Archive for April, 2011

More on Routines

| Nicolai Foss |

The Journal of Institutional Economics, now in its seventh year of operation, is emerging as an important outlet in the intersection of new and old institutional economics, evolutionary economics and other more or less heterodox approaches. In addition, Geoff Hodgson and Benito Arrunada, the editors, are doing a splendid job of attracting contributions, not only from luminaries such as Richard Posner, but also from important non-economist thinkers whose work may have a bearing on economic issues (e.g., philosopher John Searle and evolutionary anthropologist Robin Dunbar).

The most recent issue of JoIE features a special issue on “Business Routines.” The SI includes particularly thoughtful essays by Ulrich Witt and Jack Vromen. As readers of this blog will know, probably ad nauseam, Teppo Felin and I have repeatedly discussed the troubling lack of micro-foundations for understanding the emergence, stability, change, etc. of routines (and other similar constructs, like capabilities). We also have a paper in the SI, launching related, but different critiques. Specifically, we explicate the behaviorist and empiricist foundations of the organizational routines and capabilities literature and the extant emphasis placed on experience, repetition, and observation as the key antecedents and mechanisms of routines and capabilities. 

This paper is followed by three comments by Sidney Winter, Brian Pentland, and Geoff Hodgson and Thorbjørn Knudsen, respectively, that take critical (in the case of Pentland, extremely critical) issue with various aspects of our argument. Winter and Knudsen and Hodgson raise many fundamental points, but unfortunately Pentland has thoroughly misunderstood the nature of the micro-foundations projects we advocate, and therefore concludes that all we add to the field is “confusion.” Although there is no such thing as bad publicity, Teppo and I are working on a rejoinder to these comments. More to come!

29 April 2011 at 7:31 am 2 comments

Macroeconomics Quote of the Day

| Peter Klein |

From Mario Rizzo, who’s written a number of great posts on contemporary macroeconomic thought:

The truth is that pre-Keynesian economics was, in most ways, more sophisticated than the aggregate demand framework bequeathed to us by Keynes and his official interpreters.

Mario explains how Paul Krugman, like Keynes himself, puts forth a straw-man version of pre-Keynesian macroeconomics in which a) crises are impossible and b) only national aggregates matter. Actual pre-Keynesian macroeconomics, like today’s Austrianism, often focused on the composition of output and employment across firms, industries, and sectors. Only a few oddballs, like Foster and Catchings, the proto-Keynesian underconsumptionist theorists skewered by Hayek in “The Paradox of Savings,” worried about economy-wide underconsumption.

See a sampler of our own thoughts on Keynes and Keynesianism here, here, and here. Or you could just watch the brilliant Keynes versus Hayek, Round 2.

28 April 2011 at 5:53 pm 1 comment

Contributions from Mature Scholars

| Peter Klein |

Following up my earlier post on Austrian longevity: Rafe Champion notes that Max Weber died suddenly of pneumonia, in 1920, at age 56. What important further contributions might he have made if he had lived longer?

This prompts the thought, what would have been lost if some long-lived Austrians [and fellow travelers] had died at 56? For Mises, that was 1937, before his masterwork was completed (later translated as Human Action) and before he was a living presence in the US.

For Hayek, that was 1954. No Constitution of Liberty and later works, no Nobel Prize.

For Popper, 1958, before The Logic of Scientific Discovery appeared in English and a dozen other books apart from The Open Society and The Poverty of Historicism.

Coase turned 56 in 1966, with several important contributions still to come: the 1970 paper on durable-goods monopoly, the 1974 paper on the lighthouse, and his recent papers on Fisher Body, not to mention the Nobel Prize and his crowning achievement, the 2002 CORI Lecture. What other examples come to mind?

27 April 2011 at 9:35 am 4 comments

Research Design Quote of the Day

| Peter Klein |

Following up our earlier discussion of identification versus importance (see also this), here’s the research design quote of the day (via Pete Boettke):

I worry that the drive for “clean” identification as a methodological obsession is driving some junior researchers . . . to a pursuit of the cute instrument (whether natural or experimental). This is leading them down the intellectual cul de sac of precise answers to trivial questions.

You see this kind of lament expressed more and more in various social science fields. Will there be a backlash against the identification obsession?

