Archive for February, 2012

Computers in Higher Education, 1960s Edition

| Peter Klein |

An illuminating passage from James Ridgeway’s 1968 book The Closed Corporation: American Universities in Crisis, a scathing critique of  the university-military-industrial complex. Note the cameo by Jim March:

[University of California officials Ralph W.] Gerard and [R. Dan] Tschirgi are computer fetishists who insist information is knowledge, and that the function of a university is to provide information.

In 1963 and 1964 Chancellor David G. Aldrich, Jr., at Irvine, and Gerard got IBM interested in setting up programs there. The company agreed to install a 1400 system and to supply staff and engineers. An IBM employee, Dr. J. A. Kearns, came along to head the project and was given a part-time appointment at the Graduate School of Administration. The idea was to see whether the computer could be used as a library, for various administrative functions and for teaching.

Gerard paints a glowing picture. He says that one half of the students on the Irvine campus spend at least one hour a week on the computer, and that computers are used in teaching biology, mathematics, economics, sociology and psychology.

After speaking with Gerard, I went along to see the computer in action, and ran into a senior staff man who told me in a jaundiced manner that it wasn’t operating because they couldn’t make the new IBM 360 system work right. This gentleman was exceedingly glum about the possibilities of very many students learning much of anything on the Irvine computers. So was the dean of Social Sciences, James G. March. When I asked him about the use of the machine to teach sociology, he replied grimly that all the computer did was to print out some basic definitions in an introductory course, which, as he pointed out, one could get just as well from reading a book. He went on to say that a minute portion of any introductory course was on a computer, that students spent little time on them, and that most of the time was taken up programming them. March said the difficulty was to devise a system which could answer questions rather than ask them. The most one could really expect was to have a machine pose a problem to the student, who could then go ahead an answer it on his own.

The tech described here is dated but the book itself still packs a punch. In the late 1906s concerns about the close relationships between the federal government (particularly the Pentagon), public research universities, and industry (particularly defense contractors) were new. Now we take for granted that a primary task of the research university is to produce “applied” research in close cooperation with government and industry sponsors, to commercialize its scientific discoveries, to train students for industry, and so on. But this is a fairly recent — mid-20th century — development, and not an obviously desirable one.

28 February 2012 at 11:59 am 3 comments

Evil Tw-Lin

| Peter Klein |

Jeremy Freese to his fellow sociologists:

Jeremy Lin’s favorite course at Harvard was Sociology 128: Methods of Social Science Research. Nevertheless, he majored in economics, so your department cannot staple his face to its “What Can You Do With A Sociology Major?” poster.

(If you don’t get the headline, ask the kittehs.)

27 February 2012 at 3:45 pm Leave a comment

Zenger, Felin, and Bigelow on “Theories of the Firm-Market Boundary”

| Peter Klein |

Here’s a nice review and synthesis of “Theories of the Firm-Market Boundary” by Todd Zenger, Teppo Felin, and Lyda Bigelow, just out in the Academy of Management Annals.

A central role of the entrepreneur-manager is assembling a strategic bundle of complementary assets and activities, either existing or foreseen, which when combined create value for the firm. This process of creating value, however, requires managers to assess which activities should be handled by the market and which should be handled within hierarchy. Indeed, for more than 40 years, economists, sociologists and organizational scholars have extensively examined the theory of the firm’s central question: what determines the boundaries of the firm? Many alternative theories have emerged and are frequently positioned as competing explanations, often with no shortage of critique for one another. In this paper, we review these theories and suggest that the core theories that have emerged to explain the boundary of the firm commonly address distinctly different directional forces on the firm boundary — forces that are tightly interrelated. We specifically address these divergent, directional forces — as they relate to organizational boundaries — by focusing on four central questions. First, what are the virtues of markets in organizing assets and activities? Second, what factors drive markets to fail? Third, what are the virtues of integration in organizing assets and activities? Fourth, what factors drive organizations to fail? We argue that a complete theory of the firm must address these four questions and we review the relevant literature regarding each of these questions and discuss extant debates and the associated implications for future research.

Lots of good stuff here, especially in integrating economic and sociological perspectives on boundary (I guess all that time Teppo spends over there has influenced his thinking).

24 February 2012 at 5:36 am 3 comments

Hoisted from the Comments: Journal Impact Factors

| Peter Klein |

An old post of Nicolai’s on journal impact factors is still attracting attention. Two recent comments are reproduced here so they don’t get buried in the comments.

