Author Archive
Fundamental Questions About Organizations
| Peter Klein |
Our most popular tag here at O&M seems to be ephemera, but occasionally we write a “big think” post (e.g., this one). Today I’ll offer another. A colleague recently asked me to write down, for a research project we’re sketching out, some “fundamental questions about organizations.” He wanted my off-the-cuff response, not a carefully crafted set of ideas. Here’s what I came up with:
1. Does organizational form matter? How much does it really affect performance, however measured? Organizational form might not be that important because (a) its effects on performance are small relative to the performance effects of technical or allocative efficiency; (b) organizational form is easily changed and always chosen optimally to fit the circumstances; or (c) organizational form is merely a legal distinction without any economic significance. (more…)
The Power of Incentives, Monday Morning Edition
| Peter Klein |
1. The Vatican is trying incentive pay. (Prediction from Bob, Jeff, and company: performance will fall as worldly, extrinsic motivation pushes out warm, ethereal “feelings for the entity.”) (Via Luke Froeb)
2. My friend Tim Terrell reports on this new program at Wofford College:
My college recently instituted a free bicycle sharing program on campus. There was a lot of self-satisfied puffery from those responsible for the program, with even a “Blessing of the Bikes” ceremony carried out by our chaplain.
Informal polls I conducted in my classrooms indicated that the bikes are being tossed in the shrubbery, left unlocked, used as makeshift shot-puts on Fraternity Row, etc. etc. I passed one left lying on the grass, unlocked of course, on my short walk in to my office this morning. One student says he saw a vagrant in the neighborhood riding around on one. After a little over a week, another student remarked that most of the bikes were in the maintenance shop for repairs. We are now subject to a barrage of flyers, e-mail announcements, etc. pleading with students to treat the bikes well and lock them up (there is a single code to all the combination locks — want to guess how long it took people from the neighboring campus to figure out the code?).
Bob and Jeff, what happened? Surely all these opportunistic, ethically challenged students can’t be economics majors.
JMS Special Issue on the Entrepreneurial Theory of the Firm
| Peter Klein |
In the Spring of 2005 I attended a terrific workshop on “The Entrepreneurial Theory of the Firm,” organized by Sharon Alvarez and Jay Barney and held at Ohio State University. Participants included Mark Casson, Dick Langlois, Sid Winter, Ulrich Witt, Ivo Zander, Simon Parker, Todd Zenger, Steve Michael, Bill Schultze, and several others. The papers and discussions explored a variety of approaches for linking the theory of entrepreneurship to the economic and strategic theory of the firm, a subject near and dear to our hearts here at O&M.
The workshop papers have now been published as a special issue of the Journal of Management Studies (volume 44, number 7, November 2007), edited by Sharon and Jay. A special contribution from Brian Loasby, who wasn’t able to attend the workshop, is included. And don’t miss this paper from an unusually structured joint-spousal team.
Gobble, Gobble
| Peter Klein |
Happy Thanksgiving to our American readers, who gather around the table today to celebrate with family and friends and give thanks for that great legacy bequeathed to us by our Pilgrim forebears — property rights, of course!
Seven Wonders of the Totalitarian World
| Peter Klein |
On a recent trip to Paris my wife suddenly remarked, in horror, “Do you realize that all the famous Parisian landmarks are government buildings?” It’s true, there’s not a private-sector creation among them, unless you count churches or the Tour Montparnasse (which I think was built with private funds). Come on kids, let’s see the next monument to government waste!
On a related note, if you like black humor, check out this Esquire piece on the Seven Wonders of the Totalitarian World. It’s fascinating, in a creepy sort of way. (Only structures built by second- and third-world despots are included, which rules out the grotesque US Embassy in Baghdad.) (HT: Steve Sailer)
Mizzou-KU in the WSJ
| Peter Klein |
We don’t normally discuss trivia such as college football here at O&M (we prefer other trivia). But when your team’s big game makes the front page of the WSJ, you have to say something.
A story in today’s paper, “New Powers in College Football Carry Old Baggage,” focuses on this weekend’s showdown between the undefeated 2nd-ranked Kansas Jayhawks and the 4th-ranked Missouri Tigers, two normally-mediocre teams that have exploded onto the national stage this season. The subject is not the game itself, but the historical hatred between Missourians and Kansans that goes back to the Civil War (or, as we call it around here, the War or Northern Aggression).
