Archive for December, 2009

Finally, a Humanities Book Worth Reading

| Peter Klein |

It’s The Year’s Work in Lebowski Studies, edited by Edward P. Comentale and Aaron Jaffe (Indiana University Press, 2009). Says one dust-jacket endorsement: “There is something here for the slacker as well as the scholar, for all Lebowskis, big and small.” HT to the NYT, which titles its review “Dissertations on His Dudeness.” Look for Cornel West to offer a Princeton course soon on Lebowski Studies.

31 December 2009 at 2:34 pm Leave a comment

Call for a Slow-Word Movement

| Peter Klein |

If you like slow food, maybe you’ll like slow words. Forbes columnist Trevor Butterworth (via John Hagel) calls for journalists, educators, parents, and executives to spend time in the information superhighway’s slow lane:

the crisis of journalism is, at this point, sufficiently real to be seen as part of a wider conceptual crisis brought about by new-media technology: a crisis that is located, primarily, in the cognitive effects of acceleration and its cultural backwash. In short, a relentless, endless free diet of fast media is bad for your brain. Generation Google — those who have never known a world without the Internet — it turns out, not only cannot use Google effectively, they don’t even know enough about how to search for information to know they can’t use Google effectively. The idea that the kids are whizzes at multimedia tasking is a platitude confected by middle-aged techno gurus to peddle their expertise as explainers of generational difference. In fact, relentless multitasking erodes executive function. And while the brain may not be overloaded by 34 gigabytes of brute information a day, it appears that too many of these mental quanta are the equivalent of empty calories. PlayStation and texting need to be balanced out by reading novels, handwriting (for old-fashioned digital dexterity) and playing with other live people if you want your child to develop to be an effective, skill-acquiring, empathetic adult.

The tone is a bit curmudgeonly, even for me, and smells like yet another apologia for the Old Media. Some good points, nonetheless. And I’m sure there’s material for a good multitask principal-agent paper in there somewhere.

Here’s wishing you a Curmudgeonly New Year!

31 December 2009 at 11:41 am 1 comment

Happy Keynesian New Year

| Craig Pirrong |

Keynes and Hayek were major adversaries in the 1930s, but it is interesting to note that they shared some important ideas in common, but drew diametrically opposed conclusions from them.

In particular, Hayek, and the Austrians generally, believed in radical uncertainty, in the sense that individual economic agents had too little information about the world to assess probabilities of states of the world, or even to identify the possible states. Keynes similarly believed in the inability of individuals to evaluate investments in a rigorous quantitative way. Keynes concluded that this made investors subject to radical shifts in sentiment and “animal spirits” that could cause an autonomous collapse in investment. (more…)

29 December 2009 at 2:22 pm 6 comments

Can We Tackle the Big Problems?

| Peter Klein |

Russ Coff, Emory University strategy professor extraordinaire and former O&M guest blogger, sends this special report:

I’m reporting live (but jet lagged) from the Israel Strategy Conference that Peter had mentioned earlier. A theme among the keynote speakers (particularly Jay Barney and Anita McGahan) has been how we can apply our theories to tackle more meaningful problems.

Jay delivered a tearful account of his personal efforts to apply resource based theory to help a small village in Bolivia. (more…)

29 December 2009 at 9:51 am 3 comments

Happy Birthday, Ronald!

| Peter Klein |

Happy Birthday to Ronald Coase, 99 years young today. Live long and prosper!

Favorite under-appreciated Coase essay of the day: “Business Organization and the Accountant.”

Update: Oops, Mike Sykuta tells me that the birthday is actually tomorrow, 29 December. (I blame the Coase Institute, which sent out a Facebook message on 28 December saying “Congratulations to Ronald Coase on his 99th birthday today, December 29.” I didn’t catch the goof.)

Update II: A friend asks why new institutional economists live so long. I suggested a keen appreciation of comparative institutional analysis, reflected in a version of the old adage, “Getting old isn’t so bad, once you consider the feasible alternative.”

