Author Archive
The Decline of Peer Review
| Dick Langlois |
Glenn Ellison has a paper in the new issue of Economic Inquiry called “Is Peer Review in Decline?” Here’s the abstract.
Over the past decade, there has been a decline in the fraction of papers in top economics journals written by economists from the highest ranked economics departments. This paper documents this fact and uses additional data on publications and citations to assess various potential explanations. Several observations are consistent with the hypothesis that the Internet improves the ability of high profile authors to disseminate their research without going through the traditional peer review process.
An alternative explanation is that the distribution of productivity among departments has gotten flatter, and Ellison can’t definitively reject that possibility. (Luigi Zingales and his coauthors had argued that the Internet has reduced the advantages for productivity of being at a top university.) But the explanation Ellison favors has to do with the increasing costs of the review process, especially at top field journals, where editors (he claims) have been increasingly demanding revisions. Because the costs of the review process are high and the benefits modest for prestigious authors, they increasingly avoid these journals.
Freedom to Trade and the Competitive Process
| Dick Langlois |
That’s the promising-sounding title of a new NBER Working Paper by Aaron Edlin and Joseph Farrell. Unfortunately, the argument turns out, in my opinion, to be extraordinarily wrongheaded. Here is the abstract.
Although antitrust courts sometimes stress the competitive process, they have not deeply explored what that process is. Inspired by the theory of the core, we explore the idea that the competitive process is the process of sellers and buyers forming improving coalitions. Much of antitrust can be seen as prohibiting firms’ attempts to restrain improving trade between their rivals and customers. In this way, antitrust protects firms’ and customers’ freedom to trade to their mutual betterment.
The promising part is that they talk explicitly about the competitive process.
The freedom-to-trade perspective . . . stresses the freedom of buyers and sellers to change their trading partners whenever that is mutually beneficial. The aspect of the competitive process that we study here is buyers and sellers exercising this freedom and forming improving coalitions (i.e., new configurations of trading partners). In a highly competitive market a seller who does not give its customers good deals will find that rivals offer better deals to attract these customers. The process of firms fighting over customers and offering them better and better deals raises consumers’ utility skyward. This competitive process is closely aligned with what Schumpeter called creative destruction.
As anyone who has read Schumpeter knows, of course, this is not even close to what he actually meant by creative destruction. (more…)
Citizenship and Biopower
| Dick Langlois |
That’s the title of seminar scheduled somewhere in the University later this month. I’m sure the ideas will be of great interest to readers of this blog.
What happens to the state under globalization? This often-asked but still relevant question has produced competing responses. Some scholars have re-theorized the nation-state and citizenship while others have jettisoned the nation-state as a category altogether, instead turning to Foucauldian theories of biopower to explain how power extends beyond the law-based operations of the state, managing life through the production of norms, and in so doing, relegates even greater populations to death and devastation.
Dr. Grace Hong’s presentation will argue that the shift into globalization must be contextualized within a history of gendered racial capital. She situates the decolonization/liberation movements in Asia and Africa and the new social movements in the US as turning points that marked the triumph, but also the limits of nationalism. In articulating alternatives to nationalism, Dr. Hong looks to women of color feminism and queer of color critique in texts by Cherrie Moraga, Frances Beal, and the Combahee River Collective, to theorize the newly complicated relationship between race, gender, sexuality, and vulnerability to death in the wake of the transnational turn.
What I want to know is whether the third sentence of the first paragraph counts as a paraprosdokian, “a figure of speech” — and I here quote from a humorous junk email I received recently — “in which the latter part of a sentence or phrase is surprising or unexpected in a way that causes the reader or listener to reframe or reinterpret the first part. It is frequently used for humorous or dramatic effect, sometimes producing an anticlimax.” Perhaps in this case the latter part of the sentence retheorizes the first part.
Ginsburg and Wright on Behavioral Law and Economics
| Dick Langlois |
Judge Douglas Ginsburg will be presenting a paper (written with Josh Wright) called “Behavioral Law and Economics: Its Origins, Fatal Flaws, and Implications for Liberty” at Columbia next week. I am on the mailing list for the Law and Economics Workshop at Columbia, so I received a copy of the paper as an email attachment; but the email specifically requests that the paper not be forwarded, so I won’t make it available here. I imagine Josh will post it eventually. But if you’re in NYC, you can hear the paper presented on Friday, February 25, 11:30am-1:00pm, in the Levien Room (Warren Hall, W. 116th near Morningside, across from the main law school building, 10th Floor).
