Posts filed under ‘Institutions’
The Decline of Sociology
| Peter Klein |
Anthony Giddens, writing in the (UK) Guardian, worries that academic sociology “has disappeared from public view.”
Take the debate about globalisation, a debate which is an example of itself, because it is going on all over the world. Haven’t sociologists contributed significantly to this discussion? Indeed they have, but it has been driven far more by economists — such as Joseph Stiglitz — or those in the field of international relations. What about the impact of the communications revolution? Sociologists — notably the Spanish author, Manuel Castells, have written important works on the issue. But I don’t believe sociology has been the main source of contributions to the field.
Giddens suggests that decline of sociology stems from (a) the rise of “market fundamentalism” and (b) “the impotence many people feel in the face of the future.” Both explanations strike me as facile. But perhaps the essay will stimulate a thoughtful response from some of our sociologically inclined readers. (HT: Mark Thoma.)
Update: Brayden’s head is spinning.
Students as Editors!?!?! A Law Journal Bleg
| Nicolai Foss |
My employer, Copenhagen Business School, has recently decided to adopt a “Top 60 Journals” list. It contains the usual suspects (SMJ, AMJ, ASQ, Org. Science, etc.) and a number of lesser journals, including some distinct outliers (such as Scandinavian Journal of Management :-)). It has now been proposed by the Dean that the list be used in connection with promotions; for example, a Full Professor must, according to the proposal, have at least one article published in a Top 60 journal. An extremely modest requirement, one would think. Not so. (more…)
A New Institutional Thanksgiving
| Peter Klein |
Tomorrow we Americans celebrate the traditional Thanksgiving meal. As we gather for family, feasting, and fellowship, let us remember the real leitmotif of the Thanksgiving drama: property rights.
As Ben Powell reminds us:
Many people believe that after suffering through a severe winter, the Pilgrims’ food shortages were resolved the following spring when the Native Americans taught them to plant corn and a Thanksgiving celebration resulted. In fact, the pilgrims continued to face chronic food shortages for three years until the harvest of 1623. Bad weather or lack of farming knowledge did not cause the pilgrims’ shortages. Bad economic incentives did.
In 1620 Plymouth Plantation was founded with a system of communal property rights. Food and supplies were held in common and then distributed based on “equality” and “need” as determined by Plantation officials. People received the same rations whether or not they contributed to producing the food, and residents were forbidden from producing their own food. Governor William Bradford, in his 1647 history, Of Plymouth Plantation, wrote that this system “was found to breed much confusion and discontent and retard much employment that would have been to their benefit and comfort.” The problem was that “young men, that were most able and fit for labour, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense.” Because of the poor incentives, little food was produced.
Faced with potential starvation in the spring of 1623, the colony decided to implement a new economic system. Every family was assigned a private parcel of land. They could then keep all they grew for themselves, but now they alone were responsible for feeding themselves. While not a complete private property system, the move away from communal ownership had dramatic results.
Tom Bethell, author of the highly recommended The Noblest Triumph: Property and Prosperity through the Ages, provides a more detailed account here.
Update: Don’t miss Murray Rothbard’s typically insightful and engaging account, from volume 1 of his Conceived in Liberty.
Newsflash: University Presidents Make Good Money
| Peter Klein |
The Chronicle of Higher Education has released its annual executive compensation report. Most of the contents are behind a subscription firewall. Fortunately, Richard Vedder has summarized the key results. Among them:
The findings continue trends in the last few years: compensation is up, and increased use of non-traditional forms of pay are evident — performance pay, deferred compensation, and other perks. The prosperity of higher ed is continuing to show up in the pay of the leaders of our institutions.
Moreover, two other trends appear to be continuing:
1. Salaries in research universities are rising much faster than in liberal arts colleges or schools with modest graduate work.
2. Presidential salaries are growing faster than those of mainline employees, including faculty, at least at the more prestigious institutions, not to mention the employment income of ordinary Americans.
Vedder follows with some pointed questions. (more…)
Microfoundations of Microfinance
| Peter Klein |
As argued here in a series of posts, theoretical and empirical evidence on microfinance is rather scant. Here is a paper on group lending, providing experimental evidence on the effect of group size and social ties on repayment. Group lending performs well in a variety of (stylized) settings. The paper, by Klaus Abbink, Bernd Irlenbusch, and Elke Renner (Economic Inquiry, October 2006), is worth a read. (Working paper version here.)
