Author Archive
Property Rights at the AoM
| Nicolai Foss |
A host of economics approaches have been influential in strategic management research, inclucing transaction cost economics, and the highly overlapping approaches of information economics, game theory, and industrial organization theory.
However, property rights economics as developed by Ronald Coase, Harold Demsetz, Steven Cheung, and its perhaps most sophisticated contemporary proponent, Yoram Barzel, has not been much used in strategic management, save for discussions of intellectual property rights (a big problem with communicating principles of property rights economics is that most academics immediately associate to IPR which, of course, is just a small subset of the many applications of property rights economics).
Things may be changing, however. (more…)
Why Are Terrorists More Inventive Than Cops?
| Nicolai Foss |
National Review Online has an interesting symposium, “Plans Destroyed,” on yesterday’s terror plot (which caused me to spend 3 hours in the airport here in Atlanta; well, perhaps not the worst way to spend your time in Atlanta ;-)). Daniel Pipes offers his reflections, arguing that
Airplanes represent an outdated target because passenger screening techniques quickly adapt to threats. As soon as terrorists implement new techniques (box-cutters, shoe-bombs, liquid components), security promptly blocks them … Conversely, trains, subways, and buses, as shown by attacks in Madrid, London, and Bombay, offer far richer opportunities for terrorists, for access to them can never be so strictly controlled as to aircraft.
Indeed; but as he points out himself terrorists do target planes, and “One cannot but wonder, however, why creatively, cops invariably lag behind criminals.” Pipes is surely not the first to make this observation; however, as far as I know nobody has tried to seriously answer it.
One answer may be that criminals are smarter than cops. For petty criminals that is probably very far from the truth. For terrorists it may come a bit closer to the truth: Many of today’s terrorists are likely to be better educated than many, perhaps most, cops. Still, intelligence agencies have, of course, highly educated experts employed.
Rather than a capability explanation, the explanation may turn on incentives/property rights. Intelligence officers are government bureaucrats with twarthed incentives to think ahead of highly motivated terrorists (even if their motivation is wholly derived from the expectation of other-worldly rewards). Career ladders may, perhaps, provide incentives, but these are extremely blunt. May this be an argument for privatizing intelligence services?
News on Socialism
| Nicolai Foss |
Here is an interesting site — a must-read for any Austrian — which proves that “the labour theory of value is a scientific theory in the strongest sense of the empirical sciences”, “labor values are closely correlated with prices” (i.e., competition works!), etc. An author-less paper (“Against Mises“) posted on the same site demonstrates that Mises was wrong: It is perfectly possible to calculate using labor values.
The 50th Anniversary of a (Forgotten?) Classic
| Nicolai Foss |
50 years ago Don Patinkin’s Money, Interest, and Prices: An Integration of Monetary and Value Theory was published. This is one of those relatively rare books that has both been widely used as a textbook (when I began studying economics at the University of Copenhagen in 1983, it was still used as an advanced textbook in monetary theory) and as a standard reference in the relevant field (another example could be Scherer’s Industrial Market Structure and Economic Performance).
These days, the book is probably only being read by aging specialists in monetary theory, and Patinkin is not likely to be a name that is known to many modern economists (cf. Peter’s terrifying story of professional ignorance). And yet, the list of the accomplishment’s of Money, Interest, and Prices is extremely impressive (cf. this paper by Olivier Blanchard). Thus, the book clarified the meaning of Say’s law, Walras’ Law, the classical dichotomy, the value theory vs monetary theory issue, and the the loanable funds vs. liquidity preference issue in ways that have been generally accepted ever since.
A personal note: I met Patinkin in 1987 at a conference in honour of John Hicks in Aalborg. I was still a student then, and remember asking him some pretty silly questions. However, he was extremely nice and invited me to dinner the same evening in a local restaurant. When I arrived he was seated with Robert Clower and Axel Leijonhufvud! Edmund Phelps later joined. Only time I have ever been so close to so many celebrities.
Technological Development and the Boundaries of the Firm
| Nicolai Foss |
Increasingly, my favorite journal is Management Science (along with Organization Science). It seems to me to feature more research that is truly at the frontier than, say, Strategic Management Journal and the Academy of Management Journal, and one will certainly not encounter the silly pomo exercises that too often feature in the pages of the Academy of Management Review.