This hatred dates back to the 1850s, when the Great Plains state of Kansas became a beachhead for men around the country committed to ending slavery. Many, however, hid behind that noble cause, all the while killing, pillaging and raping their way across the culturally Southern state to the east, Missouri. These Kansas guerrillas called themselves Jayhawkers — supposedly a combination of two birds, the jay and the hawk. (more…)
Poor INSEAD
| Peter Klein |
Business school Insead, founded in 1957 in Fontainebleau, France, opened a campus in Singapore in 2000 and markets itself as “Business School for the World.” “People assume the majority of faculty and students are French,” complains Insead Dean Frank Brown. “That’s not true.”
We’re not French — not that there’s anything wrong with that. This comes from an interesting item about firms with multiple corporate headquarters in yesterday’s WSJ. Lenovo has corporate offices in Beijing, Singapore and Raleigh, N.C. Thomson SA CEO Frank Dangeard says he doesn’t “want people to think we’re based anyplace.” Lenovo’s William Amelio claims the concept of a home country is “outdated.” (Pankaj Ghemawat, call your office!)
There’s a bit of work in multinational strategy about the distribution of subsidiaries across countries and the relationships between subsidiaries and the corporate office. I’m not aware of any studies on multiple corporate offices, however. Any suggestions?
Ghemawat: Borders Matter
| Peter Klein |
The world is still round, says Pankaj Ghemawat in his new book Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter (HBS Press, 2007). Here’s an interview that lays out the main argument. FDI, for example, is growing, but remains only about 10% of total global investment. If the world is flat, asks Ghemawat, why isn’t it much more? The answer is institutions, though the exact mechanisms by which the institutional environment contributes to home-country bias are unclear. (Thanks to Marshall Jevons for the video pointer.)
See also Ghemawat’s blog posts on global strategy from the HBS Discussion Leaders site.
Introducing Guest Blogger Steven Phelan
| Peter Klein |
We’re very pleased to welcome Steve Phelan as our newest guest blogger. Steve is associate professor of management at the University of Nevada, Las Vegas, founding editor of the Strategic Management Review, and author of many interesting papers on entrepreneurship, cognition, networks, and the resource-based theory of the firm. Steve’s been a regular commentator for some time and we’re happy to have him join us on the “main page.” Welcome, Steve!
Jacques Barzun Turns 100
| Peter Klein |
Jacques Barzun, the eminent historian and cultural critic, turns 100 in a couple of weeks. Barzun has written more books than I’ve read so it’s hard to give an overall summary of his contributions. This New Yorker profile tells us that “[m]ore than any other historian of the past four generations, Barzun has stood for the seemingly contradictory ideas of scholarly rigor and unaffected enthusiasm.” Now that’s a nice tribute.
Many of my friends like Barzun’s 2000 book From Dawn to Decadence: 1500 to the Present: 500 Years of Western Cultural Life, a sweeping history that compares favorably to Martin van Creveld’s Rise and Decline of the State. Perhaps more relevant for the O&M crowd is Barzun’s 1974 Clio and the Witch Doctors: Psycho-History, Quanto-History, and History, a defense of traditional, qualitative, narrative history against the newer disciplines of cliometrics and what Barzun calls “psycho-history.” Cliometrics, which substitutes simplistic, mono-causal explanations for the complex interplay of people and institutions through time, is attempting “to rescue Clio from pitiable maidenhood by artificial insemination.” Agree or disagree, you have to respect the way the man writes.
Langlois on McCraw on Schumpeter
| Peter Klein |
Former O&M guest blogger Dick Langlois reviews Thomas McCraw’s Schumpeter biography, Prophet of Innovation, for EH.Net.
McCraw is at his best in conveying Schumpeter the man, providing an engaging and beautifully written portrait of this larger-than-life and often tragic figure. McCraw also works hard at weaving Schumpeter’s economics into the life story and at making the ideas supply their share of the drama. The result deepens our understanding of a fascinating and complex man and of the difficult times in which he lived, even if it does not necessarily sharpen our understanding of his economics or add much that is new to his biography.
See also our previous comments on McCraw and Schumpeter more generally.
