Author Archive
Virtual Seminar with Benito Arruñada – Reminder
| Lasse Lien |
2013 will get a flying start here at O&M. Wednesday the 3rd of January we will kick off a virtual seminar over former guest blogger Benito Arruñada’s new book, Institutional Foundations of Impersonal Exchange (Chicago UP). Here are some reasons you should log on and join the discussion:
- The book deals with issues that O&M readers love: Conditions that make transactions more or less difficult, and the implications of this for—among other things—investment, economic growth, and a number of other issues. Benito’s analysis is not some slightly modified version of the standard transaction cost story, though. It is quite original in its focus on the importance of impersonal exchange, and the tradeoffs involved in designing institutions that facilitate impersonal exchange.
- The book is both original and well written, but don’t take my word for it. As Henry E. Smith of Harvard Law School puts it: “This is law and economics at its best. Benito Arruñada’s brilliant book greatly advances our understanding of how law and legal institutions affect the possibilities for trade. Very unusually, it also demonstrates how the needs of transacting parties and the interests of those who serve them profoundly shape a wide range of institutions from contract enforcement to title registries.”
- A number of interesting contributors have already agreed to post comments, critique, and thoughts inspired by Benito’s book, including:
- Wade Channell (USAID)
- Pamela O’Connor (Monash University)
- Klaus Deininger (World Bank)
- Paul Dower (New Economic School)
- Nuno Garoupa (University of Illinois)
- P.J. Hill (Wheaton College and PERC)
- Paul Holden (The Enterprise Research Institute)
- Philip Keefer (World Bank)
- Stuart Kerr (Millennium Challenge Corporation)
- Amnon Lehavi (Radzyner School of Law, IDC)
- Corrado Malberti (University of Luxembourg and Commissione Studi Int.li Consiglio Nazionale del Notariato)
- Richard Messick (Consultant)
- John Nye (George Mason University)
- Matteo Rizzolli (Free University of Bozen)
- Rod Thomas (Auckland University of Technology)
- Giorgio Zanarone (CUNEF)
- And of course Benito himself….
We hope many more will join in the discussion as it get’s going from Wednesday January 3rd. The more the merrier. So read the book and join the discussion—or join the discussion even if you haven’t read the book, but have thoughts on the subjects discussed.
A Paper You Might Want to Read
| Lasse Lien |
Here’s a link to the “online first” version of a new Org. Science paper by Peter and myself. This one has been in the pipeline for some time, and we’ve blogged about the WP version before, but this is the final and substantially upgraded version. Please read it and cite it, or we will be forced to kidnap your cat:
The survivor principle holds that the competitive process weeds out inefficient firms, so that hypotheses about efficient behavior can be tested by observing what firms actually do. This principle underlies a large body of empirical work in strategy, economics, and management. But do competitive markets really select for efficient behavior? Is the survivor principle reliable? We evaluate the survivor principle in the context of corporate diversification, asking if survivor-based measures of interindustry relatedness are good predictors of firms’ decisions to exit particular lines of business, controlling for other firm and industry characteristics that affect firms’ portfolio choices. We find strong, robust evidence that survivor-based relatedness is an important determinant of exit. This empirical regularity is consistent with an efficiency rationale for firm-level diversification, though we cannot rule out alternative explanations based on firms’ desire for legitimacy by imitation and attempts to temper multimarket competition.
Book Seminar: Institutional Foundations of Impersonal Exchange: The Theory and Policy of Contractual Registries
| Lasse Lien |
Very shortly O&M will host a Virtual Seminar on former guest blogger Benito Arruñada’s important new book, Institutional Foundations of Impersonal Exchange: The Theory and Policy of Contractual Registries (University of Chicago Press, 2012). The blurb:
Governments and development agencies spend considerable resources building property and company registries to protect property rights. When these efforts succeed, owners feel secure enough to invest in their property and banks are able use it as collateral for credit. Similarly, firms prosper when entrepreneurs can transform their firms into legal entities and thus contract more safely. Unfortunately, developing registries is harder than it may seem to observers, especially in developed countries, where registries are often taken for granted. As a result, policies in this area usually disappoint.
