Author Archive
Information Encountering
| Peter Klein |
I recently attended an interesting workshop by my colleague Sanda Erdelez from the School of Information Science and Learning Technologies (what used to be called library science, back when we had libraries). Sanda has developed the concept of information encountering, defined as
a memorable experience of an unexpected discovery of useful or interesting information. Information encountering occurs when one is looking for information relating to one topic and finds information relating to another one. However, it also occurs upon bumping into information while carrying on a routine activity.
During the workshop we discussed the parallels between information encountering and Kirzner’s notion of entrepreneurial discovery. Both are different from systematic search, yet more than pure accident. (As Sanda reminded us, “serendipity,” often used today as a synonym for luck, originally meant the discovery of one thing while searching systematically for another.) More generally, we agreed that the entrepreneurship and information-science literatures can learn from each other. We also discussed Nicholas Carr’s recent Atlantic Monthly piece, “Is Google Making Us Stupid?” which argues, in part, that the ability to find specific information quickly makes us less likely to discover useful information accidentally.
Here is more of Sanda’s research. The terms “accidental discovery of information” and “incidental information acquisition” are also used in the information-science literature.
Antitrust and the Theory of the Firm
| Peter Klein |
Josh has a nice post at Truth on the Market on the place of antitrust research and practice within the legal academy. “[C]ontrary to the conventional wisdom I hear from the legal academy, it is an incredibly exciting time to practice, think about, and write about antitrust issues. . . . I suspect that right now is one of the most intellectually active antitrust eras in history.” Josh proposes several hypotheses on the increasingly popularity of antitrust analysis in law schools and within the law-and-economics movement.
Josh’s post got me thinking about the economic theory of the firm. The pioneers in this field — Coase, Williamson, Klein, Alchian, Demsetz, Teece, Masten — were actively interest in antitrust issues. The subtitle of Williamson’s Markets and Hierarchies (1975), after all, is “Analysis and Antitrust Implications.” In the more recent literature, however, antitrust doesn’t make much of an appearance. None of the leading scholars, such as Oliver Hart, Bengt Holmström, Jean Tirole, John Moore, Bob Gibbons, George Baker, Kevin Murphy, Tom Hubbard, or Steve Tadelis works juch on antitrust (please correct me if I’m wrong). Even giants like Foss, Klein, Langlois, and Lien are not active in this area.
One might respond that antitrust is an economic policy issue, not a firm-strategy issue, and note that transaction cost economics (TCE) has migrated from economics departments to business schools, where it joins the resource-based view (RBV) as a leading theoretical perspective on the the firm. Indeed, while the people mentioned above are economists, mostly teaching in economics departments, Williamsonian TCE has largely been supplanted by the Grossman-Hart-Moore model among mainstream economists, while it remains highly influential within the fields of strategic management, organization theory, and marketing.
This leaves us with two questions: (1) Why isn’t the property-rights or Grossman-Hart-Moore approach to the firm more influential in antitrust economics? (2) Why isn’t antitrust a bigger topic within strategic management (e.g., as part of a firm’s legal and political strategy)?
Law and Economics of Innovation
| Peter Klein |
I’m speaking at this year’s edition of the Law and Economics of Innovation, organized by Geoff Manne and Josh Wright and co-sponsored by GMU Law and Microsoft. It’s May 7 in Arlington. Check out the slick conference website (and Geoff’s post at ToTM). If you don’t want to hear me, at least come for Susan Athey’s keynote. Tom Hazlett has the best paper subtitle: “Of Newtons, Blackberries, iPhones & G-Phones.” How many of you youngsters have heard of the Newton?
Down with Strunk and White
| Peter Klein |
Geoffrey Pullum does’t think much of the ubiquitous grammar guide, celebrating its 50th anniversary this week. The Elements of Style “does not deserve the enormous esteem in which it is held by American college graduates. Its advice ranges from limp platitudes to inconsistent nonsense. Its enormous influence has not improved American students’ grasp of English grammar; it has significantly degraded it.” (Thanks to Gary Peters for this link to a free version, available for just a few days.)
Missouri’s View of Charter Schools
| Peter Klein |
Missouri Democrat Chris Kelly, who represents my district in the state legislature, has introduced a bill rescinding a 2007 Missouri state board of education rule restricting the sale of public school buildings to charter schools. The 2007 rule prevents public school buildings from being sold to “charter schools, liquor stores, adult entertainment venues, distilleries, and landfills.”
