Archive for November, 2012

Pomo Periscope XXIV: Sartre on Ownership

| Nicolai Foss |

Proto-pomo Jean-Paul Sartre was a certified commie. I was therefore baffled to read about Sarte’s views on ownership (here). In Being and Nothingness Sarte argues that “to have” is one of the three fundamental categories of human existence (along with “to do” and “to be”), and notes that the “totality of my possesions reflects the totality of my being … I am what I have … what is mine is myself.” More broadly, there is a highly interesting literature on “psychological ownership,” informed mainly by philosophy and psychology, but with interesting linkages to evolutionary anthropology. The “endowment effect” in behavioral economics may be seen as part of this. Although the main applications of psychological ownership theory so far seems to have been to organizational behavior (e.g., this paper), there seem to me to be potentially interesting applications to the political philosophy, particularly for those who find the Lockean theory of ownership a bit lacking in the psychological dimension.

26 November 2012 at 2:37 am 2 comments

A Naturalistic Foundation for the Hierarchy?

| Nicolai Foss |

In economics, the hierarchical firm arises for reasons related to economizing with transaction costs, managerial attention allocation, information synthesis and what not. Many organizational economists would argue that absent transaction costs, there would be no hierarchies as there would be no firms. But, what if the existence of hierarchy has a partly genetic basis, that is, humans evolved in such a way that they have come to “like” hierarchies (which may therefore exist even if transaction costs were zero)?  After all, those small hunting bands roaming the African savannahs 30, 000 years ago likely had leaders, a division of labor and so on, and evolutionary anthropology suggests that our brains evolved to handle the intricacies of handling this division of labor. Thus, we may be “hardwired for hierarchy.”

OK, speculation to be sure, but in “The Fluency of the Social Hierarchy: The Ease With Which Hierarchical Relationships Are Seen, Remembered, Learned, and Liked,” recently published in the prestigious Journal of Personality and Social Psychology, Emily Zitek and Larissa Tiedens provide some potentially supportive evidence: In five studies, they show that hierarchies are perceived, understood, remembered and learner faster and more efficiently than other kinds of social relationships. 

There may be many reasons for this finding, but one is the simple one that hierarchical superiors have potentially strong influence on our lives.  Very apropos, another recent study, “The hierarchical face: higher rankings lead to less cooperative looks,” by four UMichigan psychologists, finds that the “higher ranked an individual’s group is, the less cooperative the facial expression of that person is judged to be.” Interestingly, one of their settings is interaction with deans!

Abstracts below. (more…)

25 November 2012 at 4:50 am 3 comments

More on Performance Pay and Motivation Crowding Out

| Nicolai Foss |

Observing  how economists relate to psychology is interesting. On the one hand, there is considerable fascination:  Social psychology research often produces interesting findings about human interaction, and motivational and cognitive psychology yields insight in human behavior and decision-making which is more fine grained than most econ research. On the other hand, there is an often ill-tempered dismissal, too often based on an incomplete understanding of the relevant material, of any psychology findings that may be seen as going against the standard economics model of rationality. “This is entirely consistent with maximization once you take all constraints into consideration,” “This is just another instance of altruistic preferences”, etc. etc. are conventional defensive stratagems that are entirely understandable given the metaphysical status of the standard model in economics.

An area where many economists, at least as seen from my perspective as an outsider, seems to have given in concerns so-called “motivation crowding.”  This is  the idea that “extrinsic motivators” (such as performance pay) can crowd-out out “intrinsic motivation,” the kind of inner  motivation that, many motivational psychologists argue, is the most suitable one for tasks involving creativity, problem-solving and learning. Since this effect was first imported (from self-determination theory in motivational psychology) into economics in the mid-1990s by, first, Bruno Frey, and then David Kreps, it has been rather generally acknowledged by many organizational economists, personnel economists and labor economists as a real and worrying phenomenon. “Worrying” because it suggests that conventional incentive instruments may be counter-productive.

