Author Archive
Mike Jensen Explains SSRN
| Peter Klein |
Mike Jensen, the distinguished financial economist and co-founder of SSRN, is interviewed here by Growthology’s Tim Kane. Everyone knows that electronic distribution of working papers has been extremely important for academic research in business and the social sciences. By the time most papers are published, they’ve already been read by many, if not most, of the target readers, from working-paper circulation, conference presentations, informal discussions, and the like. Jensen points out that electronic distribution has also had an important democratization effect. The elites always had access to cutting-edge research in advance of publication through informal networks, NBER workshops, and the like. “In my own field, I was part of a very small group doing cutting-edge work in the early days of modern finance, and I noticed that elites in all fields were 2-3 years ahead of other scholars just because they knew about research that took so much time to get distributed widely. The Internet allowed everyone to see the frontier.”
Note also Jensen’s comments about behavioral finance:
In the 1970s, I began to receive [as editor of the Journal of Financial Economics] quite a few papers challenging the efficient market hypothesis. The referees rejected them and I rejected them. Any one of these articles standing alone could be rejected, but I began to feel that as a package they cannot be ignored. The authors were onto something, even if we didn’t see it. Sometime around 1975, over the objection of my referees — many of them close friends — we published a special issue with a collection of those papers. That was controversial but proved to have great value. Subsequent to that, behavioral financial economics evolved.
In creating SSRN, I envisioned an alternative distribution vehicle.
Jensen has also been an important friend of and advisor to CORI, delivering the annual CORI Distinguished Lecture in 2005.
Economics and Sociology at Microsoft
| Peter Klein |
A couple of nuggets from today’s WSJ front-pager on the complicated relationship between Microsoft founder Bill Gates and current CEO Steve Ballmer:
Their relationship started at Harvard University in the mid-1970s, where the two played poker and thrived by pushing their intellectual limits. Once they skipped a graduate economics class for the entire semester, then teamed up a few days before the final exam to try to learn the material all at once. Mr. Ballmer recalls he got a 97; Mr. Gates a 99.
Who knew Harvard’s graduate economics program was so easy? And this:
One concern for Mr. Ballmer was how to preserve Mr. Gates’s role of technology visionary inside the company. Looking for guidance, Mr. Ballmer says he cracked open a book from his college years by Max Weber, the German sociologist, on how organizations handle the disappearance of “charismatic leaders.”
On March 28, 2006, Mr. Ballmer described the book to Microsoft’s board at a retreat in the San Juan Islands near Seattle, Microsoft executives say. One way for a firm to retain the charisma of a departing leader, Mr. Weber wrote some 100 years ago, is for the leader to name his own replacement.
Mr. Gates did just that.
Who says sociology isn’t useful?
The New Comparative Economic History
| Peter Klein |
That’s the title and subject of a Festschrift for Jeffrey G. Williamson, edited by Timothy Hatton, Kevin O’Rourke, and Alan Taylor and published last year by MIT Press. Reviewer Dan Bogart describes the field thusly: “In a nutshell, this line of research analyzes the sources of economic growth, the importance of institutions, and the impact of globalization by making comparisons between actual economies. An illuminating contrast is made with early cliometrics, which addressed questions by constructing counterfactuals with the help of theory and calibration. ” As such, the new comparative economic history is a closely related to, though not identical with, the new institutional economic history associated with Douglass North, Barry Weingast, Avner Greif, and others mentioned frequently on these pages. The NCEH takes institutions seriously but does not give them quite as much weight as NIE historians in explaining economic performance.
Against Government-Subsidized VC
| Peter Klein |
Government-subsidized venture capital underperforms private venture capital, according to a new analysis of Canadian data. Firms backed by subsidized VC are less profitable, less innovative, and less attractive to later-stage investors than firms backed by private VC. Poor governance and a negative signalling effect, and not adverse selection, appear to be the drivers. This is from a new NBER paper by James Brander, Edward Egan, and Thomas Hellman, “Government Sponsored Versus Private Venture Capital: Canadian Evidence.” Abstract:
This paper investigates the relative performance of enterprises backed by government-sponsored venture capitalists and private venture capitalists. While previous studies focus mainly on investor returns, this paper focuses on a broader set of public policy objectives, including value-creation, innovation, and competition. A number of novel data-collection methods, including web-crawlers, are used to assemble a near-comprehensive data set of Canadian venture-capital backed enterprises. The results indicate that enterprises financed by government-sponsored venture capitalists underperform on a variety of criteria, including value-creation, as measured by the likelihood and size of IPOs and M&As, and innovation, as measured by patents. It is important to understand whether such underperformance arises from a selection effect in which private venture capitalists have a higher quality threshold for investment than subsidized venture capitalists, or whether it arises from a treatment effect in which subsidized venture capitalists crowd out private investment and, in addition, provide less effective mentoring and other value-added skills. We find suggestive evidence that crowding out and less effective treatment are problems associated with government-backed venture capital. While the data does not allow for a definitive welfare analysis, the results cast some doubt on the desirability of certain government interventions in the venture capital market.
