Author Archive
Elinor Ostrom (1933-2012)
| Peter Klein |
A guest post from former guest blogger Joe Mahoney, the Caterpillar Chair in Business and Director of Graduate Studies in the Department of Business Administration, University of Illinois:
As many readers of O&M know by now, Elinor Ostrom of Indiana University (born August 7, 1933) died of pancreatic cancer on Tuesday, June 12th at the age of 78. She shared the Nobel Prize in Economics in 2009 with Professor Oliver Williamson (UC-Berkeley). Elinor along with her husband Vincent Ostrom (now 93) founded Indiana University’s Workshop in Political Theory and Policy in the mid-1960s, in which she remained active until this Spring, only a couple of weeks before her hospitalization. She also donated most of her Nobel Prize money to the Workshop, as Elinor and Vincent had no children and few living relatives. Williamson said in a statement that Ostrom was “a great human being,” an inspiring teacher and colleague and accomplished social scientist. “She had a wonderful sense of joy about the importance of her work that she successfully communicated to others,” he said. A record five women won Nobel prizes in 2009, and Elinor Ostrom is the only woman to have been awarded the prize in Economics.
Elinor Ostrom, who was born and raised in Los Angeles as a child of the Great Depression, and received her education from undergraduate through Ph.D. at UCLA, contributed to our understanding of the evolution of institutions for collective action in common resource contexts such as forests, fisheries, oil fields, and grazing lands. She emphasized citizen involvement, the creativity of local communities, and cutting through sterile dichotomous classifications and ideological “solutions” that are glib and inaccurate. Ostrom states that “neither the State nor the market is uniformly successful in enabling individuals to sustain long-term, productive use of natural resources” (1990: 1). She emphasized the complementarities between public and private mechanisms for solving collective good problems (see Governing the Commons, Cambridge University Press, 1990.) Ostrom conducted field studies of the world’s fisheries, roamed with shepherds in Swiss pastures, and trudged around the Los Angeles water basin (during her dissertation work) to distill the essentials of harnessing cooperation. She writes in the preface to her 1990 book: “It is my conviction that knowledge accrues by the continual process of moving back and forth from empirical observation to serious efforts at theoretical formulation.” From this theoretically informed field case study method Elinor Ostrom concludes that instead of presuming that individuals sharing a common resource are “inevitably caught in a trap from which they cannot escape, . . . the capacity of individuals to extricate themselves from various types of dilemma situations varies from situation to situation” (1990: 14).
Ostrom championed unlocking the spirit of “public entrepreneurship” — a term she coined in her 1965 UCLA dissertation. Her spirit can live on within us, if we decide to “make it so.” Good years.
Interview with Gary Becker on Rational Choice
| Peter Klein |
The latest issue of the Erasmus Journal for Philosophy and Economics features an interview with Gary Becker on rational choice. I am not a Chicagoite positivist, but I sympathize with Gary’s overall take on the behavioral revolution: Meh.
Interviewer: Following the crisis, many economists and methodologists have argued that more realistic behavioral underpinnings of economic theory would have made forecasts more accurate. Do you think that one of the things the recent crisis has shown us is that people just do not behave rationally? Or did the crisis rather show exactly the opposite—that people did in fact react to incentives and that the consequences of introducing new financial instruments were just not foreseeable?
Becker: I think it is mainly the latter. There were incentives, both on the borrower and on the lender side, that these subprime loans would be made available at the lowest interest rates; and there was pressure from the government to do so; and probably those involved did not understand the financial instruments. Now, is it that we have to change our theories radically with respect to their behavioral structure or even switch to a new behavioral framework? There is very little evidence that would support such a move.
A later remark supports my argument that “disequilibrium analysis” is not the defining characteristics of the Austrian school:
I have read some of the literature on the critique of equilibrium, not so much by philosophers but by the Austrian school of economics, and I could just never make sense out of it, because I do not see what they are substituting for it. Even Friedrich Hayek, who is listed as one of the top Austrians, if you read his analysis, you see that he is using equilibrium analysis.