26 April 2011 at 9:33 am 3 comments

O&M Five-Year Anniversary

| Peter Klein |

O&M went live exactly five years ago, 25 April 2006. Since then we’ve run 2,549 posts and hosted 7,375 comments, most of them insightful and informative. How to celebrate? We are not as self-aggrandizing as some, so here’s a low-key approach. First, the all-time most popular posts, in descending order:

Second, a purely subjective list of some of our favorite comments: (more…)

25 April 2011 at 12:04 am 10 comments

Rhetoric for Academics

| Peter Klein |

Some professors could definitely use these pointers on rhetoric from the Art of Manliness blog. Women professors too. (Via LRC.)

Addendum: V.S. Naipaul’s Rules for Beginners (via 3quarks):

1. Do not write long sentences. A sentence should not have more than ten or twelve words.

2. Each sentence should make a clear statement. It should add to the statement that went before. A good paragraph is a series of clear, linked statements.

3. Do not use big words. If your computer tells you that your average word is more than five letters long, there is something wrong. The use of small words compels you to think about what you are writing. Even difficult ideas can be broken down into small words.

4. Never use words whose meaning you are not sure of. If you break this rule you should look for other work.

5. The beginner should avoid using adjectives, except those of colour, size and number. Use as few adverbs as possible.

6. Avoid the abstract. Always go for the concrete.

7. Every day, for six months at least, practice writing in this way. Small words; short, clear, concrete sentences. It may be awkward, but it’s training you in the use of language. It may even be getting rid of the bad language habits you picked up at the university. You may go beyond these rules after you have thoroughly understood and mastered them.

23 April 2011 at 4:21 pm 4 comments

Mahoney Invested as Caterpillar Chair

| Peter Klein |

Congratulations to O&M friend and former guest blogger Joe Mahoney for his investiture as the Caterpillar Chair in Business at the University of Illinois at Urbana-Champaign. Here is the official announcement, which includes the following summary of Joe’s many accomplishments:

Joseph T. Mahoney is a professor of business administration at the University of Illinois who specializes in corporate governance and organizational economics. He is an editor for several top management journals, a prolific author, frequent advisor to Ph.D. candidates, and a professional consultant. For more than 20 years Mahoney has been an award winning teacher to undergraduates, MBAs and other graduate students. He holds a B.A. in Economics from the University of Pennsylvania, and M.S. and Ph.D. degrees in Business Economics from the Wharton School of Business.

Joseph Mahoney has published more than 50 scholarly articles in respected journals like the Academy of Management Review, Journal of Management, Journal of Management Studies, and Strategic Management Journal. His publications have been cited over 5,600 times by scholars in 65 countries. His book, Economic Foundations of Strategy has been adopted by over 30 top doctoral programs. Mahoney is an editor for the International Journal of Strategic Change Management and the Strategic Management Journal, and he contributes to 21 additional journals. Mahoney’s passionate teaching has garnered him many outstanding teacher awards since coming to Illinois in 1988. In that time he also served on 47 completed doctoral dissertation committees and currently serves on 8 others that are in progress.

You may recall that Joe is also this year’s recipient of the Academy of Management’s Irwin Award. Way to go, Joe!

21 April 2011 at 9:37 am 5 comments

Veblen at Missouri

| Peter Klein |

Thorstein Veblen was a professor at the University of Missouri from 1911 to 1918, following stints at Chicago and Stanford and before moving to New York to co-found the New School for Social Research with Charles Beard and John Dewey. Little has been written about Veblen’s time at Missouri, or his relationship with Herbert J. Davenport, who recruited Veblen to Missouri and provided his lodgings. (Veblen is mostly forgotten, locally, but Davenport, who founded the College of Business, is fondly remembered.)

The most detailed account of Veblen’s Missouri years (to my knowledge) appears in Russell H. Hartley and Sylvia Erickson Hartley, “In the Company of T. B. Veblen: A Narrative of Biographical Recovery” (International Journal of Politics, Culture, and Society 13, no. 2: 273-331 — the entire issue is devoted to Veblen). One snippet:

The notion that Veblen’s years in Missouri were a kind of Siberian exile which he spent as an embittered recluse seems more the fancy of academic urbanites than a reflection of actual fact. Dorfman’s puzzling assertion that Columbia “was the first country town where Veblen had stayed for any length of time” contradicts both the facts of Veblen’s life and Dorfman’s own account of those facts. By the time he settled into the Davenports’ at the end of 1910, Thors had lived thirty of his fifty-three years in rural and small-town settings. Columbia was a veritable metropolis compared with Nerstrand or Stacyville and was more than twice the size of Northfield, where he had spent six years attending Carleton.

