Archive for May, 2013

Blind Review Blindly Reviewing itself

| Lasse Lien |

From Scott Masten we received this classic gem:

A growing interest in and concern about the adequacy and fairness of modern peer-review practices in publication and funding are apparent across a wide range of scientific disciplines. Although questions about reliability, accountability, reviewer bias, and competence have been raised, there has been very little direct research on these variables.

The present investigation was an attempt to study the peer-review process directly, in the natural setting of actual journal referee evaluations of submitted manuscripts. As test materials we selected 12 already published research articles by investigators from prestigious and highly productive American psychology departments, one article from each of 12 highly regarded and widely read American psychology journals with high rejection rates (80%) and nonblind refereeing practices.

With fictitious names and institutions substituted for the original ones (e.g., Tri-Valley Center for Human Potential), the altered manuscripts were formally resubmitted to the journals that had originally refereed and published them 18 to 32 months earlier. Of the sample of 38 editors and reviewers, only three (8%) detected the resubmissions. This result allowed nine of the 12 articles to continue through the review process to receive an actual evaluation: eight of the nine were rejected. Sixteen of the 18 referees (89%) recommended against publication and the editors concurred. The grounds for rejection were in many cases described as “serious methodological flaws.” A number of possible interpretations of these data are reviewed and evaluated.

(Peters and Ceci, 1982)

Are these findings specific to the 80s and psychology? Care to replicate?

30 May 2013 at 11:32 am 3 comments

Steven Klepper

| Dick Langlois |

I just learned (via Rajshree Agarwal) of the passing, at a young age, of Steven Klepper. Steven was an acquaintance of many years, a stand-up guy as well as a great researcher. His work on the lifecycle of firms and the role of spinoffs is a model for how to do good empirical work in organization and technology. By coincidence, this new paper (with Russell Golman) crossed my screen only a few minutes after I learned the news.

Spinoffs and Clustering

Geographic clustering of industries is typically attributed to localized, pecuniary or non-pecuniary externalities. Recent studies across innovative industries suggest that explosive cluster growth is associated with the entry and success of spinoff firms. We develop a model to explain the patterns regarding cluster growth and spinoff formation and performance, without relying on agglomeration externalities. Clustering naturally follows from spinoffs locating near their parents. In our model, firms grow and spinoffs form through the discovery of new submarkets based on innovation. Rapid and successful innovation creates more opportunities for spinoff entry and drives a region’s growth.

28 May 2013 at 3:31 pm 4 comments

Incentives Still Matter, Medical Care Edition

| Peter Klein |

Old-fashioned pay-for-performance schemes are about as fashionable these days as Taylorite hierarchy. In the academic and practitioner literatures on compensation and motivation, ideas about biases and heuristics, team motivation, trust, framing, etc., are in; work on agency costs and opportunism is out. So I was interested to see a new empirical paper on physician motivation — a randomized controlled trial set in Rwanda — with pretty conventional findings. Check it out:

Using Performance Incentives to Improve Medical Care Productivity and Health Outcomes
Paul Gertler, Christel Vermeersch
NBER Working Paper No. 19046, May 2013

We nested a large-scale field experiment into the national rollout of the introduction of performance pay for medical care providers in Rwanda to study the effect of incentives for health care providers. In order to identify the effect of incentives separately from higher compensation, we held constant compensation across treatment and comparison groups – a portion of the treatment group’s compensation was based on performance whereas the compensation of the comparison group was fixed. The incentives led to a 20% increase in productivity, and significant improvements in child health. We also find evidence of a strong complementarity between performance incentives and baseline provider skill.

27 May 2013 at 1:40 pm Leave a comment

Rise of the Three-Essays Dissertation

| Peter Klein |

Almost all dissertations in economics and business are of the “three-essays” variety, rather than conventional book-length treatises. The main reason is pragmatic: economics, management, finance, accounting, etc. are mainly discussed in journal articles, not books. Students writing treatises must spend the first year post PhD converting the dissertation into articles for publication; why not write them that way from the start? (An extreme example — perhaps apocryphal — concerns Larry Summers, who began teaching at MIT several years before receiving his PhD from Harvard. Rumor has it he forgot to submit the PhD thesis, and simply bundled three of his published articles and turned it in.)

Some counter that the traditional model, or some variant of it, has value — for instance, the treatise conventionally includes a lengthy literature review, more than would be acceptable for a published journal article, which demonstrates the student’s mastery of the relevant literature. My view is that the standalone literature review is redundant at best; the student’s mastery of the material should be manifest in the research findings, without extra recitation of who said what. I tell students: don’t waste time putting anything in the dissertation that is not intended for publication!

