of the input services that must be supplied over time to match consumer preferences. All capital assets are substitutes, so there is no path-dependence. Asset prices are presumably instantaneously equilibrated. In such a world, there are no coordination problems and no Misesian “calculation” problems. Many decision problems disappear as there are no costs of inspecting, measuring, and monitoring the attributes of capital assets. Decision makers do not reach the bounds of their rationality. In sum, a world of homogeneous capital  is a world where there nothing (or very little) for entrepreneurs to do. (more…)

16 February 2008 at 2:05 pm 23 comments

Bruno Leoni Institute Seminar for Young Scholars

| Peter Klein |

The Institute Bruno Leoni, named for the great classical liberal legal scholar, announces a seminar for young scholars (under 35 years old) on competition, regulation, and antitrust. It’s 3-5 October, 2008, in Sestri Levante (Italy). Economists, sociologists, philosophers, legal scholars, and historians are encouraged to apply. Here is the call for papers. Bill Niskanen and Steve Littlechild are the keynoters. Other than the blatant ageism, it looks like a great event.

15 February 2008 at 10:40 am 2 comments

Langlois Economics of Organization Course

| Peter Klein |

Don’t you wish you could sign up? Fortunately the reading list and slides are available to all. And check out this great homework assignment.

15 February 2008 at 10:11 am 2 comments

The Role of Economic Analysis in Public Policy

| Peter Klein |

Here are two views on the role of economic analysis in public policy, from a passage in Robert Dodge’s biography of Thomas Schelling recounting the early days of Harvard’s Kennedy School of Government:

A tension [among the faculty] began to develop over an ideological difference between two groups. The question that brought about the division concerned the proper role of the policy analyst. Schelling’s view was the same as it had been since the Cold War, and there were other economists in the school who generally agreed. They believed that the approach to policy analysis was to begin by rationally analyzing situations, seeking to understand how things work and what outcomes would be. His idea had been to “solve the puzzle first.” Policy was something that came after understanding. Throughout his career Schelling had fought against the idea of beginning with outcomes, what he saw as looking at problems backward, and had believed that strategic analysis was required in advance to understand situations before developing public policy.

A group headed by Steve Kelman and future Secretary of Labor, Robert Reich, held a different view. This group cared about policy management as well as public policy analysis. Their main argument was that values couldn’t be separated from public policy, and the antiseptic and purely analytical approach of Schelling’s group was incomplete. Policy analysis, the Reich group felt, was to be used in determining a successful path to the goal one hoped to achieve. They believed it was necessary to acknowledge and identify openly what one was trying to achieve or affirm when carrying out a policy. . . . (more…)

14 February 2008 at 11:17 pm 9 comments

Queer Economics?

| Nicolai Foss |

An earlier post in the O&M Readers’ Favorite, the Pomo Periscope Series, concerned “queer economics.” Many commentators took issue with the association between pomo and queer, and they may well be right, so I will refrain from making that association here. I was, however, quite baffled about the queer/economics connection, failing to see any, but I think I may now be understanding what it is about (namely, codes).

In a recent article in Intelligent Life, a new Economist-sponsored internet-based outlet, Queen’s College (NY) professor Evan Zimroth discusses John Maynard Keynes’ early sex life. That Keynes in his younger years was very actively practicing his homosexuality is no secret (Austrians will recall a famous Margit von Mises anecdote). It is also well known that Keynes kept a meticulous “sex diary,” but apparently he kept a second — coded — one. The main part of Zimroth’s article is an attempt to break the code. Note: the article may be a bit too strong for some people.

(Thanks to Lasse Lien for the pointer).

14 February 2008 at 10:37 am 2 comments

Dress for Success

| Peter Klein |

professor.jpgThe professorial dress code has long been an object of (gentle) ridicule. “This diagram explains why I’m an expert on money yet I dress like a flood victim,” says an economics professor in a recent Dilbert strip. I remember one from years back in which an older professor says to the younger, “Congratulations on making tenure! Here are your elbow patches.”