Alien, Deconstructed
| Peter Klein |
We haven’t raised the pomo periscope for a while, so here goes. I’m a big fan of the original Alien film and, like Ridley Scott fans around the world, am eagerly awaiting the prequellish Prometheus. Until seeing Tom Shone’s piece in Slate, however, I had no idea the Alien franchise had inspired so much pseudo-academic pomobabble:
We’ve had Alien as feminist allegory (“Woman: The Other Alien in Alien,” Women Worldwalkers: New Dimensions of Science Fiction and Fantasy, 1985), Alien as mothering fable (“Mommie Dearest: Aliens, Rosemary’s Baby, and Mothering,” Journal of Popular Culture, 1990), Alien as abortion parable (“Voices of Sexual Distortion: Rape, Birth, and Self-Annihilation Metaphors in the Aliens Trilogy,” Quarterly Journal of Speech, 1995). Even Jones the cat got his own diagram, courtesy of James H. Kavenagh’s essay “Son of a Bitch: Feminism, Humanism, and Science in Alien” (October, No. 13, 1980), which sought to align the alien attack on humans with an Althusserian-Marxist takedown of humanism in general:
“The founding term in the film is human (S). … The anti-human (-S), is, of course, the alien, and the not-human (̅S̅) is Ash, the robot. The cat, then functions in the slot of the not-anti-human (-̅S̅), an indispensable role in this drama.”
I am totally using Kavenagh’s title in a future academic article.
Lewin on Austrian Capital Theory
| Peter Klein |
A very nice overview of “Austrian” capital theory and its relevance for the current economic crisis from former guest blogger Peter Lewin.
With the resurgence of Keynesian economic policy as a response to the current crisis, echoes of past debates are being heard — in particular the debate from the 1930s between John Maynard Keynes and Friedrich Hayek. . . . Hayek pointed out that capital investment does not simply add to production in a general way but rather is embodied in concrete capital items. That is, the productive capital of the economy is not simply an amorphous “stock” of generalized production power; it is an intricate structure of specific interrelated complementary components. Stimulating spending and investment, then, amounts to stimulating specific sections and components of this intricate structure.
See also the recent SO!APbox essay by Rajshree Agarwal, Jay Barney, Nicolai, and me, “Heterogeneous Resources and the Financial Crisis: Implications of Strategic Management Theory.”
7th São Paulo Workshop on Institutions and Organizations
| Peter Klein |
The next São Paulo Research Workshop on Institutions and Organizations is 1-2 October 2012. Proposals are due 15 June, so hurry! The keynote speakers are not yet announced but they’ve had, ahem, some good ones before, so expectations are high. Click the link above for details.
“Give Me Money!”
| Peter Klein |
I’ve received quite a few emails from various academic organizations asking me to help defeat the Flake Amendment, which would eliminate National Science Foundation funding for political science research. The American Political Science Association is all over this, even publishing a virtual special issue of APSR highlighting NSF-funded research results.
Ironically, none of the arguments I’ve seen for preserving public funding of social science research makes an argument consistent with, well, social-science research. All take the form: “Government funding has supported the following important research findings, which have had the following social benefits.” This argument receives three Fs for research design. First, there is no counterfactual. The point isn’t whether government-funded research result X is good, but whether it’s better than Y, the research result that would have obtained in the absence of government funding. Government funding doesn’t simply increase the quantity of research, it shapes the direction of research. How do we know NSF-funded work isn’t crowding out even more valuable work?
Second, there is no attempt at causal inference. Where are the natural experiments, the randomized controlled trials, the valid instruments? There is evidence that a main effect of government funding of hard science is to increase the wages of scientists, not the quality or quantity of research. Even if NSF funds good political science research, how do we know the funding is the cause, not the consequence, of the research?
Third, there is no cost-benefit analysis. The lobbying statements simply list purported benefits. Well, sure, the government could give me hundreds of millions of dollars and I’d do some good with it too. Would those benefits exceed the costs? “Political science research has wide-spread effects beyond specific projects,” say the APSA’s talking points. Maybe so, but what about the effects of those goods and services that would have been produced with the taxpayer dollars that went to NSF? Has nobody at the Monkey Cage read Bastiat?