Sudha R. Shenoy (1943-2008)
| Peter Klein |
I’m saddened to report the death yesterday of Sudha Shenoy, the distinguished Australian economic historian and important contributor to the “Austrian revival” of the 1970s. Her father, the eminent Indian economist B. R. Shenoy, was a student at the London School of Economics in the 1930s when Hayek gave his famous “Prices and Production” lectures and both father and daughter were deeply influenced by Hayek. Sudha too studied at the LSE and eventually took a position at the University of Newcastle, where she taught until her retirement in 2004. Sudha was writing a book on Hayek and would have given a week-long lecture series on Hayek at the Mises Institute this fall. Here is a 2003 interview, here are some audios and videos, and here are some materials collected by Google Scholar. Some obituaries and personal remembrances are here, here, and here.
Suhda was a regular reader and occasional commentator here at O&M. You can get a sense of her erudition from this blog post, one of our most popular, which was basically a cut-and-paste job from one of her emails.
Suhda was a quiet, kind, and gentle person. This may be hard for our younger American readers to comprehend but she didn’t know how to drive. I once had the pleasure of chauffeuring her around Auburn, Alabama at an Austrian Scholars Conference. Spending time with her was a real treat.
Allen Nevins Dissertation Award
| Peter Klein |
I received an email the other day from the Economic History Association soliciting nominations for its dissertation prizes, the Allan Nevins Prize for best dissertation in U.S. or Canadian economic history and the Alexander Gerschenkron Prize for the best dissertation in the economic history of, you know, what our textbooks call ROW (the Rest of the World). This brought to mind a couple of personal connections:
1. Last year’s Nevins prize went to a University of Missouri student, Mark Geiger, who wrote on grassroots financing of the US Civil War.
2. My dad got his PhD in history at Columbia in the 1950s and, while teaching there as a lecturer, worked in Nevins’ office. Dad told an interviewer:
Allan Nevins had retired, but I was allowed by him to use a desk in his office. He had an office twice the size as this, which was filled with books from ceiling to floor and piled high. And if you were at Columbia you were immediately well known, you know. A newspaper or journal would call me up or a publisher, “Would you review this book for us?” And I wouldn’t know anything about it, “Yes Sir,” and I’d look on Nevins’ shelf and find three books on the subject. (Laughter)
Being at Columbia and around Nevins at that time was a great launching pad for an academic career. Dad, holding the rank of lecturer (lower than assistant professor), was invited to interview for the department head position at Long Island University, which he was offered and accepted. The job came with tenure and the rank of full professor. Dad’s the only person I’ve known to be a tenured full professor without ever having been an assistant or associate prof.!
This Month in Business History
| Peter Klein |
Business history highlights for June, courtesy of Friends of Business History News:
June 1, 1495 — Friar John Cor records the first known batch of Scotch whiskey in the Exchequer Rolls of Scotland.
June 4, 1896 — Henry Ford drives his first automobile through Detroit streets.
June 9, 1790 — The Philadelphia Spelling Book becomes the first work registered under the federal copyright act (U.S. District Court of Pennsylvania).
June 15, 1851 — Jacob Fussell of Baltimore, Maryland sets up first ice cream factory.
June 26, 1848 — The first U.S. pure food law is enacted, banning the importation of adulterated drugs.
June 30, 1893 — The blue-white Excelsior diamond (995 metric carats) is discovered at the De Beers mine in Jagersfontein, South Africa. Until the discovery of the Cullinan in 1905, it was the world’s largest known uncut diamond.
