Author Archive
“Disturbances” in Transaction Cost Economics
| Nicolai Foss |
One of Oliver Williamson’s key and most cited contributions is his 1991 paper in the Administrative Science Quarterly, “Comparative Economic Organization: The Analysis of Discrete Structural Alternatives.” The paper introduces a number of themes that had until then only been present in a rather embryonic form in Williamson’s work (e.g., the 1985 locus classicus, The Economic Institutions of Capitalism: 1) Governance structures are fully characterized as discrete structural alternatives, 2) full(er) account is taken of “hybrids,” and 3) economic organization is cast in a dynamic setting, the discussion of which seems heavily inspired by Hayek’s work on economic change and the use of knowledge in society. (more…)
New Paper by Mario Rizzo
| Nicolai Foss |
Just back from a loooong vacation in Vietnam, involving plenty of trashy crime novels; what better way is there to recover intellectually than reading a characteristically thoughtful paper by Mario Rizzo?
In “Paternalist Slopes,” Mario and his co-author Glen Whitman take issue with those who use arguments from the “biases” part of the bounded rationality literature to justify interventionism. Here is the abstract:
A growing literature in law and public policy harnesses research in behavioral economics to justify a new form of paternalism. Contributors to this literature typically emphasize the modest, non-intrusive character of their proposals. A distinct literature in law and public policy analyzes the validity of “slippery slope” arguments. Contributors to this literature have identified various mechanisms and processes by which slippery slopes operate, as well as the circumstances in which the threat of such slopes is greatest. The present article sits at the nexus of the new paternalist literature and the slippery slopes literature. We argue that the new paternalism exhibits many characteristics identified by the slopes literature as conducive to slippery slopes. Specifically, the new paternalism exhibits considerable theoretical and empirical vagueness, making it vulnerable to slopes resulting from altered economic incentives, enforcement needs, deference to perceived authority, bias toward simple principles, and reframing of the status quo. These slope processes are especially likely when decisionmakers are subject to cognitive biases – as the new paternalists insist they are. Consequently, soft paternalism can pave the way for harder paternalism. We conclude that policymaking based on new paternalist reasoning should be considered with greater trepidation than its advocates have suggested.
Pomo Periscope VII: Are We All Pomos Now?
| Nicolai Foss |
As I noted in the first post in the Pomo Periscope series, pomo is increasingly placing its tentacles within the very citadels of reason, that is, economics. However, so far only rather peripheral areas have been invaded, such as the history of economic thought.
Case in point: Ernesto Screpanti and Stefano Zamagni’s An Outline of the History of Economic Thought (OUP, 2005). (more…)
Going to Nam
| Nicolai Foss |
Since my home country Denmark has now almost completed the transition from capitalism to socialism, other countries must serve as places to do field studies of the functioning of a real market economy. Thus, I will be leaving for Vietnam on Wednesday (here is an Austrian paper on Vietnam’s recent economic experience). Apart from a visit to Kampuchea, I will be staying in that country for all of January. I may have occasion to report for the O&M readership, but I am not sure I will. This trip is considerably more pleasure than business.
VERY Nerdy!
| Nicolai Foss |
If you think that O&M occassionally lapses into nerd territory (admittedly we do!), then please check this out! It is the brainchild of orgtheory.(intra)net’s Kieran Healy. I am sure it can inspire Peter to a post along the lines of “Why are Sociologists Nerdy — Really Nerdy?”
We Happy Danes
| Nicolai Foss |
As indicated by the World Map of Happiness Denmark is #1 in the World in terms of happiness — and appears to have held that position for about three decades. Here is a great tongue-in-cheek paper that explains this fact in terms of such factors as hair color and prowess in sport. The paper concludes:
Our analysis points to two explanatory factors. The Danish football triumph of 1992 has had a lasting impact. This victory arguably provided the biggest boost to the Danish psyche since the protracted history of Danish setbacks began with defeat in England in 1066, followed by the loss of Sweden, Norway, Northern Germany, the Danish West Indies, and Iceland. The satisfaction of the Danes, however, began well before 1992, albeit at a more moderate level. The key factor that explains this and that differentiates Danes from Swedes and Finns seems to be that Danes have consistently low (and indubitably realistic) expectations for the year to come. Year after year they are pleasantly surprised to find that not everything is getting more rotten in the state of Denmark.
