Posts filed under ‘Institutions’
Vanderbilt PhD Program in Law and Economics
| Peter Klein |
Vanderbilt University is the only US institution (as far as I know) offering a PhD degree in Law and Economics. The program now has a web page describing the faculty, curriculum, seminar series (Henry Manne is on the Fall slate), and other practicalities. (Via Josh Wright.)
Further Dissent on Grameen
| Peter Klein |
The econo-blogosphere continues to heap adulation on Nobel Laureate Muhammad Yunus and the Grameen Bank. I keep waiting for someone to join me in expressing reservations. Economists and bloggers alike excel at challenging the conventional wisdom, especially when press coverage of an individual or event is completely one-sided. But so far no takers.
Much of the information circulating about Grameen doesn’t pass the “smell test.” For instance, we’re told that 90 percent of Grameen’s borrowers are women. Yunus says poor Bangladeshi women are better credit risks than poor Bangladeshi men, and that such women are historically underserved by credit institutions. Fair enough, but 90 percent? If that number is accurate, then we’re talking about a political statement, not a development strategy.
The number that puzzles me the most, though, is Grameen’s repayment rate, variously described at 98 or 99 percent. To begin with, this is an odd statistic to tout. Banks do not measure their performance by the repayment rate, but by profitability or the efficiency with which deposits are converted into loans. OK, you say, Grameen is not chasing profits, but broader social objectives. Fine, but then the appropriate performance measure is the number of new businesses created with Grameen credit, the change in the poverty rate, or some other measure of social welfare.
In any case, the point is moot, because the number is bogus. As reported in the October 14 WSJ:
Mr. Yunus often says the bank has a loan-recovery rate as high as 98.5%. Yet that figure ignores the clients who are far behind in their loan payments. The bank reports a loan as overdue only if the borrower has missed 10 or more consecutive payments. And the bank has often provided new loans to allow borrowers to keep current on old ones. The problem came to a head early this decade, when 19% of Grameen loans were at least one year overdue.
A Nobel for Entrepreneurship?
| Peter Klein |
This year’s Nobel Prize in economics didn’t go to William Baumol or Israel Kirzner, but the peace prize went to economist and banker Muhammad Yunus, founder of Bangladesh’s Grameen Bank. Yunus is a pioneer of microcredit — small, uncollateralized loans given to poor borrowers for starting small businesses. Microcredit is widely touted as a market-based, entrepreneurial solution to world poverty.
The econo-blogosphere is elated. Greg Mankiw calls it a “second Nobel” for economics. Tyler Cowen says it’s a “wonderful choice,” noting (correctly) that Yunus would never have been considered for the economics prize.
But how well does microcredit work? The evidence is mixed. A few studies claim to find substantial, beneficial effects on entrepreneurial activity and wealth, but these studies tend to come from the Grameen Bank itself, or from advocacy groups like the Microcredit Summit Campaign. Search SSRN or RePEc and the picture becomes much cloudier.
Call me a microcredit skeptic. Here’s why: (more…)
Rise of the Aerotropolis
| Peter Klein |
Historically, cities have sprung up at the junctions of oceans and rivers (New Orleans) or railroad networks (Chicago), which made the docks or the blocks around the central station the choicest real estate in town. But “cities are always shaped by the state-of-the-art transportation devices present at the time of their founding,” observes Joel Garreau, author of Edge City and chronicler of American sprawl. “The state of the art today is the automobile, the jet plane, and the networked computer. Because of the airport, it’s possible to imagine a world capital in a place that was once an absolute backwater — a Los Angeles or a Dallas appearing in an utterly improbable location, including Bangkok.”
Hence the rise of the “aerotropolis,” the name for the cities springing up around mega-airports like Thailand’s Suvarnabhumi (near Bangkok), which will handle 100 million passengers per year (as much as New York City’s three major airports combined), and Dubai World Central, which will be able to accommodate twice as many passengers as Frankfurt’s airport and will host a permanent population of 750,000. (more…)
Wikipedia: Friend or Foe?
| Peter Klein |
Is Wikipedia “the ultimate vindication of universal education, or a widening crack in the edifice of our culture?” Stanford’s Jackson Library blog directs our attention to “Know It All” in the New Yorker and “The Hive” in the Atlantic for different perspectives.
