Posts filed under ‘Institutions’
Best Paper Title I Read Today
| Peter Klein |
“A Conceptual Framework for Interpreting Recorded Human History” by North, Wallis, and Weingast. Abstract below. (Thanks to Arnold Kling for the pointer.)
Neither economics nor political science can explain the process of modern social development. The fact that developed societies always have developed economies and developed polities suggests that the connection between economics and politics must be a fundamental part of the development process. This paper develops an integrated theory of economics and politics. We show how, beginning 10,000 years ago, limited access social orders developed that were able to control violence, provide order, and allow greater production through specialization and exchange. Limited access orders provide order by using the political system to limit economic entry to create rents, and then using the rents to stabilize the political system and limit violence. We call this type of political economy arrangement a natural state. It appears to be the natural way that human societies are organized, even in most of the contemporary world. In contrast, a handful of developed societies have developed open access social orders. In these societies, open access and entry into economic and political organizations sustains economic and political competition. Social order is sustained by competition rather than rent-creation. The key to understanding modern social development is understanding the transition from limited to open access social orders, which only a handful of countries have managed since WWII.
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.
96K on the 96th: Happy Birthday, Ronald Coase
| Peter Klein |
Ronald Coase turns 96 today. In honor of his birthday, the Contracting and Organizations Research Institute (CORI), whose mission and programs grow out of Coase’s work, announces the addition of the 96,000th contract to its online, full-text searchable database of contracts. Writes Director Michael Sykuta:
December 29, 2006, marks the 96th birthday of Professor Ronald Coase, the Nobel Prize winning economist whose pathbreaking work on transaction costs and property rights continues to inspire CORI’s vision and programs. Professor Coase has been more than just a intellectual inspiration for CORI, having supported CORI’s early development with contributions of his time and resources and having served on the Academic Advisory Board.
December 29, 2006, also marks the day the CORI K-Base reached 96,000 contracts, an appropriate milestone on this important day in the history of economic thought and the history of CORI. And we’re not finished growing! In fact, we’re just getting started on a new phase of expansion to make the CORI K-Base an even more valuable resource to reduce the transaction costs of doing research on the economic system and of doing the business of contracting.
Institutions and Avner Greif
| Peter Klein |
Avner Greif is one of the leading contributors to the “institutional environment” branch of the New Institutional Economics. His work on the emergence of long-distance trade in the medieval Mediterranean world changed the way many social scientists think about reputation, trust, and the role of decentralized, non-state institutions in supporting commercial activity.
The January 2007 issue of Reason features a review essay of Greif’s recent book, Institutions and the Path to the Modern Economy (Cambridge, 2006). The review provides a solid, non-technical overview of Greif’s work. (more…)
Peer-to-Peer Microfinance
| Peter Klein |
US company prosper.com, and its UK predecessor Zopa, match small borrowers and lenders — no collateral or credit check required — just as eBay matches small sellers and buyers. Given the hype surrounding both peer-to-peer models and microfinance (despite some qualms), it was just a matter of time.
Putting “Corporate Scandals” in Perspective
| Peter Klein |
Enron, WorldCom, Arthur Andersen, Parmalat. . . . The list goes on and on. Maybe you didn’t hear about this one though:
The largest employer in the world announced on Dec. 15 that it lost about $450 billion in fiscal 2006. Its auditor found that its financial statements were unreliable and that its controls were inadequate for the 10th straight year. On top of that, the entity’s total liabilities and unfunded commitments rose to about $50 trillion, up from $20 trillion in just six years.
If this announcement related to a private company, the news would have been on the front page of major newspapers. Unfortunately, such was not the case — even though the entity is the U.S. government.
This is from a letter by the US Comptroller General appearing in the 24 December Washington Post (via Don Boudreaux). See also James Sheehan’s prescient 2002 article, “Real Accounting Fraud,” about the post-Enron frenzy in Washington, DC. “It is particularly frightening that a group of people skilled mainly at feeble speechifying and crass fund-raising would consider itself qualified to stand in judgment of corporate accounting scandals. All members of Congress are direct participants in the biggest accounting fraud going — the federal government — and have never lifted a finger to bring it under control.”
Raico on the European Miracle
| Peter Klein |
Ralph Raico, in a 1994 essay that has just been put online, offers a concise summary of the New Institutional explanation for the “European miracle,” the unprecedented, long-term rise in living standards beginning in late-medieval Europe.