Bruce writes:

There is an interesting paper by Joel Baum on this, “Free Riding on Power Laws: Questioning the Validity of the Impact Factor as a Measure of Research Quality in Organization Studies,” Organization 18(4) (2011): 449-66. He does a nice analysis of citations, and shows (what many of us suspected) that citations are highly skewed to a small subset of articles, so the idea of an impact factor which is based on a mean citation rate is erroneous.  He concludes that “Impact Factor has little credibility as a proxy for the quality of eitehr organization studies journals of the articles they publish, resulting in attributions of journal or article quality that are incorrect as much or more than half the time.  The clear implication is that we need to cease our reliances on such non-scientific, quantitative characterisation to evaluate the quality of our work.”

To which Ram Mudambi responds:

This analysis was already done in a paper we wrote in 2005, finally now published in Scientometrics.

We have the further and stronger result that in many years, the top 10 percent of papers in A- journals like Research Policy outperform the top 10 percent of papers in A journals like AMJ.

So it is the paper that matters, NOT the journal in which it was published. Evaluating scholars on the basis of where they have published is pretty meaningless. Some years ago, we had a senior job candidate with EIGHTEEN real “A” publications — it turned out he had only 118 total citations on Google scholar. So his work was pretty trivial, even though it appeared in top journals.

See also the good twin blog for further discussion.

19 February 2012 at 10:05 am Leave a comment

New ebooks — Knowledge on the Cheap

| Peter Klein |

Google’s ebookstore now contains deeply discounted versions of several Edward Elgar books (which are usually priced for library use), including my Elgar Companion to Transaction Cost Economics ($48) and the Foss-Klein product Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization ($31.20). Nicolai’s greatest hits collection Knowledge, Economic Organization, and Property Rights is also published by Elgar but not yet available in ebook form. However, Google has cheap ebooks of Nicolai’s Strategy, Economic Organization, and the Knowledge Economy ($40) and Dick’s Firms, Markets, and Economic Change ($60), among other items of interest. And my Capitalist and the Entrepreneur remains available at the best price of all!

14 February 2012 at 11:45 am 7 comments

Gentle Ben

| Peter Klein |

I don’t think of Ben Bernanke’s approach to monetary policy as soft, passive, or restrained, but of course my optimal monetary policy is no monetary policy. Laurence Ball thinks that Bernanke’s actions after 2008 were surprisingly cautious, compared to what Bernanke advocated as an academic and Fed Governor in the early 2000s.

From 2000 to 2003, when Bernanke was an economics professor and then a Fed Governor (but not yet Chair), he wrote and spoke extensively about monetary policy at the zero bound. He suggested policies for Japan, where interest rates were near zero at the time, and he discussed what the Fed should do if U.S. interest rates fell near zero and further stimulus were needed. In these early writings, Bernanke advocated a number of aggressive policies, including targets for long-term interest rates, depreciation of the currency, an inflation target of 3-4%, and a money-financed fiscal expansion. Yet, since the U.S. hit the zero bound in December 2008, the Bernanke Fed has eschewed the policies that Bernanke once supported and taken more cautious actions — primarily, announcements about future federal funds rates and purchases of long-term Treasury securities (without targets for long-term interest rates).

Ball describes a June 2003 meeting of the Fed’s Open Market Committee at which senior staffer Vincent Reinhart convinced Bernanke that when interest rates are near zero, the right policies are persuading market participants that federal funds rates will continue to fall, selling medium-term bonds and buying longer-term ones (“Operation Twist”), and quantitative easing. When the financial crisis hit, this is exactly what Bernanke did, although — according to Ball — Bernanke had long argued for much more aggressive moves.

Ball argues that Bernanke fell victim to groupthink:

We can interpret the June 2003 FOMC meeting as an example of groupthink. The recommendations in Reinhart’s briefing were presented as the views of a unified Fed staff. In the FOMC discussion, nobody, including Chairman Greenspan, seriously questioned Reinhart’s focus on his three preferred policy options. By the time Bernanke spoke, a consensus had emerged on a number of points, such as opposition to targets for long-term interest rates. Groupthink may have discouraged Bernanke from shaking up the discussion with his past ideas for zero-bound policy.

A reluctance to disagree with the consensus was common at the Greenspan Fed, according to some observers. Cassidy (1996) describes how Alan Blinder, Fed Vice Chair from 1994 to 1996, reacted to FOMC meetings: “The thing that surprised Blinder most was the way decisions were made at the Board. Most of the time, the governors were presented with only one option: the staff recommendation.”