Can Prices Be Owned?
| Peter Klein |
Harold Mulherin, my former colleague Jeff Netter, and James Overdahl taught us that prices are property. That is, the information embodied in price quotations on financial markets does not pre-exist, but must be created by entrepreneurial activity, through the creation of organized financial exchanges. Financial exchanges are firms, and their assets are defined and governed by a complex set of contractual relations. (Like any firms, exchanges can expand, contract, reorganize, and try to acquire their rivals.)
But can an individual price — the number itself, not a trading institution — be owned? David Levine reports that a website posted some Best Buy Thanksgiving Day sale prices, and was subsequently served by Best Buy with a copyright infringement notice, demanding that the page be removed on the grounds that the prices were protected by the Digital Millenium Copyright Act (a truly odious piece of legislation).
More reason to be against intellectual property.
Another Journal Jere(h)miad
| Nicolai Foss|
A feuilleton here at O&M is what Omar at orgtheory.net (see here) has christened our “jerehmiads” (aka “jeremiads”) concerning journals. The implication is that we are grumpy old men who moralistically denounce the rationality of the journal institutions (e.g., here, here, here, and here). Whatever that may be here is another, errr, observation on our journals:
All journals that I know of require that for the final submission of a manuscript, it must be submitted in a certain format, including meeting rules for spacing, margins, maximum number of words, etc. Many, and perhaps most, journals also formally require that first submissions must stick to such a format, usually specified under “Instructions to Authors.”
However, at least until recently, very few journals would desk-reject a submission that did not follow the specified format (save for manuscripts that were obviously too long), and no reviewer would dream of complaining about manuscripts not following the journal’s specified format. (more…)
If At First You Don’t Secede, Try, Try Again
| Peter Klein |
We referred earlier to some interesting work on the natural boundaries of states. Today I learn that a majority of my Scottish kinsmen want to secede from the United Kingdom. The Scottish National Party (sorry, in Gaelic: Pàrtaidh Nàiseanta na h-Alba) is gaining ground on Labour and threatens, if it takes power, to hold a referendum on Scottish independence.
As Mises wrote in his great 1927 book Liberalism:
The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars.
The Economics of Maps
| Peter Klein |
I’ve always loved maps. Maybe I should have specialized in economic geography, like my friend Pierre Desrochers. Anyway, I enjoyed reading this EH.Net review of Mary Sponberg Pedley’s The Commerce of Cartography: Making and Marketing Maps in Eighteenth-century France and England (University of Chicago Press, 2005). Maps are information goods, characterized by strong increasing returns and frequently sold through unorthodox marketing strategies. Economists have studied competition among telephone directories — part of an interesting “nothing-new-under-the-sun” theme — but I don’t recall seeing anything on competition among cartographers.
Excerpt from Susan Danforth’s review:
As a map curator, I recall students and researchers over the years who felt certain that as soon as a new place was “discovered,” as soon as a significant event was reported, it would certainly appear on a map, because it made sense that the “public” would demand and support the publication of scientifically accurate, up-to-date maps. So it is interesting to read that the French cartographer Guillaume Delisle was praised by his contemporaries for adding new information to his maps slowly, so as not to shock his public. Other eighteenth-century commentators were happy to see that mapmakers left outdated information on maps “just in case.” Perhaps the island in the middle of the Pacific that hadn’t been seen in fifty years was there after all. What mapmaker would want to be responsible for a shipwreck? “In the end,” Pedley says, “what sold maps was price. A copy or counterfeit was as good as the real thing to the consumer.”
The Intellectuals and Socialism
| Peter Klein |
Why do academics lean left? This is been a frequent topic here at O&M (1, 2, 3, 4, 5). My own modest contribution to this debate appears as today’s Daily Article at Mises.org. Comments are welcome below or at the Mises blog.
Italian Academia Goes International
| Nicolai Foss |
The universities of quite a number of European countries have reputations — well-deserved in a number of cases — of being hostile to foreign influences as well as foreigners (particularly those yanks!), nepotistic, insular, and introverted, particularly in the social sciences and the humanities. Large European countries, such as France, Italy, and Germany still run a major infrastructure of learned journals in the native tongue, and it is often understood that publishing in one of these (e.g., the Sardinian Journal of the Economics of Olive Production) may be better for one’s career than publishing in irrelevant (and, oh horror, American) journals such as Journal of Political Economy or the Strategic Management Journal.
