Posts filed under ‘Entrepreneurship’
Geography Is Destiny
| Peter Klein |
When it comes to innovation, that is, writes Greg Zachary in Sunday’s New York Times. “[T]he inescapable lesson of the iPod, Google, eBay, Netflix and Silicon Valley in general is that where you live often trumps who you are.” Increasing returns and first-mover advantages — “debated in head-scratching terms by professional economists” — explain the geographic concentration of technology firms. (HT: Richard Florida)
No time for head scratching today, but I’ll throw this out for your consideration: I think the literature tends to overemphasize localization economies as a source of increasing returns, downplaying the gains from urbanization stressed by Jane Jacobs. Could this be because economists generally underappreciate the importance of uncertainty, experimentation, and serendipitous discovery, preferring to stick with equilibrium models of endogenous growth?
Here’s more on Jacobs from Richard Florida and from Lynne Kiesling.
Update: The Rockefeller Foundation has created a Jane Jacobs Medal.
HBR’s Breakthrough Ideas for 2007
| Peter Klein |
The February 2007 issue of Harvard Business Review features the annual breakthrough ideas list. Duncan Watts says viral ideas are spread by everyone (like me!), not just “influentials” (contra Malcolm Gladwell). Eric von Hippel likes Denmark’s national innovation policy (Nicolai? Bo?). Michael Schrage says firms need to recover their Old Math. (“As computing gets ever faster and cheaper, yesterday’s abstruse equations are becoming platforms for tomorrow’s breakthroughs.”) Geoffrey B. West says innovation isn’t really modular (“the existence of superlinear scaling that links size and creative output . . . challenges the conventional wisdom that smaller innovation functions are more inventive, and perhaps explains why few organizations have ever matched the creativity of a giant like Bell Labs in its heyday”). Lots of interesting stuff.
Do I Need an (Ideological) Affirmation?
| Steven Postrel |
Arnold Kling has proposed that “libertarian conservatives” form an “Ideological Affirmation Task Force” (IATF) and requested comments on an initial draft of such an affirmation. Borrowing the lingo of Internet governance, he calls this an “IATF RFC.” I loosely qualify to be part of the interested group, so here are a few random thoughts, not a systematic treatise, on his first draft (which is a quick read, so you might want to look at it): (more…)
Entrepreneurship: Ameliorative or Transformative?
| Peter Klein |
Amar Bhide and Carl Schramm take the O&M position on microfinance in a Monday WSJ op-ed. Comparing the views of Nobel Laureates Mohammad Yunus and Edmund Phelps, they write:
Mr. Yunus’s ameliorative entrepreneurship however is very different from the transformative entrepreneurship that Mr. Phelps argues has been central to modern capitalism. . . .
Economic development does wonders for peace, but what does microfinanced entrepreneurship really do for economic development? Can turning more beggars into basket weavers make Bangladesh less of a, well, basket case? A few small port cities or petro-states aside, there is no historical precedent for sustained improvements in living standards without broad-based modernization and widespread improvements in productivity brought about by the dynamic entrepreneurship that Mr. Phelps celebrates.
In principle, microfinance does not preclude modern entrepreneurship. But in practice, we wonder if the romantic charm of the former might distract governments in impoverished countries from undertaking reforms needed to foster the latter.
It’s a nice piece — and how often do you see both F. A. Hayek and Frank Knight lauded in a newspaper editorial?