So stay tuned for this. While we are finalizing the last details of the virtual seminar, you may want to attend one of Benito’s presentations:
- November 26: University of Maryland, Seminar on Trade, Institutions and Politics, November 26, 2012. (Rm. 4103, Tydings Hall; 15:30-17:00). (https://www.econ.umd.edu/about/events/752).
- November 27: Millennium Challenge Corporation, Washington DC, (875 15th St., NW; 12:00-13:00).
- November 28: George Mason University, Fairfax, VA, Public Choice Seminar Series (http://www.gmu.edu/centers/publicchoice/wed%20seminars/wedsem_fall12.html), (Carow Hall, 16:00-15:15).
- November 30: Cato Institute, Washington DC. Lunchtime Discussion (by invitation only). Discussant: Klaus Deininger, World Bank (1000 Massachusetts Ave, NW Washington, DC).
- December 3: Harvard Law School, Private Law Workshop (http://isites.harvard.edu/icb/icb.do?keyword=k84712), (13:00-15:00).
- December 4: Harvard University, Law and Economics Seminar (http://isites.harvard.edu/icb/icb.do?keyword=k84712), 2012 (17:00-19:00).
- December 5: Lincoln Institute of Land Policy, Cambridge, MA, (Lincoln House, 113 Brattle Street, Cambridge, MA; 12:00-14:00). (https://www.lincolninst.edu/education/education-coursedetail.asp?id=867).
Now THAT’s a Principal-Agent Problem
| Lasse Lien |
The Swedish secret service has caused quite an uproar recently. Following a difficult year, the Chief of the agency decided to spend 5 million Swedish kroner on a James Bond themed (!) party to boost the morale among its 1,000 employees. That sum amounts to more than 750 USD per agent-slash-employee for one single party. The principals — the Swedish taxpayers — seem to think that this was way over the top, and evidence of imperfect interest alignment and agents acting in their self interest. Jokesters have also pointed out that if they had thrown a STASI or KGB-themed party instead, it would have been a tad less glamorous, but spending could have been more in line with the principals’ interests. I don’t know, but perhaps the Swedes will have to invest more in monitoring their monitors.
Part-time Work and Discursive Resistance and Foucault and Stuff
| Lasse Lien |
I both challenge and reify this:
Contributing to a Foucauldian perspective on ‘discursive resistance’, this paper theorizes how part-time workers struggle to construct a valid position in the rhetorical interplay between norm-strengthening arguments and norm-contesting counter-arguments. It is thereby suggested that both the reproductive and the subversive forces of resistance may very well coexist within the everyday manoeuvres of world-making. The analysis of these rhetorical interplays in 21 interviews shows how arguments and counter-arguments produce full-time work as the dominant discourse versus part-time work as a legitimate alternative to it. Analysing in detail the effects of four rhetorical interplays, this study shows that, while two of them leave unchallenged the basic assumptions of the dominant full-time discourse and hence tend instead to reify the dominant discourse, two other interplays succeed in contesting the dominant discourse and establishing part-time work as a valid alternative. The authors argue that the two competing dynamics of challenging and reifying the dominant are not mutually exclusive, but do in fact coexist.
Nentwich, J. and Hoyer, P. (2012), “Part-time Work as Practising Resistance: The Power of Counter-arguments.” British Journal of Management, forthcoming.
No Best Practice for Best Practice
| Lasse Lien |
An important selling point for the consulting industry is that consultants can presumably help a firm identify and implement “best practice.” Surely the consulting industry is an important channel for disseminating knowledge of better ways of doing things, but identifying what constitutes best practice for a given firm in a given situation is no trivial task, and even if the best practice could be identified, transferring it will be a significant challenge.