Veblen’s reported description of Columbia as “a woodpecker hole of a town in a rotten stump called Missouri,” cited by Dorfman as evidence of his “abhorrence” of the place, reflects his wit and mordant sense of humor rather than emotional distress over his physical location. It was an offhand commentary on the local Chamber of Commerce’s campaign to elicit a promotional slogan for the Boone County seat — a remark perfectly in tune with Veblen’s views of business and the commonweal, comprehensible only in light of his analysis of American country towns generally.

20 April 2011 at 9:17 am 4 comments

Sociology Major Reads First Book

| Peter Klein |

Interesting item from a Sports Illustrated profile on Connecticut star Kemba Walker (via Jason Fertig):

Last spring [Kemba] Walker approached UConn academic counselor Felicia Crump and asked her to help him figure out how to earn his degree in sociology so that he could enter the draft this year and still graduate. Together they built a schedule that required Walker to take courses last summer in Storrs and then a full load in both the fall and the spring. . . .

Walker took schoolwork with him throughout the Big East and NCAA tournaments, completing short required papers while postponing tests until after the season. He met with his campus tutor on Skype. And in his travel pack is a copy of New York Times columnist William C. Rhoden’s Forty Million Dollar Slaves: The Rise, Fall, and Redemption of the Black Athlete, a book that Crump encouraged Walker to read as part of an independent study class on racism in sports. Before the Final Four, Crump suggested that Rhoden’s book would be the first that Walker had ever made it through cover-to-cover. After the win over Kentucky, Walker confirmed this. “That’s true,” he said. “You can write that. It is the first book I’ve ever read.”

Actually UConn has had some excellent students on its men’s basketball team (such as Emeka Okafor who, Dick tells me, graduated from the UConn Honors Program in three years with a 3.7 GPA in finance).

Anyway, I started posting this to have a bit of fun with our friends from the other side of the aisle. Then I realized that many economics and management majors probably haven’t read any books.

19 April 2011 at 12:32 pm 7 comments

Social Science Is For the Asocial?

| Lasse Lien |

I went to a physics seminar the other day. The presenter, an eminent astronomer, made the following remark as he was trying to convey what it was like to work in the natural sciences:

If you hate people and would prefer to do most of your work alone in your office, you should join the social sciences. If you love people and would like to work closely with many others in large research teams, you should join the natural sciences.

The paradox is just beautiful. You self-select to the social sciences because you hate people and want as little as possible to do with them.

18 April 2011 at 4:44 pm 7 comments

Who Benefits from Coups?

| Peter Klein |

Not surprisingly — private interests:

Coups, Corporations, and Classified Information
Arindrajit Dube, Ethan Kaplan, Suresh Naidu
NBER Working Paper No. 16952, April 2011

We estimate the impact of coups and top-secret coup authorizations on asset prices of partially nationalized multinational companies that stood to benefit from US-backed coups. Stock returns of highly exposed firms reacted to coup authorizations classified as top-secret. The average cumulative abnormal return to a coup authorization was 9% over 4 days for a fully nationalized company, rising to more than 13% over sixteen days. Pre-coup authorizations accounted for a larger share of stock price increases than the actual coup events themselves.There is no effect in the case of the widely publicized, poorly executed Cuban operations, consistent with abnormal returns to coup authorizations reflecting credible private information. We also introduce two new intuitive and easy to implement nonparametric tests that do not rely on asymptotic justifications.

In what can only be a pure coincidence, the following item appeared just below the NBER paper in my RSS reader: “Halliburton Profit More Than Doubles.”

18 April 2011 at 9:06 am 1 comment

Missouri Corporate Governance Conference

| Peter Klein |

The University of Missouri’s Trulaske College of Business, Division of Applied Social Sciences, and School of Law are jointly hosting an interdisciplinary conference on corporate governance, 19-21 May 2011 in Columbia, Missouri: “Corporate Governance: The Role of the Board of Directors in Understanding and Managing Disruptive and Transformational Technologies.” Keynote speakers include Renee Adams, Ed ZajacDavid Haffner, and Tom Melzer. Check the link above for registration, accommodation, and other information.

17 April 2011 at 9:39 pm Leave a comment

CFP: Economics and Strategy of Entrepreneurship and Innovation

| Peter Klein |

Forwarded on behalf of Dan Spulber:


Journal of Economics & Management Strategy (JEMS)
Economics and Strategy of Entrepreneurship and Innovation III

JEMS is planning a third special issue on the economics and strategy of entrepreneurship and innovation. JEMS welcomes both empirical and theoretical contributions.

