Archive for August, 2009

How to Publish a Scientific Comment in 123 Easy Steps

| Peter Klein |

This is floating around the web and good for a chuckle. The situation in social science is in some ways better and in other ways worse than that described here (the author claims it’s based on a true story). Our journals are not quite as space constrained, on average, but our publication lags are typically much longer.

Be sure to read all the way through to the Addenda, in which the author makes interesting and important suggestions for revising the system. (HT: Randy.)

31 August 2009 at 5:19 pm 3 comments

The Amish Internet

| Peter Klein |

It’s the Budget, a 119-year-old Amish weekly newspaper published in Sugarcreek, Ohio. “The Budget is the dominant means of communication among the Amish, a Christian denomination with about 227,000 members nationwide who shun cars for horse-drawn buggies and avoid hooking up to the electrical grid,” says an AP story. The national edition, which has a strong following in the US and Canada, simply aggregates dispatches produced by local writers. “People call the Budget the Amish Internet,” says its publisher. “It’s non-electric, it’s on paper, but it’s the same thing.”

The example highlights the benefits and costs of different types of networks. Open-access, open-source networks governed by just a few simple protocols like TCP/IP and HTML are not necessarily the best solution for every problem. Sneakernet is more secure, for example. In the Amish case, according to the AP story, the Budget’s customers limited access, threatening a rebellion when the newspaper recently announced plans to produce an online edition. “The writers, known as scribes, feared their plainspoken dispatches would become fodder for entertainment in the ‘English,’ or non-Amish, world.”

29 August 2009 at 1:56 pm 1 comment

Twitter for Professors

| Peter Klein |

For the loquacious, in other words. (Via Chris Dannen.)

27 August 2009 at 1:36 pm 1 comment

History of Economic Thought Boot Camp

| Peter Klein |

A message from Bruce Caldwell:

I am pleased to announce that the Center for the History of Political Economy at Duke University has been awarded a grant by the National Endowment for the Humanities to support a Summer Institute to be held at Duke June 6 – 25, 2010. The institute will bring 25 faculty members from colleges and universities in the US with no previous experience teaching history of economic thought to Duke for a three week “Boot Camp,” with the goal that the participants will go back to their home institutions both prepared and eager to teach an undergraduate course in the field. A number of HES members (past or present Society presidents all, in fact) will serve as lecturers and discussion leaders, including Brad Bateman, Bruce Caldwell, Craufurd Goodwin, Kevin Hoover, Steve Medema, Sandy Peart, and Roy Weintraub. We are hopeful that this institute, if successful, will be continued in future years, and that if alternative sources of funding become available, could be opened up to include graduate students and non-US citizens. (The current constraints on eligibility are due to NEH rules.)

You can contact Bruce for more information.

27 August 2009 at 12:30 pm 2 comments

Interviews with Nobel Laureates

images| Peter Klein |

I just discovered that the official Nobel site has a multimedia section, with interviews, videos of the ceremonies and acceptance speeches, and so on. Most of the recent economics Laureates are included. Interesting stuff.

Bonus Nobel material: Josh Wright makes a good case for an economics prize honoring the UCLA tradition in the theory of the firm, property rights, and transaction costs. Josh himself is an excellent representative of that tradition. And here’s an old post on the prospects for a Nobel prize in organizational economics.

Williamson is still my favorite dark horse candidate, for obvious personal reasons, but I’d be delighted to see Klein, Alchian, Demsetz, or even Barzel and Cheung recognized for their contributions.

26 August 2009 at 10:06 am 2 comments

Even Stanley Fish . . .

| Peter Klein |

. . . recognizes that politicizing the basic English composition classes — one of the crowning achievements of literary and cultural postmodernism, the movement once championed by Fish himself — wasn’t such a good idea (via George Leef):

A few years ago, when I was grading papers for a graduate literature course, I became alarmed at the inability of my students to write a clean English sentence. They could manage for about six words and then, almost invariably, the syntax (and everything else) fell apart. I became even more alarmed when I remembered that these same students were instructors in the college’s composition program. What, I wondered, could possibly be going on in their courses?

I decided to find out, and asked to see the lesson plans of the 104 sections. I read them and found that only four emphasized training in the craft of writing. Although the other 100 sections fulfilled the composition requirement, instruction in composition was not their focus. Instead, the students spent much of their time discussing novels, movies, TV shows and essays on a variety of hot-button issues — racism, sexism, immigration, globalization. These artifacts and topics are surely worthy of serious study, but they should have received it in courses that bore their name, if only as a matter of truth-in-advertising.

