Posts filed under ‘Institutions’
Why the Resistance to Prices?
| Peter Klein |
When the quantity demanded exceeds the quantity supplied — causing shortages, delays, congestion, misallocation — the solution is to raise the price. Every freshman economics student knows this. Why, then, are regulators, industry groups, and consumer representatives so often opposed to rationing by the price mechanism? Is it simply Bryan Caplan’s anti-market bias? Is it interest-group politics? Or is there something specific people don’t like, or don’t understand, about prices?
Two examples: (1) Airline landing slots. I worked on this problem with Dorothy Robyn back at the CEA in 2000. The US FAA prices airport landing slots, and access to the air traffic control system, on a per-passenger basis, regardless of time of day, season, overall stress on the system, and so on. In other words, the price charged has no relation to the marginal cost of provision. The obvious solution is some kind of congestion pricing mechanism. But the major players are generally opposed. Mike Giberson provides details on the latest attempt to use prices to reduce air-travel delays. Time-of-day pricing? “We are unalterably, adamantly opposed to it,” says the head of the Air Transport Association, the airlines’ lobby group. (more…)
Shameless Self-Promotion
| Nicolai Foss |
The European Management Review has started a series of portraits of innovative research environments in management in Europe. The first such environment to be portrayed was the Institute of International Business at the Stockholm School of Economics and Business Administration (here). The Winter 2007 issue will feature a narrative that focuses on the Center of Strategic Management and Globalization which I am heading here at Copenhagen Business School. You can read the paper, “Knowledge Governance in a Dynamic Global Context: the Center for Strategic Management and Globalization at the Copenhagen Business School” here. Oh, did I mention that I wrote the paper myself?
Nye on Wine and Trade
| Peter Klein |
John Nye is a very interesting economic historian. I still remember his fiery (and controversial) talk at the inaugural ISNIE conference in 1997, in which he urged new institutional economists to separate themselves from their brothers and sisters in mainstream economics. (Other participants, such as Paul Joskow, thought this was a bad idea.)
John’s new book, War, Wine, and Taxes: The Political Economy of Anglo-French Trade, 1689-1900 (Princeton, 2007) argues that Britain was not, contrary to popular perception, devoted to free trade after the repeal of the Corn Laws in 1846. The British retained high tariffs on French wine, among other goods, leading to substantial welfare losses among Britons. (more…)
Hagel on Institutional Innovation
| Peter Klein |
Here is John Hagel with a nice post on institutional innovation. Product, process, and management innovation are important, he notes, but institutional innovation — that which “redefines roles and relationships across independent entities to accelerate and amplify learning and reduce risks” — is the key to long-term value creation. Hagel names diversity, relationships, modularity, federated decision-making, reputation mechanisms, feedback loops, and incentive structures as the design principles underlying institutional innovation.
Hagel is clearly right to emphasize institutional innovation as a key driver of long-term firm, industry, and overall economic performance. He names the creation of the joint-stock company as a primary example. We could perhaps add the M-form structure, the franchise arrangement, relational contracting, the loosely organized network, and the venture-funded startup to this list.
And yet, there is a lot we don’t know about institutional innovation. (more…)
Academics and Ideology Redux
| Peter Klein |
More on academics and left-liberal ideology. Becker and Posner weigh in with explanations based on demographic change, selection bias, and other structural characteristics of higher education. See also these comments by Ilya Somin (1, 2) and David Bernstein on the new study by Gross and Simmons. David wins the quote-of-the-day prize with this gem:
It turns out, according to the study, that 17.6 of professors in the social scientists consider themselves Marxists. Only academics doing a survey of other academics could possibly think that this is low.
Getting a PhD Takes Too Long
| Peter Klein |
So says the (US and Canadian) Council of Graduate Schools, studying ways to shorten the process, as reported in today’s NY Times. Some startling figures:
The average student takes 8.2 years to get a Ph.D.; in education, that figure surpasses 13 years. Fifty percent of students drop out along the way, with dissertations the major stumbling block. At commencement, the typical doctoral holder is 33, an age when peers are well along in their professions, and 12 percent of graduates are saddled with more than $50,000 in debt.