Follow O&M on Twitter!
| Peter Klein |
Twitterers or Tweetheads or whatever the correct term is can now receive O&M updates by following orgsandmarkets. This works through TwitterFeed, which I learned about from Lynne. Kool!
Keynesian Economics in a Nutshell
| Peter Klein |
An earlier post on Keynesian economics in four paragraphs has proven extremely popular. Here’s Keynesian economics in just one-and-a-half paragraphs, courtesy of Mario Rizzo:
Clearly, DeLong is a rigid aggregate demand theorist. He talks about output and employment as if it were some homogeneous thing. In his mind, macroeconomics is just about spending to increase the production of stuff. Yes, there is lip service to the idea that the stuff should have economic value. But that is easy when you assume that the only alternative is value-less idleness. . . .
The sectoral problems generated, not only by exogenous shocks but by the low interest rate policy of the Fed, are of critical importance. The aggregate demanders are blind to this.
Here at O&M we take the opposite perspective, namely that heterogeneity matters. Actually, as Mario has pointed out in a series of posts (1, 2, 3), Keynes himself was much better than his latter-day followers. Keynes may have been wrong — deeply, deeply wrong, in my view — but he was no fool. As for today’s Keynesians. . . .
Update (14 April): See also Mario’s fine essay in the April Freeman, “A Microeconomist’s Protest.”
René Stulz on Derivatives
| Peter Klein |
In case you missed it, Tuesday’s WSJ ran an op-ed by René Stulz, one of the world’s elite researchers in empirical corporate finance, “In Defense of Derivatives and How to Regulate Them.” Highlights:
That derivatives benefit our financial system and our national economy is well established. Twenty-nine of the 30 companies that make up the Dow Jones Industrial Average use derivatives. According to data from Greenwich Associates, two-thirds of large companies (those that have sales of more than $2 billion) use over-the-counter derivatives and more than half of all mid-size companies (those that have sales between $500 million and $2 billion) are very active in derivatives markets. Derivatives are necessary and helpful tools for companies seeking to manage financial risk.
The most important benefit of derivatives is that they allow businesses to hedge risks that otherwise could not be hedged. This does a number of positive things. It transfers risk, allowing firms to guard against being forced into financial distress. It also frees lenders to offer credit on better terms, giving companies access to funds that they can use to keep their doors open, lights on and, even, invest in new technologies, build new plants, or hire new employees. (more…)
Program for Searle Center Conference, “The Economics and Law of the Entrepreneur”
| Peter Klein |
Here. I participated in last year’s conference and thought it was terrific. Old friend Henry Butler is doing a fine job making the Searle Center a major player in the entrepreneurship field.
IRBs Gone Wild
| Peter Klein |
We’ve noted before the strange behavior of university Institutional Review Boards. My own campus has a particularly prickly IRB, the result of an unpleasant incident a few years back involving the medical school. So, even social-science researchers must receive IRB training and have individual research projects — yes, every research project that involves “human subjects,” which includes research using secondary data — approved by the campus IRB.
My certification expired recently and I took an online test today to be re-certified. Some of you may find the questions interesting. Here is a selection. Keep in mind these are questions for an economist wishing to do research in economics and management, not for a pharmacologist or epidemiologist. (more…)
Kaplan on Sutton
| Peter Klein |
Here’s Steve Kaplan’s reply to Sutton, which makes several good points. The best, to me, is that Sutton et al. have no systematic evidence relating the incorporation of economics into the business-school curriculum and any particular economic or managerial outcomes. There were booms and busts, Ponzi schemes, corruption, and irrational exuberance long before “opportunism” and “agency costs” entered the MBA lexicon.I wonder what Sutton thinks caused the S&L crisis, stagflation, the Great Depresssion, the Panic of 1907, Tulip Mania, the South Sea Bubble, or any other past economic crisis? For someone who claims to favor evidence-based management, Sutton applies a pretty weak standard of evidence to his own sweeping condemnation of an entire academic discipline.
Kaplan also notes:
Sutton does not really present a viable alternative. He believes that business schools should teach the nitty gritty of leadership and organization life. The challenge in doing this is that the nitty gritty often becomes just a collection of stories or anecdotes that cannot be generalized. The advantage of economics and the other academic disciplines is that they provide general, actionable frameworks that can be applied to new circumstances. In fact, this is probably a large part of reason the economics-type analysis has crowded out some of the other areas in the social sciences.