He also suggests that Bernanke, unlike Greenspan, Paulson, Summers, and other key economic policy figures, is shy, withdrawn, and unassertive.

Without intending to, I think Ball makes powerful arguments against conventional monetary policy itself, which relies on a small, secretive, cabal of powerful technocrats, interest-group representatives, and fixers to design and implement rules and procedures that affect the lives of millions, that reward some (commercial and investment bankers, homeowners) and punish others (savers, renters), that shape the course of world events. Do we really want a system in which one person’s personality type has such a huge effect on the global economy?

13 February 2012 at 5:29 pm 7 comments

Against Brainstorming

| Peter Klein |

Brainstorming appears in many strategy, entrepreneurship, and leadership texts, often mentioned in passing with the implication that it’s a great tool for group decision-making. But the research literature suggests a more circumspect attitude. Indeed, this week’s New Yorker features an interesting and informative essay on some of the latest results:

The underlying assumption of brainstorming is that if people are scared of saying the wrong thing, they’ll end up saying nothing at all. The appeal of this idea is obvious: it’s always nice to be saturated in positive feedback. Typically, participants leave a brainstorming session proud of their contribution. The whiteboard has been filled with free associations. Brainstorming seems like an ideal technique, a feel-good way to boost productivity. But there is a problem with brainstorming. It doesn’t work.

Writer Jonah Lehrer goes on to quote Keith Sawyer: “Decades of research have consistently shown that brainstorming groups think of far fewer ideas than the same number of people who work alone and later pool their ideas.” Lots more at the source.

11 February 2012 at 6:20 pm 4 comments

Foss at Missouri

| Peter Klein |

O&M co-founder Nicolai Foss will give the 2012 Sherlock Hibbs Distinguished Lecture in Business and Economics Tuesday, 6 March 2012, 10:00-11:30am, in 205 Cornell Hall on the University of Missouri campus. The title is “Open Entrepreneurship: The Role of External Knowledge Sources for the Entrepreneurial Value Chain.” The lecture is sponsored by the Hibbs Professors of the University of Missouri’s Trulaske College of Business and the University of Missouri’s McQuinn Center for Entrepreneurial Leadership (which I direct).

The full announcement (with Nicolai’s impressive bio) is below the fold. The lecture is free and open to the public, so all are welcome! (more…)

10 February 2012 at 1:12 pm Leave a comment

Review of Allen’s Institutional Revolution

| Peter Klein |

I wrote earlier about Doug Allen’s The Institutional Revolution (University of Chicago Press, 2011). Here’s a new EH.Net review by Mark Koyama.

Institutions in Allen’s view minimize transaction costs, where transaction costs include the costs associated with opportunistic behavior. Transaction costs precluded “first-best” institutions from developing in the pre-industrial world. Instead, apparently inefficient institutions such as tax farming, the sale of offices, and the aristocratic dominance of politics persisted for centuries. Allen argues that these apparently inefficient institutions were, in fact, efficient given the existing configuration of transaction costs. This insight, which builds on the ideas of Yoram Barzel, provides a powerful hypothesis for studying institutional change. Allen places particular emphasis on the importance of measurement. In the high variance pre-modern world, measurement was costly or impossible and consequently bureaucrats, soldiers, sailors, and policemen could not be paid on the basis of observable inputs. Alternative institutions had to emerge to deter opportunism and reward effort. These institutions were often elaborate, and sometimes strange; they involved making the bureaucrats, soldiers, or tax collectors residual claimants of some sort. The story of how these institutions disappeared and were replaced by modern institutions is The Institutional Revolution.

The institutional revolution Allen proposes is linked to the industrial revolution because technological change drove institutional change by reducing measurement costs. Standardization reduced variance. This reduction in variance lessened the possibilities for opportunistic behavior and enabled institutions based around the idea of rewarding individuals for their marginal contribution to emerge.

7 February 2012 at 10:16 pm Leave a comment

Perceptions of Opportunities – Part 2

| Peter Lewin |

The second review article in the latest issue of AMR by Venkataraman, Sarasvathy, Dew, and Forster (VSDF) is more ambitious than the first by Shane, discussed in Part 1. In fact one might describe the ambition motivating the article as grandiose. VSDF “seek to recast entrepreneurship as a science of the artificial” an entirely new way of looking at entrepreneurship in the interest of uncovering (what I take to be universal) principles that can serve as the basis of a new empirical and policy-useful science of entrepreneurship. [I see this article as a companion piece to the article by Sarasvathy and Venkataraman (SV) in ET&P January, 2011, in which this grandiose vision is even more apparent.]