The Vanishing Hand: 19th-Century French Edition
| Dick Langlois |
Haven’t read this yet, but it looks interesting. Note also the futuristic publication date.
On the Origins of Vertical Unbundling: The Case of the French Transportation Industry in the 19th Century
Guy Numa
European Journal of the History of Economic Thought, Vol. 20, No. 2, 2013The paper retraces the origins of the unbundling of infrastructure, which is a monopoly, from services, which are subject to competition. Using the case of the railroad industry in France, I examine how both natural monopoly theorists and legislation dealt with this subject in the 19th century. I argue that the origins of vertical unbundling date to this period with legislation pertaining to inland waterways and railroads. This was particularly the case for the railroad industry due to pricing and competition rationales. I analyze the writings of Dupuit and Walras and show that they both agreed that infrastructure and services had to be unbundled for the inland waterways. In contrast, they expressed different justifications to defend the monopoly for the railroad industry. Following a chronological progression, the first section explores the origins of unbundling in legislation. The second section analyzes how theorists approached the way railroads had to be managed. Throughout, I highlight the interplay between their work and legislation.
Snow Days
| Dick Langlois |
The University canceled classes yesterday and today because of the snow, for the third and fourth times already this semester. I had to email my large lecture class with rearranged assignments. Apparently, some of my colleagues were even more upset at this than I was. (If it’s not obvious: Jay Hickey is the functionary in Human Resources who sends out the emails canceling classes.)
The Pretense-of-Knowledge Syndrome
| Dick Langlois |
Has Ricardo Caballero been reading Hayek (or maybe Brian Loasby)?
In this paper I argue that the current core of macroeconomics — by which I mainly mean the so-called dynamic stochastic general equilibrium approach — has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that it has about the real one. This is dangerous for both methodological and policy reasons. On the methodology front, macroeconomic research has been in “fine-tuning” mode within the local-maximum of the dynamic stochastic general equilibrium world, when we should be in “broad-exploration” mode. We are too far from absolute truth to be so specialized and to make the kind of confident quantitative claims that often emerge from the core. On the policy front, this confused precision creates the illusion that a minor adjustment in the standard policy framework will prevent future crises, and by doing so it leaves us overly exposed to the new and unexpected.
American Exceptionalism
| Dick Langlois |
From a review by Andrei S. Markovits of Peter Baldwin, The Narcissism of Minor Differences: How America and Europe Are Alike — An Essay in Numbers:
Baldwin commences his data-rich book with the economy, where he demonstrates convincingly that the stereotype of America’s being ruled by an unfettered free market with minimal state intervention and low taxes, while Europe is controlled by the dirigiste étatism of faceless bureaucrats who stifle all market initiatives with high taxes and cumbersome regulations, is totally erroneous. Indeed, Baldwin musters impressive data that a) taxes on income and profits are lower in ten European countries than they are in the United States, b) America’s income tax progressivity hovers in the middle among European states, c) its taxation of the wealthy far exceeds those in any European country, and d) its property taxes are only surpassed by those of Luxembourg, France, and the United Kingdom.
The U.S. is in the middle of the pack in almost all other statistical categories as well. The book is a tour de force, says the reviewer, but it will have no impact, since the idea — or, rather, multiple formulations of the idea — that the U.S. and Europe are fundamentally different is so strongly entrenched on both sides of the political spectrum on both sides of the Atlantic.
Two New Books on Economic Growth
| Dick Langlois |
In addition to the review of Doug Puffert’s book that Peter discusses in his most recent post, EH.net has also just issued reviews of two books on economic growth that should be of interest to O&M readers. One is of Michael Heller’s Capitalism, Institutions, and Economic Development. I hope this one gets wide circulation despite being an expensive Routledge title. The other is of Matt Ridley’s The Rational Optimist: How Prosperity Evolves. That one should get a lot of attention.
The Ownership of the Firm under a Property Rights Approach
| Dick Langlois |
That’s the title of a new working paper by my Ph.D. student Leshui He. Here’s the abstract:
The boundaries of the firm and the ownership of the firm have been two of the main themes of the economics of organization over the past several decades. In this paper, I develop a general multi-party framework that integrates the ownership of the firm into the property-rights approach to the firm. I consider the ownership of the firm as the ownership of the rights to terminate cooperation with any party while maintaining a contractual or employment relation with all the other related parties of the firm. The model in this paper allows for the separation of the ownership of the firm from the ownership of the alienable assets that partly constitute it. Such a general multi-party setup may provide new tools for the study of the problem of the firm’s boundaries as well as inspiration for further applications of the theory of property rights.
