Archive for September, 2008

Should We Regulate Branding Gurus?

| Nicolai Foss |

Ronald Coase famously argued that if one buys into utilitarian arguments for regulating “the market for goods,” it is hard to present a strong case against regulating the “market for ideas” (here). 

I was reminded of Coase’s paper when I received an invitation to an “executive event” from the executive education branch of my School. The event is a presentation by “one of the world’s leading authorities on brand strategy and marketing,” Dr. Erich Joachimsthaler (here he is on Google Scholar), who will present the main messages in a new book co-authored with famous branding guru, David Aaker, Brand Leadership (I cannot locate it on Amazon, so it must be very fresh from the press). Here are some of the things that you can apparently learn from this book:

  • Find new growth opportunities in plain sight that are ripe for the picking
  • Optimize your existing portfolio to generate sustainable growth without relying on new products
  • Innovate beyond product by creating new business models or consumer experiences
  • Increase marketing spend effectiveness by directing your dollars to the most relevant aspects of consumers’ daily lives.

The first bullet is particularly lovely. Do you have to be a Chicago finance scholar to deny that there are “new growth opportunities” that are “in plain sight” and “ripe for the picking”? I doubt it. The general question is, how much over the top can you go in terms of advertising your products on the markets for ideas — and should regulators care? While I don’t think there is a general case for regulating these markets, there may exist a Pigovian case for subsidizing books such as this one.

18 September 2008 at 9:45 am 5 comments

Innovation Story of the Day

| Peter Klein |

OMG. Somebody has created this.

It reminds me of the 2-bladed, then 3-bladed, and now 5-bladed razor, the latter of which was famously spoofed by the Onion (caution: bad language), only to have Gillette actually bring it out the next year. (Both Saturday Night Live, in 1975, and Mad Magazine, in 1979, had the idea first.)

18 September 2008 at 8:38 am 3 comments

Spawning: The Small-Firm Effect

| Nicolai Foss |

Entrepreneurs are usually dissatisfied employees from large companies who find their ideas crushed under the weight of the corporate hierarchy, right? No so, say Dan Elfenbein, Barton Hamilton and Todd Zenger in a recent (well, March 2008) paper, “The Entrepreneurial Spawning of Scientists and Engineers: Stars, Slugs, and the Small Firm Effect.” In fact, they point out, “roughly two-thirds of all entrepreneurial ventures started between 1995 and 2001 by scientists and engineers in the US, were founded by individuals employed immediately prior in firms of less than 100 employees” (p. 1). Interestingly, they also find that new ventures founded by employees coming from small firms perform better than ventures founded by employees from large firms. These small firms effects, the authors argue, are not just driven by sorting effects, but also because employees in small firms tend to acquire more entrepreneurial skills. An excellent contribution to the generally interesting spawning literature. Highly recommended. (more…)

17 September 2008 at 10:34 am 1 comment

The Financial Crisis

| Peter Klein |

A regular reader asks why we haven’t written much on the US financial crisis. What, he asks, do organizational economics, strategic management, Austrian economics, entrepreneurship theory, and the new institutional economics say about the events of recent weeks?

I can’t speak for Nicolai, Dick, and Lasse, but I personally have avoided talking about it because, well, I’m too depressed — not so much about the crisis itself, which I view as a necessary corrective to two decades of potentially ruinous malinvestment, but about the political reaction to it. I agree with Larry White that the general level of discourse not just among laypeople but also among the political and financial elites, top journalists, and academics, has been shockingly vapid and vacuous, even by the usual standards. Listening to government officials, pundits, and analysts analyzing the crisis is like listening to my son’s first-grade class discussing the finer points of postmodern French literature. It was too much deregulation! (Huh?) The free market broke down yet again, just like in the 1930s! Market failure! Thank goodness the government is “stepping in”! Excuse me while I blow my groceries.