We Luddites
| Nicolai Foss |
In permanent shock since he learned that I own but never use a cellular phone (a middle-management tool if there ever was one!), my co-blogger often argues that I am a Luddite, and claims that this, rather than my significantly higher teaching and administration load, accounts for my relatively low blogging frequency (guess who is also maintaining the more technical aspects of O&M?). I plead partly guilty to the charge, but wish to point out that there are much great sinners than me. Enter NYU Professor and prominent Austrian Mario Rizzo. (more…)
Christmas Reading
| Nicolai Foss |
Not much is usually happening during Christmas, so why not engage a bit in the narcissistic (and non-creative) blogger’s delight — the “what I am reading at the moment” list:
1. Charles C. Ragin and Howard S. Becker, eds. 1992. What is a Case? Exploring the Foundations of Social Inquiry. This is a collection, mainly by thoughtful (in fact, extremely thoughtful) sociologists (yes, they do exist) on the methodological/ philosophical foundations of qualitative research, a subject that I have become increasingly interested in.
2. Yoram Barzel. 2002. A Theory of the State. As the resident Barzel fan here at O&M, I have surely waited too long before I began reading this book, published back in 2002. Barzel applies his highly original ideas on property rights economics to the state. However, the result strikes me as less original than Barzel’s other work.
3. Steve Berry: The Templar Legacy. Yes, I do have a weakness for this kind of templar pulp (this one comes endorsed by Dan Brown, so you know it is going to be bad). The Templar Legacy is one of the better ones (certainly better than this one). And parts of the story takes place in Denmark. I have toyed with writing a Templar novel myself. The title? Frank Knight’s Templars.
4. Rodney Stark. 1996. The Rise of Christianity: How the Obscure, Marginal Jesus Movement Became the Dominant Religious Force in the Western World in a Few Centuries. I enjoyed The Victory of Reason and this one is perhaps better. It is certainly less speculative, its reasoning seems stronger.
Steyn on Government Failures of Fighting Terrorism
| Nicolai Foss |
My favorite conservative commentator, Mark Steyn, has these acute observations on how private entrepreneurship may trump government action in the fighting of terrorism:
Most of what went wrong on September 11 we knew about in the first days after. Generally, it falls into two categories:
1. Government agencies didn’t enforce their own rules (as in the terrorists’ laughably inadequate visa applications.
or
2. The agencies’s rules were out of date — three out of those four planes reached their targets because their crews, passengers and ground staff all blindly followed the FAA’s 1970 hijack procedures until it was too late, as the terrorists knew they would.
… But on the fourth plane, they didn’t follow the seventies hijack rituals. On Flight 93, they used their cell phones, discovered that FAA regulations weren’t going to save them, and then acted as free men, rising up against the terrorists and, at the cost of their own lives, preventing that flight carrying on to its target in Washington. On a morning when big government failed, the only good news came from private individuals. The first three planes were effectively an airborne European Union, where the rights of the citizens had been appropriated by the FAA’s flying nanny state. Up there where the air is rarified, all your liberties have been regulated away: there’s no smoking, there’s 100 percent gun control, you’re obliged by law to do everything the cabin crew tell you … For thirty years, passengers surrendered their more and more rights for the illusion of security, and, as a result, thousands died. On the fourth plane, Todd Beamer and others reclaimed those rights, and demonstrated that they could exercise them more efficiently than government” (pp. 184-85, America Alone).
CCSM 2006
| Nicolai Foss |
The Copenhagen Conference on Strategic Management 2006 ended late Wednesday with a wine reception and entertainment by a local (very local) jazz group, “Professors’ All-Stars.” Jay Barney observed that I should be up playing with the band, “playing the trombone. You are a trombone kind of person.” I still have to deconstruct that one!
Apropos Jay his opening talk was a hilarious performance and the great fun event of the conference, but in general, there were many good laughs, fine discussions, and many excellent papers.