[A] number of scholars concerned with the history of European growth have tended to converge on an interpretation highlighting certain distinctive factors. For the sake of convenience, we shall, therefore, speak of them, despite their differences, as forming a school of thought. The viewpoint may be referred to as the “institutional” — or, to use the title of one of the best-known works in the field — the “European miracle” approach.
The “miracle” in question consists in a simple but momentous fact: It was in Europe — and the extensions of Europe, above all, America — that human beings first achieved per capita economic growth over a long period of time. In this way, European society eluded the “Malthusian trap,” enabling new tens of millions to survive and the population as a whole to escape the hopeless misery that had been the lot of the great mass of the human race in earlier times. The question is: why Europe? . . .
The Vertical Dis-Integration of Higher Education
| Peter Klein |
In 1975, 56.8 percent of the teaching faculty at US colleges and universities were tenured or on the tenure track, with 30.2 percent classified as part-time employees. By 2003, tenured and tenure-track faculty comprised only 35.1 percent of the teaching staff, with part-timers making up 46.3 of the total. These data are from the latest AAUP report on faculty employment, sounding an alarm over the rise of what it calls “contingent faculty.” (Thanks to Richard Vedder for the pointer.)
This trend may have important implications for academic freedom, faculty governance, political correctness, and the nature of higher education more generally. From an economic efficiency perspective, it looks like vertical dis-integration, a shift from long-term employment contracts to shorter-term, more flexible arrangements. If the higher-education sector is simply following the private sector’s lead, should we be surprised? And what factors would be driving the changes — a decrease in relationship-specific human capital, an increase in modular methods of production, changes in environmental uncertainty, etc.? (more…)
WikiSummaries
| Peter Klein |
Want to read classics like Capitalism and Freedom or hot new items like Freakonomics but don’t have the time? The Road to Serfdom is available in cartoon form, and you can buy slick (and expensive) summaries of popular management books, but in general you’re out of luck.
Until now. WikiSummaries provides free book summaries that anyone can write and edit. It’s just getting off the ground so there aren’t many summaries yet; besides Capitalism and Freedom and Freakonomics there’s not much to interest the O&M reader (except maybe Good to Great). But it’s only a matter of time before the great books in organization and strategy, like this one, are included.
Awards — Cont’d
| Nicolai Foss |
OK — this will be my last entry on the economics of awards. Promise. Here goes:
We usually take awards to be non-material in nature. In his work on awards, Frey explicitly makes this point by assuming that awards are non-material kinds of compensation (here and here).
Frey does note, however, that sometimes awards are accompanied by money. Indeed, we are all familiar with those pictures in the newspaper of a happy prize recipient presenting a 2,5 x 1 meter cheque with the amount of money very clearly visible.
Thus, note that non-material compensation in the form of awards may have material implications. A distinction, such as a Knighthood bestowed upon a businessman may conceivably do good things to his business, because it may allow him to access networks he could not access earlier and influence decision-makers in favourable ways. A Nobel Prize winner can afterwards enter the highly lucrative lecturing circuit. Many books are advertised on the basis of their winning prestigious awards which of course also impacts the income of the prize winner/author. Etc. (This kind of reasoning is akin to Lerner and Tirole’s discussion of motivation in open source production). (more…)
Awards in Firms?
| Nicolai Foss |
This is the third post on the economics of awards (see here and here), prompted by Bruno Frey’s recent work on the subject.
When we think of awards, most of us can easily come up with examples from public hierarchies, the military, sports, and volunteering, humanitarian and religious organizations, where awards are bestowed upon employees or members, or to public organizations/the state/the monarch bestowing awards upon citizens.
The only example that comes immediately to mind from for-profit organizations is that of employee-of-the-month awards. (more…)
More on Awards
| Nicolai Foss |
In his work on awards (see below), Bruno Frey tells a sophistiscated story of how awards function by providing “soft,” extrinsic motivation and help to solve agency problems that more conventional instruments cannot solve. However, casting awards in a purely motivational framework arguably leaves out some possible economic functions of awards. (more…)
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.
Bruno Frey on Awards
| Nicolai Foss |
Bruno Frey is one of those economists who make economics fun. Like economists such as Yoram Barzel, Gary Becker, and, of course, Stephen Levitt, he has a great intuition for applying economics to new areas where nobody has hitherto thought of taking it.