A recent paper by Meiyu Fang and Barry Gerhart (2012), “Does Pay for Performance Diminish Intrinsic Interest?” suggests that economists should perhaps think twice before they embrace the crowding effect, at least in the context of real world organizations.The authors question random assignment experiments on the grounds that in organizations assignment is anything but random. But perhaps more substantively they argue that “perceived competence” and “perceived autonomy” (key constructs in self-determination theory) are positively related to pay for individual performance, rather than negatively as the crowding effect would posit. For example, being exposed to performance-contingent rewards may drive feelings of control and autonomy (“I decide myself how much I wanna make here”, “If I deliver, the Man has to pay” etc.).  These ideas are tested on data from a survey of 609 white collar Taiwanese employees, and largely confirmed. A fascinating and recommended read.

24 November 2012 at 6:00 am 1 comment

Mark Casson Conference

| Nicolai Foss |

Mark Casson is one of the most influential scholars in the international business and entrepreneurship fields. He is also living proof that huge influence can be won and held, not by regularly cranking out papers in the “A journals,” but by writing solid monographs. Although Casson has certainly written his share of high-level papers, he is arguably best known for two books, namely his slim 1976 monograph with Peter Buckley, The Future of the Multinational Enterprise, and his 1982 (single-authored) book, The Entrepreneur: an Economic Theory. While the former is one of the founding contributions to the theory of the multinational corporation (some say, the founding contribution), the latter was, at the time it was published, the perhaps most sophisticated economics-based treatment of entrepreneurship theory. I reread it about a year ago, and was struck by how up-to-date and fresh it still is. (Here is a brief popular statement of Casson’s views on entrepreneurship).

Professor Andrew Godley of the Henley Business School has put together an exciting conference (15-16. Dec., University of Reading) to celebrate the thirtieth anniversary of Casson’s book. The program includes luminaries such as Mike Wright, Saras Sarasvathy, Ram Mudambi and my former PhD student and colleague, Jacob Lyngsie.  Unfortunately, I am not able to participate myself, but the conference should be of interest to the O&M readership. Here is the program.

23 November 2012 at 12:07 pm Leave a comment

Pet Peeve: “Normative Theory”

| Nicolai Foss |

I have seldom attended a meeting or conference on management research where the notion of “normative theory” hasn’t been brought up. A couple of decades ago when transaction cost economics was making its influence felt in management research, it was frequently dismissed as “just another normative contingency theory.” Discussants may quiz presenters on whether they are “doing positive or normative theory,” and gravely tell them that they must heed the difference between the two.

While I am all for being upfront about one’s (normative) premises, I am not sure the notion of “normative theory” makes a lot of sense. (There is ethical theory which may be partly falsifiable, but this is usually not what is meant by “normative theory”). There are theoretically informed statements about what ought to be the case — but these are simply derived from positive theories with the addition of an “ought” clause. To be sure, one can build theory that is designed to help remedy some state in the real world that one considers undesirable. Theorizing (i.e., the construction of theory) is, of course, shot through with normative considerations, as Gunnar Myrdal famously argued. But, that doesn’t make the theory a “normative theory” per se. A theory can be (should be) 100% wertfrei although its emergence is entirely explainable in terms of moral, political, etc. considerations.

Theory can be (should be?) used as an instrument, to be sure. Thus, the proponent of a theory may tell decision-makers that if they want to achieve X, they should do Y. That is still not “normative theory,” because the proponent doesn’t tell decision-makers that X is something they ought to pursue. Fairly simple stuff, to be sure. But, many management scholars apparently haven’t fully absorbed the basic implications of what Hume, Menger, and Weber said on these issues. And in today’s method-obsessed graduate programs, they likely won’t.

22 November 2012 at 3:04 am 7 comments

Coase on the Economists

| Peter Klein |

Ronald Coase has a short piece in the December 2012 Harvard Business Review, “Saving Economics from the Economists” (thanks to Geoff Manne for the tip). Not bad for a fellow about to turn 102! I always learn from Coase, even when I don’t fully agree. Here Coase decries the irrelevance of contemporary economic theory, condemning economics for “giving up the real-world economy as its subject matter.” He also provides a killer quote: “Economics thus becomes a convenient instrument the state uses to manage the economy, rather than a tool the public turns to for enlightenment about how the economy operates.”

