Posts filed under ‘Entrepreneurship’
What Do We Really Know About Organizations?
| Peter Klein |
Recently a prominent economist, having discovered O&M for the first time, emailed me: “So what have we learned about how organizations really, really work in the past decade?”
I was in an airport when I received the query, and didn’t have time to prepare a thoughtful, well-crafted response. Rather than ignore the question, however, I replied with a few off-the-cuff remarks. After reading my remarks, I’d like readers to respond with their own brief thoughts. I.e., if you had to answer this question, quickly, in 250 words or less, what would you have said?
Here’s what I wrote (with a few small touch-ups): (more…)
Kauffman Entrepreneurship Research Portal
| Peter Klein |
The Kauffman Foundation’s Entrepreneurship Research Portal summarizes articles and working papers, events, grant opportunities, and other useful information related to entrepreneurship research. A valuable resource for those doing work in this area.
Firms, Strategies, and Economic Change
| Peter Klein |
My review of Tony Yu’s Firms, Strategies, and Economic Change: Explorations in Austrian Economics (Edward Elgar, 2005), written for the Quarterly Journal of Austrian Economics, is available for preview here.
Is Judgment Measurable?
| Lasse Lien |
The hosts of this blog have offered an intriguing perspective on entrepreneurship, in which the entrepreneur is seen as an individual possessing judgment. Judgment is in short the ability to spot opportunities for profit under Knightian uncertainty (as opposed situations involving mere risk). Because there are prohibitive transaction costs associated with exploiting judgement via market contracting, the entrepreneur is left with little choice but to start his or her own firm to exploit this competence/skill/resource. This seems quite plausible, and I nodded enthusiastically as I read the paper. However, one problem kept — and keeps — bothering me (as a lowly empiricist); the problem of how to establish the existence of judgment empirically. (more…)
Does France Have a Silicon Valley?
| Peter Klein |
Jeremy Fain says yes, in southwest Paris. Not quite Silicon Valley, perhaps, but an important innovation cluster nonetheless.
I find this sort of discussion interesting, but am troubled by the “How-can-we-create-another-Silicon-Valley” approach so common in the clustering literature. The assumption is that technology clusters are created, or at least encouraged, by government policy, and that such policies that are in principle replicable. By contrast, if clusters emerge from the bottom up, there is little that policymakers can do, besides removing obstacles to entrepreneurial activity. (See Desrochers and Sautet, “Cluster-Based Economic Strategy, Facilitation Policy and the Market Process.”)
Update: Austan Goolsbee says investing in universities is not likely to produce the next Silicon Valley.
New Entrepreneurship Journal
| Nicolai Foss |
I have been hearing the rumours for some time, but now it is an established fact: I just picked up a flyer annoucing the new Strategic Entrepreneurship Journal.
Sounds familiar? Not surprising, as this is launched as a sister journal to the Strategic Management Journal (the flyer displays the frontpages of both journals) with overlapping editors (Dan Schendel and Michael Hitt are the co-editors, the senior advisory board consists of Howard Aldrich, Arnold Cooper, Morton Kamien, Robert Strom and Michael Tushman). The launch of the new journal is so recent that it doesn’t even have a homepage with the publisher (Wiley).
Private and Public Investment in R&D, Crime-Prevention Division
| Peter Klein |
Further to Nicolai’s post on terrorists and cops: Government security officials have attenuated incentives not only for effort, but also for innovation. Just yesterday I read about the new Volvo S80, which has a special key fob that beeps when someone is hiding in the locked car (using a heartbeat sensor). Can you imagine the police coming up with that?
More generally, Bruce Benson offers compelling evidence, in his 1998 book To Serve and Protect, that the reduction in crime in the US over the last decade and a half owes little to improved police protection, but is due instead to increased investments in private security. (See also Benson’s short piece “Why Crime Declines.”)
Property Rights at the AoM
| Nicolai Foss |
A host of economics approaches have been influential in strategic management research, inclucing transaction cost economics, and the highly overlapping approaches of information economics, game theory, and industrial organization theory.
However, property rights economics as developed by Ronald Coase, Harold Demsetz, Steven Cheung, and its perhaps most sophisticated contemporary proponent, Yoram Barzel, has not been much used in strategic management, save for discussions of intellectual property rights (a big problem with communicating principles of property rights economics is that most academics immediately associate to IPR which, of course, is just a small subset of the many applications of property rights economics).