Put differently, I’m certain the APSR would desk-reject an empirical paper with the logical structure of this argument for funding!
My advice to social scientists seeking government funding is to start by acting like social scientists, not K Streeters.
Organizing Entrepreneurial Judgment: Kindle Edition Now Available
| Peter Klein |
Here’s the link — and the price is right, just $16.50!
According to the latest sales figures, we’re up to #1,070,026 on Amazon. So close to the top spot! Incidentally, my sole-authored Capitalist and the Entrepreneur is just behind at #1,210,245, suggesting that the market places only a small value on the marginal Foss contribution. That’s the correct inference, right?
More Coase
| Peter Klein |
Russ Roberts interviews Coase on EconTalk. Familiar stuff, but it’s great to hear Coase talk about it at age 101. Some highlights:
Roberts: “[I]t’s hard to measure transactions costs; it’s hard to quantify the theory. Is that correct or is it irrelevant.” Coase: “It’s very relevant. But the state of economics is such that people don’t try to measure these things, to study them, and so people can engage in discussions and explanations without any real knowledge of what happens in the real world.”
Roberts: “What was your reaction to [game theory] and its influence on the study of the firm?” Coase: “I think the influence was wholly bad, because people developed high theoretical approaches instead of approaches based on what actually happens.”
Roberts: “[D]id you have contact with Keynes and Hayek, two great economists of that era in England?” Coase: “Yes. I was very friendly with Hayek. I liked him, and he liked me. But we didn’t have great contact. He tended to deal with these big questions, and I’m always interested in how the actual system operates. Therefore, in much smaller matters than Hayek.” Roberts: “And how about Keynes? Did you know Keynes?” Coase: “I can tell you– I was helping when Britain was trying to get a loan from the United States immediately after the war, and I was talking to one of Keynes’s assistants. And Keynes came in the room and walked over to us and the man I was talking to us said, ‘This is Coase, who is helping us with the statistics. I don’t think you know him.’ And Keynes said, ‘No, I don’t.’ And walked off. And that’s my life with Keynes. “
Reminder: “Alternative Investments” Proposals due 15 June
| Peter Klein |
Reminder: Proposals for the Managerial and Decision Economics special issue on “Effects of Alternative Investments on Entrepreneurship, Innovation, and Growth” are due 15 June 2012. Don Siegel, Nick Wilson, Mike Wright, and I are editing the special issue and organizing a paper-development conference 29 October 2012 at the SUNY Global Center in Manhattan. Click the link above or go here for further details. We look forward to your submissions!
Why Do Firms Differ?
| Peter Klein |
This year marks the thirtieth anniversary of two major contributions to strategy and organization, Nelson and Winter’s Evolutionary Theory of Economic Change and Lippman and Rumelt’s “Uncertain Imitability: An Analysis of Interfirm Differences in Efficiency under Competition.” Both tried to explain inter-firm performance differences without reference to market power or random shocks. Interestingly, as Ruff Coff points out, both were aimed at economists, but had little impact there, instead becoming foundational contributions to the emerging strategy field. Here’s a concise summary of Lippman and Rumelt from Peter Zemsky:
Lippman and Rumelt (1982), in the first formal theoretical paper inspired by the distinctive concerns of the strategy literature, demonstrate how superior performance can arise without assumptions of imperfect competition and market power, which are the defining features of the IO approach. In their model there are a large number of potential entrants that can pay a fixed cost to enter an industry. The key assumption is that there is imperfect imitability so that each entrant’s cost function is determined by an independent draw from a known distribution. In equilibrium, firms with bad draws exit and the remaining firms on average must have abnormal returns even when in the case where the firms are all small and have no market power. Ex ante however expected profits from entry are zero. The paper remains an outstanding example of high quality theorizing in strategy. Barney (1986) in his paper on strategic factor markets applies the same reasoning in his verbal argument that from an economics perspective superior performance must be the result of luck.