As economists, of course, we happily consume wikis but wonder why anyone bothers to produce them. (After all, wikis aren’t just vanity projects, like organizational economics blogs.)
Phelps on Personal Knowledge
| Peter Klein |
I thought I had a scoop with this Phelps item on entrepreneurship, but he makes many of the same points in an essay, “Dynamic Capitalism,” on today’s WSJ editorial page. Here’s a passage of particular interest to O&M readers: (more…)
Berkeley Puts Class Lectures on Google Video
| Peter Klein |
My alma mater UC Berkeley has become the first university to give away its class lectures for free, via Google Video. “Google Video presents us with a wonderful opportunity to share UC Berkeley’s amazing faculty with a global community of lifelong learners,” says vice provost Christina Maslach. “We see this endeavor as one part of our expanding digital bridge that is directly connecting the public we serve with the intellectual riches of the campus.” (Via Paul Reist.)
Bill Starbuck’s New Book
| Nicolai Foss |
Omar at orgtheory.net dismisses critical discussions of the institutions of publishing social science research as “jeremiads” (see here), that is, “moralistic texts that denounce a society for its wickedness” (Wikipedia), typically written — but by no means always — by old, grumpy men. In contrast, Omar has great faith in the efficiency of these institutions (see the exchanges between my co-blogger and Omar here).
Although Bill Starbuck isn’t young any more, and there no doubt is a certain jeremiad-like quality to his misgivings about research practice in the social sciences, I submit that even Omar stands to benefit from reading Starbuck’s new opus, The Production of Knowledge: The Challenge of Social Science Research. Clearly, Omar has considerable experience with the institutions of publishing, and Bill Starbuck has only been the editor of Administrative Science Quarterly, but there may still be a thing or two to learn. Here is the book’s blurb: (more…)
Schmoller Revisited
| Peter Klein |
The Jahrbuch für Gesetzgebung, Verwaltung, und Volkswirtschaft, edited by Gusav Schmoller — commonly known as Schmollers Jahrbuch — was one of the most important and influential economics journals of the nineteenth century. Schmoller was the leader of the younger German Historical School and the main opponent of Carl Menger in the Methodenstreit, or battle over methods, that raged between the German historicists and the fledgling Austrian School. (It was Schmoller and his followers who coined the phrase “Austrian School,” the word Austrian being synonymous, among German-speaking intellectuals, for provincial and second-rate). Schmoller and his school are little known to contemporary social scientists, suffering the same fate that befell their American disciples, the Institutionalists Thorstein Veblen, John R. Commons, and Wesley Clair Mitchell. (As Coase once remarked: “Without a theory they had nothing to pass on except a mass of descriptive material waiting for a theory, or a fire.”)
To my surprise I received an email today announcing a new issue of Schmollers Jahrbuch. I had no idea the journal was still being published. The announcement was for a special issue, “Schmoller’s Legacy for the 21st Century.” Papers include “Schmoller’s Impact on the Anglophone Literature in Economics” by Geoffrey Hodgson, “Schmoller and Modern Sociology” by Yuichi Shionoya, “Gustav Schmoller, His Heirs and the Foundation of Today´s Social Policy” by Gerold Blümle and Nils Goldschmidt, and “Gustav Schmoller and Globalisation” by Heinz Rieter and Joachim Zweynert.
Incidentally, Murray Rothbard used to tell the story that during an intense (but friendly) disagreement between himself and Mises at Mises’s New York seminar Mises teasingly called him a “Schmollerite” — the ultimate insult to an Austrian economist!
Lessig on the Two Economies
| Peter Klein |
The Internet has given us an alternate, parallel economy, says Lawrence Lessig:
One economy is the traditional “commercial economy,” an economy regulated by the quid pro quo: I’ll do this (work, write, sing, etc.) in exchange for money. Another economy is (the names are many) the (a) amateur economy, (b) sharing economy, (c) social production economy, (d) noncommercial economy, or (e) p2p economy. This second economy (however you name it, I’m just going to call it the “second economy”) is the economy of Wikipedia, most FLOSS development, the work of amateur astronomers, etc. It has a different, more complicated logic too it than the commercial economy. If you tried to translate all interactions in this second economy into the frame of the commercial economy, you’d kill it.