“Age Heaping,” Numeracy, and Human Capital
| Peter Klein |
Important economic and managerial concepts like social capital and human capital, as latent variables, are difficult to discern in aggregate or historical data. My very clever friend (and occasional O&M commenter) Brian A’Hearn suggests that “age-heaping” — rounding up or down one’s self-reported age to the nearest five or zero — may be a good proxy for human capital. From Brian’s paper with Jörg Baten and Dorothee Crayen, “Quantifying Quantitative Literacy: Age Heaping and the History of Human Capital”:
As signature ability can proxy for literacy, so accuracy of age awareness can proxy for numeracy, and for human capital more generally. A society in which individuals know their age only approximately is a society in which life is governed not by the calendar and the clock but by the seasonal cycle, in which birth dates are not recorded by families or authorities, in which numerical age is not a criterion for access to privileges (e.g. voting, office-holding, marriage, holy orders) or for the imposition of responsibilities (such as military service or taxation), in which individuals who know their birth year have difficulty accurately calculating their age from the current year. Within a society, the least educated and those with the least interaction with state, religious, or other administrative bureaucracies will be least likely to know their age accurately. Age awareness thus tells us something about both the individual and he society he or she inhabits. Approximation in age awareness manifests itself in the phenomenon of age heaping in self-reported age data. Individuals lacking certain knowledge of their age rarely state this openly, but choose instead a figure they deem plausible. They do not choose randomly, but have a systematic tendency to prefer “attractive” numbers, such as those ending in 5 or 0, or even numbers, or in some societies numbers with other specific terminal digits. Age heaping can be assessed from any sufficiently numerous source of age data: census returns, tombstones, necrologies, muster lists, legal records, or tax data, for example. While care must be exercised in ascertaining possible biases, such data are in principle available much more widely than signature rates and other proxies for human capital.
Brian and his coauthors use age-heaping data to generate estimates of human capital in Europe over a long period of time, finding substantial increases in human capital just before the Industrial Revolution.
Richard Florida’s Blog
| Peter Klein |
Richard Florida, author of The Rise of the Creative Class, has a new blog.
Another African Entrepreneurship Blog
| Peter Klein |
I’ve previously recommended Timbuktu Chronicles for informed commentary on entrepreneurship and economic development in Africa. Here is another site, Diary of an African Entrepreneur, by an anonymous (you guessed it) African entrepreneur. (HT: PSD Blog)
AEA Papers on Organizations
| Peter Klein |
A selection of papers on firms, contracts, organizations, and institutions from this weekend’s American Economic Association meeting in Chicago.
Incomplete Contracts and Ownership: Some New Thoughts
Hart, Oliver (Harvard University)
Moore, John Hardman (University of Edinburgh)
Diversity of Governance Governance-Organization Architecture Linkage: Complementarities and Human Assets Essentiality
Aoki, Masahiko (Stanford University)
Firms, Nonprofits, and Cooperatives: A Theory of Organizational Choice
Herbst, Patrick (Goethe University, Frankfurt)
Prufer, Jens (Goethe University, Frankfurt)
Firm Boundaries in the New Economy: Theory and Evidence
Subramanian, Krishnamurthy (Emory University)
Microinsurance
| Peter Klein |
We’ve expressed skepticism on these pages for the microfinance movement. Next up for critical scrutiny: microinsurance, which follows largely the same model. See the discussion on the PSD Blog for details, and especially this paper by Jonathan Morduch.
Judgment, Luck, and Intuition
| Peter Klein |
Former guest blogger Lasse Lien asked recently how entrepreneurial judgment is different from luck. Harold Demsetz once asked the same thing about Kirzner’s concept of alertness (“The Neglect of the Entrepreneur, 1983”). In our work on entrepreneurship Nicolai and I have defined judgment in Knightian terms as decision-making when the range of possible future outcomes, let alone the likelihood of individual outcomes, is unknown. In Mark Casson’s formulation, judgment is needed “when no obviously correct model or decision rule is available or when relevant data is unreliable or incomplete.”