Things may be changing, however. (more…)
Why Are Terrorists More Inventive Than Cops?
| Nicolai Foss |
National Review Online has an interesting symposium, “Plans Destroyed,” on yesterday’s terror plot (which caused me to spend 3 hours in the airport here in Atlanta; well, perhaps not the worst way to spend your time in Atlanta ;-)). Daniel Pipes offers his reflections, arguing that
Airplanes represent an outdated target because passenger screening techniques quickly adapt to threats. As soon as terrorists implement new techniques (box-cutters, shoe-bombs, liquid components), security promptly blocks them … Conversely, trains, subways, and buses, as shown by attacks in Madrid, London, and Bombay, offer far richer opportunities for terrorists, for access to them can never be so strictly controlled as to aircraft.
Indeed; but as he points out himself terrorists do target planes, and “One cannot but wonder, however, why creatively, cops invariably lag behind criminals.” Pipes is surely not the first to make this observation; however, as far as I know nobody has tried to seriously answer it.
One answer may be that criminals are smarter than cops. For petty criminals that is probably very far from the truth. For terrorists it may come a bit closer to the truth: Many of today’s terrorists are likely to be better educated than many, perhaps most, cops. Still, intelligence agencies have, of course, highly educated experts employed.
Rather than a capability explanation, the explanation may turn on incentives/property rights. Intelligence officers are government bureaucrats with twarthed incentives to think ahead of highly motivated terrorists (even if their motivation is wholly derived from the expectation of other-worldly rewards). Career ladders may, perhaps, provide incentives, but these are extremely blunt. May this be an argument for privatizing intelligence services?
Higher-Education Entrepreneurship
| Peter Klein |
Richard Vedder explains the latest developments. (Also check out his Center for College Affordability and Productivity and his new book, Going Broke by Degree: Why College Costs Too Much.)
Strategizing, Disequilibrium, and Profit
| Nicolai Foss |
Stanford University Press has just published John A. Matthews’ Strategizing, Disequilibrium, and Profit. A 14-page sample is available here.
Matthews, who holds the Chair of Strategic Management at Macquarie Graduate School of Management, Sydney, has contributed for many years to what is sometimes called “industrial dynamics,” that is, the strongly empirically oriented intersection between process approaches to economics (evolutionary and Austrian views) and strategic management (mainly the capabilities and resource-based views). Accordingly, the main sources of inspiration for the current book are Schumpeter, who provides the overall dynamic view of the economy as an evolving system; Knight, who contributes a theory of profits, and Penrose who contributes a theory of the firm.
The book may be read as a frontal attack on strategic management’s dominant perspective, the resource-based view. (more…)
Interesting New Paper by JC Spender
| Nicolai Foss |
One of the puzzles of business administration/management is that the fields of entrepreneurship and strategic management have existed, and continue to exist, in such relative separation. Intuitively, one would think of entrepreneurship — the identification and seizure of new opportunities for profit — as constituting the core of the strategic management field. This, however, is not the case. However, there are various indications that strategic management scholars are about to develop interest in entrepreneurship (e.g., work by Kim and Mahoney, Alvarez and Barney).
One specific indication is an excellent and highly recommended recent paper by JC Spender, “The RBV, Methodological Individualism, and Managerial Cognition: Practising Entrepreneurship.” Here is the Abstract:
If we consider Schumpeter’s methodological individualism and entrepreneurship, the ‘managerial cognition’ arguments can contribute new insights to the RBV discourse. I open by examining the links between resource inputs and firm outputs , and argue the types of rents implied by the RBV cannot arise or be sustained if these links are logical and explainable. The only rents then available are Marshallian quasi-rents arising from information asymmetry or the Ricardian rents from initial allocation, i.e., those of Porter’s analysis. Today’s RBV lacks the components necessary to create and manage the value at the core of Barney’s VRIO model. Causal ambiguity or uncertain inimitability might imply sustainable rents but clearly do not explain how the arise, any more than asserting the firm has dynamic capabilities does. To illustrate how value might be created and brought into the analysis, I look at Penrose’s model of managerial learning, primarily as an accessible instance of the epistemological approach proposed by Austrian economists such as Hayek, Kirzner, and Schumpeter. This concept of value creation parallels the sense-making concepts of the managerial cognition literature. I conclude that an alliance of BPS and MOC approaches can complement and so complete the RBV, synthesizing notions of value creation, heterogeneous and immobile resources, and endogenous growth into a dynamic theory of the firm. It balances rational choice and Schumpeterian entrepreneurship. To wrap this argument up, I discuss the theoretical and practical implications of the amended RBV.