In economics, this problem has been alleviated, to some degree, by the rise of the three-essays dissertation, now the dominant model at the major research universities. In many economics departments, at least one essay is mostly finished by the end of the second year (written as a required second-year econometrics paper). Sociology, despite having become — like economics and strategy — a discipline that communicates mostly through articles, not books, seems to have stuck with the “grand treatise” model for the dissertation.
Institutions: It’s All Greek to Me
| Peter Klein |
The relationship between formal institutions (e.g., the legal environment) and informal rules (norms, culture, social conventions) is one of the least-well understood areas of the New Institutional Economics. Do norms create “order without law,” to borrow Robert Ellickson’s phrase, or should we understand private arrangements and law as complements, rather than substitutes (Cooter, Marks, and Mnookin, 1982)?
To understand all this, suggest Anastassios Karayiannis and Aristides Hatzis, we should turn to the ancient Greeks. Karayiannis and Hatzis’s paper, “Morality, Social Norms and Rule of Law as Transaction Cost-Saving Devices: The Case of Ancient Athens,” argues for a close relationship between Athenian legal institutions and supporting social norms:
Athenians developed a highly sophisticated legal framework for the protection of private property, the enforcement of contracts and the efficient resolution of disputes. Such an institutional framework functioned effectively, cultivating trust and protecting the security of transactions. This entire system however was based on social norms such as reciprocity, the value of reputation and business ethics. Conformity to social norms as well as moral behavior was fostered by social-sanction mechanisms (such as stigma) and moral education. The Athenian example is a further proof of the importance of morality and social norms as transaction cost-saving devices even in quite sophisticated legal systems. Their absence or decline leads inevitably to the need for more regulation, clear-cut rules, less judicial discretionary power and more litigation.
Blogs versus Department Meetings
| Peter Klein |
A friend recently became economics department head at his university. He created a blog as a partial substitute for, and potential complement to, meetings.
I hate department meetings, which inevitably are scheduled at some time when most people are tired or distracted. Once there, much time is wasted by people who are slow in expressing themselves, or in discussing issues about which we haven’t had time to think or gather the information necessary to decide something. For any individual, some of the discussions are boring or irrelevant and a waste of time.
I have been trying to use the blog to handle most issues that do not require a quick decision or a real, face-to-face dialog. . . .
I am having at best moderate success because some of my colleagues refuse to visit the blog on anything like a regular basis. I am trying to make things easier for them. A successful change was to introduce a “recent posts” sidebar like you have on O&M, so my colleagues can quickly see what, if anything, is new since they last visited the blog.
I suggested setting up a “favorite posts” or “critical posts” section of the sidebar (somewhat like our “Most Popular” section). Of course, some departmental issues — personnel matters, for example — are too sensitive to discuss even on a private blog. But many of the usual items can perhaps be handled easily.
What suggestions would you offer? More generally, how can blogs, wikis, and similar tools increase office productivity by substituting for meetings? (Of course, some people will always prefer meetings.)
The Political Economy of Entrepreneurship
| Peter Klein |
Entrepreneurship and political economy are two of the fastest-growing fields in applied economics, so it is only natural that they come together. Magnus Henrekson and Robin Douhan have a new volume coming out in the International Library of Entrepreneurship Series, The Political Economy of Entrepreneurship (Elgar, 2007). It contains reprints of classic and contemporary papers by Schumpeter, Kirzner, Baumol, Stigler, de Soto, Acemoglu, Lerner, and many others.
Henrekson and Douhan identify in their introduction (which you can read here) three key aspects of entrepreneurship as it relates to political economy: (more…)
More Crappy Research
| Peter Klein |
We’ve written before about the history of industrial recycling, how waste products, both natural (manure, animal parts) and man-made (scrap metal, old rags), were frequently collected and re-used, for profit, at the dawn of the Industrial Revolution.
Now comes another paper on the market for manure: Liam Brunt’s “Where There’s Muck, There’s Brass: The Market for Manure in the Industrial Revolution” (Economic History Review 60, no. 2, May 2007, 333-72). (Non-gated version here.) Writes Brunt:
In this paper we present the first detailed assessment of off-farm manure in English agriculture, by quantifying the use of 21 varieties. We consider how many people were using each type of manure; how much they were using; and the total effect on wheat yields. . . . We show that by 1770 there were local, regional and even international markets for manure; and we can explain the pattern of manure use by supply and demand. We estimate that off-farm manure raised yields by a steady 20 per cent throughout the period 1700 to 1840.