28 December 2009 at 2:36 pm Leave a comment

Entrepreneurship and Action

| Peter Klein |

A few entrepreneurship scholars see action under uncertainty, rather than perception of opportunity, as the essence of the entrepreneurial function. Really, really eminent scholars. Anyway, here’s a little etymological tidbit along these lines from Jesús Huerta de Soto’s book The Austrian School: Market Order and Entrepreneurial Creativity:

Indeed both the Spanish word empresa and the French and English word entrepreneur derive etymologically from the Latin verb in prehendo-endi-ensum, which means “to discover, to see, to perceive, to realize, to capture”; and the Latin term in prehensa clearly implies action and means “to take, to seize.” In short, empresa is synonymous with action. In France, the word entrepreneur has long conveyed this idea — since the High Middle Ages, in fact when it was designated to those in charge of performing important and generally war related deeds or to those entrusted with executing the large cathedral building projects.

Thanks to Dan D’Amico for calling my attention to this passage.

PS: On the more general claim that entrepreneurship should be treated as an abstract function, rather than an employment category, I call to the stand Edith Penrose, who writes in Theory of the Growth of the Firm (chapter 3, footnote 1):

The term “entrepreneur” throughout this study is used in a functional sense to refer to individuals or groups within the firm providing entrepreneurial services, whatever their position or occupational classification may be.

You go, girl!

27 December 2009 at 11:45 am 4 comments

We Feel Your Pain

| Peter Klein |

From all of us here at O&M, we hope you have the same problem as the guy below (click to enlarge), and we wish you a happy, healthy, and productive 2010!

24 December 2009 at 9:23 am 3 comments

Public Entrepreneurship

| Peter Klein |

Joe Mahoney, Anita McGahan, Christos Pitelis, and I have written a paper, “Toward a Theory of Public Entrepreneurship,” exploring the application of concepts, theories, and approaches from the entrepreneurship literature to non-market behavior. We argue that governments, government agencies, social enterprises, charitable organizations, and other “public” actors can be described as being alert to opportunities for value creation and capture, exercising judgment over the deployment of resources under uncertainty, introducing technological and organizational innovations, and so on. These actors are, in a sense, “public entrepreneurs.” This characterization also helps highlight critical differences between private and public actors and organizations, differences relating to the definition and measurement of objectives, the ability to evaluate performance, the nature of external governance, and, of course, the role of coercion. The paper is very much an exploratory effort in this area, and we certainly welcome comments and suggestions.

Here’s the abstract:

This paper explores innovation, experimentation, and creativity in the public domain and in the public interest. Researchers in various disciplines have studied public entrepreneurship, but there is little work in management and economics on the nature, incentives, constraints and boundaries of entrepreneurship directed to public ends. We identify a framework for analyzing public entrepreneurship and its relationship to private entrepreneurial behavior. We submit that public and private entrepreneurship share essential features but differ critically regarding the definition and measurement of objectives, the nature of the selection environment, and the opportunities for rent-seeking. We describe four levels of analysis for studying public entrepreneurship, provide examples, and suggest new research directions.

23 December 2009 at 2:49 pm 18 comments

Today’s Food and Ag Links

| Peter Klein |

  • Via LRC, Jim Rogers and Marc Faber are bullish on commodities and agribusiness. “Rogers says that it will be farmers not bankers driving Ferraris in the coming decades. Faber likens investing in agriculture to investing in oil in 2001 or 2002.” Rogers is good on macro, BTW.
  • The Illinois Department of Agriculture — bless its heart! — has swooped in to protect high-end Chicago restaurant diners from the evils of unregulated designer sausages. Notes Thom Lambert: “The charcuteries’ sophisticated patrons realize they’re dealing with unlicensed meat-preparing facilities, but they know the sausage makers, are aware of the high-quality products they use and the care they take in making their products, and are willing to purchase the products despite the absence of a commercial license.” No, no, reputation effects cannot, I repeat, cannot, substitute for one-size-fits-all, top-down, government regulation! People might start thinking for themselves, you know.
  • Christine Harbin writes on libertarian food paternalism. “If America were serious about reducing the caloric intake of its citizens, then officials would eliminate the subsidies that it pays to corn producers rather than instituting sin taxes.”
  • Here’s an updated food chain, with zombies.

