Posts filed under ‘Institutions’
Emergence of the East India Company
| Peter Klein |
An example of spontaneous order in the emergence of the large firm: Emily Erikson and Peter Bearman’s “Routes into Networks: The Structure of English Trade in the East Indies, 1601-1833,” forthcoming in the American Journal of Sociology. Working paper here. Abstract:
Drawing on a remarkable data set compiled from ships’ logs, journals, factory correspondence, ledgers, and reports that provide unusually precise information on each of the 4,572 voyages taken by English traders of the East India Company (hereafter EIC), the authors describe the EIC trade network over time, from 1601 to 1833. From structural images of voyages organized by shipping seasons, they map the (over time and space) emergence of dense, fully integrated, global trade networks: of globalization before globalization. The paper shows that the integration of the world trade system under the aegis of the EIC was the unintended by-product of systematic individual malfeasance (private trading) on the part of ship captains seeking profit from internal Eastern trade.
The paper even gets a plug from Scientific American:
The researchers . . . describe how many rogue captains ignored orders to trade in established markets and then return directly to England, choosing instead to explore new locations and trade between local Asian ports for their own personal profit. Although they were breaking the law by appropriating supplies and ship crews for this private trading, in doing so they ultimately benefited the East India Company by building a larger market and gaining a unique knowledge of local market fluctuations.
Via Craig Newmark. Related: my earlier post on market-based management.
Patently Silly
| Peter Klein |
It’s a bit unfair to interrupt our serious discussion of intellectual property by taking cheap shots at the US Patent Office, but I can’t resist plugging Patently Silly by Daniel Wright and Alex Eben Meyer. You’d be surprised what the USPTO considers unique, useful, and non-obvious.
(NB: When I worked at the CEA a few years ago, I once asked a USPTO official for his perspective on the marginal benefits and costs of various patent characteristics (length, breadth, etc.), including the pros and cons of having a patent system at all. He literally could not understand what I was talking about. When I brought up the possibility that a patent examiner could make a mistake, and grant legal protection for an invention that was not unique or useful, he stated flatly: “We don’t make those mistakes.”)
Remind Me, Who Are the Commies?
| Peter Klein |
From the June Harper’s Index:
Price for which China will rent out Beijing’s Great Hall of the People: $12,000
Percentage of Chinese who say the free market is “the best system on which to base the future of the world”: 74
Percentage of the French who say this: 36
(HT: LRC blog)
Addendum: Joe Carter misses the real commies. E.g.:
Remember when the perfect dis was to call someone a pinko? “You don’t eat meat? What, are you . . . communist?” For some reason, “You don’t eat at McDonalds? Are you some kind of anti-globalist?” just doesn’t have the same bite.
Intellectual Property: The New Backlash
| Peter Klein |
In the “new economy” or “knowledge economy” literature it is taken for granted that strong intellectual-property protection is not only efficient, but also just and fair. Without the temporary monopoly protection granted by copyrights and patents, who would have sufficient incentive to innovate? And don’t innovators deserve to reap the benefits of their creations?
There have always been doubters, and lately the critics have become more vocal. Stephan Kinsella makes a strong normative case, based on libertarian principles, against legal protection for intangibles. (See also his bibliography and blog.) For the utilitarian case against IP see Michele Boldrin and David Levine’s Against Intellectual Monopoly (and their blog). And for a summary of arguments against using patent counts to measure innovative activity see this article by Pierre Desrochers.
Keynes on Ethnic Homogeneity
| Nicolai Foss |
Here is John Maynard Keynes speculating on the ideal postwar order in Europe:
A view of the post-war world which I find sympathetic and attractive and fruitful of good consequences is that we encourage small political and cultural units, combined into larger, and more closely knit, economic units. It would be a fine thing to have thirty or forty capital cities in Europe, each the center of a self-governing country entirely free from national minorities (who would be dealt with by migrations where necessary) and the seat of government and parliament and university center, each with their own pride and glory and their own characteristics and excellent gifts. But it would be ruinous to have thirty or forty entirely independent economic and currency uniions” (from Robert Skidelsky. 2000. John Maynard Keynes, Vol. 3., cited in Deepak Lal. 2004. In Praise of Empires, p.59; my emphasis).
Skidelsky notes that “this pleasing picture of a re-medievalised Europe did not survive in later drafts.” Perhaps Keynes got cold feet when he recognized that his proposal would effectively entail ethnic cleansing.
Latent Variables and Structural Equations Modeling
| Peter Klein |
Among my PhD students I note an increasing interest in structural equations modeling (SEM), particularly for working with latent variables. One student’s dissertation uses SEM to study the effect of the institutional environment on entrepreneurship, treating entrepreneurship as a latent variable and using measures of new business starts, patent filings, and the like as the corresponding manifest variables. Another student is using SEM to examine free-riding among members of a large cooperative, with various observable behaviors serving as indicators for the latent variable free-riding.