L&$ also explain the background and context of their article in a new video.
Kirzner’s theory of entrepreneurship is another example of a contribution intended to change the conversation in economics — by shifting attention from equilibrium states to adjustment processes — that seems to have little impact upon its intended audience, while becoming hugely influential in a different field (entrepreneurship).
IT and Higher Ed
| Peter Klein |
Joshua Gans’s Forbes piece on Stanford’s online game theory course brought up a larger point about higher education. I’ve been involved in various online, distance, web-based educational activities for many years. When designing an online course, the typical professor imagines each element of a traditional course, then creates a virtual equivalent. I.e., paper syllabus = html syllabus; books, articles, handouts = pdf files; classroom lecture = webcast lecture; office hours = chat session; pen-and-paper exams = online exams; and so on. The elements are exactly the same as before; only the method of delivery has changed.
This is almost certainly the wrong way to leverage the information technology revolution. The pedagogy is exactly the same. But isn’t this just what we would expect of entrenched incumbents? The record companies didn’t create iTunes. The online New York Times is pretty much like the paper New York Times; it took Google and Flipboard and other innovators to revolutionize the newsreading business. 
As we’ve noted before, isomorphism and stasis is exactly what we would expect from a protected cartel — disruptive innovation, in the Christensen sense, will almost certainly come from outside. (Hopefully after Yours Truly is comfortably retired.)
With the Pols
| Peter Klein |
Two years ago I was in D.C. on Hayek-Klein day and found myself on an elevator with Ben Bernanke, upon which I persuaded him to sing me a few bars of Happy Birthday. True story. This year I was in D.C. again, this time to give an organizational economist’s perspective on the Federal Reserve System to the House Financial Services Committee’s Subcommittee on Domestic Monetary Policy and Technology. You can read my written testimony here and see the oral remarks at C-SPAN which has archived the event.
That’s Jeff Herbener to my right and John Taylor to my left, with Jamie Galbraith by Taylor. The one on the end is not Yoda, but Alice Rivlin.
Because the hearing was televised, I can truthfully say, “I’m not a macroeconomist, but I play one on TV.”
Darden Entrepreneurship and Innovation Research Conference
| Peter Klein |
The Darden Entrepreneurship and Innovation Research Conference is now underway in Charlottesville, Virginia. Keynote and roundtable sessions will be streamed on the conference website.
Crowdsourcing in Academia
| Peter Klein |
It’s called “fractional scholarship.”
American universities produce far more Ph.D’s than there are faculty positions for them to fill, say the report’s authors, Samuel Arbesman, senior scholar at the Kauffman Foundation, and Jon Wilkins, founder of the Ronin Institute. Thus, the traditional academic path may not be an option for newly minted Ph.D.s. Other post-graduate scientists may eschew academia for careers in positions that don’t take direct advantage of the skills they acquired in graduate school.
Consequently, “America has a glut of talented, highly educated, underemployed individuals who wish to and are quite capable of effectively pursuing scholarship, but are unable to do so,” said Arbesman. “Ideally, groups of these individuals would come together to identify, define and tackle the questions that offer the greatest potential for important scientific results and economic growth.”
Given the level of relationship-specific investment many research projects require, this isn’t likely to work without some kinds of long-term commitments. But the model may be effective for other projects. And it beats the alternative.
The Bizarro World of Professor Sen
| Peter Klein |
Here is another of those head-scratchers, this one from Amartya Sen, about how neoclassical economics is partly responsible for the financial crisis because neoclassical economists believe that markets work “perfectly”:
Since the crisis broke out the economics profession in general and mainstream economics in particular have been severely criticised. Do you think this is justified?
The criticism of mainstream economics is justified to a limited extent. It is certainly true that the focus of attention in mainstream economics has tended to be on assuming the market to be working perfectly and there being no need for regulation. However, while this view has been a very dominant part of mainstream economics, you have to bear in mind that mainstream economics is not all centered around one unified theme. I don’t think all of mainstream economics should be held responsible.