The May 2013 AER has a piece by Wendy Stock and John Siegfried, “One Essay on Dissertation Formats in Economics,” on the essays-versus-treatise question. The evidence seems to weigh pretty heavily against the treatise:

Dissertations in economics have changed dramatically over the past forty years, from primarily treatise-length books to sets of essays on related topics. We document trends in essay-style dissertations across several metrics, using data on dissertation format, PhD program characteristics, demographics, job market outcomes, and early career research productivity for two large samples of US PhDs graduating in 1996-1997 or 2001-2002. Students at higher ranked PhD programs, citizens outside the United States, and microeconomics students have been at the forefront of this trend. Economics PhD graduates who take jobs as academics are more likely to have written essay-style dissertations, while those who take government jobs are more likely to have written a treatise. Finally, most of the evidence suggests that essay-style dissertations enhance economists’ early career research productivity.

The paywalled article is here; a pre-publication version is here. (Thanks to Laura McCann for the pointer.)

21 May 2013 at 3:33 pm 10 comments

More Bad News for Microfinance

| Peter Klein |

Microfinance and microenterprise have been touted as a new model for economic development, a way to encourage investment, innovation, and business creation and raise living standards without having to go through large-scale industrialization. We’ve tended to be skeptical, however, particularly about the most touted microfinance providers such as the Grameen Bank. Theoretically, the kinds of repayment plays that make microfinance feasible (high interest rates, strong peer monitoring) seem to limit its scope; besides, not everyone wants to be a business owner. The empirical evidence has not been encouraging — microfinance may achieve some social goals, like a sense of empowerment among microenterprise owners, but does not seem to have much impact on overall economic activity. It may not be possible to jump from a largely rural, agrarian society to an entrepreneurial capitalist one without going through a period of large-scale industrial development.

These musings are inspired by a new NBER working paper from the J-PAL group which uses a randomized controlled trial to study the effects of microfinance in an urban Indian setting. The results confirm the suspicions above: access to microfinance brings about some changes in behavior, but has no noticeable effect on standards of living or overall economic performance. Here’s the info:

The Miracle of Microfinance? Evidence from a Randomized Evaluation
Esther Duflo, Abhijit Banerjee, Rachel Glennerster, Cynthia G. Kinnan
NBER Working Paper No. 18950, May 2013

This paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution (Spandana) while the remainder were not, although other MFIs were free to enter those slums. Fifteen to 18 months after Spandana began lending in treated areas, households were 8.8 percentage points more likely to have a microcredit loan. They were no more likely to start any new business, although they were more likely to start several at once, and they invested more in their existing businesses. There was no effect on average monthly expenditure per capita. Expenditure on durable goods increased in treated areas, while expenditures on “temptation goods” declined. Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs ), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts. Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end. We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment. The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts.

20 May 2013 at 3:01 pm 1 comment

Keynes in the Spotlight

| Peter Klein |

NPG P363(14); John Maynard Keynes, Baron Keynes by Ramsey & MusprattAs the Niall Ferguson kerfuffle begins fading from memory it’s worth revisiting the underlying issue: What kind of person was John Maynard Keynes, and (how) did his social, cultural, moral, and aesthetic views affect his scientific work?

Here are a few recommended readings:

These works are not kind to ole’ John Maynard (I’m posting them, what did you expect?). Rothbard, for example, emphasizes Keynes’s “overweening egotism, which assured him that he could handle all intellectual problems quickly and accurately and led him to scorn any general principles that might curb his unbridled ego,” also referring to Keynes’s “deep hatred and contempt for the values and virtues of the bourgeoisie,” including savings and thrift. It’s hard to imagine that Keynes’s personal views on thrift could be unrelated to the now-ubiquitous, über-Keynesian idea that spending, not savings and capital accumulation, is the driver of economic growth.

On time preference, and its social and cultural causes and consequences, I recommend Time and Public Policy by T. Alexander Smith (University of Tennessee Press, 1988), which unfortunately appears to be out of print. Here is a brief review by Israel Kirzner.

17 May 2013 at 2:07 pm 2 comments

Jackson Nickerson at SMG

| Nicolai Foss |

When I was a graduate student 20-25 years ago I remember transaction cost economics being routinely mocked by all and sundry for “being static,” “neglecting learning,” and “not saying anything about innovation and entrepreneurs,” in addition, of course, to the usual charges of working with an impoverished and overly cynical view of human nature.

While TCE still highlights opportunism as a key assumption, it is fair to say that over the last decade important work has brought dynamics, learning and innovation within the orbit of TCE. This has mainly been brought about by a coterie — some of which are former students of Oliver Williamson — such as Nicholas Argyres, Kyle Mayer, Todd Zenger, Steve Michael, O&M’s Peter Klein, and last, but certainly not least, Jackson Nickerson.

Jackson is the author of a large number of truly innovative papers in management research and economics, many of which have a TCE bent. Thus, with Todd Zenger he has done important work on envy (and other aspects of social comparison processes) as an antecedent of internal transaction costs, on why firms seem to switch between extremes in their organizational forms, and, again with Zenger, he has pioneered a “problem-solving approach” to economic organization.

My department will feature this extremely original thinker as a speaker in our seminar series on Friday (here). Jackson will present a novel take on the dominant design stream of thinking about industry evolution, building on the US auto industry data base that (his co-authors) Lyda Bigelow and Nick Argyres have successfully exploited in earlier publications. Will be exciting!!

14 May 2013 at 11:39 am 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).