Posts filed under ‘Institutions’
More on Journal Rankings
| Peter Klein |
The HES (History of Economics Society) listserv is buzzing over ERIH, the European Science Foundation’s ranking of journals in the history and philosophy of science. Writes Deirdre McCloskey, for example:
Among [the] many bad effects [of ranking journals] is to encourage people to rank another person not by reading and considering (a sample of) her work but by counting how many Grade A journals she has contributed to. It takes scientific and scholarly judgment out of the hands of actual readers of the actual work and puts it into the hands of the median voter in a beauty contest. It leads to mediocrity in science, such as the practice of using t tests as the sole criterion of importance in statistical studies. The beauty contest is based on rumor, not reading. When reputation rankings include a dummy journal with a plausible sounding name the respondents claim familiarity with the journal and firmly rank it. Don’t we need to stop this corrupt practice, not encourage it?
Other commentators largely agree. David Colander notes that productivity rankings of economists based on journal articles use proxies (journal articles) that “are only a small portion of economists’ total output (which includes teaching, other research, and service) (I estimate 20%) and that emphasis in one reduces emphasis in the others, so the probability of the rankings carrying through is exceedingly small, even if there is positive correlation with other activities.”
You can read the whole thread here (start with David Teira Serrano’s entry “European Reference Index for the Humanities (ERIH).” See also Leland Yeager’s work discussed here.
Richard Vedder Is Getting More Radical
| Peter Klein |
Murray Rothbard delighted in describing Lord Acton as “one of the few figures in the history of thought who, charmingly, grew more radical as he grew older.” Richard Vedder, researching the US higher education system, is experiencing a similar transformation:
Usually, the more you study something, the more moderate you become. The simple radical solutions prove to be impractical, infeasible, or not so simple as originally thought. My evolution, however, has been rather different — I have become more, not less, radicalized in my view that fundamental reform is needed in higher education. This viewed has evolved not because of some sort of ideological change of life, or a quasi-religious conversion of some sort. It has come from running regression models — studying the evidence. The more evidence that I see that I believe is creditable and meaningful, the more I am convinced of the following:
* Too many students, not too few, are going to college;
* College and universities are extremely inefficient, and at the margin public spending on them more likely lowers rather than raises economic growth; (more…)
Should We Axe the (US) Small Business Administration?
| Peter Klein |
The entries don’t have references, but there is a large literature on small business lending. See in particular papers by Phil Strahan here and here, showing that bank deregulation and consolidation has helped small business lending and entrepreneurship.
Is Innovation Overrated?
| Peter Klein |
Technological innovation is not as important as we think, argues David Edgerton in The Shock of the Old: Technology and Global History since 1900 (Oxford, 2006). Edgerton’s book, writes Steven Shapin in the New Yorker,
is a provocative, concise, and elegant exercise in intellectual Protestantism, enthusiastically nailing its iconoclastic theses on the door of the Church of Technological Hype: no one is very good at predicting technological futures; new and old technologies coexist; and technological significance and technological novelty are rarely the same — indeed, a given technology’s grip on our awareness is often in inverse relationship to its significance in our lives. Above all, Edgerton says that we are wrong to associate technology solely with invention, and that we should think of it, rather, as evolving through use. A “history of technology-in-use,” he writes, yields “a radically different picture of technology, and indeed of invention and innovation.” (HT: Against Monopoly)
Edgerton provides numerous examples, mainly from military history, of old technologies proving more important than new technologies (horses, for instance, were more important in World War II than V-2 rockets or atomic bombs). Useful innovation, not innovation per se, is what matters.
Most of us are attracted to novelty; it’s no wonder that we tend to overrate its importance. We also forget that many new technologies are modest variations on existing technologies.
Two Essays on Douglass North
| Peter Klein |
By Arnold Kling, here and here.
I usually recommend to my students North’s 1991 Journal of Economic Perspectives paper, “Institutions,” for an overview of his general approach to institutions and economic change.