I suppose I could have titled this post (channelling Tyler Cowen) “Markets in Everything: ________ Edition” (fill in the blank yourself).
More on Prices as Property
| Peter Klein |
We discussed earlier the status of price information as intellectual property. (We were skeptical.) Now we learn from Michael Perelman that Harvard’s Coop (bookstore) is ejecting students who take “a lot of notes” about book prices, on the grounds that the Coop “owns” the prices. Ouch.
I’m pondering the Hayekian implications. Will the Coop also claim that it owns the knowledge embodied in those prices?
Update: See also the links provided by Tim Swanson here.
Private Disupte Resolution
| Peter Klein |
Brian Caplan and Edward Stringham explore the private provision of dispute-resolution services:
Must the state handle the adjudication of disputes? Researchers of different perspectives, from heterodox scholars of law who advocate legal pluralism to libertarian economists who advocate privatizing law, have increasingly questioned the idea that the state is, or should be, the only source of law. Both groups point out that government law has problems and that non-state alternatives exist. This article discusses some problems with the public judicial system and several for-profit alternatives. Public courts lack both incentives to be customer oriented and pricing mechanisms, plus they face problems associated with the bureaucratic provision of services. When parties can choose their tribunals, in contrast, those tribunals must serve customers and be mindful about conserving resources. Competition between arbitrators also can allow for experimentation and the provision of customized services rather than a centrally planned, one size fits all system. Contracts with an arbitration clause can easily stipulate the choice of tribunal, and we argue that if government courts simply refused to overrule binding arbitration agreements, de facto privatization could easily take place. This article discusses how private adjudication of disputes could enable the market to internalize externalities and provide services that customers desire.
See also these comments about Bruce Benson’s Enterprise of Law.
Conference on Public-Private Partnerships
| Peter Klein |
Our friends at ATOM are organizing a conference, “Public-Private Partnerships, Competition, and Institutions,” December 7-8 in Paris. Here is the call for papers. Submissions are due at the end of this week. “The conference will bring together academics, policymakers, and business representatives to discuss issues on the impact of institutional framework and competition on the efficiency of public services reforms and more particularly on the efficiency of public-private partnerships. The objective is to initiate a network of PhD students and researchers as well as practitioners interested in this specific issue.”
9-11, Strategic Management, and Public Policy
| David Hoopes |
On this sad anniversary I find myself thinking about public policy and the field of strategic management. After six years, how well integrated are our intelligence agencies? A few management and strategic management scholars probably have a lot to say about such issues. Many more might struggle to apply what they work on to this problem or any other policy issue.
A few years back Bill Ouchi was commended by a panel at an Academy of Management meeting. Bill had long since forsaken traditional academic concerns and devoted his considerable intellect to public policy. His main target: public schools. Ouchi’s work has had a profound impact on a number of large and at one time largely dysfunctional school districts. Portions of the session were published in The Academy of Management Executive (recently renamed). I missed the session, but the account in AME had Bill’s talk followed by a number of notable management scholars opining about other applications of management research to public policy. I’ve met a few of the speakers. They are very nice people who are genuinely concerned about the field of management and about how we might be of service to a constituency beyond our students and the business world. Nevertheless, most of what these talented, hardworking, and successful scholars had to say about the field of management and its possible applications to public policy seemed far removed from a direct application to policy questions. (more…)
Dissing the Corporation
| Peter Klein |
Several papers in economic history, law, and political economy argue that the corporate form owes its emergence and persistence not to superior performance, but to legal privilege. This two-part series by Piet-Hein van Eeghen in the Journal of Libertarian Studies (1, 2) makes such a case, as do many essays by regular O&M commentator Kevin Carson. I tend to be somewhat skeptical of this literature, finding it insufficiently comparative institutional and not always consistent with the historical record as I understand it.
