Archive for October, 2010

Entrepreneurial Firms and Job Creation: Size Matters Not

| Peter Klein |

The view that small and new firms create a disproportionate share of new jobs is one of the most important stylized facts of the entrepreneurship literature. But, as always, the devil is in the details. Small and new firms naturally grow at a faster rate than their large, mature counterparts, ceteris paribus, simply because they have few employees to start with. But they differ on a number of other grounds and have a higher hazard rate. What’s the bottom line?

John Haltiwanger, Ron Jarmin, and Javier Miranda have taken a close look at the US data and conclude that age, not size, is what matters.

There’s been a long, sometimes heated, debate on the role of firm size in employment growth. Despite skepticism in the academic community, the notion that growth is negatively related to firm size remains appealing to policymakers and small business advocates. The widespread and repeated claim from this community is that most new jobs are created by small businesses. Using data from the Census Bureau Business Dynamics Statistics and Longitudinal Business Database, we explore the many issues regarding the role of firm size and growth that have been at the core of this ongoing debate (such as the role of regression to the mean). We find that the relationship between firm size and employment growth is sensitive to these issues. However, our main finding is that once we control for firm age there is no systematic relationship between firm size and growth. Our findings highlight the important role of business startups and young businesses in U.S. job creation. Business startups contribute substantially to both gross and net job creation. In addition, we find an “up or out” dynamic of young firms. These findings imply that it is critical to control for and understand the role of firm age in explaining U.S. job creation.

30 October 2010 at 11:51 pm 3 comments

Another Proud Non-Voter

| Peter Klein |

It’s Larry Ribstein. Will he get the same treatment I received a few years ago?

29 October 2010 at 1:55 pm 11 comments

Congratulations to J. C. Won

| Peter Klein |

Congratulations to University of Missouri PhD student Jong Chul Won for being one of three Don Lavoie Memorial Essay Competition Winners for 2010. His paper is “The Emergence, Limit, and Distortion of the Firm: The Entrepreneurship Approach.” The contest is sponsored by the Society for  the Development of Austrian Economics. Details are below the  fold.

Missouri student Per Bylund was a 2009 winner at the Austrian Student Scholars Conference for his paper “The Theory of the Firm: Coasean Misconceptions and Austrian Solutions.” If you’re interested in entrepreneurship and the theory of the firm, particularly from an Austrian perspective, the University of Missouri is the place to be! (more…)

28 October 2010 at 10:01 pm Leave a comment

A POMO Picture is Worth a Thousand Words

| Peter Klein |

Not “pomo” as in Pomo Periscope, but “POMO” as in Permanent Open Market Operations. A fascinating graphic from Bob English (via EB)  showing how the Fed is using its new tool (click to enlarge). In case you were worrying about the Fed “standing idly by” . . . .

28 October 2010 at 7:37 am Leave a comment

The Legacy and Work of Douglass North

| Peter Klein |

Washington University, St. Louis is hosting a major international conference, 4-6 November, on the Legacy and Work of Douglass North. The all-star panel includes Lee Alston, Robert Bates, Joel Mokyr, Elinor Ostrom, Ken Shepsle, Barry Weingast, and many others. The conference is organized by Wash U’s Center for New Institutional Social Science.

In other conference news, the CFP for next year’s Atlanta Competitive Advantage Conference, 17-19 May 2011, has been posted. Featured presenters include Jay Barney, Joel Baum, and Rebecca Henderson.

27 October 2010 at 9:11 am 1 comment


| Scott Masten |

Oliver Williamson has obviously had an enormous influence on my research and career, but I encountered Olly only fairly late in my education; in fact, I didn’t take Olly’s Industrial Organization course until my last semester of course work, in the fall of my third year in graduate school. Prior to that, my primary field had been comparative economic systems or, as it was called at Penn, comparative economic planning. My interest in the latter field and, indeed, my decision to go to graduate school in the first place I owe to Edwin Dolan. I had entered college intending to go to law school and enrolled in Dolan’s Economic Analysis of Law seminar in the winter of my sophomore year. That course was eye-opening for me in two respects. First, after spending long days in the library stacks reading law cases (when the next best alternative activity was skiing), I decided that that was not what I wanted to do for the rest of my life. Second, I learned that I could engage the “fun” (that is, the analytical) part of law by continuing in economics, which I already found appealing. (more…)

26 October 2010 at 8:55 pm 3 comments

Survivor Bias: WW2 Edition

| Lasse Lien |

During World War 2 the British Royal Air Force (and Navy) pioneered the use of empirical and statistical analysis to improve performance — laying the foundation for the field we now know as Operations Research.

One fascinating anecdote is how these pioneers used data on damage from German air defense fire. The RAF collected large amounts of data on exactly where returning aircraft had received damage. The intuitive recommendation would be to reinforce the aircraft were the data indicated they took the most damage. However, realizing that they only had data from surviving aircraft, the OR group under leadership of Patrick Blackett recommended that they reinforce the aircraft in the sections where no damage was recorded in the data. Clever chaps, I dare say.

26 October 2010 at 6:50 pm 5 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).