As I learned more about the world of composition studies, I came to the conclusion that unless writing courses focus exclusively on writing they are a sham, and I advised administrators to insist that all courses listed as courses in composition teach grammar and rhetoric and nothing else. This advice was contemptuously dismissed by the composition establishment, and I was accused of being a reactionary who knew nothing about current trends in research.

Quelle ironie!

26 August 2009 at 8:36 am 1 comment

The Pretense of Bernanke’s Knowledge

| Peter Klein |

Chairman Bernanke, in his own words:

July 2005: “[U]nquestionably, housing prices are up quite a bit; I think it’s important to note that fundamentals are also very strong. We’ve got a growing economy, jobs, incomes. We’ve got very low mortgage rates. We’ve got demographics supporting housing growth. We’ve got restricted supply in some places. So it’s certainly understandable that prices would go up some. I don’t know whether prices are exactly where they should be, but I think it’s fair to say that much of what’s happened is supported by the strength of the economy.”

July 2005: “[Recession is] a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit. I don’t think it’s going to drive the economy too far from its full employment path, though.”

February 2007: “Our assessment is that there’s not much indication at this point that subprime mortgage issues have spread into the broader mortgage market, which still seems to be healthy. And the lending side of that still seems to be healthy.”

July 2007: “The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening in lending standards, and the recent increase in mortgage interest rates. Sales should ultimately be supported by growth in income and employment, as well as by mortgage rates that, despite the recent increase, remain fairly low relative to historical norms. . . . Overall, the U.S. economy seems likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend.”

July 2009: “Overall, the Federal Reserve has many effective tools to tighten monetary policy when the economic outlook requires us to do so. As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period. We will calibrate the timing and pace of any future tightening, together with the mix of tools to best foster our dual objectives of maximum employment and price stability.”

25 August 2009 at 11:23 am 3 comments

The Economist Going Austro-Demsetzian?

| Nicolai Foss |

Most observers of industrial organization will readily agree that so-called “predatory pricing” is a rare phenomenon. Nevertheless, it remains one of the most hotly debated topics in industrial organization theory and in practical competition policy, probably because it is a particularly conspicuous example of the “abuse of a dominant position” (to use EU competition policy lingo).

In its most recent issue, The Economist has a nice discussion of predatory pricing, prompted by the recent EU Intel case. The article opens by citing Coase, but in actuality its owes much more to Harold Demsetz (cf. this classic paper) as well as Austrian writers on industrial organization such as Dominick Armentano (cf. this paper). The article is excellent as a basis for discussion in classes on industrial organization.

25 August 2009 at 4:48 am Leave a comment

A Hopeful Sign

| Peter Klein |

At least one major US bank is advertising the fact that it refused TARP funds. Bernanke and Co. must be unhappy, as they insisted that all large banks take the money to avoid tainting those that actually needed it. Wouldn’t it be great if the largest bailout recipients became tarred as Welfare Bums (just as people call G.M. “Government Motors”)? (HT to Lisa Fairfax.)

The irony in all this is that government intervention in financial markets is usually justified by claims about asymmetric information: consumers can’t distinguish reliable from unreliable banks, insurers can’t tell healthy from unhealthy people, and so on, leading to a rash of adverse-selection problems that market mechanisms cannot solve. Actually the reverse is true: low-quality but politically connected financial institutions rely on government intervention to enforce a pooling equilibrium, preventing the market signaling and screening that would otherwise take place.

24 August 2009 at 2:44 pm 2 comments

Discipline-Based Policy Advice

| Peter Klein |

As noted before, the economist long ago replaced the fortune teller as the most popular kind of policy adviser. The US, for example, has a Council of Economic Advisers but no Council of Anthropological Advisers or Council of Critical Literary Theorist Advisers (thank goodness). Now the sociologists want a piece of the action. And, as Rajshree Agarwal, Jay Barney, Nicolai, and I have argued, management scholars (a partially overlapping set with economists, it should be noted) may also have something to offer in understanding the current economic mess.

Here’s Richard Posner making a pitch for legal scholars: “with a few notable exceptions, such as Lucian Bebchuk, Edward Morrison, and Steven Schwarcz, academic lawyers (and Bebchuk and Morrison have Ph.Ds in economics, as well as law degrees) have not made a contribution to the understanding and resolution of the current economic crisis, even though it bristles with legal questions.” But he isn’t sure that academic legal training is currently very useful. Kenneth Anderson is more optimistic:

I think that legal academics will have much to contribute in the reform of finance in the remaking of institutions and markets with fewer panglossian assumptions about how they will find optimal solutions on their own, and with fewer panglossian assumptions that they will do so as a matter of natural necessity. But I also think, even more strongly, and will raise it in some subsequent posts, that lawyers will bring to the table an understanding of the unquantified risks and uncertainties that are written into financial contracts — derivatives, securitizations, etc. — that financial analysts, economists, many other non-lawyer actors, took for granted as not having any effect.

