Author Archive
NYU Journal of Law and Liberty
| Peter Klein |
The NYU Journal of Law and Liberty is a new journal focusing on classical liberal legal scholarship. Volume 1, Number 1 revisits Lochner v. New York, the landmark 1905 case that defended the freedom of contract and became, to its critics, a hated symbol of heartless, dog-eat-dog capitalism. (During the New Deal the word “Lochner” meant about what “Enron” means today.) Volume 1, Number 2 contains an interesting piece by Mario Rizzo, “The Problem of Moral Dirigisme: A New Argument Against Moralistic Legislation,” which opens thusly:
This Article applies a theory of rational choice to moral decision making. In this theory, agents act primarily on local and personal knowledge to instantiate moral principles, virtues, and moral goods. The State may seek to prevent them from acting as they independently determine by prescribing or proscribing certain conduct by formal legal means. If its purpose is to ensure that people act morally or become better persons, we call this “moral dirigisme.” Our thesis is that the need to use decentralized knowledge to determine the moral status of an act makes the task of the moral dirigiste well-nigh impossible.
Joel Klein, Monopolist
| Peter Klein |
Joel Klein does not have a well-developed sense of irony. As Clinton Administration antitrust czar, he became a household name with his relentless pursuit of Microsoft, a $40 billion company with 70,000 employees in 100 countries. Today Klein heads the New York City public school system, a conglomeration of 1,450 schools with 136,000 employees, 1.1 million students, and a $15 billion operating budget. Oh, did I mention that it’s a monopoly? Not a private company with a large market share, but an actual monopoly, an organization protected from competition by an exclusive government franchise.
Klein was Distinguished Executive Speaker at tonight’s Academy of Management Convocation, which I attended. The speech was disappointing — not because of Klein’s political philosophy, which I don’t share — but because it was a shallow, fluffy talk about “leadership,” “accountability,” “change agents,” and the like. (I did enjoy his voice, however, a smoother version of Jimmy Durante’s.) (more…)
Thoughts on Stakeholder Theory
| Peter Klein |
Yesterday I attended the Academy of Management session “Stakeholders: The Keys to Effective Strategy and Performance Measurement.” Panelists included Joe Mahoney, Russ Coff, Christos Pitelis, Tom Donaldson, Amy Hillman, Sybille Sachs, and Kathryn Pavolovich. I’m pretty much an unreconstructed Friedmanite on this issue so I went to raise my consciousness.
What I learned was interesting, but I still have several questions about stakeholder theory, at least in its normative version. (more…)
Airport Security Quote of the Day
| Peter Klein |
From Chris Westley: “Every time I take off my shoes in the security screening process at the airport, I find it consoling to remind myself that at least Richard Reid wasn’t wearing an underwear bomb.”
Update: Civil libertarians warn that new passenger screening technologies might as well be underwear searches.
Private and Public Investment in R&D, Crime-Prevention Division
| Peter Klein |
Further to Nicolai’s post on terrorists and cops: Government security officials have attenuated incentives not only for effort, but also for innovation. Just yesterday I read about the new Volvo S80, which has a special key fob that beeps when someone is hiding in the locked car (using a heartbeat sensor). Can you imagine the police coming up with that?
More generally, Bruce Benson offers compelling evidence, in his 1998 book To Serve and Protect, that the reduction in crime in the US over the last decade and a half owes little to improved police protection, but is due instead to increased investments in private security. (See also Benson’s short piece “Why Crime Declines.”)
Where Are the Academic Management Blogs?
| Peter Klein |
Our inaugural post noted the dearth of academic blogs in management, strategy, and other parts of business administration, compared with the many in economics and law. Tonight witnessed a gathering of the near-universe of academic management bloggers — Nicolai, Teppo Felin of orgtheory.net, and myself (Brayden King joins us later) — at the Academy of Management meeting in Atlanta. Why, we asked ourselves, are there so few academic management blogs?
One possibility is opportunity cost. Economists and law professors have fewer consulting opportunities than management professors, and hence more time for blogging. Another is that bloggers appropriate very little of the value their blogs create (OK, assume, arguendo, positive value creation), and business-school professors are too savvy to give away knowledge for free. (Of course, while that might apply to researchers in corporate strategy, which is all about making money, it hardly applies to those in organizational behavior and the other “softer” areas of management.)