Of course, a journal is made great by the great articles that are published in it. Case in point: Jeffrey T Macher’s “Technological Development and the Boundaries of the Firm: A Knowledge-based Examination in Semiconductor Manufacturing” in the June issue. (more…)
Strategizing, Disequilibrium, and Profit
| Nicolai Foss |
Stanford University Press has just published John A. Matthews’ Strategizing, Disequilibrium, and Profit. A 14-page sample is available here.
Matthews, who holds the Chair of Strategic Management at Macquarie Graduate School of Management, Sydney, has contributed for many years to what is sometimes called “industrial dynamics,” that is, the strongly empirically oriented intersection between process approaches to economics (evolutionary and Austrian views) and strategic management (mainly the capabilities and resource-based views). Accordingly, the main sources of inspiration for the current book are Schumpeter, who provides the overall dynamic view of the economy as an evolving system; Knight, who contributes a theory of profits, and Penrose who contributes a theory of the firm.
The book may be read as a frontal attack on strategic management’s dominant perspective, the resource-based view. (more…)
Evolutionary Economics and Economic Policy
| Nicolai Foss |
Among the many heterodox economics approaches, evolutionary economics seems to be the perhaps most thriving one, and also the one that is best able to gain some (albeit probably very limited) measure of respect from more mainstream economists. There is also significant overlaps with disciplines in business administration, particularly strategic management.
Among the reasons why evolutionary economics may have been a more successful intellectual enterprise than, say, “old” institutional economics, post-Keynesian economics, and Austrian economics is that it, in contrast to the other three heterodox approaches, embraces formal method, has a strong empirical orientation, and has been a strong voice on matters that relate to innovation and industrial change, areas where neoclassical economics has been rather silent.
It is clear that evolutionary economists see their approach as an encompassing one, and often see it is being a direct theoretical competitor to neoclassical economics. This is very clearly signaled in the locus classicus of the approach, Richard Nelson and Sidney Winter’s, An Evolutionary Theory of Economic Change from 1982.
There is, however, one point where evolutionary economics is remarkably weak, namely the theory of economic policy. (more…)
A “Commie Austrian”
| Nicolai Foss |
Regular readers may have noticed the comments of a commentator who signs on as “Cliff.” Cliff is in fact a visiting scholar at the Center of Strategic Management and Globalization at Copenhagen Business School. His real name is Zhu Hai Jiu. I mention him here because he embodies what Israel Kirzner has often said that he wished existed: The Socialist Austrian. Cliff is, I believe, a card-carrying member of the Chinese Party -– and an Austrian economist.
Libertarian Professors in Denmark
| Nicolai Foss |
Here is a list of libertarian professors, mainly in the US. However, there is also a listing of libertarian professors outside of US. I have the distinct honour of being the only Danish libertarian professor.
However, I am not sure if I am a libertarian (new? neo? paleo? left? vulgar? right?). I guess I am more of your ordinary Jacksonian, paleo-con, semi-Straussian, culturally conservative kind of person. Moreover, there are actually quite a number of libertarian/conservative professors in Denmark. The best known is surely Peter Kurrild-Klitgaard who is a political science professor at Copenhagen University. Peter is an incredible energetic person with a large scholarly output and a massive production of popular writings in newspapers. He is the European editor of Public Choice. Other prominent Danish professors with a libertarian/conservation orientation are David Gress (history of ideas), Jesper Lau Hansen (Law), Henrik Lando (economics), and Christian Bjørnkjær (economics).
Robustness
| Nicolai Foss |
Empirical economists tend to exalt the property of “robustness.” Robustness is a priori taken to be epistemologically virtuous. However, this is not so obvious as it may seem. As Kevin Hoover points out in the preface to the most recent (June) issue of the Journal of Economic Methodology, most of which is dedicated to a symposium on “Fragility and Robustness in Econometrics”:
The idea that robustness is an epistemic virtue across the entire range of measures is not obvious. Suppose that the efficient-markets hypothesis works well in the United States but not in China. Does that count against the efficient-markets hypothesis? Or does it instead point to a substantive difference between American and Chinese financial markets?
A lot of things in econometrics are closely related or depend on robustness, such as omitted-variable bias and extreme-bounds analysis, but robustness has seldom been explicitly discussed. The contributors to the symposium are John Aldrich, Aris Spanos, and Jim Woodward. For somebody who is not an econometrics buff, Jim Woodward’s “Some Varieties of Robustness” is likely to be particularly informative.
Vacation Reading
| Nicolai Foss |
The more narcissistic bloggers often inform their readership on the subject of What I am Reading This Summer (substitute Spring, Fall, Winter). Of course, no reason to not adopt this well-established practice.
