Archive for June, 2009

Does Macroeconomic Theory Influence Macroeconomic Policy?

| Peter Klein |

Not really, according to John Wood’s History of Macroeconomic Policy in the United States (Routledge, 2008). As David Wheelock notes in his EH.Net review:

Wood argues that U.S. fiscal and monetary policy have been remarkably consistent over the decades and largely uninfluenced by macroeconomic theory. Economists have rationalized more than influenced policy, Wood contends, and the direction of influence between economic theory and practice is primarily from the latter to the former.

This is of course the classic explanation for the spread of Keynesianism after 1936: rather than proposing a new approach to macroeconomic policy, the General Theory simply rationalized the massive deficit-spending and easy-money policies already in place (and long desired by disreputable economists such as Foster and Catchings).

30 June 2009 at 3:53 pm 2 comments

Organizations or Markets in Morality?

| Benito Arruñada |

Moral codes can be produced and enforced through markets or through organizations. In particular, Catholic theology can be interpreted as a paradigm of the organizational production of morality. In contrast, the dominant moral codes are now produced in something resembling more a market.

The organizational character of Catholicism comes from its centralized production and enforcement of the moral code by theologians and priests and the mediation role played by the Church between God and believers. The epitome of both features is the old institution of confession of sins, a cultural universal that reaches full sophistication — for good and for bad — within Catholicism. My forthcoming JSSR paper argues that confession was a strikingly organizational solution to the production and enforcement of morality, something that Western societies now do mostly through markets. (more…)

30 June 2009 at 4:19 am 3 comments

Pioneers of Law and Economics

| Peter Klein |

Profiles of the leading scholars in contemporary law and economics, now out from Edward Elgar. Congratulations to Josh Wright and Lloyd Cohen for putting this together. Table of contents below the fold. (more…)

29 June 2009 at 2:09 am Leave a comment

Gloves Are Definitively Off Now

| Lasse Lien |

Here is a pretty remarkable story about four elderly German pensioners who kidnapped and tortured their financial adviser.

Who should we feel sorry for, that’s what I want to know.

27 June 2009 at 4:35 pm 4 comments

Journalists Duped Again

| Peter Klein |

From Walter Duranty to Judith Miller to recent reporting on the financial crisis (1, 2), the mainstream press continues to do what it has always done: print what it wants to be true, rather than investigate what’s actually going on. I got a chuckle out of the latest example: a French magazine that gave its student photojournalism award to a series of dramatic pictures of French youth living in poverty, only to learn the pictures were fakes. Oops! Not quite in the same class as the Sokal affair, but in the same spirit. (HT: Mario Rizzo.)

27 June 2009 at 2:07 pm 1 comment

Why “Doing Business” Leads to Bad Policy

| Benito Arruñada |

In a post at the PSD blog, David Kaplan sees little difference between the “Doing Business” position and my own. He writes:

Part of Professor Arruñada’s argument is that the Doing Business indicators do not capture all the relevant components of the business environment. The writers of the Doing Business 2009 report agree. . . .

I believe that the debate is not mainly about what Doing Business measures. Really, the debate is about how these measures are used in shaping public policy. Critics of Doing Business are concerned that countries will ignore the above warnings and only reform in areas that are measured in Doing Business.

I doubt that one can separate what DB measures and how it does it from how DB measures are used in the field. My main complaint, however, is different, namely that the DB method has often led to bad policy. (more…)

26 June 2009 at 8:16 am 3 comments

Slides from Foss-Klein PhD Course

| Peter Klein |

Slides from the PhD course, “The Theory of the Firm and Its Applications in Management Research I,” are now available on the course webpage (scroll down to the bottom).

PS: Did you notice the course title ends with “I,” implying there will be a II and maybe a III? Gotta love that precommitment device. It’s as if Stallone had named his first film “Rocky I.”

26 June 2009 at 8:02 am 3 comments

Doug North Line of the Day

| Peter Klein |

From Bob Margo’s EH.Net review of North, Wallis, and Weingast’s Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History:

In my book people are iconic if I can summarize their life’s work in ten words or less.  North takes two: “Institutions matter.”

He adds: “The opposite perspective — viewed in isolation most institutions don’t matter much, being Harberger triangles and small ones at that — has its fans in modern economics.  But North has convinced the majority of economic historians, a goodly share of world’s development wonks, and the Nobel Prize Committee that he’s right.”

Update: Art Carden beat me to this.