My Question About Ward Churchill
| Peter Klein |
I haven’t followed the Ward Churchill case too closely, but was aware that last week a Denver jury ruled that he had been fired unjustly from his tenured faculty position at the University of Colorado (and presumably will be reinstated). Fabio’s post yesterday reminded me of the biggest puzzle about this whole thing: How on earth did a person without a terminal degree, with few scholarly publications, and no record of the usual academic activities (membership on journal editorial boards, leadership positions in professional societies, mentoring of graduate students, etc.) get to be a tenured full professor at a major public university?
Assuming the wikipedia entry is correct, we learn:
Churchill received his B.A. in technological communications in 1974 and M.A. in communications theory in 1975, both from Sangamon State University, now the University of Illinois at Springfield.[8] Churchill began working as an affirmative action officer at the University of Colorado at Boulder in 1978. He also lectured on Indian issues in the ethnic studies program. In 1990, he was hired as an associate professor, although he did not possess the academic doctorate usually required for such a position. The following year he was granted tenure in the communications department, without the usual six-year probationary period, after being declined by the sociology and political science departments. He was presented with an honorary Doctorate of Humane Letters from Alfred University after giving a lecture there about American Indian history in 1992. He moved to the new ethnic studies department in 1996 and was promoted to full professor in 1997. He became chair of the department in June 2002.[12][13][14]
Out of curiosity I googled his CV and found this copy (not hosted on a university site, so possibly inaccurate). There are a few items listed under “Scholarly Essays.” I’ve never heard of any of the journals (except Social Text, Stanley Fish’s journal and the hapless victim of Alan Sokal’s famous prank). Maybe they are highly ranked in the field of ethnic studies; I don’t know (but would be curious to see the impact factors).
Could someone tell me: Would this kind of academic record get someone a tenured full professorship at the University of Colorado in, say, biochemistry or political science?
Kahneman on Judgment and Intuition
| Peter Klein |
Still confused about the differences between judgment and intuition? This lecture by Daniel Kaheman, “Judgment and Intuition,” might help. It’s one of several posted on Kahneman’s website.
Best NCAA Championship Game Headline
| Peter Klein |
From the New York Daily News: “No bailouts for Michigan State in NCAA final loss.”
I have to admit, as an auto-industry-bailout opponent, I was getting a little tired of the “Michigan State basketball brings a ray of sunshine to struggling Detroit” storyline. Sheesh. Oh, did I mention that I’m also a rabid UNC basketball fan?
(I’m really happy for Carolina star Tyler Hansbrough, with whom I feel a close connection. Tyler’s a Missourian who went to UNC; I did my undergraduate work at UNC and now live in Missouri. My former next-door neighbors are from Tyler’s home town of Poplar Bluff, MO. My wife taught Tyler’s older brother Greg here at Mizzou. And, like Tyler, I have some pretty sweet post-up moves . . . NOT!)
Sutton Alert
| Peter Klein |
I haven’t made way through all of Bob Sutton’s contribution to the HBR symposium, “How to Fix Business Schools,” but I read the summary on Sutton’s blog, and Bob manages to work two whoppers into the opening paragraph. First, he calls Oliver Williamson “a major proponent of Agency Theory.” (Bob, for the differences between agency theory and transaction cost economics, try Williamson’s 1988 Journal of Finance paper. Or any introductory textbook.) OK, a nit-pick. But consider this: “Many economists teach and believe that humans are selfish and greedy.” Apparently Bob has read Williamson’s description of opportunism as “self-interest seeking with guile.” Rather than think about what this means, or consider the context in which Williamson uses the term, Bob turns to his dictionary, which tells him that guile means “treacherous cunning, skillfull deceit.” Ergo, economics teaches cunning and deceit!