More generally, SEM is becoming a standard tool in management, where abstract concepts like trust, knowledge, capabilities can (potentially) be modeled as latent variables in a system of equations. Indeed, when I visited Nicolai in his office in Copenhagen a couple of weeks ago, the first thing I noticed on his desk was a LISREL manual, prominently displayed on the corner. (He assures me it is not for show.) (more…)
Elgar Companion to Transaction Cost Economics
| Peter Klein |
I’m pleased to announce that I am editing, along with my colleague Michael E. Sykuta, a new entry in the Elgar Companion series: The Elgar Companion to Transaction Cost Economics. The volume will contain several dozen encyclopedia-style entries on the TCE’s foundations and basic principles, precursors and influences, modeling approaches, empirical research, applications, and critiques. Look for publication in late 2007 or early 2008.
The New Legal Realism
| Peter Klein |
Oliver Williamson attributes to Karl Llewellyn the idea of contracts as frameworks for structuring relationships rather than abstract, formal rules that apply independent of context. Llewellyn was also a founder of legal realism, an early-twentieth-century movement to make the study of law not only more pragmatic and realistic, but also more firmly grounded in modern social science. Llewellyn's writings don't appeal to everyone, but his ideas have been revived by a movement known as the New Legal Realism. The new legal realists aim
to develop rigorous, genuinely interdisciplinary approaches to the empirical study of law. In recent years, legal academics have shown renewed interest in social science. However, to date there has been no organized paradigm within the legal academy for translating and integrating diverse social science disciplines and methodologies. NLR scholarship pays systematic attention to this process of translation and integration. Like the "old" legal realists, we seek to bring the best of current social science and legal scholarship to bear on important policy issues of our day — but with the benefit of several generations of new knowledge.
The blog Empirical Legal Studies is running a series on this (1, 2, 3, 4, 5, more to come). Brian Leiter is not impressed. I'm not sure exactly what it all means for the economic analysis of contracting and organization but plan to follow the debate, at least from afar. (HT: Conglomerate Blog)
Nudity, Law, and Social Norms
| Peter Klein |
From Bryan Caplan I learn that Berkeley's "Naked Guy," a campus fixture during my graduate-school years there in the early 1990s, committed suicide last week. Bryan, then a Berkeley undergraduate, adds this astute observation: "At the time, I often pointed out that the Naked Guy was proof that social norms, not the law, were the foundation of civility: Even if nudity were legalized, only one student out of tens of thousands would take it all off."
The importance of informal norms and social conventions is increasingly recognized in economics (and law). The literature in this area goes back at least to Menger's (1883) analysis of institutions, and includes contributions from Schelling (1960), Ullman-Margalit (1977), Schotter (1981), Sugden (1986), Benson (1990), and Ellickson (1991). Recent work by Baker, Gibbons, and Murphy (2002) on relational contracting, focusing on the narrower question of firm boundaries, belongs on this list as well. This literature interprets social norms as equilibrium solutions to the kinds of coordination games popularized by Schelling (1960). Credible threats of reciprocity are the key. In these models agents abide by informal rules not out of a sense of moral duty, or from a process of unconscious socialization, but because it is in their rational self-interest to do so.
My sense is that management theory, and organizational behavior in particular, has yet to grapple with the insights from this strand of literature. Am I wrong?
Review Paper on the Economics of Clusters
| Peter Klein |
Pierre Desrochers calls my attention to this review essay for practitioners on the economics of clusters, published by Brookings in March. The paper cites Pierre's Review of Austrian Economics paper with Frederic Sautet, whch is a good sign.
New Institutional Economics: What My Students Ask
| Peter Klein |
At the September 2005 meeting of the International Society for New Institutional Economics (ISNIE) in Barcelona I participated in a roundtable organized by Claude Menard and Mary Shirley, “Challenges and New Directions in NIE,” celebrating the Handbook of New Institutional Economics (Springer, 2005). Because I teach a required first-year PhD course in the NIE, I thought it would be interesting to discuss how students react to the material as the seek to integrate it with what they are learning in the general economics curriculum. Many scholars research and teach aspects of the NIE, but only rarely step back and evaluate the entire field, as a whole. Preparing to teach this course for the first time last year gave me an opportunity to do so.
Here are the most common questions students ask about the NIE and my course, “Economics of Institutions and Organizations”:
1. Is this a tools course or a field course?
In other words, is the NIE foundational to all fields of economics (and, possibly management), or an applied field like industrial organization, labor economics, international trade, etc.? (more…)
A Fruity Response
| Peter Klein |
Much of the resistance to markets and “market-like” mechanisms within firms seems to flow from a belief that market exchange is somehow crass, profane, and uninspiring, at least compared to communal or family relationships. An example is the horrified reaction of many bioethicists to economists’ proposals to allow markets for cadaveric organs, particularly kidneys.