Latent Variables and Structural Equations Modeling
| Peter Klein |
Among my PhD students I note an increasing interest in structural equations modeling (SEM), particularly for working with latent variables. One student’s dissertation uses SEM to study the effect of the institutional environment on entrepreneurship, treating entrepreneurship as a latent variable and using measures of new business starts, patent filings, and the like as the corresponding manifest variables. Another student is using SEM to examine free-riding among members of a large cooperative, with various observable behaviors serving as indicators for the latent variable free-riding.
More generally, SEM is becoming a standard tool in management, where abstract concepts like trust, knowledge, capabilities can (potentially) be modeled as latent variables in a system of equations. Indeed, when I visited Nicolai in his office in Copenhagen a couple of weeks ago, the first thing I noticed on his desk was a LISREL manual, prominently displayed on the corner. (He assures me it is not for show.) (more…)
Information versus Knowledge
| Peter Klein |
Here’s a fascinating symposium from the April 2005 issue of EconJournalWatch on the distinction between information and knowledge in economics. The contributors are Brian Loasby, Thomas Mayer, Bruce Caldwell, Israel Kirzner, Leland Yeager, Robert Aumann, Ken Binmore, and Kenneth Arrow. (Via Jeff Tucker)
George Gilder on the Evolutionary Metaphor
| Peter Klein |
Returning to our previous discussion of teleology in social-science explanation, the current issue of National Review has an essay by George Gilder, co-founder of the pro-ID Discovery Institute, summarizing his complaints about the neo-Darwinian model. (The electronic version is behind a subscription firewall, but a copy is here.) This passage caught my eye:
Turning to economics in researching my 1981 book Wealth & Poverty, I incurred new disappointments in Darwin and materialism. Forget God — economic science largely denies intelligent design or creation even by human beings. Depicting the entrepreneur as a mere opportunity scout, arbitrageur, or assembler of available chemical elements, economic theory left no room for the invention of radically new goods and services, and little room for economic expansion except by material “capital accumulation” or population growth. Accepted widely were Darwinian visions of capitalism as a dog-eat-dog zero-sum struggle impelled by greed, where the winners consume the losers and the best that can be expected for the poor is some trickle down of crumbs from the jaws (or tax tables) of the rich.
In my view, the zero-sum caricature applied much more accurately to socialism, which stifles the creation of new wealth and thus fosters a dog-eat-dog struggle over existing material resources. (For examples, look anywhere in the socialist Third World.) I preferred Michael Novak’s vision of capitalism as the “mind-centered system,” with the word itself derived from the Latin caput, meaning head. Expressing the infinite realm of ideas and information, it is a domain of abundance rather than of scarcity. . . . Ultimately capitalism can transcend war by creating rather than capturing wealth — a concept entirely alien to the Darwinian model.
Leaving aside that Darwin copied Spencer, rather than vice-versa (though Spencer may have been misinterpreted), Gilder correctly notes an analogy between evolutionary explanations in biology — in which outcomes are the result of blind, purposeless forces — and evolutionary models in economics and sociology, in which human agency, too, seems to get short shrift. (more…)
African Entrepreneurship Blog
| Peter Klein |
From the PSD Blog I learn of Timbuktu Chronicles, a blog written by Emeka Okafor (him, not him) dealing with African entrepreneurship, innovation, and technology. Looks like an interesting read.
A Doctoral Defence in Sweden
| Nicolai Foss |
I have a hard time keeping up with my co-blogger’s blogging frenzy. Of course, he is much smarter and more energetic than I am and that partly accounts for the increasing discrepancy between our respective blogging frequencies. However, the reason I didn’t blog yesterday on O&M was that I served as an external examiner on a doctoral thesis at the Jönköping International Business School in Sweden. Situated virtually at the brinks of the enormous lake Vättern, JIBS is a newly established and highly entrepreneurial place that aims at pushing its research to a serious international level.