Dissing the IRB
| Peter Klein |
Most academic social-science researchers would rather calculate regression coefficients by hand than deal with their university’s Institutional Review Board. IRBs were created to protect human subjects in biomedical research (by requiring informed consent, for instance) but are now empowered to supervise research in the social sciences and humanities, all of which is classified as “human subjects” research. (An IRB official once told me I had to get IRB permission — by filling out numerous forms — before using accounting data from Compustat on publicly traded companies. These companies are staffed by human beings, after all.)
IRB skeptics may enjoy Todd Zywicki’s paper “Institutional Review Boards as Academic Bureaucracies: An Economic and Experiential Analysis,” which places the blame not on IRB personnel, but on the bureaucratic structure of the boards themselves. And don’t miss Zachary Schrag’s IRB blog.
PhD Candidate Shortage in Accounting
| Peter Klein |
Gary Peters sent me some data about the excess demand for PhD Candidates in accounting at US business schools. A large cohort of senior faculty is due to retire soon and there are too few new PhDs to replace them. The shortage is particularly acute at Tier I universities and within sub-disciplines like tax and auditing. Fewer students appear to be enrolling in PhD programs in accounting and fewer PhD graduates are opting for academic careers (as opposed to careers in consulting).
I’m not aware of a similar deficit in economics (historically there has been a substantial excess supply of PhD candidates) though I haven’t seen any data recently. This paper in the current issue of the Academy of Management Learning and Education (via Brayden) describes a shortage of qualified faculty in other business disciplines.
Formation of Beliefs About Markets
| Peter Klein |
What explains differences in beliefs about social and political institutions across groups? Are such beliefs learned from experience, acquired through rational persuasion, or given exogenously? Empirically, it is difficult to distinguish the effects of location or occupation from selection. Does living in Berkeley, for example, or studying sociology turn people to the Left, or do Lefties congregate in places like Berkeley and in sociology departments?
To gain insight into this problem, suppose you could take two virtually identical groups of people, place them in different institutional environments, and look later for differences in beliefs about market and society. Rafael Di Tella, Sebastian Galiani, and Ernesto Schargrodsky’s paper “The Formation of Beliefs: Evidence From the Allocation of Land Titles to Squatters” (Quarterly Journal of Economics, February 2007) investigates exactly this natural experiment.
We study the formation of beliefs in a squatter settlement in the outskirts of Buenos Aires exploiting a natural experiment that induced an allocation of property rights that is exogenous to the characteristics of the squatters. There are significant differences in the beliefs that squatters with and without land titles declare to hold. Lucky squatters who end up with legal titles report beliefs closer to those that favor the workings of a free market. Examples include materialist and individualist beliefs (such as the belief that money is important for happiness or the belief that one can be successful without the support of a large group). The effects appear large. The value of a (generated) index of “market” beliefs is 20 percent higher for titled squatters than for untitled squatters, in spite of leading otherwise similar lives. Moreover, the effect is sufficiently large so as to make the beliefs of the squatters with legal titles broadly comparable to those of the general Buenos Aires population, in spite of the large differences in the lives they lead.
Thanks to Dan Benjamin for the pointer.
Naming a Nation: Will the Real Wu-Tang Clan Please Stand Up?
| Chihmao Hsieh |
In the USA, the “Wu-Tang clan” refers to a family of Grammy-award-winning rappers formed in the 1990’s. In China, it’s about to refer to, well, just a normal family.
As described in this news report released yesterday by the AFP, today China has roughly 1.3 billion people, and 85% of them are covered by a mere 100 surnames. Ninety-three million people share the surname Wang, while 92 million are called Li and 88 million call themselves Zhang. For comparison, the 2007 estimated population in the United States totals 301 million. (You do the math!) And, as might be expected, the lack of variety in surnames is causing undue confusion in China (kind of like this?).