I’ve avoided commenting on the organ-market controversy, though I’ve been using it as an example in my introductory courses for years. I have little to add to the excellent discussions by Kaserman and Barnett, Epstein, Mankiw, Becker, etc. (not to mention this observation from Robin Hanson). But I can’t resist pointing to a letter in today’s Wall Street Journal by one Charles Fruit, chairman of the National Kidney Foundation. Responding to Richard Epstein’s earlier op-ed in favor of markets, Mr. Fruit declares himself “among the millions of other ‘high-minded moralists’ who oppose treating life-saving organs as commodities.” Closing his letter with a presumed coup-de-grâce, Fruit adds: “We moralists can only pray that [Epstein’s] proposed market mechanism for the transaction of hearts, lungs, kidneys and other life-saving human organs would work a little better than it does for the nation’s consumers of gasoline.”
Cute. But how exactly should gasoline be allocated to consumers? (more…)
Multi-Culturality and Economic Organization
| Nicolai Foss |
Transaction cost scholars have increasingly become interested in the way economic organization is shaped by the “institutional environment,” for example, how the legal regime impacts internal organization or the boundaries of the firm (e.g., this paper). A paper that seems to have stimulated much of this is Oliver Williamson’s 1991 paper on “Comparative Economic Organization.”
To my knowledge relatively little interest has been devoted to the how the softer rules of the game, notably those that may be placed under a “culture” heading may impact economic organization, although quite some research in international business has dealt with this (e.g., this paper).
As far as I know no research has dealt with the implications of “multi-culturality” within a given territory for economic organization. (more…)
Great Euro PhD Initiative — But Application Deadline Is Today
| Nicolai Foss |
The EU-supported research network, “Dynamics of Institutions and Markets in Europe” (DIME) is arranging a “PhD day” in collaboration with the Danish Research Unit of Industrial Dynamics (DRUID) in Copenhagen on Saturday 17 June, just prior to the annual DRUID conference.
At this event, PhD students present their research and receive guidance and commentary from faculty associated with DIME and DRUID plus invited members from the international DRUID Advisory Board . Faculty and student interests typically centre on questions of organization and economic theory, technology management and firm strategy, learning and innovation systems and the co-evolution of industrial structure, organizational structure, and innovation.
According to the organizers, (more…)
Malthus and the Most Cited Economist in the World
| Nicolai Foss |
Who is the world's most cited economist? I thought Ronald Coase. When I asked some of my economist colleagues they virtually all came up with either Kenneth Arrow or John Maynard Keynes.
No, says Geoff Hodgson, Research Professor at the University of Hertfordshire, UK, and one of today's leading "heterodox" economists. It's Oliver Williamson. Geoff says so announcing the following event:
Williamson will give the Second Malthus Lecture, organized by Geoff Hodgson, at 6pm on Thursday 19th October at the University of Hertfordshire, in the Fielder Centre in Hatfield, UK. All are welcome. The topic of Williamson's lecture will be: "Corporate Governance and Economic Organization: A Contractual and Organizational Perspective." The First Malthus Lecture — commemorating the Hertfordshire economist Thomas Robert Malthus — was given by Nobel Laureate Douglass North in May 2005.
I am sure the management-gurus-turned-economics-bashers that I critized in my post of yesterday will be delighted by the association between Malthus — who was the reason why economics was christened the "dismal science" — and Williamson!
Jane Jacobs and Economies of Diversity
| Peter Klein |
American-born Canadian writer and activist Jane Jacobs, author of The Death and Life of Great American Cities (1961), Cities and the Wealth of Nations (1984), and other important works on urban issues, died last week at age 89. (Jacobs never held a university post, and the obituary writers weren't sure what to call her; the Toronto Star chose "urban philosopher," suggesting to younger readers a hip-hop artist or tagger.) Lynne Kiesling at Knowledge Problem summarizes some of the Jacobs commentary around the web. (See also this from Gene Callahan and Sandy Ikeda and this from Leonard Gilroy.)
My interest in Jacobs's work stems, in part, from a current project on the economics of clustering in agro-biotechnology. My reading of the economic geography literature suggests that it tends to overstate the advantages of localization (proximity to key suppliers or buyers, access to specialized, tacit knowledge from similar firms, etc.) while downplaying the importance of economies of urbanization or diversity, an equally important kind of agglomeration. Readers, please correct me if this impression is wrong.
Besides classic works on economies of urbanization by Jacobs, Rosenberg (1963), and Henderson (1988), I like this paper by Pierre Desrochers, and this one by Desrochers and Frederic Sautet.
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