The science of the artificial(supposedly a distinct category of science from natural or social science) is derived from the work of Herbert Simon (1996).

As a theory develops it splits into two streams: (1) “basic” research that continues to refine the causal explanations and (2) “applied” research that seeks to alter the variables of explanation. At that point the phenomenon of interest has become an artifact. …

A science of the artificial is interested in phenomena that can be designed [and controlled]. … Design lies is the choice of the boundary values; control lies in the means to change them. (24).

So a useful theory is itself an artifact something that can be used to understand and (importantly) control aspects of the (social) world. And, I suppose, the new science of entrepreneurship will eventually develop such artifacts. [At the end of the article they talk about “recasting opportunities as artifacts” – so I am not sure how this is all connected.]

My lack of expertise regarding the work of Herbert Simon (something which I am now more encouraged to remedy) prevents me from pronouncing with confidence on this part of the article. Suffice it to say that the meaning and contribution of this new “science of the artificial” is far from clear to me. I am left with a feeling that if it is indeed such an important and path-breaking meta-scientific turn, the authors should be able to explain it better. It should be more accessible and transparent. I am left highly skeptical, but I urge readers of this post to read the article and perhaps enlighten me and others. (more…)

5 February 2012 at 1:32 am 8 comments

Reference Bloat

| Peter Klein |

Nature News (via Bronwyn Hall):

One in five academics in a variety of social science and business fields say they have been asked to pad their papers with superfluous references in order to get published. The figures, from a survey published today in Science, also suggest that journal editors strategically target junior faculty, who in turn were more willing to acquiesce.

I think reference bloat is a problem, particularly in management journals (not so much in economics journals). Too many papers include tedious lists of references supporting even trivial or obvious points. It’s a bit like blog entries that ritually link every technical term or proper noun to its corresponding wikipedia entry. “Firms seek to position themselves and acquire resources to achieve competitive advantage (Porter, 1980; Wernerfelt, 1984; Barney, 1986).” Unless the reference is non-obvious, narrowly linked to a specific argument, etc., why include it? Readers can do their Google Scholar searches if needed.

In management this strikes me as a cultural issue, not necessarily the result of editors or reviewers wanting to build up their own citation counts. But I’d be curious to hear about reader’s experiences, either as authors or (confession time!) editors or reviewers.

4 February 2012 at 10:42 am 5 comments

Law and Strategy

| Peter Klein |

Over at The Conglomerate, Gordon Smith asks:

Law professors teach and write about topics like public choice, agency capture, rent seeking, etc., but I don’t often hear law professors talking systematically about the use of law for strategic purposes. . . . In simplest terms, the study of law and strategy views the world from the perspective of a business and asks: how can we use law to gain a competitive advantage? This question ought to be of interest to lawyers, but does any law school teach a class on law and strategy?

The context is Richard Shell’s book Make the Rules or Your Rivals Will, which sounds interesting and important. Perhaps the O&M readership can help? The emerging field of non-market strategy (1, 2), led by people like David Baron, Vit Henisz, and the de Figueiredo brothers, studies how firms use not only law but also the regulatory system, bureaucracies, and other non-market features to achieve competitive advantage. The older economics literatures on public choice and rent-seeking of course deal with these issues as well, but typically from “society’s” point of view, rather than the firm’s. As for teaching, I see from a little Googling that John de Figueiredo is teaching law and strategy at Duke, and I suspect other members of the non-market strategy crowd housed at law schools do so as well. Suggestions for Gordon?

3 February 2012 at 10:53 am 2 comments

CFP: “Effects of Alternative Investments on Entrepreneurship, Innovation, and Growth”

| Peter Klein |

Along with Don Siegel, Nick Wilson, and Mike Wright, I am guest editing a special issue of Managerial and Decision Economics on the “Effects of Alternative Investments on Entrepreneurship, Innovation, and Growth.” Proposals are due 15 June 2011. A special issue conference for developing the papers is planned for 29 October 2011 at the SUNY Global Center in Manhattan. The conference is jointly sponsored by the SUNY-Albany School of Business, the Centre for Private Equity Research at Imperial College Business School, and the McQuinn Center for Entrepreneurial Leadership. Further details and submission guidelines are below the fold. (more…)

1 February 2012 at 3:48 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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