22 December 2009 at 1:07 pm 2 comments

Granger Causality in Film Studies

| Peter Klein |

Did Sidney Poitier Granger-cause Denzel Washington? Chris Cagle discusses. Imagine similar questions in management: Did Harold Geneen Granger-cause Jack Welch? Did Schumpeter Granger-cause Nelson and Winter? Who Granger-caused Nicolai Foss? (Answer: he’s sui generis.)

22 December 2009 at 9:41 am Leave a comment

A Boxes-and-Arrows Diagram Even the Academy of Management Review Couldn’t Love

| Peter Klein |

From a stunningly awful slide show (both substantively and aesthetically) on US Afghanistan policy (via Chris Coyne).

21 December 2009 at 2:45 pm 8 comments

The Age of Constructivism

| Craig Pirrong |

I am reading Vernon Smith’s Rationality in Economics. I highly, highly recommend it. Largely a homage to Hayek, it explores the implications of Hayek’s distinction between constructivist rationality and what Smith relabels ecological rationality. It contains a wealth of methodological and substantive insights. Smith is knowledgeable and thoughtful. He is almost John Stuart Mill-like in his even handed and fair characterizations of competing views, even those he disagrees with. He integrates experimental economics, game theory, institutional economics, neoclassical economics, neurology, and much, much more.

What fascinates Smith is the ineffable process by which an ecologically rational order emerges from the actions of myriad imperfectly informed and incompletely rational (in the constructivist sense) individuals. This process — a sort of economic transubstantiation — is the most fascinating economic mystery. It is also, alas, one that has received far too little attention from economists whose formal tools permit them to analyze (constructively) equilibrium, but which are virtually powerless to analyze the process of getting there; the proverbial drunks looking for their keys under the lamppost.

We live in an era of constructivism regnant. In health care and finance, especially, constructivist schemes will reshape for better or worse — and almost certainly worse — vast swathes of the American economy. What’s more troubling still, this is constructivism refracted through the flawed lens of politics and public choice. Appreciation of the emergent order, the ecologically rational, is sadly rare. Vernon Smith appreciates it, deeply, with an almost religious sense of awe. Read his book and you will appreciate it too.

20 December 2009 at 10:25 pm 5 comments

Ironies of Avatar

| Peter Klein |

I took the kids to see Avatar this weekend. From a technical standpoint, Jim Cameron’s film is remarkable, a breakthrough, as good as advertised. The alien world Pandora is stunningly realistic, detailed, convincing. The computer-generated characters look and move like real actors. The battle scenes are phenomenal.

But the storyline didn’t grab me. It’s a twist on that familiar Hollywood trope: evil, materialist, capitalist, militarist humans versus nature-loving, low-carbon-footprint, New Agey savages so noble they would have made Rousseau blush. The computer-generated landscapes are dazzlingly three-dimensional, but the characters, both human and alien, are cartoonish and one-dimensional (especially the Head Evil Capitalist, played here by Giovanni Ribisi, essentially reprising Paul Riser’s role from Cameron’s Aliens). The Pandorans are in their own way as clichéd as Peter Jackson’s much-derided Skull Islanders. I appreciate the film’s antiwar, anti-imperialist message, but really, the Earth First! propaganda is way, way over the top. And consider these ironies:

1. Avatar was written and directed by bazillionaire businessman Jim Cameron, is produced and distributed by giant corporation 20th-Century Fox, and will likely gross hundreds of million dollars. Naturally the film’s villain is — you guessed it — a giant corporation! Because, you know, businesspeople  and money and corporations are evil and stuff.