My view, in brief, is that the current crisis is the predictable result of a massive credit bubble that began under Greenspan in the 1990s and spilled over into the housing market, following the general outlines of the boom-bust cycle described by the Austrians, along with moral hazard encouraged by the financial “safety net” and the implicit (and, increasingly explicit) guarantees of the “too-big-to-fail” mentality. Of course, the US government’s reaction — spending taxpayer money like candy to bail out favored groups and institutions — can only exacerbate the problem. You can do your own Googling like this or this to find informed commentary. I have little to add but will highlight a few favorite comments: (more…)

17 September 2008 at 10:20 am 5 comments

Testing for Bias in Peer Review

| Peter Klein |

In a working paper entitled “Can We Test for Bias in Scientific Peer Review?”, Andrew Oswald proposes a method of detecting whether journal editors (and the peer review process generally, I suppose) discriminate against certain kinds of authors. His approach, in a nutshell, is to look for discrepancies between the editor’s comparison of two papers and how those papers were ultimately compared by the scholarly community (based on citations). In tests he runs on two high-ranking American economics journals, he doesn’t find a bias by QJE editors against authors from England or Europe (or in favor of Harvard authors), but he does find that JPE editors appear to discriminate against their Chicago colleagues.

That’s Andy Eggers, writing in the Social Science Statistics Blog. As Andy points out, it’s not completely clear what (raw) citation counts, and hence the experiment itself, are measuring. Also, Oswald uses within-journal paper order as a signal of the editor’s assessment of quality. Still, the technique is interesting, particularly if being the “lead paper” of a top journal generates additional citations, independent of paper quality.

(From the You Can’t Win department: I once had a colleague who had published two or three papers in the JPE, but these papers weren’t highly cited, which the department counted as a strike against him, on the assumption that every JPE paper should get at least a few cites merely be appearing in the JPE.)

NB: An older, unpublished paper by Smart and Waldfogel uses the same technique.

16 September 2008 at 2:31 pm Leave a comment

Klein Bottle

| Lasse Lien |

Behold, below, the Klein Bottle.

It’s described in mathematical topology as a bottle with no distinct inside or outside. Just one side. Strictly speaking, it can only be constructed in four spatial dimensions, but in our three-dimensional world it might be useful for constructing witty remarks for Peter.

It’s also possible to construct a handsome Klein bottle hat, something the gentleman to the right has done. I don’t know about other O&M readers, but I am surely getting one.

16 September 2008 at 8:16 am 6 comments

Feynman on (Quantitative Empirical) Social Science

| Peter Klein |

Thanks to Teppo for the pointer. Naturally I will accuse Feynmann of confusing science and scientism. As Rothbard put it:

In our proper condemnation of scientism in the study of man, we should not make the mistake of dismissing science as well. For if we do so, we credit scientism too highly and accept at face value its claim to be the one and only scientific method. . . . Science, after all, means scientia, correct knowledge; it is older and wiser than the positivist-pragmatist attempt to monopolize the term.

15 September 2008 at 11:07 am 3 comments

Organizational Economics and International Trade

| Peter Klein |

New NBER paper from Pol Antràs and Esteban Rossi-Hansberg, “Organizations and Trade” (ungated here). Surveys “an emerging literature at the intersection of organizational economics and international trade,” arguing that “a proper modelling of the organizational aspects of production provides valuable insights on the aggregate workings of the world economy.” Indeed, “certain predictions of standard models . . . are affected or even overturned when organizational decisions are brought into the analysis.”

A valuable survey, but the focus is quite narrow; an older and broader literature seeking to apply transaction cost economics to issues in international business, going back to Teece (1977), should also be consulted. (Joanne Oxley’s research page is a good place to start.)

15 September 2008 at 9:38 am Leave a comment

Keep Academics Away from the Cinema

| Peter Klein |

Because they produce purple prose like this:

I have tried to show how the impossibility of a single filmic representation can serve as a refractory surface against which a series of analogies, paradigmatic shifts, and disarticulations located within distinct yet convergent planes of historical actualisation come into a view. It is in turn, across the strata of this unstable causal field (the discontinuities of which have been reconciled or reduced within the binary logic of the dominant supratext) that the reconstitution of the various ontogenetic stages of It’s All True (planning, production, dispersion) can be sketched.