AEI Conference on Private Equity
| Peter Klein |
Those of you in the Washington, DC area may wish to drop by “The History, Impact, and Future of Private Equity: Ownership, Governance, and Firm Performance,” November 27-28 at AEI. The lineup features heavyweights like Michael Jensen, Glenn Hubbard, Josh Lerner, Steve Kaplan, Ken Lehn, Karen Wruck, Annette Poulsen, Mike Wright, and David Ravenscraft, along with a few not-so-heavyweights like me. From the conference announcement:
From humble beginnings twenty-five years ago on Wall Street, the leveraged buyout boom has developed into a veritable industry; today, 30 percent of all corporate merger and acquisition activity in the United States is driven by buyout firms, and the sector commands over $2 trillion in leveraged assets. Along with hedge funds and real assets, private equity is now seen as an important alternative investment class, and fundamental changes in corporate control, governance, modern capital markets, institutional investing, and the funding of entrepreneurial pursuits have all been driven by the growth and evolution of the private equity sector.
My view is that the growth of the PE sector represents an increasingly important manifestation of entrepreneurship — not only because private equity helps fund new ventures, but because the creation of new financial instruments such as high-yield (“junk”) bonds, the establishment and management of diversified buyout funds, the use of private equity to restructure public enterprises, and the like are themselves entrepreneurial acts, given an appropriately broad understanding of entrepreneurship.
NYU Students Are Rational
| Peter Klein |
Twenty percent of NYU students would trade their right to vote in the next Presidential election for an iPod. Two-thirds would do it for free tuition. And half would give up their right to vote forever for $1 million. Where do we rational non-voters sign up? (Via Drudge.)
Econometrics Haiku
| Peter Klein |
From Keisuke Hirano (via Marginal Revolution). Samples:
Supply and demand:
without a good instrument,
not identified.T-stat looks too good.
Use robust standard errors —
significance gone.From negation comes
growth, progress; not unlike a
referee report.
A Plea for Economic Education
| Peter Klein |
As economists have long emphasized, individuals need not understand the full benefits of participation in the division of labor to benefit from it. But when the market is continually under attack from special interests and from ideologues both left and right, a little knowledge goes a long way. Jeff Tucker puts it nicely:
The old-style classical liberals [Adam Smith, Hayek] reveled in the fact that [the market’s] “impersonal forces” worked without anyone really being aware of them, or having to understand them. The checkout lady at the store just shows up, pushes buttons, gets paid, and stays or leaves based on her assessment of her own well-being. Everyone else does the same. The pursuit of self-interest generates this amazing global matrix that benefits everyone.
The old liberals reveled in the fact that no one had to understand it, but then the system itself came under attack, and needed defense. It had to be understood to be explained, and explained in order to be preserved.
This is why Ludwig von Mises set out to revise liberal doctrine. It is not enough that people participate unknowingly in the market economy. They must understand it, and see how, and precisely how, their smallest and selfish contribution leads to the general good, and, moreover, they must desire that general good.
All of which is to say that in an enlightened world, it would be a good thing for that cashier to understand economics from the point of view of those who pay her. It would be good for striking workers to understand how they are harming not only their bosses but also themselves. It would be good for voters to see how supporting government benefits for themselves harms society at large.
An economically literate public is the foundation for keeping that amazing and wild machine called the market working and functioning for the benefit of the whole of humanity.
Hoselitz Bleg
| Peter Klein |
Can anyone point me to biographical or bibliographical resources on Bert F. Hoselitz? He is known to Austrian economists as the translator (with James Dingwall) of Menger’s Principles of Economics, but he was also an accomplished Chicago development economist who founded the journal Economic Development and Cultural Change. He was trained in Vienna (according to this brief note) but did not apparently have much contact with the Austrian school. I’m particularly interested in Hoselitz’s contributions to entrepreneurship theory.
The Social Transformation of American Business Schools
| Peter Klein |
Is management a profession? Are collegiate schools of business legitimate professional schools? The answers Rakesh Khurana’s book provides to both questions are “not yet” and “maybe never.”
Thus opens Donald Stabile’s EH.Net review of Rakesh Khurana’s From Higher Aims to Hired Hands: The Social Transformation of Business Schools and the Unfulfilled Promise of Management as a Profession (Princeton, 2007). Business schools, argues Khurana, emerged in the late 19th and early 20th centuries to provide “legitimacy” to management, giving it the same professional status as medicine or law. In Khurana’s account, this project failed largely because business schools, under the influence of powerful foundations such as Carnegie, Rockefeller, and Ford, promoted a curriculum focused on quantitative methods rather than the softer elements of ethics and social responsibility. (The main culprit: economics, or at least a 1970s-era Chicago school caricature of economics, as we’ve seen many times before.)
