Archive for April, 2015
| Peter Klein |
Great illustration from the Mad Scientist Confectioner’s Club (via Fan Xia).
| Peter Klein |
Congratulations to Henry Butler for being named Dean of the George Mason University School of Law. Henry has been director of GMU’s Law and Economics Center, and previously directed the Searle Center at Northwestern. In these roles he has been a prolific economic educator, following in the footsteps of his mentor Henry Manne (aka “Big Henry,” Henry Butler being “Little Henry”).
Younger readers may not know that Henry Butler is also a significant contributor to the early theoretical and empirical literature in transaction cost economics, particularly through two papers with Barry Baysinger, “Corporate Governance and the Board of Directors: Performance Effects of Changes in Board Composition” (JLEO, 1985) and “The Role of Corporate Law in the Theory of the Firm” (JLE, 1985). These papers argued that, contrary to a naive reading of the nexus-of-contracts literature on the firm, institutional constraints such as contract law do have an effect on firm organization and governance. One strand of the research literature on the firm, taking its cue from Alchian and Demsetz (1972) and Jensen and Meckling (1976), maintained that the legal structure of the firm is relatively unimportant for organization and performance, as market participants can simply price out, and contract around, any constraints imposed by the legal system. Baysinger and Butler, following Coase and Williamson, showed that legal rules, particularly those related to incorporation, do matter in the presence of transaction costs. Their work on boards showed that board structure and composition affect firm performance, while emphasizing that boards and other governance mechanisms including corporate law are interdependent.
| Peter Klein |
This may be the most useful document ever produced by a government agency:
| Peter Klein |
An interesting piece in The Economist: “Economic history is dead; long live economic history?”
Last weekend, Britain’s Economic History Society hosted its annual three-day conference in Telford, attempting to show the subject was still alive and kicking. The economic historians present at the gathering were bullish about the future. Although the subject’s woes at MIT have been echoed across research universities in both America and Europe, since the financial crisis there has been something of a minor revival. One reason for this may be that, as we pointed out in 2013, it is widely believed amongst scholars, policy makers and the public that a better understanding of economic history would have helped to avoid the worst of the recent crisis.
However, renewed vigour can be most clearly seen in the debates economists are now having with each other.
These debates are those about the long-run relationship between debt and growth initiated by Reinhart and Rogoff, about the historic effectiveness of Keynesian monetary and fiscal policy, and about the role of global organizations like the IMF and World Bank in promoting international coordination.
I guess my view is closer to Andrew Smith’s, that while history should play a stronger role in economics (and management) research and teaching, it probably won’t, for a variety of professional and institutional reasons. Of course, there is a difference between, say, research in economic or business history and “papers published in journals specializing in economic or business history.” In the first half of the twentieth century, quantitative economics was treated as a specialized subfield; now virtually all mainstream economics is quantitative. (The same may happen to empirical sociology, to theorizing in strategic management, and in other areas.)
| Peter Klein |
Jeffrey Selingo raises an important point about the distinction between “public” and “private” universities, but I disagree with his analysis and recommendation. Selingo points out that the elite private universities have huge endowments and land holdings, the income from which, because of the universities’ nonprofit status, is untaxed. He calls this an implicit subsidy, worth billions of dollars according to this study. “Such benefits account for $41,000 in hidden taxpayer subsidies per student annually, on average, at the top 10 wealthiest private universities. That’s more than three times the direct appropriations public universities in the same states as those schools get.”
I agree that the distinction between public and private universities is blurry, but not for the reasons Selingo gives. First, a tax break is not a “subsidy.” Second, there are many ways to measure the “private-ness” of an organization — not only budget, but also ownership and governance. In terms of governance, most US public universities look like crony capitalists. The University of Missouri’s Board of Curators consists of a handful of powerful local operatives, all political appointees (and all but one lawyers) and friends of the current and previous governors. At some levels, there is faculty governance, as there is at nominally private universities. In terms of budget, we don’t need to invent hidden subsidies, we need only look at the explicit ones. If we include federal research funding, the top private universities get a much larger share of their total operating budgets from government sources than do the mid-tier public research universities. (I recently read that Johns Hopkins gets 90% of its research budget from federal agencies, mostly NIH and NSF.) And of course federal student aid is relevant too.
So, what does it mean to be a “private” university?
| Peter Klein |
Two of my favorite writers on the economic organization of science, Terence Kealey and Martin Ricketts, have produced a recent paper on science as a “contribution good.” A contribution good is like a club good in that it is non-rivalrous but at least partly excludable. Here, the excludability is soft and tacit, resulting not from fixed barriers like membership fees, but from the inherent cognitive difficulty in processing the information. To join the club, one must be able to understand the science. And, as with Mancur Olson’s famous model, consumption is tied to contribution — to make full use of the science, the user must first master the underlying material, which typically involves becoming a scientist, and hence contributing to the science itself.
Kealey and Ricketts provide a formal model of contribution goods and describe some conditions favoring their production. In their approach, the key issue isn’t free-riding, but critical mass (what they call the “visible college,” as distinguished from additional contributions from the “invisible college”).
The paper is in the July 2014 issue of Research Policy and appears to be open-access, at least for the moment.
Modelling science as a contribution good
Terence Kealey, Martin Ricketts
The non-rivalness of scientific knowledge has traditionally underpinned its status as a public good. In contrast we model science as a contribution game in which spillovers differentially benefit contributors over non-contributors. This turns the game of science from a prisoner’s dilemma into a game of ‘pure coordination’, and from a ‘public good’ into a ‘contribution good’. It redirects attention from the ‘free riding’ problem to the ‘critical mass’ problem. The ‘contribution good’ specification suggests several areas for further research in the new economics of science and provides a modified analytical framework for approaching public policy.