I realize that quite a number of the conference participants are regular O&M readers, so this is probably an excellent place to thank once again all who participated. This year’s conference was quite significantly better than last year’s conference, and the average paper quality was above that of other conferences that could be mentioned, the likely exception being Rich Makadok’s Atlanta Competitive Advantage Conference.
Awards — Cont’d
| Nicolai Foss |
OK — this will be my last entry on the economics of awards. Promise. Here goes:
We usually take awards to be non-material in nature. In his work on awards, Frey explicitly makes this point by assuming that awards are non-material kinds of compensation (here and here).
Frey does note, however, that sometimes awards are accompanied by money. Indeed, we are all familiar with those pictures in the newspaper of a happy prize recipient presenting a 2,5 x 1 meter cheque with the amount of money very clearly visible.
Thus, note that non-material compensation in the form of awards may have material implications. A distinction, such as a Knighthood bestowed upon a businessman may conceivably do good things to his business, because it may allow him to access networks he could not access earlier and influence decision-makers in favourable ways. A Nobel Prize winner can afterwards enter the highly lucrative lecturing circuit. Many books are advertised on the basis of their winning prestigious awards which of course also impacts the income of the prize winner/author. Etc. (This kind of reasoning is akin to Lerner and Tirole’s discussion of motivation in open source production). (more…)
Who Are (Really) the Cheese-Eating Surrender-Monkeys?
| Nicolai Foss |
My co-blogger is very fond of France, the French, etc. (And me? Well, I have actually lived there ;-)). In a recent post, Peter cited the familiar neo-con characterization of the French as “cheese-eating surrender-monkeys.” Here is Mark Steyn reflecting on who the real CESM are:
I’ve never subscribed to that whole “cheese-eating surrender-monkeys” sneer … As a neo-con warmonger, I yield to no one in my contempt for the French, but that said, cheese-wise I feel they have the edge. … In America, unpasteurized un-aged raw cheese that would be standard in any Continental fromagerie is banned. Americans, so zealous in defense of their liberties when it comes to guns, are happy to roll over for the nanny state when it comes to the cheese board. … The French may be surrender-monkeys on the battlefield, but they don’t throw their hands up and flee in terror just because the Brie’s a bit ripe (pp. 181-182 in America Alone, Regnery Publishing, 2006).
France may be the most commie nation in the World, but CESM they ain’t!
Awards in Firms?
| Nicolai Foss |
This is the third post on the economics of awards (see here and here), prompted by Bruno Frey’s recent work on the subject.
When we think of awards, most of us can easily come up with examples from public hierarchies, the military, sports, and volunteering, humanitarian and religious organizations, where awards are bestowed upon employees or members, or to public organizations/the state/the monarch bestowing awards upon citizens.
The only example that comes immediately to mind from for-profit organizations is that of employee-of-the-month awards. (more…)
CCSM 2006
| Nicolai Foss |
In case you have been wondering why O&M star blogger, Peter Klein, has only blogged once over the last couple of days — unheard of in the history of O&M — here is part of the reason: Peter is on his way to the Copenhagen Conference on Strategic Management which will begin tomorrow (Tuesday), organized by the Center that I direct here at CBS.
The CCSM will feature several great speakers, such as Jay Barney, Rich Makadok, Yves Doz, Peter Lorange, Alan Rugman, and my co-blogger. It is the second time we are doing the CCSM. The format is to have about 70-80 participants with high-quality papers.
Not only is my co-blogger joining me for the CCSM, guest blogger Lasse Lien will also be in Copenhagen for the event. Lasse has promised to deliver some real-time blogging from the conference.
More on Awards
| Nicolai Foss |
In his work on awards (see below), Bruno Frey tells a sophistiscated story of how awards function by providing “soft,” extrinsic motivation and help to solve agency problems that more conventional instruments cannot solve. However, casting awards in a purely motivational framework arguably leaves out some possible economic functions of awards. (more…)
Price as a Signal of Quality
| Nicolai Foss |
Here is the evidence.
Update I: I have a few copies left of this book. I am offering it at the competitive price of 195 Pounds. First come, first served.