2. The film was made possible by Cameron’s highly innovative, beyond-the-state-of-the-art, years-in-the-making technological innovations. Yet one of the film’s main themes is the evils of technology and capital accumulation and the beauty of live-for-today, pre-industrial society. The Pandorans literally worship their planet and don’t just hug their animals and tress, they physically bond with them through some mystical (and anatomically curious) process. The poor humans, one of the characters explains, have destroyed their own “Mother.” Blech.

Update: Peter Suderman beat me to it, calling Avatar

one of the stupidest major movies in recently memory, blithely peddling a message that its entire production process actually undermines. That Avatar’s melodramatic attacks on corporate interests and its defense of simple, natural living come packaged as one of the most expensive, and probably the most technically advanced, corporate films in history would seem to indicate that only quality bigger than the movie’s stupidity is its head-in-the-clouds hypocrisy. Cameron’s made a movie that he intends to be epic and awesome, but the only thing that’s awesome here is his total lack of self-awareness.

Stephan Kinsella sees a libertarian defense of property rights, and so do I, but for me that message was buried beneath the eco-propaganda. Had the earthlings homesteaded some piece of unoccupied Pandoran land, put it to productive use, and then the natives decided they needed the land or that its economic value belonged to “Mother Pandora,” is there any doubt what side Cameron would be on?

20 December 2009 at 3:41 pm 20 comments

The Onion on Industrialization

| Peter Klein |

At year-end the Onion is featuring “Top Ten Stories of the Last 4.5 Billion Years” and some are O&M-themed. A look at child labor is cute, if uninformed (some of them little buggers actually worked before the Industrial Revolution, believe it or not). And I liked these person-on-the-street reflections on Henry Ford:

Ethel Smith, Auto Worker: “It’s satisfying to know I’m helping to build an industry and a future for my grandchildren and great-grandchildren right here in Detroit.”

Walter Booker, Craftsman: “It’s about time. I’ve had enough of those mind-numbingly boring jobs where you have to do different things all day.”

And don’t miss “Four Or Five Guys Pretty Much Carry Whole Renaissance”: “Our research indicates that da Vinci, Michelangelo, Shakespeare, and Galileo basically hoisted the entire intellectual transformation of mankind onto their shoulders while everyone else just sat around being superstitious nimrods.”

20 December 2009 at 12:49 am Leave a comment

Andrew Gelman’s Meta-Lesson

| Peter Klein |

“Microeconomics ain’t easy, and don’t let a regression — or division by a baseline — be a substitute for clear thought.” Steve Levitt is the target. Why does it take a statistics professor to remind economists of such an obvious truth?

19 December 2009 at 1:12 pm 1 comment

Robert Sugden

| Nicolai Foss |

I have become a huge fan of Robert Sugden, an economics Professor at the University of East Anglia and one of the most cited UK economists. Readers of this blog may know Sugden’s work from, for example, his excellent 1986 book, The Economics of Rights, Co-operation, and Welfare, as well as his papers on spontaneous order (e.g., here or here). Much of Sugden’s research lies in the zone of overlap between game theory (mainly experimental game theory and coordination games) and moral and political philosophy, and he is engaged in a constant dialogue with scholars in, or associated with, the classical-liberal tradition, such as Hume, Mill, and Hayek. He is the rare economist who, like Frank Knight, manages to publish in American Economic Review as well as in Ethics.