In the HBR piece itself, Bob manages to make the obligatory link between Alan Greenspan and Ayn Rand, though calling Greenspan a follower of Rand is a bit like saying the Black Panthers were inspired by Gandhi. (As Greenspan repeatedly reminded us, he believed in Rand’s ideas “at the high philosophical level,” i.e., not at all, where actual policies were concerned.) The opening of the HBR piece is informative, however, in suggesting how Sutton may have came to his views about economics and economists:
In my experience, most economists at top business schools are clueless about the nitty-gritty of management, which can’t be captured in elegant mathematical models. They treat any teaching remotely related to what leaders actually do on their jobs as a low status activity; at faculty meetings, I’ve seen economists and their followers dismiss and ridicule professors who teach “soft” skills. Those who speak in simple language and use words instead of numbers are often screened out, expelled or sentenced to spend their days at the bottom of the pecking order. And even faculty who bring rigorous evidence that challenges economic assumptions are badly treated.
I’m sorry that Sutton’s interactions with economists haven’t been more pleasant. But, really, what do his personal experiences have to do with the substance of economic doctrine, or its application to management? You won’t learn anything about these from reading this stuff.
Today, SNL or the Onion, Tomorrow . . . ?
| Peter Klein |
From the opening sketch of last weekend’s Saturday Night Live:
My administration intends to do to every industry in this country, exactly what we are doing to the automakers. Every company will be vetted for fiscal soundness. Those judged best able to compete in the global economy will be offered a governmental subsidy. The others will be asked to cease operations at once. Hopefully, they will do so voluntarily, if not, they will be shut down by force.
Thanks to Gary Peters for the pointer.
Open Innovation: Not So New
| Peter Klein |
The new issue of the always-interesting Industrial and Corporate Change features a paper by the always-interesting David Mowery, “Plus Ca Change: Industrial R&D in the Third Industrial Revolution.” Picking up this blog’s theme that Very Little Is New Under the Sun (OK, not explicitly), Mowery argues that the much-touted New Econonmy concept of “open innovation” is not, in fact, completely new, but an incremental change from previous R&D practices:
The structure of industrial R&D has undergone considerable change since 1985, particularly in the United States. But rather than creating an entirely novel system, this restructuring has revived important elements of the industrial research system of the United States in the late 19th and early 20th centuries. In particular, many of the elements of the Open Innovation approach to R&D management are visible in this earlier period. This article surveys the development of industrial R&D in the United States during the postwar period. In addition to emphasizing continuity rather than discontinuity, this discussion of the development of US industrial R&D during the Third Industrial Revolution stresses the extent to which industrial R&D in the United States, no less than in other nations, is embedded in a broader institutional context. My discussion also highlights the extent to which its development has been characterized by considerable path dependency.
If Only the US Media Were as Clever as their British Counterparts
| Peter Klein |
Today’s cover of the Sun (via Per):
Value Creation in Middle-Market Buyouts
| Peter Klein |
Here’s a paper by John Chapman and me, “Value Creation in Middle-Market Buyouts: A Transaction-Level Analysis,” forthcoming in Douglas J. Cumming, ed., Companion to Private Equity (New York: Wiley, 2009). Get your copy today, while they’re hot. Abstract:
Is private equity an effective governance structure, or simply a means of transferring wealth from “Main Street” to “Wall Street”? How do buyouts affect target-company organization and strategy? How do deal characteristics such as size, industry, transaction complexity, buyer characteristics, holding period, and the like affect the performance of private-equity transactions? Are revenue improvements driven primarily by changes in employment and capital expenditures, or by changes in organization and strategy? Despite a healthy literature on buyouts, little is known about the details of private equity transactions, as most studies rely on publicly available data or confidential data from a single buyout firm. This paper uses a unique sample of 288 exited transactions over a 20-year period across 19 industries from 13 buyout firm firms, based on confidential data from detailed interviews with the general partners of several leading private-equity partnerships. While prior studies have focused on whole-company, going-private buyouts, our sample includes transactions with minority stakes, syndicate deals, and consolidating roll-up or add-on strategies, and we have detailed information on internal rates of return, leverage, equity stakes, and other deal characteristics. We find that the pursuit of ancillary consolidating acquisitions is the biggest driver of post-buyout revenue and profit growth, that solo deals and deals with controlling stakes outperform syndicated or “club” deals, that rates of return have declined over time as buyout markets have become more competitive, that mitigation of agency costs is critical for deal success, and more generally, that private equity can improve the performance even of sound businesses by providing access to resources, industry-specific expertise, capital for recombining assets (most often, consolidation in a fragmented industry), or recapitalization and ownership transition. Finally, our findings suggest the potential for further research of private equity at the transaction level.
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