Organizational Economics versus Strategy

2 December 2008 at 9:47 am 6 comments

| Peter Klein |

Brayden has a nice post at our good-twin blog on the  differences between organization theory and strategy research. Writing from the perspective of an organizational sociologist, Brayden argues that organization theory is a higher-status, “purer” discipline, but that strategy research asks better questions and is providing more insight into organizations than organization theory.

I think much of Brayden’s analysis carries over to economics as well. Organizational economics (referring to people like Tirole, Hart, Gibbons, Holmström, Baker, Zingales, Aghion, Garicano, Bolton, etc.) has a much higher status than the kind of work published in the Strategic Management Journal or the strategy papers in Organization Science, the Academy of Management Review, or Management Science. (If by “strategy” we mean simply game theory, then strategy research would have the same status as organizational economics.) The explanation is simple: economic theory is a high-status discipline while sociology and applied economics, sociology, and psychology are not. A prominent economist who does some work that could be considered strategy once told me, when asked about SMJ, that its authors “ask good questions, but don’t know how to answer them.” He said it with a knowing smile and a slight shake of the head, the way a Southerner might say “bless their hearts.” Still, one would have to admit that some terrific work has come out of the strategy journals in recent years, particularly (ahem) as economics has become a more foundational discipline in that field.

Entry filed under: - Klein -, Management Theory, Strategic Management, Theory of the Firm.

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6 Comments Add your own

  • 1. libertyfirst  |  2 December 2008 at 1:08 pm

    Good morning,

    I have a question.

    Has this difference in perspective between theoretical and applied economists something to do with the distinction between theory and history in Mises? Aren”t theoreticians neglecting this distinction in this case*?

    Theoreticians stating “good question, but you don’t know how to answer” seem to be trying to fit reality in the necessarily limited constraints of theory: the richness and depth of history get lost in translation. Applied economists don’t use theory that much, because they face real historical problems and thus they need something that is practically relevant, not just elegant. Theoreticians criticize historians because they are aware of the intricacies of history, as adherents to the former group is blind to it because they overlook the misesian distinction.

    Maybe applied economists face the opposite danger of being historicists – i.e., “theoryless” – and you in fact expressly state that more economic theory has enabled better strategic insights recently.

    It appears to me that the dichotomy is significant and evident in this example. Does it make sense?

    * I’m not surprised: normally Misesian epistemology is not understood, hence it would be surprising if it were used.

  • 2. Peter Klein  |  2 December 2008 at 1:17 pm

    That’s a good question, but I think it’s not really the distinction that’s at issue here. It’s not that theoretical economists look down on applied economists, but that “rigorous” or “formal” or “hard-core” economists look down on their “literary” or “informal” or “soft-core” counterparts in management studies. Even “hard-core” economists would distinguish between “good” applied work, i.e., the kinds of econometric studies published in the top mainstream economics journals and the “soft” applied work that gets published in management journals and heterodox economics journals. Likewise, economic theorists tend to look down on the “conceptual” theory, or boxes-and-arrows models, that are standard in the management literature. So it’s not a theory versus history distinction (in the Misesian sense), but a methodological issue within both theoretical and applied work.

  • 3. Steve Phelan  |  2 December 2008 at 2:18 pm

    But to the degree that formal methods cannot be applied to unique strategic problems then you arrive at the historicist/theoretical distinction.

    Physicists have the most evolved methods precisely because their problems are the simplest – they do not deal with intentional objects.

    I have argued before that strategy has moved to analyzing large secondary databases because they can avoid the ‘messiness’ of case-based strategy. This has made their work more “rigorous” (because they can use more sophisticated methods) and less relevant.

    This is often confusing for the ex-practitioner moving into academia – who gets laughed at for not knowing the latest sophisticated methods but for the life of him/her cannot see the relevance to the problems they were facing in the “real” world.

  • 4. Marc Benoit  |  2 December 2008 at 4:38 pm

    I also have a question. What are examples of the most terrific or important insights of strategy research in the past 10-15 years?

  • 5. David Hoopes  |  2 December 2008 at 11:54 pm

    I think comparing different fields or approaches as single units is hopeless. I can think of strategy papers that are thought through much better than most economics (granted not a lot). The issue is what do you use as your constraints. Formally modeling meaningless drool is silly. I think the economists everyone remembers use their modeling on interesting questions and they show us things we might not expect. But to credit all the yo yo s out there cranking away on any old thing for the work of a few is pointless.

    The only problem with using written language instead of or without modeling is that it is easy to make something that is quite illogical sound good. I think some of the most heavily cited papers in strategy are in fact a disaster in terms of internal consistency. I won’t mention names.

    But, please recall work by Stigler, Demsetz, Adam Smith, and a million others who have changed the way we see things using simple Algebra or just the written word.

    Modeling is great. But it is only as good as what it models and how interesting the results are.

  • 6. libertyfirst  |  3 December 2008 at 3:06 am

    Ok. Thanks for the answer!

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