Lien-Klein Paper on Relatedness
| Peter Klein |
Lasse and I have a new paper on the measurement of relatedness, the degree to which a diversified firm’s markets or industries are “close” to each other. Relatedness is a key concepts of corporate strategy, but it is difficult to define and measure consistently. We discuss a new, “survivor-based” approach and compare it to conventional measures. The survivor-based approach lets the competitive process and the knowledge of local decision makers replace the judgment of the researcher (or the SIC system) in determining what is related to what, giving it a Hayekian flavor. Specifically, we measure the relatedness between a pair of industries by comparing how often they are actually combined to what one would expect if diversification patterns were random. Industries are related when this difference is large and positive, and they are unrelated if it is negative. This concept was originally suggested by Teece, Rumelt, Dosi and Winter (1994) who used it to illustrate persistent patterns of “coherence” among US firms.
The paper, “Measuring Inter-Industry Relatedness: SIC Distances versus the Survivor Principle,” is available on SSRN. Here’s the abstract:
The conventional approach to measuring inter-industry relatedness uses the SIC system to capture the “distance” between industries. While relatedness measures based on SIC codes (or equivalent classifications) are readily available and easy to compute, they do not screen effectively for the conditions under which related diversification creates value. This paper constructs an alternative, survivor-based measure of inter-industry relatedness and compares it to similar measures based on distances between SIC codes. We find that survivor-based measures consistently outperform SIC-based measures in predicting firms’ decisions to enter new markets, even when herding tendencies and motives related to mutual forbearance are taken into account.
A Radical New Idea
| Peter Klein |
Dynamic pricing is a relatively new idea that reflects consumer demand. If a show is popular, the system will increase the price of that show. Once it loses steam, the price will be lowered proportionally.
Prices that adjust according to supply and demand! Who’d a thunk it?
To be fair, the writer, CNET’s Don Reisinger, is talking about Apple’s plans to offer variable pricing on iTunes. But it’s still a startling statement, to an economist. I guess I shouldn’t really be surprised, though.
Westgren at Missouri
| Peter Klein |
Those of you within driving distance of Columbia, Missouri should come over Monday (2 June) for a seminar by Randy Westgren, “The Entrepreneurial Niche,” at 2:00 2:30pm in 217 Mumford Hall. Abstract below the fold. The talk is sponsored by the McQuinn Center for Entrepreneurial Leadership. Email me for details. (more…)
Mike and Me on Externalities
| Peter Klein |
Mike Moffatt responds to my post on externalities. I questioned the Pigouvian approach of using taxes as efficient remedies for negative externalities. I said if, say, carbon taxes are a good idea, then Pigouvian taxes on a range of activities that generate negative externalities should be even better. And what about Pigouvian subsidies? I rarely see members of the Pigou club explain what activities they would subsidize, at what rates, and with what resources.
Mike’s response, based on more detailed comments here, is interesting, but to my mind misses the main point. Pigouvian taxes aren’t perfect, Mike says, but neither are income taxes or excise taxes or any other taxes. Fine, I say, but the relevant comparison isn’t between Pigouvian taxes and other taxes, but between Pigouvian taxes and alternative institutions for dealing with externalities such as cap-and-trade, common-law tort remedies, etc. (more…)
Wikicheatia
| Peter Klein |
Facebook founder Mark Zuckerberg, reports the NY Times, skipped his college art history class:
When it came time for the end-of-term study period, he was too busy building the prototype of Facebook to bother to do the reading. So in an inspired last-minute save, he built a Web site with all of the important paintings and room for annotation. He then sent an e-mail to the students taking the class offering it up as a community resource.
In a half an hour, the perfect study guide had self-assembled on the Web. Mr. Zuckerberg noted that he passed the course, but he couldn’t remember the grade he received.
The pointer is from Joshua Gans, who calls this “an example of Wikicheatia or of Study Group 2.0.”
Middle Managers in the Theory of the Firm
| Peter Klein |
The current issue of Knowledge@Wharton features a piece on the challenges facing middle managers. The middle-management role is typically high in responsibility and low in authority — middle managers are accountable for the performance of their subordinates but selective intervention from above makes it difficult for them to commit to particular incentive schemes. Moreover:
[T]op reasons for dissatisfaction among middle managers include micromanagement by senior managers and lack of respect, says [author David] Sirota. “And sometimes the senior leader is just really ineffective; middle managers don’t want to be in a company that is run by that type of person.” . . .