As of tomorrow, I will be on vacation for two weeks in Antibes in the sourthern part of the perhaps most commie country in the World. This is what I will bring with me: (more…)
Hayek on Subjectivism and Progress in Economics
| Nicolai Foss |
Austrians are very fond of quoting Friedrich von Hayek’s claim in his The Counter-Revolution of Science (1952: 52) that all major advances in economics over the preceding one hundred years represent the progress of subjectivism. Hayek’s claim is, however, quite puzzling. (more…)
The New Growth Theory
| Nicolai Foss |
I am reading David Warsh’s Knowledge and the Wealth of Nations: A Story of Economic Discovery. Although the book contains little that will be new to those with some knowledge of the history of economics and recent growth theory, it is worth reading because it is beautifully written, contains some juicy gossip, and has a clear storyline. In other words, excellent Summer reading.
A notable feature of the book is portraying the development of new growth theory as a remarkable instance of scientific discovery. Eight years ago, I published a paper in the Journal of Economic Methodology, “The New Growth Theory: Some Intellectual Growth Accounting” (here is an earlier paper version) that took issue with this claim. My argument was that the NGT was successful for purely heuristic reasons. The argument may have been over the top, or the NGT may have changed since 1998. Anyway, here is the abstract:
This paper discusses the reasons for the success of the New Growth Theory. Given that the NGT does not appear to say much new about empirical reality, that its essential ideas have been known for a long time, and that it does not really make contact with a large literature on institutions and economic change, its strong success may arguably be seen as surprising. Or, at least, its success may appear peculiar to Lakatosian methodologists, and others who emphasize notions such as “novel facts”. The reason for the success of the NGT is argued to lie in its constituting a case of strong heuristic progress: it brought growth through knowledge accumulation within the confines of neoclassical economics, and thus demonstrated the continued viability of this research tradition.
Leijonhufvud — Cont’d
| Nicolai Foss |
Apropos my earlier post on the work of Axel Leijonhufvud and what it meant for me personally, I just came across this amusing keynote speech, “My Keynesian Education,” by Robert Lucas to the 2003 History of Political Economy Conference: “I remember when Leijonhufvud’s book came out and I asked my colleague Gary Becker if he thought Hicks had got the General Theory right with his IS-LM diagram. Gary said, ‘Well, I don’t know, but I hope he did, because if it wasn’t for Hicks I never would have made any sense out of that damn book.’ That’s kind of the way I feel too, so I’m hoping Hicks got it right” (pp. 12-13).
Interesting New Paper by JC Spender
| Nicolai Foss |
One of the puzzles of business administration/management is that the fields of entrepreneurship and strategic management have existed, and continue to exist, in such relative separation. Intuitively, one would think of entrepreneurship — the identification and seizure of new opportunities for profit — as constituting the core of the strategic management field. This, however, is not the case. However, there are various indications that strategic management scholars are about to develop interest in entrepreneurship (e.g., work by Kim and Mahoney, Alvarez and Barney).
One specific indication is an excellent and highly recommended recent paper by JC Spender, “The RBV, Methodological Individualism, and Managerial Cognition: Practising Entrepreneurship.” Here is the Abstract:
If we consider Schumpeter’s methodological individualism and entrepreneurship, the ‘managerial cognition’ arguments can contribute new insights to the RBV discourse. I open by examining the links between resource inputs and firm outputs , and argue the types of rents implied by the RBV cannot arise or be sustained if these links are logical and explainable. The only rents then available are Marshallian quasi-rents arising from information asymmetry or the Ricardian rents from initial allocation, i.e., those of Porter’s analysis. Today’s RBV lacks the components necessary to create and manage the value at the core of Barney’s VRIO model. Causal ambiguity or uncertain inimitability might imply sustainable rents but clearly do not explain how the arise, any more than asserting the firm has dynamic capabilities does. To illustrate how value might be created and brought into the analysis, I look at Penrose’s model of managerial learning, primarily as an accessible instance of the epistemological approach proposed by Austrian economists such as Hayek, Kirzner, and Schumpeter. This concept of value creation parallels the sense-making concepts of the managerial cognition literature. I conclude that an alliance of BPS and MOC approaches can complement and so complete the RBV, synthesizing notions of value creation, heterogeneous and immobile resources, and endogenous growth into a dynamic theory of the firm. It balances rational choice and Schumpeterian entrepreneurship. To wrap this argument up, I discuss the theoretical and practical implications of the amended RBV.
