Author Archive
More on Recommendation Letters
| Nicolai Foss |
An earlier blog post addressed the ever fascinating topic of recommendation letters. Last week I had the opportunity to discuss this with a prominent MIT Professor who provided some inside information. According to her, if the expression “solid worker” or “hard-working” or the like appears in a recommendation letter, this is likely to be a signal that the recommended person isn’t too bright. That sounds reasonable enough. But I was somewhat disturbed to learn that what I took to be uncontroversial boilerplate — namely, the standard ending “Don’t hesitate to contact if you need further information about NN” (or some such formulation) — is a signal that something is likely to be wrong with the applicant and that the recipient of the letter better drop the writer a phone call. I have ended all my recommendation letters with that formulation! Here is a question for the O&M readership: Is it a problem to have a Euro professor recommending you?
Individuals and Organizations at DRUID Redux
| Nicolai Foss |
There are few things more time-consuming than hustling for slush funds in the university system (as George Stigler once quipped, academic infights are particularly violent because the stakes are so low!) — which explains my very low blogging frequency over the last 4-5 weeks. However, I should have more time on my hands now, so here goes:
As I related earlier, this year’s D(anish) R(esearch) U(nit) (for) I(ndustrial) D(ynamics) conference highlighted methodological individualism in a panel debate between Peter Abell, Thorbjørn Knudsen, Sid Winter, and yours truly (here is the stream). Although the DRUID crowd didn’t wholeheartedly embrace methodological individualism, the broader theme of micro-foundations — explicitly promoted in a management context for some time now by Teppo Felin and I (eg., here, here, and here) — seems to have caught on.
Thus, Thorbjørn Knudsen organizes a one day event, a “DRUID Fundamental” back-to-back to next years DRUID conference on the subject of micro-foundations in strategy and organization. It takes place on June 17. Among the speakers are Rich Burton, Linda Argote, Ranjay Gulati, Sid Winter, and the present blogger. Check Thorbjørn’s call here.
The Philips Machine
| Nicolai Foss |
I just spent three days in London. Jolly, indeed. Before going to the London Business School yesterday, where I had a paper expertly demolished and teared apart by Michael Jacobides, I visited for the first, but certainly not last, time the Science Museum on Exhibition Road. The museum is really quite marvelous, and I very strongly recommend it. Even wives are likely to take interest.
I was strolling through the section on computing when — quite unexpectedly, because I had no idea it was on display at the museum — I noticed the famous Philips Machine (here is a pic), essentially a hydro-mechanical analogue computer designed to exhibit the functioning of the economy from the point of a very crude Keynesian perspective. The Machine was constructed by Bill Philips, of Philips curve fame, and was the reason why 1950s macro is sometimes referred to as “hydraulic Keynesianism” (a term that was coined by the brilliant, but now forgotten Alan Coddington). No less than 12 copies were built for teaching purposes and sold to various UK universities. The one that is on display at the museum was resurrected from a LSE lumber room (shockingly, the machine was actually used in teaching until 1992. But then again the macro I was exposed to in the 1980s was no less silly than Philips’ machine). Here is an excerpt from a BBC programme on the machine.
Are Transaction Costs a Distraction?
| Nicolai Foss |
Yes, says Harold Demsetz in a paper, “Ownership and the Externality Problem,” which was published in 2003, but which I only read recently (there does not seem to exist an online version; the paper is chpt. 11 in this book).
Consider the steel mill and the laundry of the Traditional Externality Tale. The two firms could merge, in which case externalities per definition would be absent. This, of course, only substitutes (additional) management costs (the costs of reduced specialization) for the transaction costs of market exchange. The former may exceed the latter in which case specialization is preferable, but then externalities emerge. (more…)
Contract Design Capabilities
| Nicolai Foss |
In his thoughtful appraisal of Milgrom and Roberts (1992), Brian Loasby pointed out that the ability to transact and exchange is itself a capability, that firms may differ in terms of such capabilities, but that organizational economics routinely assume that firms have perfect transacting capabilities. This insight has been curiously neglected in the lenghty debate on the relations between transaction costs and capabilities. Former O&M guest blogger Dick Langlois is one of the few scholars who have embraced the insight, mainly from the capabilities side of the debate and casting it in terms of his notion of “dynamic transaction costs.”