Navigating the various relationships upward, downward and horizontally can be an emotional management challenge, adds Wharton management professor Sigal Barsade. “This is particularly noticeable with organizational change. If you are a middle manager, there may be a change that you didn’t have much to do with, but you need to translate it to your people and make them feel protected and valued. However, you are also someone being impacted by the change. Because you didn’t design the change, you might be left feeling like you don’t know what to do yourself, but you still need to comfort, protect and inspire your people.”
A more colorful description is provided by Chef Shuna Fish Lydon who blogs on all things culinary at eggbeater. Here she is on the role of the sous chef: (more…)
New Center for the History of Political Economy
| Peter Klein |
Bruce Caldwell is joining Duke University’s HOPE group as founding Director of a new Center for the History of Political Economy. Bruce explains:
The purpose of the Center is to promote and support both research in and the teaching of the history of political economy, broadly defined. Though operating on a somewhat reduced scale next year (AY 2008-2009), we anticipate that once it is up and running it will include an active visitors program for post-docs and more senior fellows, both short and long term; a regular seminar series; and programming, possibly in the summer, aimed at promoting teaching in the field.
The Center’s web page is not yet up but you can contact Bruce for more information.
There’s Still Hope for Foss and Klein
| Peter Klein |
Psychologists have not considered wisdom and creativity to be closely associated. This reflects their failure to recognize that creativity is not exclusively the result of bold discoveries by young conceptual innovators. Important advances can equally be made by older, experimental innovators.
That’s from the newest paper in David Galenson’s art history series, “Wisdom and Creativity in Old Age: Lessons from the Impressionists.” I notice the SSRN page has the title misspelled as “Wisom,” suggesting an old person typed it in.
Turning to entrepreneurship, there’s a common myth that entrepreneurial creativity declines sharply after age 30 but little systematic evidence for this. Given a suitably broad concept of entrepreneurship (i.e., not simply the establishment of new companies), we might expect entrepreneurial ability to increase with age and experience. Indeed, looking even at the conventional definitions, we find that the likelihood of self-employment and the probability of new-venture success are positively correlated with age and business experience (see Parker 2004 for details).
Remixed Movie Trailers
| Peter Klein |
As I noted in my review of Yochai Benkler’s The Wealth of Networks, I think that Web 2.0 enthusiasts tend to overstate the novelty of “user-generated content.” It’s true that the costs of creating and disseminating movies, music, and even the written word have, in many settings, fallen dramatically (look at blogging, for goodness’ sake). On the other hand, as Paul Cantor, Tyler Cowen, and others have pointed out, commercial culture has always been, in an important sense, consumer culture. Benkler tends to portray twentieth-century consumers as passive recipients of culture, easily manipulated by Hollywood and Madison Avenue. Yet individuals have always played an active role in shaping the plays, books, songs, and shows made available to them, in their decisions to buy or not to buy, to patronize or not to patronize, to support or reject particular artistic producers and particular products.
Having said this, I do enjoy clever bits of user-generated content. For instance, check out this trailer for Sleepless in Seattle — number 5 on this list of The 20 Worst Chick Flicks of All Time — remixed as a horror movie. It reminds me of the brilliant Brokeback to the Future trailer from a couple of years back.
Of course, the greatest of all such parody shorts is Kevin Rubio’s Troops, now more than a decade old. And don’t miss George Lucas in Love.
Do What Consultants Say, Not What Other Firms Do
| Peter Klein |
McKinsey suggests this strategy: when other firms ignore strategy consultants, earn rents by listening to strategy consultants.
- Companies don’t react to competitive threats in the way management theory says they should, according to a McKinsey Global Survey.
- Instead of undertaking extensive, sophisticated analyses when faced with a competitive threat, most companies assess just a few responses, and they often choose the most obvious one.
- These practices give companies an opportunity to seize a competitive advantage by understanding how their competitors are likely to react to their moves.
The pointer is from the ever-valuable Luke Froeb. Most economists are puzzled management consulting, believing that consultants add little real economic value. I am sympathetic to a signaling explanation with a separating equilibrium in which high-quality firms can afford to signal quality by hiring expensive consultants and low-quality firms cannot. But I haven’t studied this closely. Can anyone recommend literature on the economics of consulting?