This begs the question of whether there is a best practice for identification and transfer of best practices, and whether the consulting industry has identified and adopted such a practice. According to this paper Benjamin Wellstein and Alfred Kieser, the consulting industry in Germany is nowhere near a best practice for best practice. This goes for for both inter- and intra-industry transfer. I’ll bet my hat that this finding holds everywhere.
Well, I guess as long as the consulting industry keeps finding better practices for transferring better practices, we shouldn’t be too disappointed that there is no best practice for best practice. (HT: E.S. Knudsen)
Qantum + Politics = Ψ(Fun)
| Lasse Lien |
O&M is nonpartisan, but this description of Mitt Romney as the first quantum politician is IMHO so funny that it would be downright irresponsible to ignore it.
After describing how other candidates operate under Newtonian principles, where a candidate’s position on an issue remains constant until acted upon by some outside force, David Javerbaum goes on to describe how things are very different in the quantum Romneality (excerpt):
Complementarity. In much the same way that light is both a particle and a wave, Mitt Romney is both a moderate and a conservative, depending on the situation. It is not that he is one or the other; it is not that he is one and then the other. He is both at the same time.
Probability. Mitt Romney’s political viewpoints can be expressed only in terms of likelihood, not certainty. While some views are obviously far less likely than others, no view can be thought of as absolutely impossible. Thus, for instance, there is at any given moment a nonzero chance that Mitt Romney supports child slavery.
Uncertainty. Frustrating as it may be, the rules of quantum campaigning dictate that no human being can ever simultaneously know both what Mitt Romney’s current position is and where that position will be at some future date. This is known as the “uncertainty principle.”
Entanglement. It doesn’t matter whether it’s a proton, neutron or Mormon: the act of observing cannot be separated from the outcome of the observation. By asking Mitt Romney how he feels about an issue, you unavoidably affect how he feels about it. More precisely, Mitt Romney will feel every possible way about an issue until the moment he is asked about it, at which point the many feelings decohere into the single answer most likely to please the asker.
Noncausality. The Romney campaign often violates, and even reverses, the law of cause and effect. For example, ordinarily the cause of getting the most votes leads to the effect of being considered the most electable candidate. But in the case of Mitt Romney, the cause of being considered the most electable candidate actually produces the effect of getting the most votes.
Duality. Many conservatives believe the existence of Mitt Romney allows for the possibility of the spontaneous creation of an “anti-Romney” that leaps into existence and annihilates Mitt Romney. (However, the science behind this is somewhat suspect, as it is financed by Rick Santorum, for whom science itself is suspect.)
What does all this bode for the general election? By this point it won’t surprise you to learn the answer is, “We don’t know.” Because according to the latest theories, the “Mitt Romney” who seems poised to be the Republican nominee is but one of countless Mitt Romneys, each occupying his own cosmos, each supporting a different platform, each being compared to a different beloved children’s toy but all of them equally real, all of them equally valid and all of them running for president at the same time, in their own alternative Romnealities, somewhere in the vast Romniverse.
David Javerbaum (NYT March 31).
HT: Svein T. Johansen
Are We Quacks?
| Lasse Lien |
Rich Bettis makes an important point in a forthcoming issue of SMJ. Bettis points out how two unfortunate practices interact with each other to create a very serious and fundamental problem for knowledge accumulation in (strategic) management.
One is the widespread practice of running numerous regressions on a given dataset and subsequently adapting (or in milder cases “tuning”) hypotheses or theory to fit the data. By itself this practice is quite unfortunate, since data patterns can and will occur by chance, and the more regression models one tries the more likely that one will “find” something. We obviously do not want such random patterns to influence either theory building or our catalog of empirical findings. However, this problem would be a great deal less serious if replication studies were common and we gladly published non-findings. Random correlations in the data would not survive replication tests, and would be eliminated fairly quickly.
