Archive for October, 2012

The Dissertation Defense

| Peter Klein |

Thanks to Pete Boettke for forwarding this thoughtful CHE piece on the dissertation defense. Like the writer, I never had a defense; I was exchanging dissertation drafts with my adviser (via snail mail — this was a long time ago), and one day he simply said, “Send me the title page,” and I was done.

Having participated as a professor in many defenses, both for my own students and for others at home and abroad, I not only appreciate the value of the defense, but recognize the substantial differences in defense formats around the world (fairly casual in the US, much more formal and ceremonial in Europe). I remember touring the University of Salamanca a few years ago and learning how defenses were conducted in the 15th and 16th centuries — multi-day events filled with huge parties and strange rituals, including the candidate spending the night before locked in a room and being stepped on by faculty and other students.

My favorite format is depicted in a 1987 New Yorker cartoon:

29 October 2012 at 9:51 am Leave a comment

Social Justice Quote of the Day

| Peter Klein |

Hayek, interviewed in 1983 by Encounter:

Hayek: “I regard ‘social justice’ as a nonsensical term….”

Interviewer: “But do we have the concept of the ‘social market economy’?”

Hayek: “May I tell you the story of when I last spoke to Dr. Ludwig Erhard? We were alone for a moment, and he turned to me and said, ‘I hope you don’t misunderstand me when I speak of a social market economy (Sozialen Marktwirtschaft). I mean by that that the market economy as such is social, not that it needs to be made social. . . .’ If you had to make the market economy ‘social,’ . . . you can justify every demand that cannot be reconciled with having the market determine prices and incomes. There’s no better way of destroying the market economy than with the concept of ‘social justice.'”

27 October 2012 at 9:10 am 2 comments

A New Approach to Multitask Agency Problems

| Peter Klein |

The standard approach to multiask agency problems is to recognize that, if the output of some tasks is more easily measured than the output of other tasks, than others, then piece-rate incentive schemes will lead to a distortion of effort toward the more easily monitored tasks. Ask a sales clerk to sell merchandise and keep the store clean and the displays spiffy, and pay on a commission basis, and you’ll get a messy store. A new paper by Omar Al-Ubaydli, Steffen Andersen, Uri Gneezy, and John List challenges this view, arguing that using a piece-rate schemes signals that the principal is a good monitor in general, which can motivate performance even on the not-easily-measured tasks in a multitask setting:

Carrots that Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes
Omar Al-Ubaydli, Steffen Andersen, Uri Gneezy, John A. List
NBER Working Paper No. 18453, October 2012

Constructing compensation schemes for effort in multi-dimensional tasks is complex, particularly when some dimensions are not easily observable. When incentive schemes contractually reward workers for easily observed measures, such as quantity produced, the standard model predicts that unrewarded dimensions, such as quality, will be neglected. Yet, there remains mixed empirical evidence in favor of this standard principal-agent model prediction. This paper reconciles the literature by using both theory and empirical evidence. The theory outlines conditions under which principals can use a piece rate scheme to induce higher quantity and quality levels than analogous fixed wage schemes. Making use of a series of complementary laboratory and field experiments we show that this effect occurs because the agent is uncertain about the principal’s monitoring ability and the principal’s choice of a piece rate signals to the agent that she is efficient at monitoring.

22 October 2012 at 12:44 am 8 comments

Mormons in Management

| Peter Klein |

There’s an old joke about God calling the Pope. “I’ve got good news and bad news. The good news is that I’ve answered your prayer — I’m uniting all the world’s religions under one church and one leader.” Great, the Pope responds, what’s the bad news? “I’m calling from Salt Lake City.”

It’s commonly observed that the academic fields of strategy, organization, and entrepreneurship are over-represented by scholars from the Mormon faith: Christensen, Clark, Barney, Hoskisson, Dyer, Whetten, Zenger, and Felin, to name just a few. Often this is explained by superior social networking and the role of BYU as an anchor entity. But I don’t know any systematic academic research on the phenomenon.

A Wednesday HBR blog entry, “How Mormons Have Shaped Modern Management,” takes a different tack, focusing on the beliefs and practices of the Mormon church. An interesting read. See also a 2011 Business Week piece on the role of the Mormon mission.