A recent line of research initiated by Nick Argyres and Kyle Mayer addresses the issue more from the organizational economics, mainly TCE, side. Thus, Nick and Kyle’s excellent 2004 Organization Science paper, “Learning to Contract,” makes the empirically grounded point that changes in the structure of the contracts that govern a relationship may (for complex contracts in uncertain environments) reflect joint learning rather than the risks of specific assets. (more…)
Shameless Self-Promotion
| Nicolai Foss |
The European Management Review has started a series of portraits of innovative research environments in management in Europe. The first such environment to be portrayed was the Institute of International Business at the Stockholm School of Economics and Business Administration (here). The Winter 2007 issue will feature a narrative that focuses on the Center of Strategic Management and Globalization which I am heading here at Copenhagen Business School. You can read the paper, “Knowledge Governance in a Dynamic Global Context: the Center for Strategic Management and Globalization at the Copenhagen Business School” here. Oh, did I mention that I wrote the paper myself?
Pomo Periscope XV: Orientalistic Pomo
| Nicolai Foss |
One of most influential modern disciples of pomo was the late Edward Saïd, a follower of Michel Foucault and Jacques Derrida. His famous, highly problematic, but surprisingly widely accepted thesis in Orientalism concerns the (alleged) European construction of the Islamic orient as a something radically different from Europe, a construction that developed from the 18th century on and became an instrument of European colonialism and imperialism vis-a-vis the Orient. However, the construction was just that, a mere construction; “Orientalism” was at best a mirror of Europe and not of the Islamic “Orient.” (Here is an intro to the critique of Saïd, and here is a forthcoming bashing). (more…)
Foss & Klein Chapter on “Organizational Governance”
| Nicolai Foss |
Peter and I often get requests that we blog something of a more introductory nature on organizational economics, the theory of the firm, etc. Until now, we haven’t really had the opportunity.
However, we just completed a draft of a chapter on “Organizational Governance” for the Handbook of Rational Choice Social Research, a major project initiated by sociology professors Rafael Wittek, Tom Snijders and Victor Nee for the Russell Sage Foundations (thus dispelling strange claims by Brayden and others that this is the anti-sociology blog). As the title suggests, the contributors, representing economics (/game theory), anthropology, and sociology are united by their commitment to the rational choice approach. The project involves such luminaries as Avner Greif, Jean Ensminger, Sigwart Lindenberg, and others. You can find the chapter under “Papers.” (more…)
What Are Hybrid Forms and How Can They Be Modeled?
| Nicolai Foss |
Many scholars have argued that hierarchies are increasingly infused by market mechanisms (e.g., here and here), and that elements of authority can increasingly be witnessed in market transactions. This has been referred to as the “swollen middle hypothesis.” A major step forward in the understanding of such hybrid governance is Williamson’s seminal 1991 paper in the ASQ, “Comparative Economic Organization: The Analysis of Discrete Structural Alternatives,” and Holmström and Milgrom’s equally important 1994 paper in the AER, “The Firm as an Incentive System.” (more…)
Mises and Mises (and Knight and Hoppe) on Probability
| Nicolai Foss |
O&M has featured a number of posts on uncertainty as a phenomenon that, in some sense, goes beyond risk. Contributors to these kind of discussions often delight in employing notions such as “Knightian uncertainty,” “genuine, real, true . . . uncertainty,” “the unlistability problem,” “surprise functions,” etc., and they debate whether so-called Knightian uncertainty really is inconsistent with a Bayesian perspective, whether Shackle’s notion of uncertainty is in some sense deeper than Knight’s, etc.
Much of the debate is, if perhaps not a quagmire, then certainly an area where conceptual clarification and some serious formal work would seem to be much needed (with respect to the latter, see this). Conceptual clarification may occasionally involve going back to important figures in the debates and consider what they (really) said. (more…)
Innovation Without Patents
| Nicolai Foss |
While public policy-makers (and students) exalt patents, scholars in strategic management and innovation studies tend to take a much more balanced view. They know that the use of patents tend to concentrate in relatively few industries, and that in many cases alternative mechanisms are superior means of appropriating rent streams from innovations (e.g., this paper). Of course, libertarians, including libertarian economists, have long harbored skepticism towards the patent system, including skepticism based on efficiency arguments. Now economic historians seem to add to patenting skepticism. (more…)
More on Tacit Knowledge
| Nicolai Foss |
O&M has featured a number of posts that are critical of the hugely influential notion of tacit knowledge (e.g., here and here). The latest issue of the Journal of Economic Methology has as nice paper by Jonathan Perrant and Iona Tarrant, ‘What Does Tacit Knowledge Actually Explain?” (more…)
Why Are Sociologists So Silent on Property Rights?