Thus, according to a recent report by the China Daily as mentioned in that news report, “under a new draft regulation released by the ministry of public security, parents will be able to combine their surnames for their children, a move that could open up 1.28 million new possibilities. (more…)
Can Markets Be Designed?
| Peter Klein |
A fundamental distinction between organizations and markets is teleological: organizations are established by specific individuals to achieve specific purposes, while markets emerge, organically, from the bottom up. Carl Menger used the terms “organizations” and “orders” to distinguish these two categories of institutions; Hayek preferred the obscure Greek terms taxis and cosmos. Invoking this distinction does not deny, of course, that there are “organic” elements within firms, or that markets are infused with institutions that are at least partly “designed” (civil law codes, for instance).
What, then, is meant by “market design,” as in designing markets for cadaveric organs, education vouchers, or tradeable emissions permits? Do attempts to do so constitute what Hayek called “constructivist rationalism” or “constructivism,” the belief that we can remake social institutions that have emerged incrementally, over long periods of time, to suit our current whims?
Lynne Kiesling and Mike Giberson have been wrestling with this question over at Knowledge Problem (here and here). How, asks a reader, “does one invoke Hayek in one breath and then speak of ‘designing’ a market in the next while keeping a straight face?” Lynne and Mike offer several responses: (more…)
Would You Publish Your Dissertation Drafts on the Web?
| Peter Klein |
Academic researchers have long circulated unpublished working papers, first on paper (remember those little yellow NBER working papers?) and now on the web. Of course, opinions differ on when papers should be circulated. Some scholars share their early drafts, hoping to solicit constructive feedback; others prefer to wait for a more mature product, worrying about unpolished writings that live forever in the Google cache.
But would you circulate rough drafts of dissertation chapters online? Advisers, would you encourage your students to do this? (more…)
Private Legal Enforcement in Global Commerce
| Peter Klein |
A new paper by Margaret Blair, Cynthia Williams, and Li-Wen Lin, “Assurance Services as a Substitute for Law in Global Commerce,” describes the market for “assurance services” as private means of enforcing commercial arrangements.
In this article we examine the rapid emergence and expansion of a private-sector compliance and enforcement infrastructure that we believe may increasingly be providing a substitute for public and legal regulatory infrastructure in global commerce, especially in developing countries where rule of law is weak and court systems are absent or inadequate. This infrastructure is provided by a proliferation of performance codes and standards, and a rapidly-growing global army of privately-trained and authorized inspectors and certifiers that we call the “third-party assurance industry.” The growth in the third party assurance business has been phenomenal in the last decade. The business first developed to facilitate making and carrying out private contracts, but in recent years, assurance services are being deployed for purposes that are more appropriately seen as regulatory in nature. Third-party assurance may thus be providing a new institutional structure through which private commercial exchange is being harnessed and regulated for essentially public purposes.
See also Alex Tabarrok on private assurance contracts, which function similarly to enforce contributions to public goods and club goods.
Color Me Beautiful
| Peter Klein |
The most popular colors on national flags are white and red, followed by blue, green, and black. Click here to see how the analysis was done, and to play a fun game of “identify the flag” (click on the pie charts to reveal the flags). (HT: SMCISS blog.)
I wonder how much of this clustering is explained by path dependence? The flags of many former European colonies are, of course, based on the mother country’s flag.
Here’s another interesting example of chromatic clustering: corporate logos. The graphic below (click to enlarge) ran in the June 2003 issue of Wired, in a feature called “The Battle for Blue.” This blurb accompanied the graphic:
Companies spend millions trying to differentiate from others. Yet a quick look at the logos of major corporations reveals that in color as in real estate, it’s all about location, location, location. The result is an ever more frantic competition for the best neighborhood.
I use this example in class to illustrate Hotelling’s law.
Jewish Economic Theory
| Peter Klein |
Five principles of Jewish economic theory, as described in Judaism, Markets, and Capitalism: Separating Myths from Reality by Corinne Sauer and Robert M. Sauer (forthcoming from the Acton Institute):
- Work, creative activity, and innovation are the avenues through which the divine image is expressed.
- Private property rights are essential and must be protected.
- The accumulation of wealth is a virtue not a vice.