19 October 2012 at 4:59 pm 9 comments

Capabilities and Organizational Economics: How Do They Relate?

| Nicolai Foss |

From the official SMG blog, Strategy and Organization:

A long-standing discussion in management research concerns the relation between capabilities perspectives on the firm and organizational economics, including transaction cost economics and agency theory. In particular, proponents of capabilities ideas have criticized organizational economics for exaggerating the role of opportunism (and similar constructs), neglecting value creation and downplaying dynamics. Conversely, proponents of organizational economics have criticized the lack of a clear unit of analysis, causal mechanisms and micro-foundations in the capabilities approach.

“While these early debates clarified many things,” says SMG Professor Nicolai J Foss, “the field is increasingly moving towards a more conciliatory stance in which the two perspectives are seen as capable of cross-fertilizing each other. This is going further than merely stressing a relation of complementarity in which capabilities ideas lend themselves to the explanation of organizational heterogeneity while organizational economics provides the understanding of the organization of heterogeneous resources and capabilities. The new view is that, notably, organizational economics has the potential of illuminating capability emergence and therefore organizational heterogeneity.”

With Nicholas Argyres (Washington University), Teppo Felin (Brigham Young University), and Todd Zenger (Washington University) Foss is an editor of the September-October issue of the leading management research journal, Organization Science, titled “Organizational Economics and Capabilities: From Opposition and Complementarity to Real Integration” (  This special issue contains a number of articles by leading contributors to the discussion, and mixes theoretical, empirical and modeling approaches, as well as an introduction by the editors that survey the debate and defines a new agenda for research in the field.

“We are pleased that we got so many high-level contributions for this special issue,” says Foss, “and in particular that these contributions truly manage to define a new, creative research frontier where the emphasis is on researching the interplay between theoretical mechanisms identified by the two perspectives.

17 October 2012 at 9:24 am Leave a comment

Henry Manne at Missouri, on the Crisis in Higher Education

| Peter Klein |

Missouri friends, please join us next Tuesday for a lecture by Henry Manne on the governance and organization of US higher education institutions:

The Crisis in Higher Education:
Origins and Problems of University Governance

Henry G. Manne
Dean Emeritus, George Mason University Law School

Tuesday, October 23, 2012, 3:30-4:45pm
MU Student Center, Room 2206
University of Missouri

Sponsored by the Liberty and Justice Colloquium, University of Missouri
Free and Open to the Public

Henry G. Manne is Dean Emeritus of the George Mason School of Law and an expert on insider trading, legal education, university governance, and law and economics. He has also taught at St. Louis University, the University of Wisconsin, George Washington University, the University of Rochester, Stanford University, the University of Miami, Emory University, the University of Chicago, and Northwestern University.

Dean Manne is an Honorary Life Member of the American Law and Economics Association, which honored him as one of the four founders of the field of Law and Economics. He launched the Law and Economics Center at Emory University and the University of Miami before bringing it to George Mason University. His monograph, An Intellectual History of the School of Law, George Mason University, traces the development of the law and economics.

Dean Manne’s other writings include such seminal works as Insider Trading and the Stock Market, Wall Street in Transition (with E. Solomon), and “Mergers and the Market for Corporate Control” Journal of Political Economy, 1965). He is also a frequent contributor to the Wall Street Journal. In 1999, the Case Western Reserve Law Review published the papers from a symposium honoring the many contributions of Dean Manne to the law and economics movement as The Legacy of Henry G. Manne. The Liberty Fund recently published The Collected Works of Henry G. Manne in three volumes.

Dean Manne holds a B.A. from Vanderbilt University (1950), J.D. from the University of Chicago (1952), J.S.D. from Yale University (1966), LL.D. from Seattle University (1987), and LL.D. from the Universidad Francesco Marroquin in Guatemala (1987).

16 October 2012 at 10:04 pm 5 comments

Market Design

| Peter Klein |

A few quick thoughts on today’s Nobel Prize announcement. More later, once better informed people, from whom we can steal ideas, have weighed in.