Erik Jensen argues that professors should, instead, conduct themselves in a professional manner, which includes professional dress. For men that means jackets and ties; for women, suits or modest, professional dresses. His proposed Uniform Uniform Code: “Faculty members shall, when on college grounds or on college business, dress in a way that would not embarrass their mothers, unless their mothers are under age 50 and are therefore likely to be immune to embarrassment from scruffy dressing, in which case faculty members shall dress in a way that would not embarrass my mother.”

When I started my career I wore a tie every day in class, but eventually quit. This semester I’m teaching a class at Olin, where ties are the norm (except among the economists, apparently), and am wearing one again. I’d really prefer a gown, however. And when did students quit bowing?

13 February 2008 at 12:06 pm 7 comments

The Early History of Silicon Valley

| Peter Klein |

Most historical accounts of Silicon Valley start in the 1970s or later. Christophe Lecuyer’s Making Silicon Valley: Innovation and the Growth of High Tech, 1930-1970, reminds us that the seeds of the first modern high-tech cluster were planted much earlier. Fairchild is central to the story, of course, but so is Eitel-McCullough (Eimac) in the 1930s and 1940s, Litton in the 1940s and 1950s, and Varian in the 1960s (them, not him). Lecuyer, writes reviewer Glenn Bugos,

seeks to define Silicon Valley as an industrial district, akin to the Marshallian industrial districts that economic historians have begun to explore. Also, he integrates into his story the many extant, divergent strands of Silicon Valley historiography. Into his manufacturing-driven narrative, we see the trends other historians have emphasized — military funding, the shake-out following the McNamara consolidation, the role of Stanford University in generating expertise, and the importance of workplace culture.

13 February 2008 at 9:36 am 1 comment

Inputs and Outputs

| Peter Klein |

In academia we measure outputs, not inputs. Promotion, tenure, and other rewards are based on publications, grants, teaching evaluations, and so on, not effort. So why do we talk so much about inputs? He’s in his office all the time! I get emails from her at 3:00am! Whenever I see him he’s typing at the computer! Even economists, who rightly reject the labor theory of value, talk this way. What gives?

I like the way Kieran puts it:

You have time to blog? I work so hard I couldn’t possibly fit that sort of frivolous nonsense into my day. You have time to watch television? I don’t even own a TV. (I am happy to see this one is now very nearly a cliché.) You go jogging in the morning? How do you find the time? You have time to shower afterward? Personal grooming distracts from the research effort. You walk to the other end of the building to use the bathroom? I specifically requested that my office have the toilet seat model of the Aeron chair installed. A real time saver, that one. You have small children? Actually, why am I even wasting my time talking to you right now? Goodbye.

It seems to me that very nearly all of this sort of guff is pure posturing, net of a very small kernel of obvious truth about not whiling away the weeks playing gin rummy or watching movies to the exclusion of all else. (more…)

12 February 2008 at 12:18 am 4 comments

Austrian Economics Study Guides

| Peter Klein |

Jérémie Rostan has produced a study guide for Menger’s Principles of Economics, a nice complement to Bob Murphy’s study guides for Man, Economy, and State and Human Action (see the study guide links after each chapter title). And there’s always Percy Greaves’s Mises Made Easier.

When will someone write Foss Made Easier? I would buy a Foss Companion.

12 February 2008 at 12:18 am 2 comments

Special Issue of JEM on Thomas Schelling

| Nicolai Foss |

Nobel Prize winner (2005) Thomas Schelling makes social science come alive. He has contributed fundamental insights to game theory (e.g., the notion of a focal point, the importance of commitment, early insights in the epistemic conditions of Nash equilibrium, signaling, etc.) and to the understanding of social dynamics (e.g., the famous 1971 checkerboard segregation model; early insights in “critical mass” and “tipping”). He is among the founders of game-theoretic conflict theory. 

Schelling has an amazing knack for drawing fundamental lessons from simple illustrations. He rarely uses advanced mathematics, he is more interested in processes than in equilibrium states, and substantial parts of his work is accessible to the educated layman (e.g., this one and this one). He is quite an unusual social scientist.