Do you think that neoclassical macro economists should bear the brunt of the blame?
This would be an oversimplification. Neoclassical economics has many different paths. There are mainstream neoclassical economists who have been very critical of the complete reliance on the markets.
I’ve been around neoclassical economists since my undergraduate days and I can’t think of a single neoclassical economist who says that markets work “perfectly” and favoring “complete reliance on the markets.” David Friedman comes to mind, but even his arguments for anarchism are not based on the belief that markets are somehow “perfect,” but that they are less imperfect than regulation. The truth, of course, is that virtually all neoclassical economists favor a substantial amount of economic regulation — government production of law and order, government control of the monetary system, competition policy, and other government actions to combat purported market failures.
Statements like Sen’s make sense only as a rhetorical ploy to fool the reader. If the mainstream thinks, say, that government should control 25% of the economy, and you think government should control 75%, you describe the mainstream as “extremists” who believe in “no government,” thus making your position seem like a reasonable middle ground. Krugman of course employs the same rhetorical strategy. Sen is obviously too intelligent to mean what he says literally, so I can only assume mendacity. Am I missing something?
Explosive Economists
| Peter Klein |
I’ve always liked the actor John Lithgow, not only because of his smarmy yet likeable weirdness (keep your comments to yourselves, please), but also because he’s married to an economist, the UCLA economic historian Mary Yeager. (The late Fred Bateman told me that when he and Yeager were just starting out, no one in their professional circles could understand why she was hanging out with this struggling actor who was obviously never going to make it big.)
So I was amused by a profile in Thursday’s WSJ about Lithgow’s role in an upcoming Broadway play about cold-war journalist Joseph Alsop. Reporter: “You portray Joe Alsop as an explosive man. Did you model him on someone from your own life?” Lithgow: “I’ve known mercurial people who emotionally completely turn on a dime, and they’re very exciting people. My wife is a little like that.”
OK, most economists are not exciting, but I’ve known plenty of mercurial and explosive ones.
Paradigm Shift
| Peter Klein |
Did you know this year is the semicentennial of Kuhn’s Structure of Scientific Revolutions? David Kaiser offers some reflections at Nature.
At the heart of Kuhn’s account stood the tricky notion of the paradigm. British philosopher Margaret Masterman famously isolated 21 distinct ways in which Kuhn used the slippery term throughout his slim volume. Even Kuhn himself came to realize that he had saddled the word with too much baggage: in later essays, he separated his intended meanings into two clusters. One sense referred to a scientific community’s reigning theories and methods. The second meaning, which Kuhn argued was both more original and more important, referred to exemplars or model problems, the worked examples on which students and young scientists cut their teeth. As Kuhn appreciated from his own physics training, scientists learned by immersive apprenticeship; they had to hone what Hungarian chemist and philosopher of science Michael Polanyi had called “tacit knowledge” by working through large collections of exemplars rather than by memorizing explicit rules or theorems. More than most scholars of his era, Kuhn taught historians and philosophers to view science as practice rather than syllogism.
Kuhn did not, to my knowledge, say much about the social sciences, though in a later essay he described them in somewhat unflattering terms:
[T]here are many fields — I shall call them proto-sciences — in which practice does not generate testable conclusions but which nonetheless resemble ph9ilosophy and the arts rather than the established sciences in their developmental patters. I think, for example, of fields like chemistry and electricity before the mid-eighteenth century, of the study of heredity and phylogeny before the mid-nineteenth, or many of the social sciences today. In those fields, . . . though they satisfy [Popper’s] demarcation criterion, incessant criticism and continual striving for a fresh start as primary forces, and need to be. No more than in philosophy and the arts, however, do they result in clear-cut progress.
Murray Rothbard took an explicitly Kuhnian approach to his history of economic thought, agreeing with Kuhn that there is no linear, upward progression and condemning what he called the “Whig theory” of intellectual history.
Get Off My Lawn
| Peter Klein |
The boys from orgtheory.net were parking in our maintenance lot, so we had to put up signs. (Spotted in Champaign, IL.)
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