Luckily, things are changing all over Europe concerning the internationalization of the Academy. Here is an example: The Lucca Institute for Advanced Studies, opened last year to support “PhD programs and research activities in the fields of political and social sciences, market regulations, economics, management, biorobotics, industrial and computer technologies.” On its frontpage it stresses that among its “distinctive features” (!) are “open and competitive selection processes” and “international faculty.” Telling!
Note also the job openings for assistant professors and post-doctoral fellows. Lucca isn’t a bad place at all to spend a part of your life!
The Grameen Myth
| Peter Klein |
Jeff Tucker makes several interesting points today about Muhammed Yunus and the Grameen Bank. As you may know, microfinance in general, and Grameen in particular, have taken several hits here at O&M.
Some issues raised by Tucker and others he cites:
- The bulk of the wildly enthusiastic literature on Grameen — Tucker calls it “an echo chamber of hurrahs” — comes from the bank itself. Even the Nobel announcement cites not a single external source.
- The idea that the poor can best escape poverty through self-employment, rather than working for wages, goes against all historical experience. Rising living standards for the poor, in all other countries and historical episodes, has come from wage increases driven by increases in labor productivity.
- The claim that the binding constraint on entrepreneurial activity in countries like Bangladesh is credit, rather than management or entrepreneurship, has become a mantra that is asserted but never demonstrated.
- Yunus himself has founded 16 companies other than the Grameen Bank, all of which went bankrupt. Critics think he funds these projects via the Bank, siphoning off the huge government and philanthropic grants that fund the Bank’s activities. Because the bank does not publish audited financial statements, no one knows for sure.
- Bangladesh consistently ranks near the bottom of the standard indexes of economic freedom. The main obstacles to development in Bangladesh are high trade barriers, a vast array of state-owned enterprises, high taxes, corruption, political violence, etc. The claim that microfinance, rather than fundamental institutional reform, is the key to growth strains credulity.
More on Law and Entrepreneurship
| Peter Klein |
Our conception of “law and entrepreneurship” . . . encompasses positive law (including constitutions, statutes, and regulations), common law doctrines, and private ordering that relate to “the discovery and exploitation of profitable opportunities by new firms.” While much entrepreneurship research focuses on the characteristics of entrepreneurs or on the performance of entrepreneurial firms, law and entrepreneurship studies should focus on the legal structure and regulation of entrepreneurial firms.
Election Day
| Peter Klein |
Today is election day in the US and, like a majority of my fellow American citizens, I’m exercising my cherished right not to vote. Unlike most Americans, however — but like Brian Doherty — I’m proud, not ashamed. “Don’t vote,” I say. “It only encourages them.”
Just to show you that economists have a sense of humor, let me share these pictures of my office door, decorated by my colleagues in 2004 in a vain attempt to shame me for not voting. (Don’t miss the Dr. Seuss-inspired poem.)
Some good non-voting resources: this piece in Slate and this archive. I think Tyler Cowen gets it right: “Overall I view voting as a selfish act, usually done for purposes of self-image…. I fondly recall Gordon Tullock’s point: ‘The paradox is not why people vote, but why everyone doesn’t vote for himself.’ “
“Original” Institutional Economics
| Peter Klein |
Nicolai has noted that evolutionary economics is weak on public policy. But things may be changing. The theme for the 2007 meeting of the Association for Evolutionary Economics is “Contributions of Institutional Economics to Public Policy Debates: Past and Present.” Here is the call for papers.
Note that “evolutionary” is defined here as “institutional/evolutionary.” The instructions say the papers “must be grounded in and contribute to the literature of Original Institutional Economics in the tradition of Commons, Veblen, Mitchell, Kapp, Myrdal, Polyani, etc.”
I confess this is the first I’ve seen the term “original institutional economics.” I can see why the organizers prefer it to “old institutional economics,” the term used by new institutional economists to describe the early twentieth-century American institutionalists whose contributions are largely forgotten today. (Coase: “Without a theory they had nothing to pass on except a mass of descriptive material waiting for a theory, or a fire.” )
Choosing Your Institutional Environment
| Peter Klein |
The new institutional economics typically treats the institutional environment — the background constraints, or rules of the game, that guide individual’s behavior — as exogenous, forming the framework within which individuals act. But what if parties could choose the institutional environment they want?