This will be Leshui’s job market paper. Comments (and job offers) welcome.
Cities and the Fetters of Nations
| Dick Langlois |
In Cities and the Wealth of Nations, Jane Jacobs argued that currencies should be promulgated by cities not nation states. If, for example, the currency of Detroit (the cadillac, let us say) could have floated against the currency of San Francisco (the silicon) during the late 20th century, there would have been another margin (other than the movement of capital and people) on which adjustments to technological change and shifting relative prices could have taken place, perhaps making Detroit less of a disaster area. I always found this idea appealing; but, not being a monetary economist and not having heard the idea discussed within professional economics, I wondered whether I might be missing some obvious counter-argument. Recently, however, I saw an NBER Working paper by Barry Eichengreen and Peter Temin that seems to make a similar point. Called “Fetters of Gold and Paper,” it argues that the euro and the dollar-renminbi peg are fixed-exchange-rate regimes like the gold standard. Such fixed-rate regimes may lower transaction costs in good times, but they prevent necessary adjustments in bad times, potentially leading to crises. Adjustment takes place via deflation that would otherwise have taken place through exchange-rate movement.
This is essentially the Eichengreen-Temin story about the Great Depression, which (to oversimplify) isn’t really very different from the Monetarist version. The Monetarists essentially say that gold wasn’t a fetter because there was never a real gold standard; it was a badly manipulated facsimile, which the Fed mismanaged. Eichengreen and Temin acknowledge this, but apply spin so that it was the mentalité of the gold standard that caused monetary authorities to behave as they did. In any case, as Eichengreen and Temin point out, the euro is actually a much stronger version of the fetters problem, since there is no adjustment mechanism akin to gold flows, however imperfect that mechanism might have been. Moreover, countries could (and eventually did) go off the gold standard; but there is no mechanism for countries to pull out of the euro without causing a major crisis. Interestingly, they see Bretton Woods as less of a problem, since there were international adjustment mechanisms in place. Also interestingly (for two economists of a Keynesian bent), they worry at length about the federal budget deficit and the level of government spending in the face of the renminbi peg and the current-account deficit. Usually, free-market economists worry about the budget deficit but not the current-account deficit, whereas left-of-center economists worry about the current account but not the budget. The renminbi peg makes them linked problems.
Which brings us back to Jacobs. The American dollar — one currency for all 50 states — was a prime model for the euro. And a Google search brings up dozens of comparisons between California and Greece. Why should the nation-state — whether the US or Europe — be the appropriate geographical domain of a currency?
Korean Institutional Economics Conference
| Dick Langlois |
I’m in Seoul (a quick trip) to present at the second annual conference on “Institutions and National Competiveness” organized by the Korea Institution and Economics Association. The conference is being held in conjunction with the annual meeting of the Korean Economics Association. Notable presenters include Young Back Choi, Randy Holcombe, Elias Khalil, Stefan Voigt, and Yong J. Yoon.
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The Noir Institutional Economics
| Dick Langlois |
The Visible Hand
By Raymond Chandler
It was eight o’clock in the morning, sharp, with the sun not shining and a look of hard wet rain on the Manhattan pavement. I was wearing my heavy gray flannel suit, with rounded collar, display handkerchief, and gold tie with streamlined mechanical shapes on it. As always, I was neat, clean, shaved and sober, and I didn’t care who knew it. I was everything the well-dressed professional manager ought to be. I was calling on the head of General Motors.
From two blocks away I stared at the GM building at 57th and Broadway, its terra cotta façade now etched gray as the pavement, as it wrapped itself around the gothic fantasy of the Broadway Tabernacle at 56th Street. I knew which one was really the cathedral. I didn’t get to inspect the building’s interior for as long as I had the outside. The minute I walked through the front door I was met by a tall, striking female, platinum blonde in finger waves. She wore a cardigan jacket over a skirt and sweater. Her eyes were slate-gray, and had almost no expression when they looked at me.
“Mr. Sloan?”
I admitted as much.
“Follow me, please.”