I’m sure that’s true for many economists and for some branches of the field, such as Keynesian macroeconomics. But Coase seems to reject economic theorizing altogether, even the “causal-realist” approach popular in these parts. To be useful, he argues, economics should provide practical guidance for the businessperson. However, “[s]ince economics offers little in the way of practical insight, managers and entrepreneurs depend on their own business acumen, personal judgment, and rules of thumb in making decisions.”

Well, that sounds about right to me. Economics provides general principles, or laws, about human action and interaction, mostly stated as “if-then” propositions. Applying the principles to concrete, historical cases requires Verstehen, and is the task of economic historians (as analysts) and entrepreneurs (as actors), not economic theorists. Deductive theory does not replace judgment. Without deductive theory, however, we’d have no principles to apply, and nothing to contribute to our understanding of the economy except — to quote Coase’s own critique of the Old Institutionalists — “a mass of descriptive material waiting for a theory, or a fire.” To be sure, Coase’s own inductive method has led to several brilliant insights. Coase himself has a knack for intuiting general principles from concrete cases (e.g., theorizing about transaction costs from observing automobile plants, or about property rights from studying the history of spectrum allocation), though not perfectly. But, as I noted before, Coase himself is probably the exception that proves the rule — namely that induction is a mess.

21 November 2012 at 5:21 pm 6 comments

Micro-foundations All Over the Place …

| Nicolai Foss |

In a SOapBox Essay in 2005, Teppo Felin and I called for “micro-foundations” for macro management theory, specifically the dominant routines and capabilities (etc.) stream in strategic management. (check Teppo’s site for the paper, commentaries by Jay Barney and Bruce Kogut, and various other Felin & Foss papers on the subject).  We thought our argument was fairly simple, not really that novel (economists have been talking about micro-foundations for decades), and “obviously true.” Yet, the argument was apparently provocative (or, perhaps more correctly, our formulation of it was…), and it met with considerable hostility. For example, the DRUID 2008 conference in Copenhagen featured a panel on micro-foundations with opposing sides represented by Sidney Winter and Thorbjørn Knudsen, and Peter Abell and yours truly, respectively. I remember seeing several (extremely) prominent management scholars shaking their heads in disbelief about the folly of micro-foundations. (The debate, though not the head-shaking, can be accessed through the DRUID site).

And yet, 7 years later the micro-foundations project appears to have met with general acceptance, although it is sometimes referred to as the “Foss Fuss,” by at least one very prominent contributor to our field. In fact, some of the head-shaking persons from DRUID 2008 now themselves talk about micro-foundations. Both Sid Winter and Thorbjørn Knudsen (not headshakers) now embrace micro-foundations–albeit of the “right” kind (e.g., behavioralist and  informed by neuroscience and experiments). Papers in leading journals have “micro-foundations” in the title.  Specific examples: :

  • The Journal of Management Studies just published a special issue on “Micro-origins of Routines and Capabilities,” edited by Teppo, me, Koen Heimeriks, and Tammy Madsen, and featuring contributions by various luminaries.
  • The European Management Review’s December issue (not yet online) will feature a transcribed exchange between Sid Winter, me and Maurizio Zollo on micro-foundations.
  • A leading association in our field will adopt “micro-foundations” as the theme of one its conferences (to be held in 2014). Details to be disclosed (soon).

Micro-foundations are “everywhere.” List der Vernunft, I reckon.

UPDATE: The Academy of Management Perspectives will feature a paper symposium next year on micro-foundations. Contributors: Jay Barney, Teppo Felin, Henrich Greve, Siegwart Lindenberg, Andrew van de Ven, Sid Winter, and me.

20 November 2012 at 6:10 am 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).