I suspect another explanation. Blogging requires a certain temperment, a particular way of thinking. The best bloggers have not only catholic interests, but also — more important — a belief that they can explain a variety of interesting and important phenomena with a few basic principles, consistently applied, and in just a short paragraph or two. This is exactly the way most economists think. “Give me a simple model, and I can explain the world.” Those who prefer more subtle, complex, and ambiguous modes of thought are apt to find blogging an unsatisfying pursuit.
Greif and Hayek on Institutions
| Peter Klein |
The EH.Net review of Avner Greif’s new book provoked this testy exchange on a history of of economic thought mailing list:
Professor A: This doesn’t sound very profound or “pathbreaking,” just mathed-up Hayek with a soupçon of history.
Professor B: Avner Grief’s work is not “mathed-up” Hayek. His use of game theory allows him, inter alia, to examine the multiple equilibria in “spontaneous orders,” if you like, something to which Hayek paid very little attention.
Professor C: Quote from Greif: “Yet this private order was not, as advocates such as Friedrich A. von Hayek and Milton Friedman would have us believe, a result of ‘spontaneous order’ among economic agents. Rather, it was a product of intentional and coordinated efforts by many individuals […].” Greif (2006: 389)
I agree with Professor B. that Greif does more than simply put a modern gloss on Hayek’s (actually Menger’s) pioneering studies of institutions. But Greif misunderstands Hayek by reading “spontaneous” as “not planned or intended by anybody.” Hayek’s concept of spontaneous order obviously allows for individual purpose and intent, even if individuals’ actions help establish an order that was itself undesigned. (Hayek’s emphasis on rule-following behavior or instinct — OK, to be fair, behavior “between instinct and reason” — perhaps lends itself to Greif’s misunderstanding, however.)
For more on this see Dan Klein’s “The Two Coordinations.”
Yet More on Economists and Sociologists
| Peter Klein |
Adding more fuel to the fire are Gordon Smith and Larry Solom. Best line, from Gordon: “Economists just assume sociologists are stupid because that improves the r-squared of the economists’ world view.” (Via Brayden.)
Voting Isn’t Rational; Is Digging?
| Peter Klein |
Teppo Felin, reflecting on Wikipedia, notes that the entries in his own area of expertise are weak, but that he doesn’t bother to correct them — “as a firm believer in the ‘market,’ I am sure it will provide.” I feel the same way. Unless my knowledge is highly idiosyncratic, it is likely that someone else will make the necessary improvements before too long. Why contribute when you can free ride?
The same applies, a fortiori, to Digg.com, a hot new service that allows readers to vote on their favorite news items (from mainstream media outlets, alternative sources, blogs, or whatever) and lists them in descending order of popularity. My friend Stephen Carson urges libertarian subversives like myself to Digg our favorite stories and push them to the top. But the top articles on Digg.com typically have several hundred votes per day; on the margin, will my vote make a difference? (more…)
Higher-Education Entrepreneurship
| Peter Klein |
Richard Vedder explains the latest developments. (Also check out his Center for College Affordability and Productivity and his new book, Going Broke by Degree: Why College Costs Too Much.)
Attribution Error and Management Fads
| Peter Klein |
James Surowiecki on the changing fortunes of Airbus and Boeing:
What much of the talk about the inherent weakness of Airbus ignores is that, just a few years ago, it was Boeing that looked fundamentally flawed, while Airbus was seen as the future of the industry. . . . The problem with such prognostications is that they infer basic truths about a company’s prospects from its short-term performance. In fact, present success is often determined as much by context and chance as by fundamental viability. . . .
People are generally bad at accepting the importance of context and chance. We fall prey to what the social psychologist Lee Ross called “the fundamental attribution error” — the tendency to ascribe success or failure to innate characteristics, even when context is overwhelmingly important. . . .
Because we underestimate how much variation can be caused simply by luck, we see patterns where none exist. It’s no wonder that management theory is dominated by fads: every few years, new companies succeed, and they are scrutinized for the underlying truths that they might reveal. But often there is no underlying truth; the companies just happened to be in the right place at the right time.
Via Daniel Drezner. N.B.: While I can’t top Nicolai’s restaurant story, I’ll note that I was a college classmate and friend of Surowiecki at UNC-Chapel Hill. I didn’t anticipate Jim would become a brilliant business writer — but then again, who knew I’d turn out to be a brilliant organizational economist? (Insert your own punch line here.)
Hoffman on Greif on Institutions
| Peter Klein |
Philip T. Hoffman reviews Avner Greif’s Institutions and the Path to the Modern Economy: Lessons from Medieval Trade (Cambridge University Press, 2006) for EH.Net. Hoffman says the book “represents the cutting edge when it comes to the study of institutions.”