Possible topics include:

  • Economics of entrepreneurship
  • Innovation and entrepreneurship
  • R&D and the entrepreneur
  • Intellectual property rights and the entrepreneur
  • Entrepreneurship and the theory of the firm
  • Entrepreneurship and finance
  • Entrepreneurship and industrial organization
  • Entrepreneurship and economic growth

Submissions to JEMS will be subject to the standard peer-review process. The submission deadline is July 1, 2011. To submit a manuscript to JEMS, visit ScholarOne at If you have any questions about JEMS, please contact Susie Caruso at

15 April 2011 at 9:05 am Leave a comment

Humanoid Resource Management

| Peter Klein |

I can’t quite tell if this “Schumpeter” column, urging management scholars to think more carefully about “homo-robo relations,” is meant to be taken seriously. It gave me a few chuckles, anyway.

Until now executives have largely ignored robots, regarding them as an engineering rather than a management problem. This cannot go on: robots are becoming too powerful and ubiquitous. Companies may need to rethink their strategies as they gain access to these new sorts of workers. Do they really need to outsource production to China, for example, when they have clever machines that work ceaselessly without pay? They certainly need to rethink their human-resources policies — starting by questioning whether they should have departments devoted to purely human resources.

And what about robo-agency theory? Can robots be programmed to be intrinsically motivated — finally rendering certain management theories intelligible — or do they respond to incentives in a predictable way? Are they risk averse? Will they behave opportunistically? Can they be “nudged” by clever behavioral economists?

Actually the article does make some serious points, e.g., economists and management scholars should prepare for an onslaught of neo-Luddite, anti-automation, protectionist gibberish about robots “taking away our jobs.” (Maybe if they’re domestically made robots it will be OK?)

13 April 2011 at 3:18 pm 6 comments

4 Percent Project

| Peter Klein |

On the way back from Brazil I will stop in Dallas to speak on entrepreneurship at a conference on economic growth, The 4 Percent Project, sponsored by the newly formed George W. Bush Presidential Center. The main speakers include four Nobel Laureates (Becker, Lucas, Scholes, Prescott), Ed Lazear, Allan Meltzer, Meg Whitman, Art Laffer, and W himself. I’m on a breakout panel with Bob Litan, Maria Minniti, and Jeff Friedman. The conference is the brainchild of O&M friend John Chapman, and should be quite an event!

9 April 2011 at 5:17 pm Leave a comment

Biased Testing

| Lasse Lien |

The Onion asks whether tests are biased against students who don’t give a sh…. — and whether in fact the whole education system is catering to those who don’t think education is a boring waste of time.

Now that I think of it I have on several occasions noted that lazy, uninterested students tend to do systematically worse on my tests. So I am part of this unreasonable and unjust system, and I expect many O&M readers are too.

I think we should all reflect on this over the weekend.

Thanks to Eirik S. Knudsen for the pointer.

8 April 2011 at 1:54 pm 2 comments

More Hoselitz

| Peter Klein |

Since we first inquired about Bert Hoselitz, new information has come to light. First, we hosted a copy of Hoselitz’s hard-to-find 1951 essay “The Early History of Entrepreneurial Theory,” still the best source on the origins of economic thinking on the entrepreneur. Randy has also located Hoselitz’s rare 1963 paper “The Entrepreneurial Element of Economic Development,” which we hope to share soon.

Also, Yvan Kelly published an interesting paper in 2009, “Mises, Morgenstern, Hoselitz, and Nash: The Austrian Connection to Early Game Theory” (Quarterly Journal of Austrian Economics 12, no. 3), which provides more information. Hoselitz attended Mises’s Vienna seminar in 1933 and 1934 and, after Hoselitz emigrated to the US, Mises helped him get a position at Chicago. In 1947 Hoselitz taught a class on international economics at Carnegie Tech, where one of his students was John Nash — the only economics course Nash ever took. Notes Kelly, “there exists the distinct possibility that Nash’s thought process in formulating the [Nash] equilibrium was influenced by Austrian thought.” Kelly goes on to quote Nash’s Nobel lecture: “By coincidence the person who taught the course was someonethat came from Austria. . . . Austrian economics is like a different school than typical American or British. So by coincidence I was influenced by an Austrian economist which may have been a very good influence.” (This article by a famous blogger also deals with the Austrian connection to game theory.)