25 June 2009 at 8:04 am 2 comments

Austrian Theory of the Firm Bleg

| Peter Klein |

This post is for devotees and fellow-travelers of the Austrian school. As some of you know I maintain an online bibliography of articles and books dealing with applications of Austrian economics to the theory of the firm (and strategic management more generally). Happily, this literature has grown dramatically in the last few years. Sadly, I have not had time to update the bibliography on a consistent basis. So, please send me your suggested additions and corrections (ideally with URLs). Self-nominations are welcome!

24 June 2009 at 2:29 pm 2 comments

Sid Winter on Methodology

| Peter Klein |

Overheard at last week’s DRUID conference, in Sid Winter’s discussion of three papers on technology strategy:

“Our near-exclusive focus on statistical significance has distracted us from the main task of scientific explanation: the determination of cause and effect.”

Three cheers to Sid for standing with Menger over Walras!

24 June 2009 at 2:45 am 5 comments

Copenhagen Fun

| Peter Klein |


A selection of Kleins and Fosses at Gammel Torv in central Copenhagen (another Foss is in the background, hiding behind a lamppost, and the head of Clan Klein is behind the camera). No real reason to post this except to prove that Nicolai and I both smile occasionally. Note to colleagues at home: This is a business trip, I promise.

23 June 2009 at 4:09 am 2 comments

Capitalism’s Challenges: Cycles of Expropriation

| Benito Arruñada |

Following up my previous entry on cycles of statism, I ask next: How important are cycles of expropriation? Consider, for example, how Bolivia has nationalized foreign oil firms every 34 years. In the most recent round, the nationalizing decree read:

Consider that Bolivia was the first country on the Continent to nationalize ts hydrocarbons, in 1937 with  Standard Oil Co, a heroic measure, and done again in 1969 with Gulf Oil, leading the present generation to carry on the third and definitive nationalization. (Supreme Decree 28701, Evo Morales, President, May 2006).

In an experiment with Marco Casari we find similar patterns under more “democratic” circumstances. You may download the paper here.

22 June 2009 at 3:13 pm Leave a comment

Rajshree Agarwal on the US Government’s Response to the Financial Crisis

| Peter Klein |

Nice interview with Rajshree Agarwal on the US government’s response to the financial crisis. “Has It Helped?” Rajshree’s answer in brief: No.

22 June 2009 at 9:51 am 1 comment

Management Journal Impact Factors 2008

| Nicolai Foss |

The new ISI impact factors for 2008 have just been released. There are lots of surprises this time. The biggest one is arguably that Organization Science is now out of the top 10 range, a long drop from its #4 status in 2006 (this sucks when you got two recent papers, one forthcoming and one R&R, at this journal :-( ). The second surprise, at least to me, is that the Journal of Management has made it to #5. One possible explanation is its rather influential yearly review issues. Another surprise is that Organization Studies, which was among the top 10 in 2006, has now moved down a lot to close to #30. The Journal of Management Studies, while not among the top 10 this year, has not been harmed as badly, dropping to #14. ASQ, once the undisputed top-management journal, is now #9. Less surprising is Academy of Management Review’s #1 position (it is usually among the top 3), and that the Strategic Management Journal is #4.

The rank order down to LRP at # 36 is: AMR – AMJ – MIS Q – SMJ – JoM – ORM – JIBS – AMLE – ASQ – OBHD – RP – JPIM – Org. Sci. – JMS – RoB – JoM – JOperationsM – IMA – JMIS – Man Sci -DS – IRS – LQ – Omega – R&D Man – GOM – JIT – Techno. – Org. Stud. – Brit. JoM – Adv. Strat Man. –  HBR – Int Small Bus. J – Int. J. Oper. Prod. M. – Int. J. Man. Rev. – Int. J of Forec. – LRP

A new feature of the list is the inclusion of a five-year impact factor which, given the rather turbulent movements from year to year, makes a lot of sense (and which produces a rather different rank order from the above!).

20 June 2009 at 6:18 am 20 comments

Show Us Some Love

| Peter Klein |

Thanks to Randy for these pictures of science-related tatoos. The phrase “beyond awesome” comes to mind. Who among you will be the first to get an O&M-themed body decoration?