I am reading through Sugden’s recent publications and recommend the following as being of particular interest to the O&M readership:

  • Can Economics Be Founded on “Indisputable Facts of Experience”?  Lionel Robbins and the Pioneers of Neoclassical Economics” — An attack on Robbins’ Essay that may also challenge followers of praxeology.
  • Fraternity: Why the Market Need Not Be a Morally Free Zone“(with Luigino Bruni) — Drawing on the work of a contemporary of Adam Smith, Antonio Genovesi, Sugden and Bruni criticize the idea (reflected in, e.g., Williamson’s distinction between “trust as calculative risk” and “trust proper”) that one can make a distinction between market relationships and genuinely social relationships. Market relationships also have elements of joint intentions for mutual assistance.
  • The basis for the latter point can be found in “The Logic of Team Reasoning” which is a case for placing agency at the level of teams, specifically those teams that make use of team reasoning. The basic idea is that when team members reason in this way, they consider which combinations of actions will best promote the team objectives, and choose actions accordingly.
  • If the above sounds at variance with classical liberalism (which I don’t think it necessarily is), check out Sugden’s criticism of Thaler and Sunstein (here) or his various critical discussions of the notion of “opportunity” in welfare economics (Sen, Cohen, Roemer) (e.g., here) which are all in the mainstream of classical-liberal thought.

18 December 2009 at 7:09 am 1 comment

Disney Organizational Chart, circa 1943

| Peter Klein |

This week’s passing of Roy Disney has brought forth some interesting discussion of the firm founded by his uncle Walt and father Roy. Check out this Disney organizational chart from 1943 (click to enlarge), courtesy of design site @issue. Unlike the typical corporate hierarchy, writes Delphine Hirasuna, Disney’s “is based on process, from the story idea through direction to the final release of the film. All of the staff positions are in the service of supporting this work flow.” (From Cliff Kuang via WeLoveDataVis.)

17 December 2009 at 6:18 pm 3 comments

The Thoughtful President

| Peter Klein |

The President’s supporters portray him as thoughtful, well-informed, and deliberative. Unlike his predecessor, who acted on impulse, rarely considered dissenting points of view, and lived in a protective bubble, Obama reads, understands alternative perspectives, and thinks through arguments. Look how long it took him to decide on an Afghanistan policy!

And yet, on economic policy, the President is shockingly parochial. He has repeatedly challenged critics of his stimulus program to “produce a single economist” who opposes his actions. Anyone who disagrees with massive government borrowing and expenditures to “rescue” the economy is simply an obfuscationist, a partisan trying to score cheap political points at the expense of the national good. I think Obama genuinely believes this. He’s certain he’s right, so criticism bewilders him. He simply can’t fathom that there might be honest disagreement on basic economic issues. For Obama, the range of macroeconomic opinion runs from, say, Krugman to Summers. It’s like Pauline Kael’s famous line that Nixon couldn’t have won in 1972 because “no one I know voted for him.”

Of course, I’m not expecting a White House invitation for me and my friends to present Austrian business-cycle theory. But you’d think he might listen to Cochrane, Zingales, Mulligan, Becker, Glaeser, or even Mankiw.

This is our thoughtful, well-informed, deliberative Chief Executive?

17 December 2009 at 9:38 am 2 comments

I Wish I’d Written That

| Peter Klein |

Arnold Kling on PAS:

[P]rior to Samuelson’s formalization in economics, there were a lot of papers published that lacked clarity and insight. Now that formalization dominates, we also see a lot of papers that lack clarity and insight. If you compare the most insightful mathematical papers with the average non-mathematical papers, math wins. But one can also run the comparison the other way and reach the opposite conclusion.

16 December 2009 at 5:44 pm 1 comment

CFP: “Contracts, Procurement, and Public-Private Arrangements”

| Peter Klein |

It’s 14-15 June 2010 in Paris. Submissions are due 15 February. Stéphane Saussier is organizing, so you know it will be good. From the CFP:

This conference focuses on the recent developments in contract theories. Papers are invited on all topics of contract theories including:

  • relational contracting,
  • transaction costs,
  • renegotiations,
  • incentives,
  • attribution mechanisms,
  • incomplete contracting
  • contract design, etc.

Papers presented may be theoretical or applied. A special attention will be given to proposals addressing issues related to procurement and public-private arrangements.

16 December 2009 at 5:29 pm 1 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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