Who else wants a seat at the table?

24 August 2009 at 11:56 am 1 comment

Idea for Historical Law and Economics Thesis

| Nicolai Foss |

Apropos the always-topical issue of the efficacy of the death penalty, I was recently told by Siegwart Lindenberg that one of Gordon Tullock’s characteristically quirky proposals for reform was to institute the death penalty as the sanction that any crime would meet in the criminal justice system. However, there was a twist, because although any criminal would receive a death penalty, not all criminals would actually be executed. Specifically, all criminals would be strapped to the chair, but there was only a probability that the button would be pressed, the probability depending on the severity of the crime. Because of risk aversion and a tendency to overestimate probabilities (and for the Draconian symbolic value), this scheme would put an effective end to much crime. (I haven’t been able to find a reference for this idea; perhaps it exists only in the oral tradition that surrounds the Tullock figure).

It is easy to dismiss the Tullock scheme as “cruel,” “inhuman,” “far out,” “not practicable,” etc. But perhaps it does have a historical precursor. At its height the criminal law of England (the “Bloody Code”) included more than 220 crimes that were punishable by death, including “being in the company of gypsies for more than one month” (here is the Wiki).  Other countries have had similar broad approaches to which crimes were punishable by death, though perhaps few as Draconian as England’s. However, one has to bear in mind that there generally was a pardon system, and that it is quite likely that some of the weirder crimes leading to death sentences were more likely to be pardoned than the really serious ones (e.g., a pardon may have been more likely in the case of the “crime” of being in the company in gypsies than outright murder). Could it be that this pardon system functioned in such a way that the probabilities of actual execution directly reflected the real severity of the crime? It seems likely. The data are definitely there. It is just collecting them and doing the analysis.

23 August 2009 at 2:09 pm 4 comments

What Does the Rule of Law Variable Measure?

| Peter Klein |

Bill Easterly poses this question, referring to his NYU colleague Kevin Davis’s work on law and development. Davis has several papers criticizing economists’ use of rule-of-law variables in development research (1, 2, 3). As summarized by Easterly:

Kevin points out that two current measures of “rule of law” used by economists in “institutions cause development” econometric research are by their own description a mixture of some characteristics of the legal system with a long list of non-legalistic factors such as “popular observance of the law,” “a very high crime rate or if the law is routinely ignored without effective sanction (for example, widespread illegal strikes),” “losses and costs of crime,” “corruption in banking,” “crime,” “theft and crime,” “crime and theft as obstacles to business,” “extent of tax evasion,” “costs of organized crime for business” and “kidnapping of foreigners.” Showing that this mishmash is correlated with achieving development tells you what exactly? Hire bodyguards for foreigners?

What if “institutions” are yet another item in the long list of panaceas offered by development economists that don’t actually help anyone develop?

Easterly opens with a clever example of a legal rule that doesn’t make sense outside an informal, non-rule context. But overall I think he’s a little unfair to the development and financial economists working in this area, many of whom are sensitive to these problems but are doing the best they can with the data available. It’s true, however, that much of the early work, particularly in the LLSV tradition, conflated de jure and de facto rules (particularly in over-emphasizing differences between common-law and civil-law countries). Benito Arruñada’s critique of the Doing Business Project is also informative in this regard.

21 August 2009 at 9:32 am 2 comments

Postrel on Competitive Advantage

| Peter Klein |

Former guest blogger Steve Postrel gave an interesting presentation at last week’s AoM Professional Development Workshop on competitive advantage: “Competitive Advantage: Can’t Live With It, Can’t Live Without It.” Steve sent me the slides and was happy to share them here. Add your questions and comments below.

Steve provides a set of conditions that must be met for competitive advantage to be internally consistent and operationally meaningful, then presents his own (unique) definition, a simple and precise formulation in terms of gains from trade:

Seller 1 has competitive advantage over Seller 2 with respect to a specific transaction if and only if the economic surplus (gains from trade = V – C) from a transaction between 1 and the buyer is greater than the surplus from a transaction between 2 and the buyer. The difference in surplus is the CA.