The latest (Dec.) issue of the ever-interesting Journal of Economic Methodology features a Symposium on Thomas Schelling edited by Abu Rizvi (who, in other journals and volumes, has published some of the most penetrating meta-theoretical work on game theory). (more…)

10 February 2008 at 2:43 pm 3 comments

Schumpeter and Knight on Democracy

| Peter Klein |

With the US primaries in full swing, and “democracy fever” sweeping the land, it’s perhaps a good time to share a couple of my favorite quotes on democratic governance:

Thus the typical citizen drops down to a lower level of mental performance as soon as he enters the political field. He argues and analyzes in a way which he would readily recognize as infantile within the sphere of his real interests. He becomes a primitive again. (Joseph A. Schumpeter, Capitalism, Socialism, and Democracy, 3rd edition, pp. 262-63.)

The probability of the people in power being individuals who would dislike the possession and exercise of power is on a level with the probability that an extremely tender-hearted person would get the job of whipping master in a slave plantation. (Frank H. Knight (1938), quoted in F. A. Hayek, The Road to Serfdom, p. 152.)

9 February 2008 at 10:35 pm 6 comments

The Chicago School of Antitrust

| Peter Klein |

Josh Wright of GMU Law and Truth on the Market was on our campus this afternoon to present his paper “The Roberts Court and the Chicago School of Antitrust: The 2006 Term and Beyond” (thanks to Thom for hosting). The paper provides a nice overview of the evolution of antitrust theory and practice over the last several decades. Josh describes three historical phases of antitrust thinking: the Harvard approach (Bain’s structure-conduct-performance paradigm), the Chicago approach, and the modern “post-Chicago” approach (based on game-theoretic industrial organization).

Josh defines “Chicago” broadly to include not only Demsetz, Peltzman, B. Klein, Bork, Posner, and Easterbrook but also Williamson and others who in the 1970s and 1980s challenged the conventional wisdom that deviations from perfect competition (resale price maintenance, exclusive dealing, block booking, and the like) are per se anticompetitive. I think this is a reasonable taxonomy (though Williamson would be horrified to be included as a Chicagoan). Note that this definition rejects the caricature of Chicago economists as laissez-faire ideologues (indeed, Chicagoans are viewed by Austrians as wishy-washy interventionists on competition policy [12]). Instead, it defines the Chicago approach as the “rigorous application of price theory,” “the centrality of empiricism,” and the “emphasis on the social cost of legal errors in the design of antitrust” (as emphasized by Easterbrook). (more…)

8 February 2008 at 5:17 pm 3 comments

Hayek, Habermas, and the Blogosphere

| Peter Klein |

Cass Sunstein asks if the blogosphere is more like Hayek’s spontaneous market order or Habermas’s noisy “bourgeois public sphere,” concluding that it isn’t quite either:

The rise of the blogosphere raises important questions about the elicitation and aggregation of information, and about democracy itself. Do blogs allow people to check information and correct errors? Can we understand the blogosphere as operating as a kind of marketplace for information along Hayekian terms? Or is it a vast public meeting of the kind that Jurgen Habermas describes? In this article, I argue that the blogosphere cannot be understood as a Hayekian means for gathering dispersed knowledge because it lacks any equivalent of the price system. I also argue that forces of polarization characterize the blogosphere as they do other social interactions, making it an unlikely venue for Habermasian deliberation, and perhaps leading to the creation of information cocoons. I conclude by briefly canvassing partial responses to the problem of polarization.

The paper is in the January 2008 issue of Public Choice, a special issue edited by Daniel Drezner and Henry Farrell on the social and political aspects of blogging. (Thanks to Greg Ransom for the link.)

6 February 2008 at 11:26 pm 2 comments

Is Britney Inefficent?

| Peter Klein |

My colleague Thom Lambert has a nice piece on Britney Spears over at Truth on the Market. Yes, really. Thom asks whether Britney’s popularity, which seems unrelated to intrinsic merit, is due to network effects — people are interested in her because other people are interested in her, and so on — leading us down an irreversible path toward Britneymania. Paul David, call your office! Britney, Thom suggests, may be like the QWERTY keyboard — grossly inefficient but hard to replace.