As we all know, in management, replication studies cannot get published and are basically just not done. To make matters worse, we don’t publish non-findings either. This is the second unfortunate practice. Taken together these two practices may in the worst case indicate that much of what we think we know in management are just random data patterns, discovered through data mining, and protected by our lack of replication studies and refusal to publish non-findings. This is a sobering thought. As Bettis points out, we should all be very thankful that replication studies are more common in medical research than in management.
What is the solution? Well, a first step might be to launch the Journal of Managerial Replication Studies and give it the prestige it deserves. Either SMS or AOM should see the launch of such a journal as a crucial responsibility. I mean, we really don’t want to be quacks, do we?
HT: Helge Thorbjørnsen
What We’re Really Doing
| Lasse Lien |
I’m often at pains to describe to my family what happens at academic conferences, and why its important that I attend them. But not any longer.
For further study, check out the associated paper.
HT: Eirik S. Knudsen
“A Simple Model of the Evolution of Simple Models of Evolution”
| Lasse Lien |
If you don’t think this title is cool there is something very wrong with you. Here is the associated abstract:
Abstract: In the spirit of the many recent simple models of evolution inspired by statistical physics, we put forward a simple model of the evolution of such models. Like its objects of study, it is (one supposes) in principle testable and capable of making predictions, and gives qualitative insights into a hitherto mysterious process.
And this is the essence of the simple model(2):
- A physicist runs across or concocts from whole cloth a mathematical model which is simple, neat, and contains a great many variables of the same sort.
- The physicists has heard of Darwin (1859), and may even have read Dawkins (1985) or some essays by Gould, but wouldn’t know Fisher (1958), Haldane (1932), and Wright (1986) from the Three Magi, and doesn’t dream that such a subject as mathematical evolutionary biology exists.
- The physicist is aware that lots of other physicists are interested in annexing biology as a province of statistical physics.
- The physicist interprets his multitude of variables as species or (if slightly more sophisticated) as genotypes, and proclaims that he has found “Darwin’s Equations” (cf. Bak et al. (1994)), or, more modestly, has made an important step towards eventually finding those equations.
- His paper is submitted for review to other physicists, who are just as ignorant of biology as he, but see that it’s about equivalent to the other papers on evolution by physicists. They publish it.
- The paper is read by other physicists, because at least it’s not another derivation of specific heats on some convoluted lattice under a Hamiltonian named for some Central European worthy now otherwise totally forgotten. Said physicists think this is cutting-edge evolutionary theory.
- Some of those physicists will know or discover simple, neat models with lots of variables of the same type.
(Shalizi and Tozier, 1999, p. 2)
What could substitute for physics and evolution here if we wanted to make a social science analogy? I think game theory could play the role of physics in many cases. What else?
Overdue on Boundaries/Crises
| Lasse Lien |
Good papers often seem like they are long overdue. One can’t help but wonder why they weren’t written a long time ago since the questions they raise are of such obvious interest and importance. In that sense I think this paper qualifies as overdue:
Abstract: How economic crises impact the boundaries of firms has been offered virtually no attention in the literature on the theory of the firm. I review the best-known theories of the firm and identify the variables that matter for the explanation of firm boundaries. I then examine how an economic crisis may impact these variables and change efficient firm boundaries. The various theories of the firm have difficulties explaining how firms efficiently adapt their boundaries to such prominent characteristics of economic crisis as declining demand and increased costs of external finance. However, all these theories stress uncertainty as an antecedent of firm organization, and as uncertainty is also an important characteristic of an economic crisis I examine how uncertainty is allowed to play out in the various theories in order to identify what predictions we can derive from the theory regarding changes in efficient firm boundaries as consequence of changes in uncertainty. The analysis suggests that we need to be more precise in describing the nature of the uncertainty that is assumed in the various theories. Moreover, allowing for changes in levels of uncertainty requires that we take the processes of boundary changes into account in the theory of firm boundaries.