- Man has an obligation to care for the needy through charitable giving.
- Government is inefficient and concentrated power is dangerous.
Sauer and Sauer compare this passage in 1 Samuel to Hayek’s warnings in The Road to Serfdom: (more…)
The Religion of Economists
| Peter Klein |
The relationship between economics and religion has attracted increasing attention in recent years. There is the positivist approach, represented by Larry Iannaccone and ERel, which applies standard economic analysis to religious activity and institutions; there are groups like the Acton Institute that try to improve economic literacy among the clergy; and some have even attempted to analyze economics itself as a kind of secular religion.
A new paper by Dan Hammond takes a more straightforward approach, analyzing the religious views of John Nef, Frank Knight, and Milton Friedman, placing this in context of the twentieth century’s general move toward embracing the secular over the sacred. (more…)
HBS Case on Wikipedia
| Peter Klein |
Karim Lakhani and Andrew Mcafee have written a Harvard Business School Case on Wikipedia. Unlike normal Harvard case, it’s available free online. (But you can’t edit it!)
New Accounting Rules?
| Peter Klein |
Conventional accounting practices have their critics and problems, but reports of their death have been greatly exaggerated. Perhaps you caught the front-page item in last Saturday’s WSJ, “Profit as We Know It Could Be Lost With New Accouting Standards.” The lead-in features this remarkable statement:
In coming months, accounting-rule makers are planning to unveil a draft plan to rework financial statements, the bedrock data that millions of investors use every day when deciding whether to buy or sell stocks, bonds and other financial instruments. One possible result: the elimination of what today is known as net income or net profit, the bottom-line figure showing what is left after expenses have been met and taxes paid. . . .
Another possible radical change in the works: assets and liabilities may no longer be separate categories on the balance sheet, or fall to the left and right side in the classic format taught in introductory accounting classes.
This revision “could mark one of the most drastic changes to accounting and financial reporting since the start of the Industrial Revolution in the 19th century.”
At first I thought this was a conspiracy by accounting professors to sell a new generation of textbooks. But I asked around and discovered, to my relief, that it is much ado about nothing. Financial professionals have long been aware that net income isn’t the only, or even the best, measure of overall corporate performance; they have offered a host of alternatives (even before Stern-Stewart began pushing EVA). My University of Georgia colleague Denny Beresford, a former Chairman of FASB, tells me that FASB has been working on this project for over a decade and that we should not expect major changes any time soon. “It must have been a very slow news day at the Journal.”
Interactive Maps
| Peter Klein |
Those of you into maps will enjoy Social Explorer, a neat tool that generates detailed maps using US census data from 1940 to 2000. (Thanks to Cliff for the pointer.)
My colleagues at the Center for Agricultural, Resource, and Environmental Systems (CARES), just down the hall from my office, also produce some amazing maps. (I keep waiting for them to take on a joint project with the World Health Organization, to be titled WHO-CARES.)
Private Provision of Public Goods, Mario Puzo Edition
| Peter Klein |
Nicolai tells me The Sopranos is the most popular show among Danish libertarians. I bet they like the Godfather trilogy as well. What libertarian can resist this classic exchange between Michael Corleone and Kay Adams in the first film:
Michael: My father is no different than any powerful man, any man with power, like a president or senator.
Kay: Do you know how naive you sound, Michael? Presidents and senators don’t have men killed.
Michael: Oh. Who’s being naive, Kay?
The films are terrific, but the original novel by Mario Puzo is even better. (The newer books by Mark Winegardner aren’t bad either.) One of Puzo’s themes, which isn’t emphasized so much in the movies (aside from the opening scene in the first film), is how the Mafia functioned as a kind of private government, providing protection for people, primarily poor immigrants, who were refused protection from the inefficient and corrupt formal legal authorities. (more…)
The Legacy of Max Weber
| Peter Klein |
Ludwig Lachmann’s influential Legacy of Max Weber (1971) is now available free online, courtesy of the Mises Institute’s e-book collection.
Organizations and Markets 
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