Update II: Here is another ridiculously under-priced offer.
Update III: In a more serious vein, what is the economics behind these prices? Not even a hardcore Foss sycophant would pay almost 200 quid for my 1994 collection of essays. Are they phishing for that Japanese university library that just must have a complete collection of books on Austrian economics (cf. Joe Mahoney’s comment)?
Bruno Frey on Awards
| Nicolai Foss |
Bruno Frey is one of those economists who make economics fun. Like economists such as Yoram Barzel, Gary Becker, and, of course, Stephen Levitt, he has a great intuition for applying economics to new areas where nobody has hitherto thought of taking it.
Like George Akerlof, but unlike Barzel, Becker and Levitt, Frey is, however, not that satisfied with the behavioral core of mainstream economics, mainly because it tends to provide an impoverished treatment of human motivation. Thus, he is no Becker-style economic imperialist (or, at least, the charicature thereof), but on the contrary is quite attentive to relevant insights in, particularly, psychology. Whereas numerous economists have taken an interest in the cognitive dimensions of psychology research — as witness the recent explosion of interest in nanoeconomics — Frey’s interest in psychology has been more concerned with motivational issues. Thus, quite a lot of Frey’s enormous (and enormously impressive) production has been devoted to pushing the boundaries of economics by taking seriously psychology ideas on social comparison processes, intrinsic motivation, etc. His work with Margit Osterloh on the motivational foundations of knowledge sharing in organizations will be familiar to many readers of this blog.
Frey has recently started a new research program, namely research into the function of awards (see here and here). (more…)
The October Issue of the AMJ
| Nicolai Foss |
The October issue of the Academy of Management Journal is the best in a very long time. It contains at least three articles that 1) are excellent and 2) should be of direct interest to O&M readers. They are:
- Rekha Krishnan, Xavier Martin and Niels G Noorderhaven. “When Does Trust Matter to Alliance Performance?”. One of the few empirical studies that takes seriously the Williamsonian distinction between behavioral uncertainty and environmental uncertainty.
- Kyle J Mayer and Robert M Salomon. “Capabilities, Contractual Hazards and Governance: Integrating Resource-based and Transaction Cost Perspectives” (WP version here). The latest paper in a small but expanding literature that empirically integrates TCE and RBV. Argues that strong internal technological capabilities may ease outsourcing.
- Stephen J Carson, Anoop Madhok, and Tao Wu. “Uncertainty, Opportunism, and Governance: The Effects of Volatility and Ambiguity on Formal and Relational Contracting.” Clearly distinguishes between the effects of ambiguity and the effects of volatility on opportunism, and compares the effectiveness of relational and contractual governance with respect to constraining opportunism under these two situations. Interesting that Madhok seems to be coming full circle round to TCE.
Another Irritating Practice
| Nicolai Foss |
OK — here I go again: Another jeremiad related to the institutions of publishing in the learned journals (for other O&M jeremiads on this subject, see here, here, here, here, and here).
Recently, I received a paper from two very bright assistant professors at one of the top Euro BSchools. They happily informed me that their paper had now been accepted for a top journal, and that, knowing that I took an interest in the issues that the paper dealt with, they were happy to forward the accepted paper to me. (more…)
An Organizational Routines Bloffer
| Nicolai Foss |
Here is a blog offer: Teppo Felin and I have written “Organizational Routines: Historical Drift, A Course Correction, and Future Directions,” and if you mail me at njf.smg@cbs.dk, I will be happy to send you a copy. Here is the abstract:
Organizational routines and capabilities have become key constructs not only in evolutionary economics, but more recently also in business administration, specifically strategic management. In this essai we discuss the historical origins of the notion of routines, and highlight some of the theoretical and definitional drift associated with the notion of routines over time. In parallel we also explicate some of the underlying theoretical problems of routines (and related concepts); problems such as the lack of clarity on the origins of routines, and the more general need for micro-foundations. We argue that individual-level considerations deserve more attention in extant work — we in effect call for a course–correction in work on organizational routines — and we argue that evolutionary economics and strategic management should aim to build micro-foundations related to understanding the origins of routines.
Organizations and Markets 
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