Following her was easy. She led me into a black-and-gilt elevator. Like all New York elevator men, the operator was small and pinched but looked as though he knew something we didn’t. He brought us up to the top floor, where the cast iron grille of the elevator opened onto an anteroom of the inner-sanctum. When I glanced back, the blonde had already disappeared. I walked in. (more…)
Regulatory Capture
| Dick Langlois |
I seem to be on the “communitarianism” mailing list of Amitai Etzioni, missives from which are usually good for a cold frisson of annoyance. The most recent one seemed promising, however, as it touted a paper revisiting the capture theory of regulation. Many people have rightly criticized the Dodd-Frank Act for piling on unnecessary administrative regulation despite the fact that (A) regulation was already extensive and provided all the powers that would have been needed to avert the crisis and (B) much of the new regulation is aimed at activities that have nothing to do with the financial crisis. Etzioni points out that the potential for regulatory capture is an additional reason for concern. Quite so. Dependably, however, Etzioni comes to the wrong conclusion about the nature of the problem and how to fix it. To Etzioni, the problem is not the inherent liabilities of administrative regulation but the specter of private money corrupting the system. (Notably, his examples do not include the money of labor unions, which have captured, at the very least, vast swaths of the Labor and Education Departments.) As political speech is a topic on which I have already fulminated at some length, I will just add that, even in a world in which regulators were somehow insulated from financial temptation, there would still be capture: the operation of regulatory agencies depends on the possession of large amounts of specialized knowledge in whose generation the subjects of regulation have considerable, and oftentimes overwhelming, advantage.
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Incentives Matter, Soviet Edition
| Dick Langlois |
As economists like Benito Arruñada and Eric Hilt have shown, fishing and whaling have always used an incentive system in which crew members are paid a share of the profits of the voyage. Recall that Ishmael in Moby Dick contracted for a 300th lay, a 300th “part of the clear nett proceeds of the voyage, whatever that might eventually amount to.” This provides relatively high-powered incentives, in that it is a reward based on results, though it works only when team members can monitor each other easily and when the market for workers is competitive. (This contrasts with the reward system in, say, professional sports, where one is rewarded on the basis of one’s own performance rather than on that of the team. But that may be changing.)
I was surprised to discover that even Soviet factory ships used a similar system, as described in the Martin Cruz Smith novel Polar Star — a work of fiction but clearly well researched and probably accurate. “The Polar Star’s pay was shared on a coefficient from 2.55 shares for the captain to 0.8 share for a secondclass seaman. Then there was a polar coefficient of 1.5 for fishing in Arctic seas, a 10 percent bonus for one year’s service, a 10 percent bonus for meeting the ship’s quota, and a bonus as high as 40 percent for overfulfilling the plan. The quota was everything. It could be raised or lowered after the ship left dock, but was usually raised because the fleet manager drew his bonus from saving on seamen’s wages. Transit time to the fishing grounds was set at so many days, and the whole crew lost money when the captain ran into a storm, which was why Soviet ships sometimes went full steam ahead through fog and heavy seas.”
Presumably, however, the share was not of profit but of some fixed amount. The incentive came from the quota bonuses, which, as the novel details, were subject to political manipulation. Interesting nonetheless that the system used incentives of the broadly traditional kind, and that it explicitly rewarded workers differently for different skill level and status.
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Tesla (the Car)
| Dick Langlois |
Speaking of Tesla: as I was waiting to cross Page Mill Road in Palo Alto the other day, I saw a real live Tesla drive by — the car, not the long-dead inventor. There are several dealerships along El Camino.
In their recent comment, Mari Sako and Susan Helper suggested that electric vehicles might be an example in which, because of the systemic nature of innovation, we might see considerable vertical integration à la Chandler. They talked about the complementary network of charging stations, etc. But it seems to me that what vertical integration the electric vehicle will bring about is more likely to be in the design and production of the car itself. For example, the Tesla website notes that the “Roadster is controlled by state-of-the-art vehicle software. Rooted in Silicon Valley tradition, the code is developed in-house with an intense focus on agile and constant innovation.” Presumably they mean that the code itself, not the vertical integration, is rooted in Silicon Valley tradition.
Apparently, Tesla (along with Toyota) is going to reopen the famed NUMMI plant in Fremont to make its new passenger-car model.
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Stanford Conference on the Asian Firm
| Dick Langlois |
I’m in Palo Alto, having just participated in an extremely interesting conference at Stanford called “The Future of Industry and Innovation in Asia: Firms, Alliances and Networks.” (Papers are not on the website, but you can email the authors.) The conference was organized by Mark Fruin and Raffiq Dossani, and featured people like Martin Kenney, Masao Nakamura, Tim Sturgeon, and Eleanor Westney.