The specific thesis I was asked to discuss was Carlo Salvato’s Micro-foundations for Organizational Capabilities. Salvato is an Associate Professor at Bocconi University and already has an Italian PhD degree, which is based on a thesis utilizing Swedish data. His Swedish thesis, on the other hand, is based on Italian data!
More specifically, its empirical setting is product development projects in Alessi. On the basis of a painstakingly detailed identification, analysis and classification of events in 90 product development projects in Alessi, Salvato applies optimal matching analysis to detect patterns in the projects that may be interpreted as routines and capabilities. He also strongly adds to the notion of capabilities by decomposing that construct in a constituent elements (hence, the title of the thesis), although he does not go sufficiently micro for my taste (in this connection, Carlo claimed that his attempt to build micro foundations for capabilities was seen as heresy by one of the high priests of the evolutionary church, ehhh, approach in management). Although I am no sucker for the capabilities view in management, this thesis impressed me greatly. I am sure we will hear much more of Carlo Salvato in the future.
A peculiarity of the Swedish thesis defence procedure: The external examiner has to summarize the thesis, before he discusses it. After which the candidate has to tell the audience whether he can accept the summary. Odd. And the newly minted Doctor receives an absolutely ridiculous black hat.
New Paper by Kirzner and Sautet
| Nicolai Foss |
Israel Kirzner is surely one of the more neglected of economists. Now that entrepreneurship has become almost a mainstream theme in economics, Kirzner certainly deserves more recognition and credit for his four decades long insistence on the importance of the entrepreneur as the prime mover of the market process. (Here is a great Israel Kirzner site.)
What appears to be Kirzner’s latest paper is “The Nature and Role of Entrepreneurship in Markets: Implications for Policy,” written with Frederic Sautet and published by the Mercatus Center at George Mason University.
The paper is particularly interesting as it is taken up with a theme that has often been claimed to be absent from Kirzner’s work, namely that of institutions and how institutions can be designed (or influenced) to impact entrepreneurship. The new stuff arrives at about p. 14. In addition to discussing how the institutional matrix impacts entrepreneurship, there is so much emphasis on creativity as an aspect of entrepreneurship that the paper sounds Schumpeterian in places. There is also much emphasis on entrepreneurship being embedded in a cultural context.
So, has Israel Kirzner gone applied? Well, not exactly, as the discussion still moves on a fairly abstract level (for an applied exercise that is rather related to Kirzner and Sautet’s, see this excellent paper), but certainly is more “applied” than the Kirzner of, say, Competition and Entrepreneurship.
Does Creativity Harm Innovation?
| Peter Klein |
The always-interesting Robin Hansen argues in Business Week that creativity may harm, not help, innovation.
[M]uch of the hoopla over creativity is a crock. Why? Because we are already up to our eyeballs in it. Make no mistake: Innovation matters. Nothing is more essential for long-term economic growth. But to get more innovation we may want less, not more, creativity.
The sobering truth is that the dramatic artistic creations or intellectual insights we most admire for their striking "creativity" matter little for economic growth. . . . Instead, the innovations that matter most are the millions of small changes we constantly make to our billions of daily procedures and arrangements. Such changes do not require free-spirited self-expression. Instead, people quite naturally think of changes as they go about their routine business and social lives. . . .
Entrepreneurship and Business Education
| Peter Klein |
Kauffman Foundation president Carl Schramm joins a rising chorus of protest against contemporary business education with an op-ed, "The Broken MBA," in the Chronicle of Higher Education. US business schools, says Schramm, have missed the transition from "bureaucratic capitalism" to "entrepreneurial capitalism."
Although most major schools now have formal programs in entrepreneurship, the programs typically exist in isolation. Their precepts have had little impact on the core curriculum. It is hard to find serious research on entrepreneurial processes, and not much attention is paid to the importance of technology in entrepreneurial growth — even in large companies.
Instead, business schools have chosen to emphasize ethics and social responsibility, a move Schramm blasts as "ineffective, irrelevant, or even counterproductive." On ethics: "Presumably the goal is to prevent future Enron-like scandals, but how likely is it that human behavior can be changed for the better by tacking on a course on ethics?" On social responsibility, which he calls a "nebulous area": "The implicit message of those courses is often that business goals should be subordinate to political goals. Business serves society by creating wealth — that is its true social responsibility. Business schools do their students and society a disservice by teaching that corporations should pledge primary allegiance to political ends, which could harm their ability to create the wealth upon which civil society depends." (more…)
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