Keynes on Ethnic Homogeneity
| Nicolai Foss |
Here is John Maynard Keynes speculating on the ideal postwar order in Europe:
A view of the post-war world which I find sympathetic and attractive and fruitful of good consequences is that we encourage small political and cultural units, combined into larger, and more closely knit, economic units. It would be a fine thing to have thirty or forty capital cities in Europe, each the center of a self-governing country entirely free from national minorities (who would be dealt with by migrations where necessary) and the seat of government and parliament and university center, each with their own pride and glory and their own characteristics and excellent gifts. But it would be ruinous to have thirty or forty entirely independent economic and currency uniions” (from Robert Skidelsky. 2000. John Maynard Keynes, Vol. 3., cited in Deepak Lal. 2004. In Praise of Empires, p.59; my emphasis).
Skidelsky notes that “this pleasing picture of a re-medievalised Europe did not survive in later drafts.” Perhaps Keynes got cold feet when he recognized that his proposal would effectively entail ethnic cleansing.
Quote of the Day
| Nicolai Foss |
David Colander: “Is game theory the answer to everything?”
Ken Binmore: “Yes. All of social science is just a branch of game theory. Unfortunately, we don’t know much game theory yet, and so this insight doesn’t get us very far!”
Quoted from p. 74 of Colander, Holt and Rosser.2004. The Changing Face of Economics: Conversations With Cutting Edge Economists.
Foss and Foss RAE Paper Published Online
| Nicolai Foss |
My paper with Kirsten Foss, “The Limits to Designed Order: Authority Under ‘Distributed Knowledge’ Conditions,” Review of Austrian Economics 19: 261-274 (2006) has just been published online on the Springer site. Here is the Abstract:
We examine the argument, put forward by modern management writers and, in a somewhat different guise by Austrian economists, that authority is not a viable mechanism of coordination in the presence of “distributed knowledge” (which corresponds to Hayek’s treatment of the use of dispersed knowledge in society). We define authority and distributed knowledge and argue that authority is compatible with distributed knowledge. Moreover, it is not clear on theoretical grounds how distributed knowledge impacts on economic organization. An implication is that the Austrian argument that designed orders are strongly constrained by the Hayekian dispersed knowledge (Hayek, Kirzner, Sautet) is less decisive than it has usually been taken to be. The positive flipside of this argument is that Austrians confront an exciting research agenda in theorizing how distributed knowledge impacts economic organization.
Academic Insults II: Nasty Reviews
| Nicolai Foss |
My earlier post on Academic Insults attracted quite a lot of views, and some comments, including some comments detailing insults that I allegedly distributed (of which I, of course, have no recollection whatsoever). I also received mails from people who didn’t want to share the insults they had suffered with the blogosphere. Anyway, here is what almost amounts to a sequel, namely one on formalized academic insults, better known as nasty reviews. (more…)
Evidence for “Selfish Genes”?
| Nicolai Foss |
I am reading Deepak Lal’s In Praise of Empires: Globalization and Order at the moment. In a discussion of the Mongolian empire, initiated by Genghis Khan, Lal tells the well-known and terrifying anecdote about Genghis Khan’s reaction when told by his generals that life’s sweetest pleasure lies in falconry:
“You are mistaken. Man’s greatest good fortune is to chase and defeat his enemy, seize his total possession, leave his married women weeping and wailing, ride his gelding, and use the bodies of his women as a nightshirt and support.”
Lal goes on to observe that
“This pursuit of booty along with glory also succeeded in a massive spread of Genghis’s genes, as has been recently confirmed in a study examining the chromosomes of 2,123 men from across Asia. It found that an estimated 16 million males in a vast swath from Manchuria to Uzbekistan and Afghanistan are the direct descendants of Genghis as they carry his unique bits of DNA in their chromosomes. Genghis’s fighting thus allowed him to propagate his selfish genes to an unparalleled extent” (p.16).
(The study that Lal cites is this paper, which notes that in the examined sample, 8 percent of the men had virtually identical Y chromosomes, which indicates a common forefather. The 23 authors argue that this forefather is very likely to have lived in Mongolia and to have been Ghengis Khan).
In contrast to the Khan, Hitler, Stalin, and Kim-the-Older were no great gene disseminators, while Mao apparently was and Kim-the-younger apparently is (cf. this blog).
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