Archive for June, 2011

Weird Economics Dissertation of the Day

| Peter Klein |

John Nash’s 1950 Princeton dissertation is odd, though brilliant. Khieu Samphan’s 1959 University of Paris dissertation, “Cambodia’s Economy and Problems of Industrialization,” is frightening, as it foreshadows the genocidal policies Samphan implemented as a top Khmer Rouge official in the 1970s. A NYT story excerpts key passages like this one, arguing that white-collar workers

add no value to the society from the perspective of the economy as a whole. They simply profit from a transfer of value issuing from other productive activities within society (agriculture, crafts, small industry). And the transfer of produce within society does not enlarge the total value of production obtained by society in any way. The distinction made by the Scottish economist Adam Smith between productive and unproductive work deserves to be carefully considered here.

This is far from saying, for example, that a civil servant or a soldier would be useless to society. However, the greater the reduction in numbers of individuals concerned with general social organization, the greater the number who can contribute to production and the faster the enrichment of the nation.

Presumably this was in Samphan’s mind when he had office workers marched at gunpoint to the fields, where many starved and where millions were later executed.

27 June 2011 at 3:44 pm 4 comments

New Issue of Business History Review

| Peter Klein |

The March 2011 issue of Business History Review, just now online, contains several excellent papers, including “The Origin and Development of Markets: A Business History Perspective” by Mark Casson and John Lee, “Economics, History, and Causation” by Randall Morck and Bernard Yeung, “Globalization, Development, and History in the Work of Edith Penrose” by Christos Pitelis, and “Economic Theory and the Rise of Big Business in America, 1870–1910” by Jack High.

Morck and Yeung take the (perhaps surprising, almost Misesian) position that “[i]nstrumental variables can lose value with repeated use because of an econometric tragedy of the commons: each successful use of an instrument creates an additional latent variable problem for all other uses of that instrument,” and that “[e]conomists should therefore”consider historians’ approach to inferring causality from detailed context, the plausibility of alternative narratives, external consistency, and recognition that free will makes human decisions intrinsically exogenous.”

High notes that “by 1910, the entrepreneur was an important figure in American economics. He appeared regularly in textbooks written by American economists and his influence in the economy, especially in large firms, was generally recognized.” Entrepreneurship at that time was not about startups, but coordination more generally: J. R. Commons called the entrepreneur “the speculating, progressive, organizing, inventive, economizing agent of industry.”

27 June 2011 at 12:08 am Leave a comment

2011 Spengler Prize

| Peter Klein |

Congratulations to Robert Leonard for winning the 2011 Joseph J. Spengler Prize for the best book in the history of economics for Von Neumann, Morgenstern and the Creation of Game Theory: From Chess to Social Science 1900-1960 (Cambridge University Press, 2010). I’ve only skimmed the book but it looks exceptionally well done. Required reading for O&Mers interested in intellectual history, methodology, Austrian economics, strategy, and/or game theory. . . .  (That’s pretty much all of you.)

24 June 2011 at 8:34 am 5 comments

Decentralization and the Walmart Decision

| Peter Klein |

On Monday the US Supreme Court turned refused to hear the class-action discrimination suit against Walmart (technically, the Court denied to certify the plaintiffs as a single class for purposes of a class-action suit). I haven’t followed the case closely enough to have an opinion on the merits (or the role of sociologists). But a main legal issue in the case — whether Walmart’s policy of delegating hiring and promotion decisions to local managers makes the firm itself liable for illegal personnel behavior — raises important questions for organization theory.

According to the decision (no, I didn’t try to read all 42 pages):

Pay and promotion decisions at Wal-Mart are generally committed to local managers’ broad discretion, which is exercised “in a largely subjective manner.” . . . Local store managers may increase the wages of hourly employees (within limits) with only limited corporate oversight. As for salaried employees, such as store managers and their deputies, higher corporate authorities have discretion to set their pay within preestablished ranges.

Promotions work in a similar fashion. Wal-Mart permits store managers to apply their own subjective criteria when selecting candidates as “support managers,” which is the first step on the path to management. Admission to Wal-Mart’s management training program, however, does require that a candidate meet certain objective criteria,including an above-average performance rating, at least one year’s tenure in the applicant’s current position, and a willingness to relocate. But except for those requirements, regional and district managers have discretion to use their own judgment when selecting candidates for management training. Promotion to higher office — e.g., assistant manager, co-manager, or store manager — is similarly at the discretion of the employee’s superiors after prescribed objective factors are satisfied. (more…)

22 June 2011 at 5:35 pm 1 comment

ISNIE Conference Papers

| Peter Klein |

ISNIE held its fifteenth annual meeting last week in lovely Palo Alto, California. President-Elect Barry Weingast put together a terrific program, which you can view here. Many of the papers are also available for public viewing here. A few highlights:

Private Entrepreneurs in Public Services: a Longitudinal Examination of Outsourcing and Statization of Prisons – abstract and paper
Sandro Cabral, (Federal University of Bahia)
Sergio Lazzarini, (Insper)
Paulo Furquim de Azevedo, (FGV-SP)

What is Law? a Coordination Account of the Characteristics of Legal Order – abstract and paper
Gillian K. Hadfield, (University of Southern California)
Barry R. Weingast, (Stanford University)

Law As Byproduct: Theories of Private Law Production – abstract and paper
Bruce H. Kobayashi, (George Mason Univeristy School of Law)
Larry E. Ribstein, (University of Illinois College of Law)

On the Evolution of Collective Enforcement Institutions: Communities and Courts – abstract and paper
Scott E. Masten, (University of Michigan)
Jens Prüfer, (Tilburg University)

The ‘Fundamental Transformation’ Reconsidered: Dixit Vs. Williamson – abstract and paper
Antonio Nicita, (University of Siena, and EUI)
Massimiliano Vatiero, (University of Lugano)

In the Shadow of Violence: the Problem of Development in Limited Access Societies – abstract and paper
Douglass North, (Washington University (St Louis))
John Wallis, (University of Maryland)
Steven Webb, (World Bank)
Barry Weingast, (Stanford University)
Alberto Diaz-Cayeros, (University of California San Diego)
Gabriella Montinola, (University of Californa Davis)
Jong-Sung You, (University of California San Diego)

Entrepreneurial Finance and Performance: a Transaction Cost Economics Approach – abstract and paper
Alicia Robb, (Ewing Marion Kauffman Foundation)
Robert Seamans, (NYU Stern School of Business)

Expanding the Concept of Bounded Rationality in TCE: Incorporating Interpretive Uncertainty in Governance Choice – abstract
Libby Weber, (UC Irvine)
Kyle J. Mayer, (University of Southern California)

See the complete list for many more excellent papers.

Bonus (via Lynne Kiesling): the program for a Festschrift conference at Northwestern in honor of Joel Mokyr.

Update: More on the Mokyr conference from Lynne.

22 June 2011 at 11:34 am 3 comments

What Do Resource- and Capability-Based Theories Propose?

| Peter Klein |

Check out Michael Leiblein’s Guest Editorial in the new Journal of Management:

What Do Resource- and Capability-Based Theories Propose?
Michael J. Leiblein
The Ohio State University

The purpose of this editorial is to review the basic definitions, assumptions, and propositions offered by the resource-based, strategic factor market, and dynamic capability literature streams. Considering the underlying definitions and assumptions associated with these approaches leads directly to a set of refutable propositions that highlight the distinct insights offered by each of these literatures. It is hoped that accentuating these distinctions may stimulate dialogue regarding the underlying causal mechanisms associated with these approaches and foster future empirical work testing these related perspectives.

A very useful reference, both for specialists and those new to the RBV and capabilities approaches. Highly recommended! (And not just because the author’s name ends in “-lein.”)

21 June 2011 at 3:38 pm Leave a comment

Against (Karl) Polanyi

| Peter Klein |

I mentioned Karl Polanyi (not to be confused with Michael) in yesterday’s post on anonymity. Gavin Kennedy points us today to Mark Pennington, who writes that Polanyi’s claims “are either historically inaccurate or based on a crude misrepresentation of classical liberalism.” Specifically,

classical liberalism has never claimed that narrowly selfish behaviour is all that is required to sustain the social fabric. Of course markets are always “embedded” in a broader nexus of institutions, but the question we need to ask is precisely what sort of institutional and social norms are required to facilitate social cooperation on the widest possible scale. Polanyi and his followers prefer to rely on hackneyed accounts of the Wealth of Nations rather than recognise that Smith’s support for markets and “self interest” constituted part of a broader ethical system set out in the Theory of Moral Sentiments. Specifically, Smith was concerned to elucidate the balance between the social norms appropriate to contexts of commercial exchange and those appropriate in more intimate environments. From Smith’s point of view feelings of sympathy which include love, friendship and reciprocity are reserved for people of whom we have detailed personal knowledge. The morals expected in commercial relations which are often between relative strangers, however, tend to be more impersonal, focussed on principles such as the observance of contracts and are oriented more towards the “self interest” of the parties involved rather than the direct benefit of “others.” The great mistake is to suppose that the type of ethos that pervades family life or that in tight knit communities can operate on a much wider scale. The development of inclusive markets requires a more impersonal ethos which enables people to engage with diverse actors who may not share the same moral outlook. If people deal only with those who share the same moral outlook or trade only with “locals” rather than engage in transactions with “foreigners” then the sphere of potentially cooperative relationships will be reduced. The alternative to self-interest is not solidarity, but suspicion if not outright conflict.

16 June 2011 at 5:16 pm 1 comment

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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).
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Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).