Lessig is an articulate and passionate advocate for legal rules that favor this second economy. I think he tends to overstate the differences between the two economies, and that a single set of behavioral models, frameworks, theories, etc. works fine for both. Hence I’m not convinced that special rules are needed to promote what Lessig calls the “hybrid” economy, one that links the first and second economies. But his thoughts on licensing practices like FLOSS (not to be confused with Foss) that “inspire the creative work of the second economy, while also expanding the value of the commercial economy” are worth reading.
For alternative perspectives on the relationship between norms and law in cyberspace compare Lessig’s Code and Bruce Benson’s “The Spontaneous Evolution of Cyber Law.”
Is the Corporation a Creature of the State?
| Peter Klein |
Piet-Hein van Eeghen argues in the Journal of Libertarian Studies (1, 2) that the corporation’s “entity status” — from which attributes such as limited liability and perpetuity are derived — is an artificial product of state intervention, a feature of the commercial landscape that wouldn’t exist in a truly free market. I think Eeghen is wrong, partly for failing to distinguish between limited contractual liability (which is achievable through contract) and limited tort liability (which isn’t). Limited contractual liability was a standard feature of joint-stock companies long before limited liability became the default rule in English common and statutory law, as Henry Hansmann (among others) has pointed out.
Anyway, for an interesting and lively debate on the corporation’s status in the free market, see this exchange (and the links therein) between Sean Gabb and Stephan Kinsella.
University of Arizona Program on Law and Entrepreneurship
| Peter Klein |
The University of Arizona’s McGuire Center for Entrepreneurship and James E. Rogers School of Law have teamed up to create a joint program in law and entrepreneurship. The first project is a mock law firm, composed of students from the intellectual property, entrepreneurial law, corporate law, and tax law areas of the law school, that will advise business-student teams in the McGuire Center’s entrepreneurship program. Says law professor Darian Ibrahim: “There isn’t all that much interdisciplinary work in this area, but interest is building among scholars. I feel like we’re on the precipice of something that’s really about to take off.”
25 September 2006 at 11:29 am Peter G. Klein Leave a comment
Should Universities Do Research?
| Peter Klein |
It is usually taken for granted that scientific research is a public good, is undersupplied by the market, and must therefore be provided by government. I think the argument for public funding is actually much weaker than is typically assumed. (More on that in a subsequent post.) Regardless of the funding source, however, what is the optimal delivery vehicle? Should universities be the main centers of scientific research?
For over two-thirds of the 370 year history of Harvard University, that institution was considered to be predominantly an undergraduate teaching institution. Only at the end of the 19th century did the German research university model find its way to the U.S., first at Johns Hopkins University, and then rapidly at other schools throughout the land.
There are other places at which research is performed, and the relative importance of these other research venues is substantial. . . . Yet universities have been considered the dominant provider of basic research — discovering new insights into the human condition and physical phenomena. In 2003, about 55 percent of basic research was university conducted.
The great advantage of university funded basic research is that there are sometimes economies of scale and cross-fertilization of ideas by having research conducted in a learning community where students mingle with faculty. The students transition to becoming mature researchers by assisting the senior researchers while studying. Yet there are other research models that work well — private firm research centers, government research labs, and in the social sciences, think tanks. More research is needed into the relative costs and benefits of these alternative forms of research delivery.
This is from Richard Vedder, whose blog offers excellent, provocative commentary on the problems facing contemporary higher education.
Simon on Hierarchy
| Nicolai Foss |
I have always been surprised and somewhat disturbed by the tendency in Herbert A Simon’s work to elevate hierarchy and organization over markets. Of course, Simon was a liberal democrat — but he was also a great scientist.
The most visible expression of this tendency is probably Simon’s heavily cited 1991 paper in the Journal of Economic Perspectives, “Organizations and Markets.” Another manifestation of the tendency is Simon’s even more (in fact, much more) famous 1962 paper, “The Architecture of Complexity,” in which hierarchical structure is seen as the master-principle for understanding “the architecture of complexity.”
In an interesting paper, “Hierarchy and History in Simon’s ‘Architecture of Complexity’,” UCLA professor Philip Agre argues that Simon’s paper arose as a critique of general systems theory and its attempt to elevate self-organization over any hierarchical principles. He furthermore sees Simon’s argument as very strongly reflecting the general tenor of the times, what may be called McNamaraism (tellingly, Chandler’s Strategy and Structure was also published in 1962); thus, “… the patterns that Simon discerned became visible within the larger context of the time.”