19 June 2009 at 4:13 am 4 comments

Does Capitalism Suffer Cycles of Statism?

| Benito Arruñada |

Does the current expansion of the State reverse a previous reduction, to be reduced once again in the future? Or, alternatively, is there a sort of ratchet effect, with a trend towards greater statism disguised by cycles along such increasing trend?

cycles1I am inclined to think that cycling has not taken place around a stationary average but around an increasing tendency (see the figures). But perhaps a better way of facing these questions would be to disaggregate in different dimensions. For instance, in several papers with Veneta Andonova we argue that freedom cycles2of contract has been in  decline for more than a century in Western Law, both in civil- and common-law countries. Something similar could probably be said about trade, but in the opposite direction. However, in both freedom of contract and trade, it might be the case that exchange opportunities have expanded mainly as a result of technological change (e.g., cheaper transportation and communications), whatever the legal constraints. In terms of research, how could these trends be measured?

These thoughts were triggered by a timely and extremely suggestive paper by Witold J. Henisz presented at the Workshop on “Manufacturing Markets” organized last week in Villa Finaly, Florence, by Eric Brousseau and Jean-Michel Glachant.  My next few blogs will address other aspects of Henisz’s views on the broader challenges facing capitalism.

18 June 2009 at 8:52 am 2 comments

Sameulson on the Crisis

| Peter Klein |

Is it wrong to pick on a 94-year-old? Mario Rizzo doesn’t think so, and neither do I — if it’s Paul Samuelson, perhaps the most influential economist of the twentieth century and bête noire to Austrians, libertarians, and many other types I hold near and dear. Samuelson, champion of “scientific” economics (i.e., the nineteenth-century physics model so effectively skewered by Phil Mirowski), the neo-Keynesian synthesis, and the everything-but-the-kitchen-sink approach to economics textbooks, now says prediction is impossible and deficit spending unsustainable. What’s next, a startling pronouncement that, contrary to what Samuelson wrote in the pre-1991 editions of his textbook, the Soviet Union was not actually more productive than the US?

Bonus Keynesian material (via Ross Emmett): Did Keynes die of a bad tooth?

18 June 2009 at 2:27 am 2 comments

Events @CBS

| Peter Klein |

I’ve just arrived in Copenhagen, where I’m spending a month as a visiting professor at the SMG. Copenhagen Business School has become one of the most intellectually exciting places in Europe. This week alone the school is hosting the DRUID summer conference which features people like Anita McGahan, Sid Winter, Will Mitchell, Russ Coff, Mike Ryall, and many others, along with a workshop on corporate governance with keynotes by Mark Roe, Randall Morck, Annette Poulsen, and Florencio Lopez-de-Silanes Molina. Of course these are only appetizers for the next week’s main course, the PhD seminar on The Theory of the Firm and Its Applications in Management Research conducted by Professors F. and K. Truly an embarrassment of riches!

17 June 2009 at 2:00 am 1 comment

If You’re So Smart …

| Nicolai Foss |

… that it makes sense to delegate a lot of decision-making authority to you when you perform as an agent for a principal, you may also be so smart that you can game the incentive plan. In “Ability and Agency Costs: Evidence From Polish Banking,” Douglas Frank and Tomasz Obloj, both INSEAD, argue (rightly, IMO) that the link between cognitive ability and agency costs has not yet been studied in agency theory. (more…)

16 June 2009 at 2:34 pm 1 comment

Campello and Fluck

| Lasse Lien |

Here is a paper from 2006 by Maurillo Campello and Zsuzsanna Fluck that is even more interesting now than it was in 2006. If you are interested in the micro-implications of the current crisis, you’ll surely like this one.

Abstract: We model the interaction of product market competition and firms’ financing decision when firms face capital market imperfections and consumers face switching costs. In our model, consumers anticipate that capital market frictions may drive their supplier out of business and account for welfare losses that firm bankruptcy imposes upon them. Likewise, managers, when investing in long-term market share building, take into account the possibility of business failure and the residual value they may capture from the firm’s liquidation process. Our theory yields four central implications. In response to a negative shock to demand: (1) more leveraged firms will experience significant market share losses; (2) the market share losses of more leveraged firms will be more pronounced in industries where low debt usage is the norm; (3) the market share losses of more leveraged firms will be more pronounced in industries where consumers face higher switching costs; and (4) the market share losses of more leveraged firms will be magnified in industries where asset liquidation is less efficient. Using detailed firm- and industry-level data from U.S. manufacturers over the 1990-91 recession, we present empirical evidence supporting our model’s predictions. We later expand our empirical analysis, studying a large panel of firms over the various phases of the full business cycles contained in the 1976-96 period. Results from these broader tests provide additional evidence in support of our theory.

16 June 2009 at 6:20 am 2 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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