Foss, Kirsten. 2010. How do economic crises impact firm boundaries? European Management Review7: 217–27.
Academic Nepotism in Italy
| Lasse Lien |
In case you wonder the author of this paper — Stefano Allesina — works in Chicago:
Abstract: Nepotistic practices are detrimental for academia. Here I show how disciplines with a high likelihood of nepotism can be detected using standard statistical techniques based on shared last names among professors. As an example, I analyze the set of all 61,340 Italian academics. I find that nepotism is prominent in Italy, with particular disciplinary sectors being detected as especially problematic. Out of 28 disciplines, 9 – accounting for more than half of Italian professors – display a significant paucity of last names. Moreover, in most disciplines a clear north-south trend emerges, with likelihood of nepotism increasing with latitude. Even accounting for the geographic clustering of last names, I find that for many disciplines the probability of name-sharing is boosted when professors work in the same institution or sub-discipline. Using these techniques policy makers can target cuts and funding in order to promote fair practices.
Allesina, S. (2011). “Measuring Nepotism through Shared Last Names: The Case of Italian Academia.” PLoS ONE 6(8): e21160. doi:10.1371/journal.pone.0021160
The Menger Sponge
| Lasse Lien |
Earlier the investigative arm of O&M (with only limited hacking of phones and bribing of police officers) discovered the sensational news that Peter is named after a bottle with no inside and no outside, the endlessly fascinating Klein bottle. Apparently this sort of thing is quite common in Austrian circles. We can now reveal that Menger is named after a sponge, the Menger sponge, which is described in greater detail here.
(Actually the Menger Sponge is named after Karl the mathematician, son of Carl.)
Productivity: The Mother of (Nearly) All Good Things
| Lasse Lien |
The mother of all good (material) things is productivity growth. Competitive advantage, firm level growth and survival, profits, economy-wide economic growth, job creation, and destruction, etc. are all outcomes that depend critically on relative productivity and productivity changes. So if you understood productivity really well, you would understand a lot about (material) outcomes across firms, industries and countries, too.
Also, if one wants to advance “the human condition” it is presumably better to advance the understanding of productivity than profits, since profits are contaminated by market power. Profit maximization is good because – or to the degree – it tends to raise productivity. So while profit maximization and competition are means, productivity growth is the goal.
Though few would argue against the fundamental importance of productivity, productivity is nevertheless quite rarely used as a dependent (or independent) variable in strategy, organizational economics, organization theory, leadership, innovation, etc. The reason is probably that the considerable problems associated with measuring productivity has scared us into focusing on more easily observable variables, such as accounting profits, Tobin’s Q, EVA, sales growth, survival, etc.
However, there is a large literature in economics that attacks productivity head on, and tries to elucidate its determinants. Though there is an unfortunate bias towards manufacturing in this literature (due to measurement issues), the findings from this research stream still makes extremely interesting reading (IMHO). Here is a recent review of the key findings from the past decade:
Economists have shown that large and persistent differences in productivity levels across businesses are ubiquitous. This finding has shaped research agendas in a number of fields, including (but not limited to) macroeconomics, industrial organization, labor, and trade. This paper surveys and evaluates recent empirical work addressing the question of why businesses differ in their measured productivity levels. The causes are manifold, and differ depending on the particular setting. They include elements sourced in production practices — and therefore over which producers have some direct control, at least in theory — as well as from producers’ external operating environments. After evaluating the current state of knowledge, I lay out what I see are the major questions that research in the area should address going forward. (JEL D24, G31, L11, M10, O30, O47)
Syverson, Chad. 2011. “What Determines Productivity?” Journal of Economic Literature 49(2): 326–65.