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More on Managerial Coordination and the Vanishing Hand
| Dick Langlois |
Many many thanks to Mari Sako and Susan Helper for taking the time to comment on my post about their paper in ICC. To give the discussion more visibility, I am elevating my response to a new post.
My Vanishing Hand argument is an attempt to explain theoretically the demise of the large multi-unit Chandlerian enterprise, the essence of which was managerial coordination across vertically integrated stages of production. That is to say, my argument was about vertical disintegration. To assert that a more-disintegrated system still uses managerial coordination across firm boundaries is not to resurrect Chandler’s vision; it is to back away from Chandler’s vision. (I document Chandler’s vision, and its intellectual roots, with more care in the book than in the original “Vanishing Hand” paper.) My argument is fundamentally about vertical integration, and I have no problem with the idea that managerial coordination is often exercised across the boundaries of firms. I’ll return to this point in a second.
Sako and Helper argue that, if minimum efficient scale is falling, the size of firms should be falling. And Giovanni Dosi and his coauthors claim that firm size isn’t falling. Well, first of all, MES determines plant size not firm size. It sets a lower bound on firm size; it doesn’t guarantee a smaller firm size. But the real point here is: what does “size” mean? As I pointed out in my response to Dosi et al., their evidence is at best about firm size in the sense of price theory: number of widgets per unit time. My argument is about firm size in the sense of Coase: number of activities undertaken within the boundaries of the firm. Vertical disintegration is perfectly consistent with larger firm size in the sense of price theory; in fact, we might expect it. (more…)
Property Rights and Modularity
| Dick Langlois |
The Schumpeter Society conference in Aalborg has just ended, and I’m on the train to Copenhagen before heading home tomorrow. Like Peter, I was also at the ISNIE conference in Stirling. Of the three conferences I attended on this trip, ISNIE gets the award for best substance, something I judge by whether I learned something interesting that I hadn’t known. Great plenaries with Ostrom and Williamson, as well as Bruno Frey on the economics of happiness and Pablo Spiller on regulation. I hadn’t been familiar with Spiller’s concept of third-party opportunism in government contracting. Some of the parallel sessions were also good, including sessions involving always-reliable people like Lee Alston and Gary Libecap. But perhaps the most interesting papers I heard were by Henry Smith of Harvard Law School, whom I had never met before.
Smith has a modularity theory of property rights, one very much in line with my own thinking on the issue. As Smith writes in one of his papers given at the conference,
property sets up modular structures that manage the complexity of the interactions of actors with respect to resources. A starting point for property is to use an exclusion strategy to define the “thing” and then to delineate rights wholesale as a first cut through the interface between the bubble defined by the exclusion strategy and the rest of the world. Thus, . . . the interface between the basic package of rights to a car and the rest of the world is a simple one behind which much information is hidden. In this way, the structure of rights is modular. As a method of managing complexity modularity relies on a system’s being nearly decomposable, that is, one in which there are clusters of elements that interact relatively intensely with each other but which interact more sparsely with elements of other clusters.
This is a version of what lawyers call the in rem view. What I learned that I hadn’t known is that this is the polar opposite of Coase’s theory of property rights. It turns out that Coase is an extreme legal realist. That is, like legal realists, Coase thinks of property as a bundle of rights to do specific things — emit sparks, make noise, etc. The trouble with this view is that it is non-modular (more technically: non-decomposable) and creates a spaghetti-tangle of interactions among rights holders that raises transaction costs. The in rem view is perfectly consistent with Coasean bargaining, of course, since it is just a starting point from which people can slice off specific pieces if they choose. (Side note: I had been wanting to post something about a paper by Tom Hazlett and Vernon Smith that credits Coase with $17 billion in welfare losses foregone because of his influence on how spectrum now gets allocated.)
At the same session, Gillian Hadfield of USC had a paper arguing that the market for legal services has not kept pace with the needs of the new economy. I saw this a paradigmatic dynamic-transaction-costs story. Google is internalizing legal services for the same reason Chandlerian corporations in the nineteenth century internalized complementary production processes the market was not yet well enough developed to provide. As Hadfield pointed out, the inability of market institutions to supply these new kinds of legal services has a lot to do with the tight regulation the government exercises over the supply of such services.
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