It Was Only a Matter of Time
| Peter Klein |
We professors know that students, not faculty, hold the real power at universities. (They get ratemyprofessors.com; we get the rather feeble, though cathartic, Rate Your Students.) So this was only a matter of time.
Econ Superblogs
| Peter Klein |
These econ blogs get mentioned by The Economist in “The Invisible Hand on the Keyboard”: DeLong, Becker-Posner, Mankiw, and Setser. (According to Technorati, the top five econ blogs are Beppe Grillo, Crooked Timber, Marginal Revolution, The Long Tail, and Professor Bainbridge.)
Why do economists blog? Mostly for fun, and also to increase one’s professional influence, say The Economist’s celebrity bloggers. Here at O&M, we do it to make the world a better place. Really.
Update: Crooked Timber’s John Quiggin has a chapter (not available online, unfortunately) on economics blogs in a new book, Uses of Blogs.
Update 2: Brad DeLong explains econ blogging in the Chronicle of Higher Education. (See also his comment below.)
Mises University
| Peter Klein |
For the past several years I have had the pleasure of lecturing at the Mises University, a week-long instructional seminar on Austrian economics and related disciplines. I never expected to see a favorable write-up in the Wall Street Journal, but here it is:
Sweet Home Alabama
By KYLE WINGFIELD
August 4, 2006Auburn, Alabama
Growing up, I never thought of Alabama as a beacon of academia. Living in its capital city of Montgomery for two years didn’t exactly change my mind. It wasn’t until I moved to Europe that I realized the Heart of Dixie was a wellspring of sensible economic thinking.
One by one, I met young, capitalist Continentals who had studied in Auburn. Not at Auburn University, mind you, which is Alabama’s largest college but is associated more with physical specimens like Bo Jackson than with free-market philosophers. Rather, they had flocked to the Ludwig von Mises Institute, a think tank located just off campus that preaches the works of Hayek, Rothbard and other economists from the Austrian School — including, of course, the institute’s namesake.
An Agency-Theoretic Analysis of the State
| Peter Klein |
Tim Swanson recommends this series by Michael Rozeff, “The State as an Organization” (part 1, part 2, part 3). Rozeff is a Rochester-trained financial economist (currently Louis M. Jacobs Chair of Financial Planning and Control at the University at Buffalo) and not surprisingly, his analysis is an agency-theoretic one. The main point is that the mechanisms that mitigate agency problems in firms — competition in the product market, the market for corporate control, discipline from suppliers of capital, the market for managers, etc. — are largely absent in governments. Writes Rozeff:
States are organizations whose composition, aims and methods depend on the institutions the society uses to control agency costs. The classical liberal vision was of a contractual state cleverly arranged so as to keep agency costs low. The ideal contractual state is an organization that, like a corporation, is owned by its principals, who are the citizens. Commissioned by them, the state’s aims are to dispense law and justice which includes protecting the resources or property of its owners. . . .
With weaker controls over agency costs, we observe instead varieties of the predatory state. Here the state moves toward becoming an autonomous organization, more like a company owned and operated by one person or a small group of persons but without outside stockholders. Its residual claimants are its members. They are the owners. Citizens do not own the predatory state. They are the prey.
Greif on Jones on Culture
| Peter Klein|
Avner Greif reviews Eric Jones’s Cultures Merging: A Historical and Economic Critique of Culture (Princeton University Press, 2006), for EH.Net:
For some scholars, a society’s culture determines its economic destiny. For others, culture is malleable reflecting deeper political and economic variables and hence is epiphenomenal to economic outcomes. In this interesting book, Eric Jones (author of The European Miracle among other publications, a Professorial Fellow at Melbourne Business School, University of Melbourne and an Emeritus Professor at La Trobe) provides a useful survey of this debate and argues for a middle ground.
Ignorance is Bliss, Among Economists
| Peter Klein |
Everyone knows that economists tend to be woefully uninformed about the history of their discipline. But one can still be surprised. At a recent luncheon I was seated next to an editor of one of the leading field journals in economics. This journal publishes mainstream, fairly technical articles in its specialty area and is quite highly ranked by the usual measures. The luncheon speaker was Kenneth Arrow.
The journal editor literally did not know who Arrow was. He recognized the name, and had a vague idea that Arrow was someone important, but could not name even one general area in which Arrow worked (general-equilibrium theory, information economics, social choice, etc.).
I resisted the temptation to ask if he’d heard of Adam Smith or Karl Marx.
Organizations and Markets 
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