Archive for June, 2015
Henry Manne Quote of the Day
| Peter Klein |
This is actually Richard Epstein writing about Henry Manne, but Richard nicely captures the essence of Henry’s thinking:
The combination of law and economics is a major discipline in … modern law schools, but I do not think that it was always presented to Henry’s liking. In his view, the student’s purpose was to show the power of markets to overcome key problems of information and coordination, not to run a set of exhaustive empirical studies to show that corporate boards would function better if they increased their number of independent directors by 5 percent.
Other Manne items on O&M are here. As I noted in another post, Manne was expert in specific technical areas of law (most obviously, insider trading and corporate takeovers) but very much a generalist in his overall outlook. As Manne once recalled about a 1962 seminar led by Armen Alchian, “All of a sudden, everything that I had done intellectually for thirteen years came together, with this one idea of Alchian’s about the real nature of property rights and the Misesian notion of people making choices, with every choice being a tradeoff,” In other words, a simple and powerful theoretical framework goes a long way in analyzing a broad range of issues — much different from today’s emphasis on behavioral quirks, clever experiments, and similar minutiae.
Casson on Methodological Individualism
| Peter Klein |
Thanks to Andrew for the pointer to this weekend’s Reading-UNCTAD International Business Conference featuring Mark Casson, Tim Devinney, Marcus Larsen, and many others. Mark’s talk (not yet online) focused on the need for methodological individualism in international business research. “Firms don’t take decisions, individuals do. When you say that a firm pursued an international strategy, you really mean that that the CEO persuaded the individuals on the board to go along with his or her strategy.” As Andrew summarizes:
Casson spoke at great length about the need for research that focuses on named individuals, is based on the extensive study of primary sources in archives, takes social and political context into account, and which looks at case studies of entrepreneurs in different time periods. In effect, he was calling for the re-integration of Business History into International Business research.
And a renewed emphasis on entrepreneurship, not as a standalone subject dealing with startups or self-employment, but as central to the study of organizations — a theme heartily endorsed on this blog.
Essays in Honor of Joel Mokyr
| Peter Klein |
O&M friends Avner Greif, Lynne Kiesling, and John Nye have edited an important collection of essays by students, colleagues, and friends of the distinguished economic historian Joel Mokyr: Institutions, Innovation, and Industrialization: Essays in Economic History and Development (Princeton University Press, 2015). Dust-jacket blurb:
This book brings together a group of leading economic historians to examine how institutions, innovation, and industrialization have determined the development of nations. Presented in honor of Joel Mokyr — arguably the preeminent economic historian of his generation–these wide-ranging essays address a host of core economic questions. What are the origins of markets? How do governments shape our economic fortunes? What role has entrepreneurship played in the rise and success of capitalism? Tackling these and other issues, the book looks at coercion and exchange in the markets of twelfth-century China, sovereign debt in the age of Philip II of Spain, the regulation of child labor in nineteenth-century Europe, meat provisioning in pre-Civil War New York, aircraft manufacturing before World War I, and more. The book also features an essay that surveys Mokyr’s important contributions to the field of economic history, and an essay by Mokyr himself on the origins of the Industrial Revolution.
Here are some useful book reviews by Doug Allen and Robert Margo, and here is some interesting dialogue between Mokyr, Nye, and Deirdre McCloskey as comments on an article by Don Boudreaux.
Capabilities, Transaction Costs, and Buzz Lightyear
| Dick Langlois |
I joked in a comment on Peter’s last post about naming classes of articles after fairy-tale (or is it Disney?) characters. Is there a Disney moniker for a work that keeps getting reinvented? As I get older, I think about this more often, and I’m probably entering the dread legacy-protection phase of my career.