Does Bounded Rationality Justify Paternalism?
| Peter Klein |
Herbert Simon’s notion of “bounded rationality” has long been an important concept in organization theory (March and Simon, 1958; Cyert and March, 1963). More recently, bounded rationality is invoked by Oliver Williamson to explain why real-world contracts are incomplete, and why specialized “governance structures” are needed to handle the coordination and incentive problems produced by unanticipated change. But does bounded rationality have political implications?
John Cassidy’s recent New Yorker article on “neuroeconomics” suggests that because of bounded rationality, and cognitive biases more generally, individuals cannot be trusted to act in their own best interests, and that paternalistic measures such as forced savings and mandatory “cooling off” periods before making large purchases protect people from making foolish and irrational decisions.
Ed Glaeser doesn’t buy it: “[F]laws in human cognition should make us more, not less, wary about trusting government decisionmaking. After all, if humans make mistakes in market transactions, then they will make at least as many mistakes in electing representatives, and those representatives will likely make mistakes when policymaking.” He’s right, of course — a straightforward application of comparative institutional analysis. (Via Russ Roberts)
NB: For some implications of bounded rationality for the modern theory of the firm see this article.
Update: Listen to Glaeser discuss “soft paternalism” here.
Is Selective Intervention Really “Impossible”?
| Nicolai Foss |
One of the most difficult notions in the theory of the firm is surely that of “selective intervention,” and particularly the associated notion of the “impossibility of selective intervention.” These terms were coined by Oliver Williamson to describe attenuation of incentives that accompanies integration (see this book, chapter 6). What Williamson calls “the fiction of selective intervention” refers to the thought experiment of one big firm replicating small firms for all activities “save those for which the expected net gains from intervention could be projected.” If this were possible, all economic activity, Williamson argues, would be organized in a single firm.
What then are the reasons why “selective intervention” thus defined is a “fiction”? (more…)
Reciprocal Harm
| Peter Klein |
Coase’s concept of reciprocal harm, illustrated by Jerry Scott and Jim Borgman:
You serious types may prefer Eric Claeys’s paper “Jefferson Meets Coase: Train Sparks, the Harm-Benefit Distinction, and Natural Property Rights.” On externalities more generally, Andy Barnett and Bruce Yandle’s “The End of the Externality Revolution” is worth a look.
17 September 2006 at 12:18 am Peter G. Klein Leave a comment
What’s in a Name? Property Rights, Legal Rights, and Economic Rights
| Nicolai Foss |
I tend to find the property rights approach associated with such economists as Coase, Demsetz, Alchian, and perhaps particularly Yoram Barzel extremely useful, informative, and insightful. (I also find their approaches more generally useful than the more recent property rights approach associated with Oliver Hart and his colleagues and students; on the differences between the “old” and the “new” property rights approaches, see this paper). It spans multiple level of analysis, and its explanatory reach seems to me to be huge. Most of my papers over the last few years utilize property rights notions in one way or another.
However, I have found that there are some basic difficulties of communicating property rights economics. It is not so much a matter of too many people (still) arguing that the Coase theorem “doesn’t hold” (usually the same types who argue that PD games are “wrong”). (more…)
Infotopia
| Peter Klein |
From Knowledge Problem I learn of Cass Sunstein’s new book Infotopia: How Many Minds Produce Knowledge. Mike Giberson reflects on the obvious Hayekian parallels. And see these thoughtful remarks by Lynne Kiesling. (Here are some less insightful comments on Wikis and Digg.)
Down With Spitzer
| Peter Klein |
Professor Bainbridge reviews Brooke Masters’s biography of Eliot Spitzer:
A fair reading of Eliot Spitzer’s record as presented by Masters suggests that he is both a genuine cause crusader and a career political hack. Spitzer has consistently used — and abused — his authority as New York attorney general to level sweeping accusations against a wide swath of American business. In some cases, like the proverbial stopped clock, he got it right. In a lot of cases, however, the much ballyhooed charges got a lot of press attention but then quietly went away. Indeed, on the few occasions he’s taken one of these high profile business cases to trial, he’s lost at least as often as he’s won. Instead, his record consists mainly of using media pressure to extort settlements from frightened executives.
Oh, and by the way, down with Giuliani too.
Organizations and Markets 
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