| Nicolai Foss |
I just finished reading Bruce Carruthers and Laura Ariovich’s “The Sociology of Property Rights,” published in The Annual Review of Sociology (2004) (no, Brayden, O&M is not the anti-sociology blog). This is a nice piece, but it is debatable how much of it is sociology per se. In actuality, most of the paper, which given the journal (research annual) that it is published one would expect to survey sociology contributions, turns out to be a survey of — economics. Specifically, the contributions of Coase, Demsetz, Barzel, and even Moore and Hart are highlighted and summarized. The authors themselves acknowledge that sociology “neglects” property rights. Others have made similar observations (e.g., Richard Swedberg).
This neglect of property rights is bizarre; after all, property rights, in a sort of proto-Hartian understanding, were central in Marx’ thought. Durkheim and Veblen also didn’t neglect property rights. Intuitively, one would think of property rights as a preeminent sociological theme, as it involves power, social stratification, inequality, and other sociology favorites. So, what accounts for the neglect?
Hayek Orchid Bleg
| Nicolai Foss |
Want to impress that free-market girlfriend (or potential girlfriend) of yours? Buy a Paphiopedilum Friedrich von Hayek!
Who knows the story behind this? Hayek’s father was a Professor of Botany. Might he have named an orchid after his son? Or was it named by a later Hayek-admiring botanist? Or, are we talking about an altogether different Hayek (not likely)?
John Nash on YouTube
| Nicolai Foss |
Somewhat to my surprise I found clips with John Nash on YouTube. And I don’t mean trailers for A Beautiful Mind (but here it is), but the genuine article. Here and here he is.
Introducing Guest Blogger David Hoopes
| Nicolai Foss |
Peter and I are very pleased to welcome David Hoopes as our newest guest blogger. David is an Associate Professor in the Management Department at the California State University-Dominguez Hills. He received his PhD in strategy and organization from the UCLA in 1996. He has done excellent work with former O&M guest blogger Steven Postrel (e.g., this paper), and edited (with Tammy Madsen and Gordon Walker) one of the best special issues ever of the SMJ, the 2003 one on “Why Is There a Resource-based View: Toward a Theory of Competitive Heterogeneity.” David’s research centers on capability-based sustainable advantage, management of technology and product development, and the relation between knowledge sharing and organization. He has been a frequent participant in various O&M threads and we are very pleased to add him to the line-up.
Thank You, Steve
| Nicolai Foss |
Steve Postrel has served for more than half a year as O&M guest blogger, our longest-serving GB so far. Peter and I have been extremely happy for Steve’s long tenure here, for he has contributed some of the most profound posts on O&M. Not surprisingly, these posts have also been among the most popular O&M posts. Peter and I coined the internal notion of the “Postrel Effect” to refer to the surge of O&M views that has always followed a Postrel post. Luckily, Steve has promised to frequently visit O&M and comment, so perhaps this way we may still benefit from the Postrel Effect. Thanks, Steve, for your excellent work here!!
More on Eship and Transaction Costs
| Nicolai Foss |
As indicated here, I believe that transaction costs are key antecedents to opportunity discovery, that is, the exercise of entrepreneurship. The costs of establishing property rights to new discoveries, and the costs of combining and recombining resources, all transaction costs, influence which discoveries will be made. Here (or here) is an entirely different way of relating transaction costs and entrepreneurship, namely Steven Michael’s “Transaction Cost Entrepreneurship” which focus on transacting problems in the entrepreneur/consumer (user) interface. A fine piece that is highly recommended. Here is the abstract:
When offering a novel product, the entrepreneur desires the customer to choose to “buy” (from the entrepreneur) rather than to “make.” Transaction cost economics provides guidance to firms considering a make-versus-buy decision. In this paper we extend transaction cost economics to examine the novel transactions proposed by the entrepreneur. Application of the theory identifies three crucial considerations for the transaction: the cost of quality measurement, the risk of overconfidence by the entrepreneur (here termed identity risk), and the required cost of necessary transaction specific assets. By extending transaction cost analysis to cover novel transactions across customers, entrepreneurship can be analyzed using established theories and measures to generate novel propositions.
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