If judgment is more than luck, then what is it? How about “intuition,” another kind of decision-making without a formal rule or model? The January 2007 Academy of Management Review features Erik Dane and Michael Pratt’s “Exploring Intuition and Its Role In Managerial Decision Making.” Intuition is defined inconsistently across the literatures in psychology, philosophy, and management, and Dane and Pratt do a nice job summarizing and synthesizing these definitions. Their own concept of intuitions is “affectively charged judgments that arise through rapid, nonconscious, and holistic associations.” They write: (more…)
Top Posts of 2006
| Peter Klein |
As 2006 draws to a close we reflect on our most popular posts of the year. (Actually, we’ve only been in operation since April, so these are our most popular posts of all time, but you get the idea.) Here’s the list, followed by some commentary:
1. Is Math More Precise Than Words?
2. Intellectual Property: The New Backlash
3. Dilemmas of Formal Economic Theory
4. We Need Some Economics of Pomo
5. The New Bashing of Economics: The Case of Management Theory
6. Has Corporate Corruption Increased?
7. HRM in Heaven and Hell
8. Yale’s New MBA Curriculum: “Perspectives,” Not Functions
9. Malthus and the “Dismal Science”
10. Formal Economic Theory: Beautiful but Useless?
11. Why Do Sociologists Lean Left — Really Left?
12. The SWOT Model May Be Wrong
13. Multi-Culturality and Economic Organization
14. What Do We Really Know About Organizations?
15. Academic Insults: CCSM Edition
16. A Nobel for Entrepreneurship?
17. Price as a Signal of Quality
18. Economics: Puzzles or Problems?
19. Another Irritating Practice
20. Market-Based Management
Now, we’re talking small numbers here — the Drudge Report we ain’t — so the ranking is highly sensitive to random events, like an incoming link from Marginal Revolution. Nonetheless, some clear patterns emerge. (more…)
Steyn on Government Failures of Fighting Terrorism
| Nicolai Foss |
My favorite conservative commentator, Mark Steyn, has these acute observations on how private entrepreneurship may trump government action in the fighting of terrorism:
Most of what went wrong on September 11 we knew about in the first days after. Generally, it falls into two categories:
1. Government agencies didn’t enforce their own rules (as in the terrorists’ laughably inadequate visa applications.
or
2. The agencies’s rules were out of date — three out of those four planes reached their targets because their crews, passengers and ground staff all blindly followed the FAA’s 1970 hijack procedures until it was too late, as the terrorists knew they would.
… But on the fourth plane, they didn’t follow the seventies hijack rituals. On Flight 93, they used their cell phones, discovered that FAA regulations weren’t going to save them, and then acted as free men, rising up against the terrorists and, at the cost of their own lives, preventing that flight carrying on to its target in Washington. On a morning when big government failed, the only good news came from private individuals. The first three planes were effectively an airborne European Union, where the rights of the citizens had been appropriated by the FAA’s flying nanny state. Up there where the air is rarified, all your liberties have been regulated away: there’s no smoking, there’s 100 percent gun control, you’re obliged by law to do everything the cabin crew tell you … For thirty years, passengers surrendered their more and more rights for the illusion of security, and, as a result, thousands died. On the fourth plane, Todd Beamer and others reclaimed those rights, and demonstrated that they could exercise them more efficiently than government” (pp. 184-85, America Alone).
Is Entrepreneurship a Factor of Production?
| Peter Klein |
When explaining the returns to factors of production economists often define wages as the payment to labor, interest as the payment to capital, rent as the payment to land, and profit as the payment to entrepreneurship. Treating entrepreneurship as a factor of production, earning a return we label profit, poses some challenging problems, however. Does entrepreneurship have a marginal revenue product, corresponding to a firm’s profit? Is there an upward-sloping supply curve for entrepreneurship (more of it is offered to the market when profits rise)? Are there diminishing returns to entrepreneurship?
The answer given by the classic contributors to the economic theory of entrepreneurship such as Cantillon, Say, Schumpeter, Knight, Mises, Kirzner, and others is clearly no. They treat entrepreneurship as ubiquitous, an attribute of the market mechanism that can never be absent. This came out in John Matthews’s paper, “Rents versus Profits: What Are the Appropriate Goals of Strategizing?”, presented Wednesday at the CCSM. (more…)
EH.Net Classic Review: Usher’s A History of Mechanical Invention
| Peter Klein |
George Grantham reviews Abbott Payson Usher’s A History of Mechanical Invention (1929), the first book to “establish logical foundations for an empirically based explanation of economic change.”