A new paper by Naomi Lamoreaux, whose work I very much admire, may force me to rethink my views, however. In “Putting the Corporation in its Place” (NBER Working Paper No. 13109) Lamoreaux and her coauthors Timothy Guinnane, Ron Harris, and Jean-Laurent Rosenthal argue that entrepreneurs in common-law countries tended to choose the corporate form over the next-best alternative, the partnership, only because a still more desirable alternative, the private limited liability company, was not available. (more…)
Investor Protection and Firm Governance: Substitutes or Complements?
| Peter Klein |
The new institutional economics often treats the institutional environment and institutional arrangements as substitutes. In countries with stable legal institutions, relatively efficient courts, and reasonable default rules for contract terms, for example, contracts tend to be less complete. If contracting parties can trust the courts to fill in the gaps, why bother to write out every contingency? Likewise, if a country has an efficient external capital market, firms can be small and specialized, relying on the capital markets to allocate resources among business units, but if the external capital market performs poorly, diversified business groups may arise to exploit their internal capital markets.
It is thus surprising to learn, from a new paper by Reena Aggarwal, Isil Erel, René Stulz, and Rohan Williamson, that firms tend to establish better mechanisms for corporate governance in countries that already have strong rules for investor protection. “[O]ur evidence suggests that firm-level governance attributes are complementary to rather than substitutes for country-level investor protection, so that better country-level investor protection makes it optimal for firms to invest more in internal governance.” The better the institutional environment, in this case, the more effort agents put into designing efficient institutional arrangements.
Clearly more work is needed to understand the interactions between “macro” and “micro” institutions. What are some other good papers in this area?
Two Entrepreneurship Papers
| Peter Klein |
- “International Financial Integration and Entrepreneurial Firm Activity” by Laura Alfaro and Andrew Charlton. Evidence from a large cross-country dataset establishes a strong correlation between entrepreneurial activity (what I call “structural entrepreneurship,” the proportion of new and small firms to total firms) and various measures of international financial integration. Suggests that international capital flows are good for economic growth (take that, neo-mercantilists!). See Maury Obstfeld’s 1998 JEP paper for some background.
- “Charles Le Maistre: Entrepreneur in International Standardization” by JoAnne Yates and Craig Murphy. Le Maistre was a pioneer of voluntary, international cooperation on technical standards. Summarizing Le Maistre’s accomplishments, Yates and Murphy argue that “industrial standardization, usually thought of as a staid field that limits, rather than promotes, innovation, is populated by multiple individuals who can be seen as entrepreneurs of standardization, either in a particular technical arena or on a broader, organizational level. “
Managing the Philanthropic Enterprise
| Peter Klein |
McKinsey’s Luis Ubiñas will become Ford Foundation CEO next year, reports the Chronicle. This is an unusual move because philanthropic foundations have traditionally chosen career insiders for top management posts. “It runs counter to the idea that grant making is a closed profession, that you stay in this field and you simply move through the field,” says UT-Austin’s Peter Frumkin, quoted in the Chronicle piece. Have foundations decided, like many US corporations, that functional expertise is less important than general managerial skill?
The Internet, Plagiarism, and Fabulism
| Nicolai Foss |
What is the net effect of the internet on the amount (and type) of plagiarism? Many people have predicted the demise of plagiarism as internet search engines make that nasty activity increasingly easy to detect. However, as any university teacher knows from sad experience with students who got tempted to cheat, the internet also prompts plagiarism because it strongly expands the set of texts that can be plagiarized at little direct cost. (more…)
São Paulo Workshop on Institutions and Organizations
| Peter Klein |
Three Brazilian institutions — Fundação Getúlio Vargas São Paulo, IBMEC São Paulo, and the University of São Paulo — are jointly sponsoring a “Research Workshop on Institutions and Organizations” in São Paulo, 2-4 September 2007. Keynote speakers are Jackson Nickerson, Armando Castelar, and me. From the blurb:
Seminar participants will discuss recent developments in the analysis of institutions and organizations through the lenses of Economics, Management, Sociology, Law and other social sciences. Instead of focusing on the contributions of specific disciplines dealing with institutions and organizations, workshop participants will emphasize differences and commonalities among different approaches, leading to potential advances and refinements in the field.
Here is registration information and a preliminary schedule.
Organizations and Markets 
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