Elgar Catalog Covers Getting Weird
I said before how much I liked the cover of Edward Elgar’s law catalog, which shows two stick figures holding megaphones and shouting at each other. The image on the business and management catalog (below, left) is pretty good too. But I don’t understand the economics catalog (below, middle), which pictures a family standing under an umbrella. Is it about saving for a rainy day? (What would Lord Keynes say?)
Today I get a pamphlet advertising Elgar’s “Economic Approaches to Law Series,” which has excellent edited contributions by Levitt, Posner, Epstein, Ben Klein, and others but an even weirder cover. This one shows the two guys with megaphones shouting at the family under the umbrella! What could they be saying to these poor people? “Consider the liability rule before opening that pointy umbrella in a crowd!” “Do you know your marginal damage cost of wetness?”
Economists as Public Intellectuals
| Peter Klein |
I haven’t read Judge Posner’s 2002 book Public Intellectuals: A Study in Decline but I hear it’s one of his more interesting efforts. (Actually I haven’t read most of Posner’s books, but you can’t blame me — he writes ’em faster than I can read ’em.) Posner’s thesis, as is obvious from the title, is that today’s public intellectuals are a far cry from those of yore, and he blames this (in part) on the increasing professionalism of the Academy and its inward-looking, highly technical but ultimately ephemeral research. (I remember an economist colleague a few years back being chided, by his senior peers, for having published an op-ed in the Wall Street Journal, thus indicating his lack of commitment to “serious” scholarship.)
The current issue of Foreign Policy contains a list of today’s top 100 public intellectuals. Shockingly, none of your esteemed O&M bloggers made the list. Economics, however, is its most represented academic discipline. The list includes ten academic economists, if I counted correctly: Paul Collier (Oxford), Esther Duflo (MIT), William Easterly (NYU), Paul Krugman (Princeton), Steve Levitt (Chicago), Nouriel Roubini (NYU), Jeff Sachs (Columbia), Amartya Sen (Harvard), Michael Spence (Harvard), and Larry Summers (unemployed). Daniel Kahneman, a psychologist whose work has been extremely influential in economics, is also there, along with several think-tank economists or journalist-economists. A few observations:
- No one from management or busisness administration makes the list, though some of these gurus are plausible candidates. Perhaps “influential business thinker” and “public intellectual” are disjoint sets in the minds of people who edit magazines like Foreign Policy.
- Six of the ten are development economists. Only one, Larry Summers, is a macroeconomist. Remember when Keynes, Hayek, Friedman, and Samuelson were household names? Today development is the hot field.
- The list includes one academic sociologist, Slavoj Zizek. Oh, and one pop sociologist, Malcolm Gladwell (don’t blame me, that’s what FP calls him). Robert Putnam, a political scientist often mistaken for a sociologist, gets his props too. More fodder for the orgtheory crew.
See also: The Role of Economic Analysis in Public Policy and Econo-Bloggers and the Public Good.
Update: Michael Spence isn’t a development economist but has been working in that area, serving most recently as Chair of the World Bank’s Commission on Growth and Development. Bill Easterly characterizes the Commissions newly released report thusly: “After two years of work by the commission of 21 world leaders and experts, an 11-member working group, 300 academic experts, 12 workshops, 13 consultations, and a budget of $4m, the experts’ answer to the question of how to attain high growth was roughly: we do not know, but trust experts to figure it out.”
Disengaged Students
| Peter Klein |
To my colleagues who teach: how do you handle disengaged students? Paul Trout describes them thusly:
They do not read the assigned books, they avoid participating in class discussions, they expect high grades for mediocre work, they ask for fewer assignments, they resent attendance requirements, they complain about course workloads, they do not like “tough” or demanding professors, they do not adequately prepare for class and tests, they are impatient with deliberative analysis, they regard intellectual pursuits as boring, they resent the intrusion of course requirements on their time, they are apathetic or defeatist in the face of challenge, and they are largely indifferent to anything resembling an intellectual life.
I have known a few in my time. The pointer is from George Leef, who also provides this excerpt from Generation X Goes to College:
[B]y and large, students view themselves primarily as consumers who intend to study just a handful of hours a week for all their classes, and who expect, at a minimum, solid Bs for their efforts. . . . In short, they view themselves as consumers who pay their teachers to provide “knowledge,” regardless of how superficial that knowledge might be. After all, how hard should a consumer have to work to buy something?
See also: “In the Basement of the Ivory Tower” from the new Atlantic Monthly.
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