By what intellectual and social processes do new methods of production, new products, and new patterns of behavior become objects of choice in the stream of economic and social life?
Historians traditionally answered this question in two ways. The first was that inventions are inspired intuition given to exceptionally gifted persons. This approach stressed the discontinuity of inventions and the importance of a small number of inventors in creating the modern world. Usher deemed it “transcendental,” because in taking invention to be what amounts to a miracle, it puts the event logically outside time, so that it can have no mere historical explanation. The second approach took the opposite tack of holding that inventions occur continuously in small steps induced by the stress of necessity, somewhat like Darwinian evolution. Usher termed this approach “mechanistic,” because it relegated the inventor to the status of “an instrument or an expression of cosmic forces.” Neither the transcendental nor the mechanistic account of invention, then, was historical in the sense that explanation necessarily takes the form of a narrative. To the transcendentalist, inventions just happen (and we should all be grateful they do); to the mechanist, they occur automatically in the fullness of time. Neither explains how inventions happen. . . .
Open-Source National Security
| Peter Klein |
US defense officials are relying increasingly on decentralized, open-source methods of gathering and processing intelligence information. This weekend’s New York Times features a lengthy profile. And here is Calvin Andrus’s paper “The Wiki and the Blog: Toward a Complex Adaptive Intelligence Community,” which won a CIA-sponsored competition to develop new ideas on information sharing.
For organization theorists, the key question is whether government bureaucracies can effectively implement a highly decentralized system for knowledge management. Besides the problems faced by any organization using market-based management, government agencies face the fundamental problem identified by Mises in 1944 that their output is not sold on markets, making it impossible to measure performance using market signals of customer satisfaction.
Best Business Movies
| Peter Klein |
The American Enterprise Institute gives us a list of the ten best business movies (via Craig Newmark). “[W]e looked for three qualities: (1) a great movie, (2) a relatively realistic picture of business, and (3) an attitude not openly hostile to capitalism as we know and love it.”
Here are some movies about entrepreneurs. And here is an entire blog about the treatment of capitalism in film.
Gourlay on Tacit Knowledge
| Peter Klein |
More on tacit knowledge: Steven Gourlay takes on Nonaka and Takeuchi in the current issue of the Journal of Management Studies (vo. 43, November 2006):
Nonaka’s proposition that knowledge is created through the interaction of tacit and explicit knowledge involving four modes of knowledge conversion is flawed. Three of the modes appear plausible but none are supported by evidence that cannot be explained more simply. The conceptual framework omits inherently tacit knowledge, and uses a radically subjective definition of knowledge: knowledge is in effect created by managers. A new framework is proposed suggesting that different kinds of knowledge are created by different kinds of behaviour. Following Dewey, non-reflectional behaviour is distinguished from reflective behaviour, the former being associated with tacit knowledge, and the latter with explicit knowledge. Some of the implications for academic and managerial practice are considered.
ETP: Special Issue on Family Firms
| Peter Klein |
The latest issue of Entrepreneurship: Theory and Practice (30:6, November 2006) is a “Special Issue on the Theory of the Family Enterprise.” Plenty of fodder for the ongoing discussion of family firms. Here’s the table of contents: (more…)
Strategic Entrepreneurship Journal
| Peter Klein |
Teppo Felin offers some thoughts on the new Strategic Entrepreneurship Journal. (Of course, you read about it here first.)
Chaired Position in Entrepreneurship
| Peter Klein |
The University of Missouri’s Division of Applied Social Sciences, where I am housed, is recruiting for the McQuinn Chair of Entrepreneurial Leadership. Here is the position announcement. Economists, sociologists, management theorists, and other social scientists are encouraged to apply. I am on the search committee, so if you know any suitable candidates, please encourage them to get in touch with me. And I’d appreciate your help spreading the word to those who might be interested in applying.
Organizations and Markets 
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