Like George Akerlof, but unlike Barzel, Becker and Levitt, Frey is, however, not that satisfied with the behavioral core of mainstream economics, mainly because it tends to provide an impoverished treatment of human motivation. Thus, he is no Becker-style economic imperialist (or, at least, the charicature thereof), but on the contrary is quite attentive to relevant insights in, particularly, psychology. Whereas numerous economists have taken an interest in the cognitive dimensions of psychology research — as witness the recent explosion of interest in nanoeconomics — Frey’s interest in psychology has been more concerned with motivational issues. Thus, quite a lot of Frey’s enormous (and enormously impressive) production has been devoted to pushing the boundaries of economics by taking seriously psychology ideas on social comparison processes, intrinsic motivation, etc. His work with Margit Osterloh on the motivational foundations of knowledge sharing in organizations will be familiar to many readers of this blog.
Frey has recently started a new research program, namely research into the function of awards (see here and here). (more…)
John Chapman at AEI
| Peter Klein |
Kudos to my former PhD student John Chapman for landing a prestigious National Research Initiative Fellowship with the American Enterprise Institute. John is working on a book with Glenn Hubbard (official link; fun link) on the history and economic impact of the US private equity sector. For more information about the project contact John.
Badly Needed: Research Into Meetings In Organizations
| Nicolai Foss |
Ahhhh! Today was my last day as member of the Academic Council (or Senate) of the Copenhagen Business School. As Denmark has the most undemocratic university legislation in the world (with the possible exception of North Korea) and the whole university system is socialized, all decision-making power is in actuality concentrated in the hands of the President and the Dean. This means that bodies such as the Academic Council have nada real decision-making competence. Knowing this, the members should be expected to get the meeting done as quick as possible, and go back to serious business, that is, research and teaching. Not so! One endless and essentially pointless debate followed another.
Which makes me wonder: Given that incredible amounts of time in organizations, public as well as private, and often involving absolute key employees, are spent in meetings, why do we see so very little serious (non-pomo) academic research into the phenomenon of meetings in organizations? (more…)
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.
You Know You’re Nobody If. . .
| Peter Klein |
. . . your entry gets booted off Wikipedia.
(I’m sure there is a serious lesson here about distributed knowledge, the voluntary enforcement of social norms, crowdsourcing, open-source programming, rational ignorance, or something. No time to think about it, though; gotta write my own Wikipedia entry.)
Kleins in the News
| Peter Klein |
As noted previously, Ronald Coase has serious disagreements with UCLA economist Benjamin Klein. A few years ago, Coase and I had an extended, and pleasant, conversation about his work. He concluded by announcing, with evident satisfaction: “I see all Kleins are not alike.”
Indeed, I tend to disassociate myself from some Kleins, but am enthusiastic about others, such as George Mason University economist Daniel Klein. Dan has done outstanding research on the ideological profile of university professors. Dan’s work is challenged in the current issue of Public Opinion Quarterly by sociologists John F. Zipp and Rudy Fenwick, who deny the existence of “liberal bias” in the academy. Dan and Charlotta Stern have written a reply, currently under review at the same journal. Here’s the abstract:
In a recent Public Opinion Quarterly article “Is the Academy a Liberal Hegemony?,” John Zipp and Rudy Fenwick pit themselves against “right-wing activists and scholars,” citing our scholarship (Klein and Stern 2005a; Klein and Western 2005). Here we analyze Zipp and Fenwick’s characterization of our research and find it faulty in three important respects. We then turn to their “liberal v. conservative” findings and show they concord with our analysis. If one feels that it is a problem that humanities and social science faculty at four-year colleges and universities are vastly predominantly Democratic voters, mostly with what may called establishment-left or progressive views, then such concerns should not be allayed by Zipp and Fenwick’s article.
Patently Absurd: Ham Sandwich Edition
| Peter Klein |
On a day when the scope of patent law is being hotly debated before the Supreme Court, there’s news that McDonald’s has filed a 55-page patent application in Europe and the United States claiming “intellectual property rights” on how to make a hot deli sandwich. . . .
The application discusses the “simultaneous toasting of a bread component” and inserting condiments into the sandwich with a “sandwich delivery tool.” The filling is placed in the ‘bread component’. The application explains: “Often the sandwich filling is the source of the name of the sandwich; for example, ham sandwich.”
Courtesy of the WSJ Law Blog. Each day I become more of an intellectual property skeptic (1, 2, 3).
The “hotly debated” case mentioned above is KSR International v. Teleflex, one of the most important patent cases to reach the US Supreme Court in years. I’m rooting for KSR.
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