  • Market design is basically the study of exchange without prices. As most of economics deals with prices, this is a somewhat specialized subfield.  The best-known example, courtesy of Al Roth, deals with kidney exchanges. Most economists will tell you that the best way to deal with shortages of transplantable organs like kidneys is to legalize kidney sales. (My friend Andy Barnett and the late David Kaserman wrote extensively on this.) If, for whatever reason, that is infeasible — Roth notes that many people find such sales “repugnant” — then various matching algorithms may be better than nothing. Roth and colleagues have studied and compared these matching algorithms.
  • To get up to speed, Roth’s 2007 article in Harvard Business Review is probably a good place to start. For more technical comments see Josh Gans and Alex Tabarrok, and. Knowledge Problem is my go-to source for this kind of stuff, so I’m eagerly awaiting the commentary there.
  • We discussed market design at O&M in 2007.
  • Shapley’s contribution’s to cooperative game theory underlie Roth’s work. It’s a bit trite to point this out, but I’ll point out anyway that the huge popularity of game theory over the last three decades, particularly in IO and business strategy, rely almost entirely on noncooperative game theory, while the cooperative branch has been somewhat neglected. But bargaining is clearly important for strategy, organization, and entrepreneurship, so look for increased interest in this branch.
  • Someone pointed out that Roth appears to be the first economics blogger to win the Nobel. (I’m not counting Krugman, who’s not what I’d call an academic blogger.)
  • Enthusiasm among my informal circle of professional friends is muted. One suggests that, rather than take cultural resistance to the price mechanism (e.g., for kidney allocation) as exogenous, scholars should work to overcome this resistance. Another calls this “one of the most boring prizes yet. At best it is a prize for some no doubt useful ideas in some small contexts of effecting coordination, but the real coordinating marvel is the market.” A third calls Shapley’s UCLA lectures on cooperative game theory “the most useless classes that I took in college. . .  we would go through one division rule after another to see which axioms they satisfied. When I asked him how you picked between different division rules that satisfied the same axioms, Lloyd said that it all depended on what conclusion that you wanted to reach.”

15 October 2012 at 10:04 am 6 comments

SMS in Prague

| Peter Klein |

The Strategic Management Society conference has just wrapped up from the lovely city of Prague. Three-fourths of the O&M team,along with several former guest bloggers, enjoyed the festivities. There were many excellent papers, panels, workshops, and social events. Too many to summarize here, but I’ll mention a few highlights:

  • A panel organized by good-twin Teppo Felin, “What Are the Big Questions in Strategy?” More on this soon from one of the participants, who used the opportunity to plug his new book shamelessly.
  • The Dan and Mary Lou Schendel Best Paper Prize, “to honor substantial work published in the SMJ,” at least five years prior to the award, to Oliver Williamson for his 1991 paper “Strategizing, Economizing, and Economic Organization.”
  • A panel on teaching strategic entrepreneurship at the undergraduate, MBA, and PhD levels. I covered the third of these; my slides are here.
  • A “common ground” session on “Austrian Economics and Creative Destruction,” demonstrating the growing interest in the Austrian school among management and organizational scholars.

I also participated in a pre-conference workshop on career strategy, and was asked to talk about social media. Should PhD students and untenured assistant professors blog, tweet, share professional information on Facebook, etc.? I said I could see no evidence that a social media presence had hurt any young scholar; quite the contrary, blogs (like this one) and other, appropriate, uses of social media, can enhance a scholar’s presence and reputation. I argued that it’s a mistake to view these as competing with serious research; after all, it’s not like someone’s going to say, “I was going to complete a major research article today, but decided to send a tweet instead.” Rather, judicious use of blogs, Facebook, Twitter, etc. is a complement to serious research. I think of it as water-cooler or lunch-table chatter with colleagues. You learn about people’s broader interests, their sense of the field, what topics they think are particularly interesting, what they’re reading, etc. Professionals like to know this about each other. Learning these sorts of things about colleagues certainly doesn’t make you think less of them!

There’s much more to report — including an episode of me impersonating a female colleague — but that will have to wait for a future post.

10 October 2012 at 4:18 am 1 comment

Luigi Zingales Blogging on EconLog

| Peter Klein |

Luigi Zingales, an important contributor to organizational economics as well as finance and macroeconomics, and frequently cited here at O&M, is guest blogging at EconLog. I’m looking forward to his posts!

1 October 2012 at 11:06 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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