Klein Even Bigger
| Lasse Lien |
More has been added to Peter’s already considerable pile of honors and distinctions. This time it’s the European Management Review’s best paper award for 2010 for “Toward a Theory of Public Entrepreneurship,” European Management Review 7: 1-15 (2010) by Peter G. Klein, Joseph T. Mahoney, Anita M. McGahan, and Christos N. Pitelis. (Here’s the version at the publisher’s website.)
Congratulations to Peter and coauthors!
Entirely New Working Paper Approach
| Lasse Lien |
Here’s a new WP of mine (with T. Hillestad). Check out the sublimely boring title. We figure that the more boring we can make the title, the better what follows will appear. Earlier I have tended to do it the other way around, i.e. fancy title and intensely boring thereafter.
Recession, HR and Change
We document how the recession in the wake of the financial crisis created a general surge in pro-change attitudes and behavior. Next, we examine variation across firms with respect to this change boost. In particular we focus on how and why a firm’s use of HR-measures such as training, pay changes and layoffs matters. We find that training and layoffs increases the relative size of the effect, while pay cuts reduce it. We make sense of these findings by looking at managers’ choice among HR-measures as a signal used by employees to determine their employment risk. The level of employment risk is in turn linked to employees’ investments in change in a nonlinear, U-shaped fashion.
Social Science Is For the Asocial?
| Lasse Lien |
I went to a physics seminar the other day. The presenter, an eminent astronomer, made the following remark as he was trying to convey what it was like to work in the natural sciences:
If you hate people and would prefer to do most of your work alone in your office, you should join the social sciences. If you love people and would like to work closely with many others in large research teams, you should join the natural sciences.
The paradox is just beautiful. You self-select to the social sciences because you hate people and want as little as possible to do with them.
Biased Testing
| Lasse Lien |
The Onion asks whether tests are biased against students who don’t give a sh…. — and whether in fact the whole education system is catering to those who don’t think education is a boring waste of time.
Now that I think of it I have on several occasions noted that lazy, uninterested students tend to do systematically worse on my tests. So I am part of this unreasonable and unjust system, and I expect many O&M readers are too.
I think we should all reflect on this over the weekend.
Thanks to Eirik S. Knudsen for the pointer.
If You’re Not a Cynic Yet, this Might Help…
| Lasse Lien |
Revolving Door Lobbyists
Jordi Blanes i Vidal, Mirko Draca, Christian Fons-Rosen.Abstract: Washington’s “revolving door” — the movement from government service into the lobbying industry — is regarded as a major concern for policy-making. We study how ex-government staffers benefit from the personal connections acquired during their public service. Lobbyists with experience in the office of a US Senator suffer a 24% drop in generated revenue when that Senator leaves office. The effect is immediate, discontinuous around the exit period and long-lasting. Consistent with the notion that lobbyists sell access to powerful politicians, the drop in revenue is increasing in the seniority of and committee assignments power held by the exiting politician.
By See the full paper here.
Something to Ruin Your Weekend
| Lasse Lien |
On a Monday morning, a professor says to his class, “I will give you a surprise examination someday this week. It may be today, tomorrow, Wednesday, Thursday, or Friday at the latest. On the morning of the examination, when you come to class, you will not know that this is the day of the examination.”
Well, a logic student reasoned as follows: “Obviously I can’t get the exam on the last day, Friday, because if I haven’t gotten the exam by the end of Thursday’s class, then on Friday morning I’ll know that this is the day, and the exam won’t be a surprise. This rules out Friday, so I now know that Thursday is the last possible day. And, if I don’t get the exam by the end of Wednesday, then I’ll know on Thursday morning that this must be the day (because I have already ruled out Friday), hence it won’t be a surprise. So Thursday is also ruled out.”
The student then ruled out Wednesday by the same argument, then Tuesday, and finally Monday, the day on which the professor was speaking. He concluded: “Therefore I cannot get the exam at all; the professor cannot possibly fulfill his statement.” Just then, the professor said: “Now I will give you your exam.” The student was most surprised, but the professor seems to have kept his word.
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