This verbal assault is quoted, with appropriate mockery, by Simon Callow in the preface to volume 2 of his engrossing biography of Orson Welles, Hello Americans (2006). The reference is to Welles’s unfinished film It’s All True (about which an interesting documentary was made in 1993). Adds Callow: “The author of this remarkable passage, which, as far as I am aware, has not yet been translated into English, is a serious researcher who no doubt has much to tell us about Orson Welles, but we will never know what it is.”

13 September 2008 at 11:01 am 6 comments

CBS Microfoundations Conference: Knowledge and HRM

| Nicolai Foss |

As O&M readers may know I am the Director of Copenhagen Business School’s Center for Strategic Management and Globalization. As the name indicates we do SIM (strategic and international management), but with a twist: We are specifically interested in the governance dimensions of knowledge processes (knowledge sharing, integration, creation, etc.), and we are specifically interested in micro-foundations for the firm-level concepts that we routinely apply in strategic management and IB (see here for a more detailed characterization). These two themes come together in a conference organized next week (18-19 September) by Dr. Dana Minbaeva, “HRM, Knowledge Processes, and Organizational Performance: In Search of Micro-Foundations.” The papers are online, and many of them should be of potential interest to readers of O&M. I particularly recommend the paper by Joshua Tomsik, Todd Zenger and Teppo Felin (of fame), “The Knowledge Economy: Emerging Organizational Forms, Micro-Foundations, and Key Human Resource Heuristics.”

12 September 2008 at 4:24 am Leave a comment

Wiki Textbooks

| Peter Klein |

I teach two graduate courses without textbooks, Economics of Institutions and Organizations and Entrepreneurship: Theory, Applications, Debate. Maybe I should ask the students to create a Wiki Textbook? Anybody out there in the blogosphere want to coordinate such a project? (Thanks to Molly Burress for the link.)

See also previous entries on Wikisummaries, the Global Text Project, wiki notes, and Wikiversity.

11 September 2008 at 4:34 pm Leave a comment

Best Few Sentences I Read Today, Macroeconomics Edition

| Peter Klein |

Olivier Blanchard, writing on “The State of Macro[economics]”:

The editors of this new Journal asked me to write about “The Future of Macroeconomics.” Nobody should accept such a task. One can forecast the near future with some confidence: Research technology is largely Austrian in nature, with output following inputs later in time. One can see the various teams at work, and thus be confident that, sooner or later, they will succeed. But it is nearly impossible to forecast beyond that.

The paper is generating quite a lot of blogospheric buzz. Mark Thoma has posted a chunk for readers lacking NBER access. In case you’re wondering, no, the Austrian theory of the business cycle is not part of Blanchard’s anticipated future.

BTW I have not been able to figure out which journal this paper was written for. Does anybody know?

10 September 2008 at 5:13 pm 1 comment

Call for Papers: International Entrepreneurship

| Peter Klein |

The new Strategic Entrepreneurship Journal is rapidly becoming one of my favorite reads. (And not just because I’m the SEJ’s #1 author — it’s true, when my colleagues and I submitted this paper, we were assigned manuscript number SEJ-0001.) Here’s a call for papers for a special issue on international entrepreneurship edited by Douglas Cumming, Don Siegel, and Mike Wright. The call lists several potential research questions::

  • How do government policies impact incentives to form strategic alliances among entrepreneurial firms in domestic versus foreign settings?
  • What is the role of laws and public policy in stimulating transnational and returning entrepreneurs?
  • What is the role of social networks in international entrepreneurship?
  • What factors lead to the success of immigrant entrepreneurs in different countries?
  • What is the interaction between public policy and foreign investment in entrepreneurial ventures?
  • What explains international differences in governmental policies regarding intellectual property, entrepreneurship, and entrepreneurial finance?
  • How does international entrepreneurship affect firm performance?
  • How important is product and geographic focus for entrepreneurial success within different public policy settings?
  • What are the implications of corporate entrepreneurship for multinational companies?
  • How do corporate governance regulations impact international entrepreneurship?
  • How do venture capitalists and private equity firms make decisions in an international context, including the decision to make cross-border investments and how to enter international markets?
  • What is the role of academic entrepreneurship in various nations? Is their convergence or divergence in policies to stimulate academic entrepreneurship?
  • How do universities stimulate international technology transfer and commercialization?
  • What is the relative importance of patenting, licensing, and property-based institutions, such as science parks and incubators in stimulating entrepreneurship in various nations?