6 April 2011 at 8:52 pm Leave a comment

Why Do Firms Hire Management Consultants?

| Peter Klein |

Academic economists and management scholars are often skeptical of management consulting firms. Their advice seems fluffy, ad hoc, unscientific. But consulting firms continue to prosper. Are their clients irrational?

I always assumed signaling plays a role. One can imagine a Spence-style separating equilibrium in which high-quality firms signal their unobservable characteristics to customers, suppliers, rivals, etc. by hiring an expensive consulting firm, while low-quality firms find this prohibitively costly. Of course, all consulting firms are not alike, and there are many different types of consulting services (e.g., strategy — more fluffy; IT implementation — less fluffy).

An article in the new JMS by Donald Bergh and Patrick Gibbons looks at the signaling value of consulting, measuring the stock-market reactions to firms’ announcements of hiring a consulting firm. Excess returns are positive and significant, and increasing in the client’s prior performance — the market likes it when “good” firms hire consultants. (The effects don’t seem to depend on the reputation of the consulting firm, though.) This is consistent with my story above, though we’d need to know something about firms that could have hired a consultant but didn’t to say more.

5 April 2011 at 6:08 pm 5 comments

CORS Lecture and Mises Brazil

| Peter Klein |

O&Mers in Brazil, come see me at two events this week. Thursday, 7 April, I will deliver the inaugural CORS Lecture at the University of São Paulo on “Entrepreneurship, Strategy, and Public Policy.” CORS, the Center for Organization Studies, is a new institute organized by O&M friends Sylvia Saes and Decio Zylbersztajn and involving many scholars familiar to O&M readers. The lecture is co-sponsored by the Mises Institute Brazil, my main host for the trip, and I will speak at the Institute’s Second Conference on Austrian Economics 9-10 April in Porto Alegre, along with Hans-Hermann Hoppe, Robert Murphy, Guido Hülsmann, Gabriel Zanotti, Ubiratan Iorio, Antony Mueller, Fabio Barbieri, and Dalton Gardimam. I’ll give one talk on entrepreneurship and another on networks. I would love to see you at one of these events!

4 April 2011 at 9:17 am 1 comment

Recycling an Old Post

| Peter Klein |

These important announcements appeared originally April 1, 2007.

Foss, Klein, Postrel Join Harvard Faculty

Nicolai, Steve, and I are pleased to announce that we have accepted chaired positions at Harvard University:

Cambridge, Mass., April 1, 2007 — World-renowned scholars Nicolai J. Foss, Peter G. Klein, and Steven R. Postrel will join the Harvard faculty as University Distinguished Professors and co-directors of the newly formed Long Tail Institute for the Global Economy. Says incoming President Drew Faust: “I am delighted that Professors Foss, Klein, and Postrel are joining our team. I have always admired Foss and Klein’s work on judgment-based entrepreneurship, and I enjoyed Postrel’s columns in the New York Times before he changed his name to ‘Steve.’ After reading their blog I knew they were the ones to lead Harvard into the global information age.”

Announcing Guest Bloggers Jeff Pfeffer and Bob Sutton

We’re delighted to welcome Stanford University professors Jeff Pfeffer and Bob Sutton as our newest guest bloggers. Sutton writes: “Jeff and I have recently come out of what we call our ‘Blue Period,’ characterized by moodiness and irritability toward toward economists. We now realize that economic analysis is vital to the proper understanding of organizations. What better way to flaunt our new perspective than by joining the outstanding bloggers at Organizations and Markets? We’ll also be working on our new book, Not Ready to Make Nice in the Workplace.” Welcome, Jeff and Bob!

Google Acquires O&M

This hit the news wires today:

Mountain View, April 1, 2007 — Google Corporation announced today it has acquired a majority stake in the weblog Organizations and Markets, a leading provider of news and information on organizations, strategy, entrepreneurship, and anti-postmodernism. Google CEO Larry Schmidt noted that Google is seeking to expand beyond the search-engine business. “Let’s face it, search is yesterday’s technology. There’s too much junk out there. Instead of using computers to sort our information with confusing page-ranking algorithms, the time has come to hire experts to tell us what the world is really like. The authors of Organizations and Markets are just the experts we’ve been looking for.” Google shares dropped 42% in heavy trading upon the announcement.

Here are some important April 1 stories from prior years.

1 April 2011 at 1:35 pm 4 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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