A series of implications, qualifications, and applications follows. What do you think?

21 August 2009 at 9:01 am 3 comments

Preaching from the Choir

| Dick Langlois |

It’s hard to top Bruce Kogut on the Daily Show. But by sheer coincidence I happened upon a video that offers a quite different perspective on corporate social responsibility.

20 August 2009 at 2:46 pm Leave a comment

Bruce Kogut on the Daily Show

| Peter Klein |

Nicolai Facebooked this the other day but neglected to share it with the wider blogosphere. The clip made me laugh out loud. Of course, I don’t agree with the premise, that business schools are responsible for the current crisis (and that the MBA Oath, which we discussed before, is the solution). But it’s still funny as Hades.


20 August 2009 at 8:53 am Leave a comment

Rose Friedman and Frank Knight

| Peter Klein |

You probably heard that Rose Friedman died yesterday. I haven’t read the Friedmans’ memoir and didn’t know, until Ross Emmett and Greg Ransom pointed it out yesterday, that Rose had been Frank Knight’s research assistant at Chicago and was planning a PhD dissertation on capital theory. She never finished nor, to my knowledge, published anything on the topic. What do you think she would have written? Knight produced very few PhD students (perhaps, given his idiosyncratic views, he was not the ideal dissertation adviser) and it would be interesting to know more about Rose’s experiences and her views on capital (presumably close to Knight’s, not Hayek’s).

Here’s what she says in Two Lucky People (p. 51):

After considerable discussion with Professor Knight, I decided that I would concentrate on a history of capital theory as a Ph.D. thesis topic. It would fit into my assisting with his research and was a kind of research that I found interesting. Knight approved, adding, “I have been working on that for twenty years without success but perhaps you will succeed.” I never did. During Milton’s and my honeymoon, I completed drafts of the contributions to capital theory by Longfield and Senior. However, when we started life in New York, I went to work for the National Bureau [of Economic Research] on a bond study postponing, I thought temporarily, my dissertation. I have never finished it.

19 August 2009 at 9:44 am 2 comments

Greif’s Response to Rowley

| Peter Klein |

Avner Greif has written a response to Charles Rowley’s odd claim that Greif “denied Janet Landa her full intellectual property rights with respect to her contributions to the economic analysis of trust and identity.” Public Choice, which published Rowley’s critique, will run the reply. Avner kindly sent me an advance copy and gave me permission to post it here. Full text below the jump.

My $0.02: This is a very effective reply, pointing out that Landa’s and Greif’s explanations for trust are quite different (one based on preferences, the other on beliefs). Avner, perhaps wisely, steers clear of the general epistemological problem: How do you know if scholar A has cited predecessor B “enough”? Expecting A to show he hasn’t unfairly neglected B is asking A to prove a negative. Ultimately, the whole exercise seems petty to me. B’s defenders should focus on elevating B’s reputation, not complaining about A, C, and D’s failure to show the love.

The Curious Commentary on the Citation Practices of Avner Greif

By Avner Greif
August 2009
Forthcoming at Public Choice

Abstract: Rowley (2009) failed, among other faults, to recognize the substantive distinction between the lines of research pursued by Professor Landa and myself. Its claim that I have “expropriated” (p. 276) intellectual property rights from Professor Landa by insufficiently citing her works is vacuous. (more…)

18 August 2009 at 10:35 pm 2 comments

Times Are Tough

| Peter Klein |

At the University of Southern Mississippi, which is responding to the economic crisis by eliminating its economics department (Tomas Sjostrom via Sandeep Baliga). Even tenured faculty will go

Stanford dumped its Food Research Institute (where a good friend of mine was employed) about a decade ago, also terminating the contracts of tenured economists, though not in response to a particular external event (as far as know). I’m sure there are other examples. Thank goodness it wasn’t sociology!

18 August 2009 at 2:06 pm 2 comments

Your Vote Counts After All!

| Peter Klein |

The average American had a 1-in-60 million chance of affecting the outcome in the last Presidential election. Boy, do I feel bad!

18 August 2009 at 9:50 am 3 comments

Mintzberg Interview

| Peter Klein |

BI-AA286_EXEC_DV_20090806131550A short interview with Henry Mintzberg, mostly about his forthcoming book Managing, in today’s WSJ (not sure if it is gated). Best line:

I talk about what I call “the inevitably flawed manager.” We’re all flawed, but basically, effective managers are people whose flaws are not fatal under the circumstances. Maybe the best managers are simply ordinary, healthy people who aren’t too screwed up.

17 August 2009 at 1:43 pm 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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