I like Thom’s analysis but think he should go further in exploring the welfare implications. Paul David’s fable of the inefficient typewriter keyboard has been pretty well demolished by Liebowitz and Margolis, among others; perhaps with Britney we finally have an example of market failure due to network effects! Then again, it’s hard to predict, ex ante, which promising young artists will achieve long-term success; given imperfect knowledge, there is always room for  ex post regret, which doesn’t necessarily imply inefficiency. Moreover, if Britneymania isn’t remediable, to use Oliver Williamson’s term, then it’s not inefficient. Finally, what’s the alternative? Do we want a trade association or, even worse, a Ministry of Culture choosing the next pop diva? We might get the next Oleg Gazmanov.

6 February 2008 at 1:24 am 5 comments

Choosing a Dissertation Topic

| Peter Klein |

phd012108s.gifOne of my PhD students sent me this (click to enlarge), from PhD Comics. Nothing as fancy as grad skool rulz, but a useful analysis nonetheless.

5 February 2008 at 6:51 pm 1 comment

Porter’s Five Forces, Updated

| Peter Klein |

The current issue of HBR features Porter’s “The Five Competitive Forces That Shape Strategy,” a review and update of his famous framework (via Luke). The revision doesn’t include a sixth force, but Porter does add some refinements and clarifications (e.g., the differences between an industry’s underlying structure and observable attributes like the number of firms, industry growth, etc.), and he includes some discussion of dynamics. There’s also a video. Here’s the introductory blurb:

In 1979, Harvard Business Review published “How Competitive Forces Shape Strategy” by a young economist and associate professor, Michael E. Porter. It was his first HBR article, and it started a revolution in the strategy field. In subsequent decades, Porter has brought his signature economic rigor to the study of competitive strategy for corporations, regions, nations, and, more recently, health care and philanthropy. “Porter’s five forces” have shaped a generation of academic research and business practice. With prodding and assistance from Harvard Business School Professor Jan Rivkin and longtime colleague Joan Magretta, Porter here reaffirms, updates, and extends the classic work. He also addresses common misunderstandings, provides practical guidance for users of the framework, and offers a deeper view of its implications for strategy today.

There is of course a huge secondary and practitioner literature on the five-forces framework and its applications. (more…)

5 February 2008 at 11:55 am 4 comments

The Original Corporate Raider

| Peter Klein |

Did you catch Henry Manne’s tribute to Louis E. Wolfson, whom Manne calls “the original corporate raider,” in the 18 Jan WSJ?

[T]he obituaries dutifully acknowledged that he was a serious and valued benefactor of children’s health care, and that he devoted himself in later life to the cause of penal reform. . . . They missed the big story. Wolfson’s contribution to human welfare far exceeded the total value of all private philanthropy in history. He invented the modern hostile tender offer. This invention, which activated and energized the market for corporate control, was the primary cause of the revolutionary restructuring of American industry in the 1970s and ’80s, and the ensuing economic boom.

Before Wolfson’s innovation, executing a “hostile” (i.e., against the wishes of incumbent management) takeover required winning a long and potentially costly proxy contest. Now, potential bidders could appeal directly to shareholders, asking them to “tender” their shares at the offered price, bypassing the incumbent management team altogether. Naturally, this outraged the business establishment — the “powerful corporate elite of the 1960s,” as Manne calls them — and pressure mounted for legislation to restrict hostile takeover offers, leading to the 1968 Williams Act, designed to protect incumbent managers by giving them time to prepare counter-offers and otherwise restricting “raiders.” (more…)

3 February 2008 at 5:50 pm 2 comments

Klein in Wikipedia

| Nicolai Foss |

Yes, that’s right: Some Klein fan has penned an entry on my esteemed co-blogger. Note, however, the warning at the bottom of the page: “This article lacks information on the notability of the subject matter.”

1 February 2008 at 10:39 am 2 comments

Workshop on Performativity and Finance

| Nicolai Foss |

We have blogged occasionally on performativity and related issues here at O&M (e.g., here), though by no means with the frequency of the chaps at our evil twin, (here is a sample of their 1,206 posts on the subject).

Daniel Beunza (Columbia) and Yuval Millo (LSE) are organizing a workshop 28-29 April on performativity and finance, one of the main areas of applications of the performativity concept. The title of the workshop? Well, “From Bodies to Black-Scholes” (what else?). (more…)

1 February 2008 at 10:35 am Leave a comment

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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).

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