This came to mind because I happened upon an interesting paper from Nick Argyres and Todd Zenger, which has been out for a while but which I hadn’t seen. The authors propose to synthesize capabilities theory and transaction-cost economics. A worthy goal. Except that Paul Robertson and I did this twenty years ago. Argyres and Zenger point out, as Paul and I did, that neither capabilities alone nor transaction-costs alone can explain the boundaries of the firm. They settle on an account in which firms integrate because of strong complementarities among assets that create hold-up problems if accessed through markets. Their example is Disney’s relationship with and eventual acquisition of Pixar. (I know! A work that gets constantly reinvented is a Buzz Lightyear!) Far from being a general theory of capabilities and transaction costs, however, this is a special case of the general theory Paul and I proposed. We talked specifically about this kind of case (see especially pp. 38-40), which we called the appropriability variant of our account, associated with Teece (1986), to distinguish it from the entrepreneurial variant. In the entrepreneurial variant, firms integrate into complementary activities because of the dynamic transaction costs of using markets. Argyres and Zenger cite my 1992 ICC paper on dynamic transaction costs, but they make it out to be a claim that capabilities alone can explain vertical integration, which is of course the opposite of what the article actually says. They offer the gnomic remark that my definition of dynamic transaction costs “mirrors that of Williamsonian transaction costs.” But isn’t that the point? They really are transaction costs, and you can’t explain vertical integration without transaction costs. I’m sure there are a lot cases like Pixar out there, and I have certainly never denied that hold-up threats are sometimes a cause of vertical integration. But as I learn more about the history of vertical integration as part of the Corporation and the Twentieth Century manuscript I’m now working on, dynamic transaction costs are on the whole much more important than hold-up threats. (Also extremely important is government policy, which is really the point of this new project.) I’m sorry this sounds a bit negative, since the Argyres and Zenger paper really is a terrific article that is right-headed and develops the appropriability variant in much more depth than Paul and I did in our quick sketch.
Another paper that reinvented (and significantly extended) Langlois and Robertson (1995) is Jacobides and Winter (2005). Of course, I can’t very well criticize Sid Winter, since the whole idea of dynamic transaction costs came out of my effort in the 80s and 90s to apply Nelson and Winter (as well as Coase) to the problem of the boundaries of the firm, something that Nelson and Winter themselves had not then gotten around to.
Sleeping Beauties
| Peter Klein |
Quick, what do the following articles have in common?
- Maslow, Abraham. 1943. “A theory of human motivation.” Psychological Review 50(4): 370-376.
- Forrester, Jay W. 1958. “Industrial dynamics: a major breakthrough for decision makers.” Harvard Business Review 36(4): 37-66.
- Fisher, Irving. 1933. “The debt-deflation theory of great depressions.”
Econometrica 1(4): 337-357. - Fornell, Claes, and David F. Larker. 1981. “Evaluating structural equation models with unobservable variables and measurement error.” Journal of Marketing Research 18(1): 39-50.
- Wechsler, Herbert. 1959. “Toward neutral principles of constitutional law.” Harvard Law Review 73(1): 1-35.
- Ellsberg, Daniel. 1961. “Risk, ambiguity, and the savage axioms.” Quarterly Journal of Economics 75(4): 643-669.
All are designated as “sleeping beauties,” papers that lie dormant for years after publication, then suddenly become highly influential. The term was coined by Anthony van Raan, but sleeping beauties were thought to be rare. A new paper in PNAS by Qing Ke, Emilio Ferrara, Filippo Radicchi, and Alessandro Flammini finds, by contrast, that sleeping beauties are fairly common. Formally, “The beauty coefficient value B for a given paper is based on the comparison between its citation history and a reference line that is determined only by its publication year, the maximum number of citations
received in a year (within a multiyear observation period), and the year when such maximum is achieved.” The authors take a large sample of papers from the American Physical Society and Web of Science and identify, describe, and analyze some prominent sleeping beauties. They focus mostly on the physical science, but include a few social science datasets in an online appendix, finding several papers including those above. (Most of the sleeping beauties in their social science sample are either experimental psychology papers or statistical or methodological papers that are not really about core social science theory or application.) I assume the social science papers also come from Web of Science, which may not include journals like Economica (hence no Coase 1937), and hence the list above is not totally intuitive.
Anyway, this should provoke some interesting discussion about the diffusion of knowledge. The presence of sleeping beauties could simply mean that some discoveries are difficult to understand and take a while to be appreciated, but could also reflect bandwagon effects, faddish citation practices, and other phenomena that cast doubt on the whig theory of science.
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