For additional commentary and discussion see Jim Heskett’s HBS Working Knowledge piece and this article from Business Week.
Old JITE Symposia Now Online
| Peter Klein |
Old issues of the Journal of Institutional and Theoretical Economics (JITE) — by “old” I mean issues from the 1980s and 1990s, not the really old ones from the 19th century, when it was called Zeitschrift fuer die gesamte Staatswissenschaft — are finally online courtesy of the German site DigiZeitschrifte. Access is limited to members of subscribing universities (which, unfortunately, doesn’t include my own) but some of you, particularly in Europe, may be in luck. (If anyone knows other distribution channels please let me know.)
In 1986 editors Rudolf Richter and Eirik Furubotn began devoting each volume’s first issue to a symposium on the New Institutional Economics (the tradition continues today). There are terrific issues from the late 1980s and early 1990s with articles, comments, and replies by Williamson, North, Coase, Alchian, Demsetz, Tullock, Manne, Libecap, Masten, Frey, Teece, Goldberg, Alston, Wallis and many other NIE luminaries. Even T. W. Hutchison makes a couple of appearances. And don’t miss the classic Posner-Coase-Williamson exchange from 1993 (1, 2, 3, 4).
Those of us without online access might try that building — what is it called? — oh, yes, the “library.”
The Organizational Implications of Creativity
| Peter Klein |
This paper, forthcoming in Organization Studies, asks how entrepreneurs can structure firms to encourage employee creativity and discovery while discouraging unproductive rent-seeking. The former requires delegation and the latter requires close monitoring and control; managing these trade-offs is a key to successful entrepreneurial performance.
In “The Organizational Implications of Creativity,” Richard Gil and Pablo Spiller examine a similar trade-off: the choice between internal and external procurement of creative activities. The nature of these activities makes them difficult to manage internally, but buying creative content on the market subjects the buyer to the winner’s curse. Here’s the abstract:
We develop a basic framework to understand the organization of highly creative activities. Management faces a fundamental tradeoff in organizing such activities. On the one hand, since creativity cannot be achieved by command and control or by monetary incentives, internal/contractual production of creative products is plagued by hazards arising from their fundamental characteristics: extremely high input, output and market uncertainty, and the inherent informational advantages of creative talent. Procuring highly creative products in the market place, though, exposes the distributor to a fundamental risk: independently produced creative goods are generic distribution-wise. Thus, in procuring creative products in the marketplace, distributors face the unavoidable winner’s curse risk. Since this risk is, to a large extent, independent of the creative nature of the product, the higher the creative content, the higher the relative hazards associated with internal or contractual production. Thus, internal/contractual production of creative goods will tend to be less prevalent the higher the creative content associated with its production. We apply this insight to the evolution of the U.S. film industry in the mid-XXth century. We exploit two simultaneous natural experiments — the diffusion of TV and the Paramount antitrust decision forcing the separation of exhibitors from distributors and prohibiting the use of block-booking. Both events increased the demand for creative content in movies. We develop empirical implications which we test by analyzing in detail the decision by distributors to produce films internally or to procure then in the market place, in the face of an increase in the demand for creative content.
The Curious Case of Hans Werner Gottinger
| Peter Klein |
From Joshua Gans I learn that Research Policy has officially retracted a 1993 article by Hans Werner Gottinger which copies substantial passages from a 1980 article published in the Journal of Business. A lengthy editorial in the September 2007 issue of Research Policy explains the case. Apparently Gottinger is a serial plagiarist who has regularly copied material from previously published papers, without acknowledgement, and has falsified his CV by listing positions and affiliations with universities and institutes that never existed or never employed him. This article in Nature provides details (the Research Policy editorial will be gated for some readers).
The entire incident is very sad, and suggests that academic dishonesty may be much more common than is usually thought. One low-cost suggestion for improvement: publishers should check key words and phrases from every paper — or even the entire text — against the archives from Google Scholar, JSTOR, Google Books, and other full-text databases of academic publications. That won’t catch everything, but will likely catch at least some cases. Surely the Google cache has made life harder for plagiarists. (Students, beware!)
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