Physically moving from one country to another constitutes a strong form of institutional-environment selection. A weaker form is “forum shopping,” in which plaintiffs search for jurisdictions with favorable legal rules. (Prominent recent examples include David Irving’s libel suit against Deborah Lipstadt and Richard Perle’s threatened suit against Seymour Hersh.) US firms engage in a kind of forum shopping when they incorporate in Delaware, the state perceived to have the best corporate-chartering and dispute-resolution rules.
A new paper by Geoffrey P. Miller, “The Market for Contracts,” shows that firms most often choose New York as the venue for commercial contracting, making New York “the leading supplier of law and forum in commercial contracts.” Miller argues that New York lawmakers have deliberately designed a contract-law regime that is favorable to commercial transactions. I.e., “New York’s success in attracting choice-of law and forum selection clauses has been due, in substantial part, to the state’s provision of rules, procedures, and adjudicative services deemed attractive by major commercial parties. This explanation parallels the well-known theory that Delaware’s success in the incorporation market is largely due to the superior quality of legal services it provides to its corporate clients.”
Posner and Becker on Microfinance
| Peter Klein |
Further reservations about the microfinance phenomenon, offered here by Richard Posner and Gary Becker. Posner:
The evidence for the efficacy of microfinance in stimulating production and alleviating poverty is so far anecdotal rather than systematic. The idea of borrowing one’s way out of poverty is passing strange. And I am unaware of any historical examples of nations that climbed out of poverty on the backs of small entrepreneurs financed by credit. Also, recall that Grameen Bank has lent almost $6 billion to some 6 million persons. This implies an average loan of almost $1,000, which in a country like Bangladesh is not chicken feed and makes one wonder how much of the Grameen Bank’s loan portfolio is actually microfinance.
Adds Becker:
[A]ll economists who have studied microfinance agree that it will never be more than a minor factor in ending poverty in any country. Economic growth requires secure property rights, encouragement of private enterprise, openness to international trade, stimulation of education, limited and sensible regulations, and reasonably honest government. Microfinance makes only a small direct contribution to any of these variables.
Was Coase Right About the Lighthouse?
| Peter Klein |
A few years ago I attended a Liberty Fund conference on the private provision of public goods. In preparation for the conference I re-read Coase’s classic 1974 article, “The Lighthouse in Economics,” for the first time since my graduate-school days. I recall being surprised how much weaker the argument was than the way I had remembered it. Far from showing that British lighthouses were “private” — as the paper is widely thought to have demonstrated — Coase’s analysis shows simply that public goods can be financed through user fees, rather than general tax revenue. But, in the case of the British lighthouses, the user fees were compulsory, government-enforced levies on ship owners, not voluntary market transactions. The British lighthouses were government-granted monopolies, more like the East India Company or a local public utility than “free-enterprise” institutions. (more…)
US Moving to Ban Microcredit
| Peter Klein |
Larry White asks an important question: Given the near-universal enthusiasm for microcredit, why is its US equivalent — the payday loan — constantly under fire? Payday loans, cash advance loans, check advance loans, and the like are small, short-term, high-interest loans, typically offered to low-income, credit-constrained consumers. As Larry points out, the 2007 National Defense Authorization Act, signed last week by President Bush, includes a 36% interest-rate cap on payday loans made to military personnel; there are calls to extend such a cap to all payday loans in the US, which would effectively shut down much of the payday-loan industry.
Of course, the typical payday-loan consumer in the US is not an entrepreneur seeking capital to start a new venture, but a low-income consumer without savings or credit cards trying to pay the rent, make a car payment, or even buy groceries. Still, the basic principles are the same. Payday loans are high-risk, uncollateralized loans, and naturally carry higher interest rates than conventional secured debt. They provide credit to individuals who are otherwise unable to acquire funds. Grameen Bank defends its interest rates — typically 25 to 50 percent annually — on the grounds that the alternatives facing borrowers are even worse. Wouldn’t the same apply to payday lending?
Specialized Wikis for Sharing Class Notes
| Peter Klein |
Students wishing to share class notes can try two new wiki-like services, NoteMesh and stud.icio.us. EdTechPost offers some commentary.
More than ever, professors need to add a disclaimer to their syllabi: “I am not responsible for information on class notes wikis, MySpace, Facebook, or any other websites. To be honest, I’m not even sure what those things are.”
If such tools had been available when I was a student, just think where I could be today!
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