Submissions are due 31 December. Accepted papers will be presented at a conference at York University in April.

9 September 2008 at 11:43 pm 2 comments

The Onion or Reality: Today’s Quiz

| Peter Klein |

Which is more ridiculous? Hard to tell.

Story 1:

Praising the vehicle’s 25 years of experience, its proven dependability, and its 2.2-liter internal combustion engine, Chrysler announced Monday that it has appointed a 1983 four-door LeBaron sedan as the company’s new CEO. “We believe that the LeBaron’s expertise in dealing with customers, combined with its 100.3-inch wheelbase, makes it the right automobile for the job,” Chrysler CFO Ron Kolka said. The Chrysler Town and Country, passed over for the position for the second time in four years, will return to its post as the company’s regional finance manager. When asked how Chrysler plans to shift toward more energy-efficient models in order to compete in a changing marketplace, the LeBaron honked its horn for 35 seconds.

Story 2:

The Big Three Detroit automakers have begun lobbying Congress for up to $50 billion in loans that would help them adjust to a market that demands more fuel-efficient vehicles. But the automakers insist the loans would not amount to a government bailout of the struggling auto industry.

8 September 2008 at 1:14 pm 1 comment

How Well Does the Market Handle Network Effects?

| Peter Klein |

Quite well, according to Dan Spulber’s paper “Consumer Coordination in the Small and in the Large: Implications for Antitrust in Markets with Network Effects,” out recently in the Journal of Competition Law and Economics (June 2008). Dan distinguishes between network effects in small- and large-numbers bargaining situations; Coasean bargaining can solve the problem in the former while Hayekian “spontaneous order” can emerge in the latter. The paper also contains a useful, up-to-date summary of the network effects literature. Highly recommended!

8 September 2008 at 9:03 am Leave a comment

Westgren to Missouri

| Peter Klein |

I’m delighted to announce that Randy Westgren, organizational scholar, academic entrepreneur, bon vivant, and all-around great guy — and, most important, former O&M guest blogger — has been named McQuinn Professor of Entrepreneurial Leadership at the University of Missouri. I’ve greatly enjoyed interacting with Randy over the years from his perch in Urbana-Champaign and am looking forward to having him just down the hallway.

As McQuinn Professor Randy will also direct the McQuinn Center, which was launched in 2004 under the leadership of Bruce Bullock. The Center is creating an innovative and unusual program to research and teach the “functional” aspects of entrepreneurship, with particular emphasis on firm organization and strategy and applications to food, agriculture, biotechnology, natural resources, and rural development.

Please join me in congratulating Randy on his new post!

5 September 2008 at 8:03 am 1 comment

Messin’ With Entrepreneurship Data

| Peter Klein |

OK, it’s not as much fun as Messin’ with Sasquatch. But what happens if you mess with the two leading sources of global entrepreneurship data, the Global Entrepreneurship Monitor, which tracks startups, and the World Bank Entrepreneurship Survey dataset, which measures formal business registrations? One could explain the differences in terms of coverage, the sensitivity of the measurement instrument, and various forms of error. Or, like Zoltan Acs, Sameeksha Desai, and Leora Klapper, use the differences to measure the stages of entrepreneurial development. For commensurate data, that is, the ratio of registrations to startups provides information on the rate at which entrepreneurial ideas are transformed into feasible ventures. The abstract, from SSRN:

This paper compares two datasets designed to measure entrepreneurship. The Global Entrepreneurship Monitor dataset captures early-stage entrepreneurial activity; the World Bank Group Entrepreneurship Survey dataset captures formal business registration. There are a number of important differences when the data are compared. First, GEM data tend to report significantly greater levels of early-stage entrepreneurship in developing economies than do the World Bank data. The World Bank data tend to be greater than GEM data for developed countries. Second, the magnitude of the difference between the datasets across countries is related to the local institutional and environmental conditions for entrepreneurs, after controlling for levels of economic development. A possible explanation for this is that the World Bank data measure rates of entry in the formal economy, whereas GEM data are reflective of entrepreneurial intent and capture informality of entrepreneurship. This is particularly true for developing countries. Therefore, this discrepancy can be interpreted as the spread between individuals who could potentially operate businesses in the formal sector – and those that actually do so: In other words, GEM data may represent the potential supply of entrepreneurs, whereas the World Bank data may represent the actual rate of entrepreneurship. The findings suggest that entrepreneurs in developed countries have greater ease and incentives to incorporate, both for the benefits of greater access to formal financing and labor contracts, as well as for tax and other purposes not directly related to business activities.

4 September 2008 at 1:44 pm Leave a comment

The Downside of (Quasi-)Academic Blogging

| Peter Klein |

It goes like this: Blogger A, a writer or grad student or some other non-specialist commentator, takes on Big Issue X with a few glib sentences dismissing decades, or even centuries, of research by specialists on some important topic. A recent example involved a blogger, who apparently is some kind of grad student, opining on the minimum wage. The blogger quotes Kevin Murphy’s statement that economic theory predicts that a wage floor above the market-clearing wage will, ceteris paribus, reduce the demand for labor. But no, says our blogger — labor and commodities are different economic goods, so that the law of demand does not apply to the former! Well, gosh, economists have been thinking about the demand for factors of production for, I don’t know, about two hundred years, and have had a pretty sophisticated understanding of marginal productivity since the late nineteenth century. My guess is that our blogger has read a textbook or two, and maybe even a few recent journal articles on the minimum-wage controversy, but thinks this discovery that factor markets are different from commodity markets is a brilliant new insight. (Note to blogger: factor-market demand curves are also downward sloping.) If I were this blogger’s academic adviser, I would suggest that she consult a labor economist, or perhaps skim Lazear’s Personnel Economics, before writing this sort of drivel.

As they used to say about the internet: The good thing about blogging is that anyone can share his opinion with the world. The bad thing about blogging is that anyone can share his opinion with the world.

4 September 2008 at 8:57 am 12 comments

Reading List for My Entrepreneurship Course

| Peter Klein |

This semester I’m teaching a new PhD seminar, “Economics of Entrepreneurship: Theory, Applications, Debate.” Here’s an excerpt from the course description. The reading list is below the fold. Comments and suggestions are welcome.

Entrepreneurship is one of the fastest-growing fields within economics, management, organization theory, finance, and even law. Surprisingly, however, while the entrepreneur is fundamentally an economic agent — the “driving force of the market,” in Mises’s (1949, p. 249) phrase — modern theories of economic organization and strategy maintain an ambivalent relationship with entrepreneurship. It is widely recognized that entrepreneurship is somehow important, but there is little consensus about how the entrepreneurial role should be modeled and incorporated into economics and strategy. Indeed, the most important works in the economic literature on entrepreneurship — Schumpeter’s account of innovation, Knight’s theory of profit, and Kirzner’s analysis of entrepreneurial discovery — are viewed as interesting, but idiosyncratic insights that do not easily generalize to other contexts and problems. . . .

This course presents a wide-ranging overview of the place of entrepreneurship in economic theory, with a special focus on applications to institutions, organizations, strategy, economic development, and related fields. It is intended for PhD students trained in economics, sociology, business administration, or a similar field (subject to instructor permission). Students are expected to be in at least their second year of their PhD program and to be working on a dissertation, or looking for a suitable dissertation topic. This is a research-oriented class in which students take an active role identifying suitable articles and topics for analysis, leading course discussions, and evaluating themselves and their peers. (more…)

2 September 2008 at 9:39 pm 6 comments

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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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