Posts filed under ‘– Klein –’
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.
Has Marketing Advanced Beyond the 17th Century?
| Peter Klein |
The Spanish Jesuit Baltasar Gracián y Morales (1601-58) could teach an MBA course in marketing:
Know how to sell your wares, Intrinsic quality isn’t enough. Not everyone bites at substance or looks for inner value. People like to follow the crowd; they go someplace because they see other people do so. It takes much skill to explain something’s value. You can use praise, for praise arouses desire. At other times you can give things a good name (but be sure to flee from affectation). Another trick is to offer something only to those in the know, for everyone believes himself an expert, and the person who isn’t will want to be one. Never praise things for being easy or common: you’ll make them seem vulgar and facile. Everybody goes for something unique. Uniqueness appeals both to the taste and to the intellect.
OK, a bit of a cheap shot against marketing theory, I admit. Then again, if it weren’t for the marketing department — with its “Five Ps” approach to analysis — who would the other business-school departments have to look down on?
Seriously, some of the best work in transaction cost economics has been done by marketing scholars such as Erin Anderson and George John. Erin’s papers “The Salesperson as Outside Agent or Employee: A Transaction-Cost Analysis” (Marketing Science, 1985) and “Integration of the Sales Force: An Empirical Examination” (with David Schmittlein, RAND Journal, 1984) are classics. (HT to Jordan Ballor for the Gracián quote.)
More on Elite Universities
| Peter Klein |
We reported previously on Kim, Morse, and Zingales’s paper “Are Elite Universities Losing Their Competitive Edge?” The paper documents a sharp reduction in the marginal benefits to faculty of being affiliated with top research universities. Monday’s W$J has some anecdotal evidence on the value of elite universities to their students. It turns out that most CEOs of major US companies did not attend Ivy League schools, but rather their local state university or a smaller, less-known college. Wal-Mart’s H. Lee Scott went to Pittsburg State University in Kansas, Intel’s Paul Otellini to the University of San Francisco, Costco’s James Sinegal to San Diego City College, and Accenture’s Bill Green to Dean College in Massachusetts. Warren Buffet attended the University of Nebraska. And we all know about Bill Gates.
Commentator Richard Tedlow notes that “A lot of people who earn degrees from tier-one universities and business schools aren’t willing to start at the bottom of a huge company,” working their way up and learning important lessons along the way. Says Proctor and Gamble’s A. G. Lafley, who went to Hamilton College, “I learned to think, to communicate, to lead, to get things done.” For this, “Any college will do.”
Conference on Social Science Statistics
| Peter Klein |
Attention, _______ometricians (econ, psych, soci, cli . . . ). The University of Missouri is hosting the Winemiller 2006 Conference on Methodological Developments of Statistics in the Social Sciences, October 11-14. Topics include structural equations modeling, multilevel models, cluster analysis, social networks, measurement theory, Bayesian methods, survey data analysis, computational issues, and missing data.
If you don’t do quantitative research come anyway and join me for a protest rally outside the conference facility, where we’ll chant “Case Studies Forever!” and burn a stack of SAS manuals. (Not really.)
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.
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
More on Global Warming
| Peter Klein |
If you enjoyed our previous discussions of Greenland, and global warming more generally, check out these items from Der Spiegel. Here is one on Greenland agriculture (along with a great slide show). This one explains how global warming reduces the costs of oil production. (Via Arts & Letters Daily.)
The Make-and-Buy Decision
| Peter Klein |
Two new papers address bi-sourcing: Why do some firms simultaneously produce their own inputs and purchase the same inputs from external suppliers? Julan Du, Yi Lu, and Zhigang Tao’s “Why Do Firms Conduct Bi-Sourcing?” (Economics Letters, August 2006) uses bargaining theory to show how simultaneously making and buying can mitigate the holdup problem associated with exclusive reliance on an external supplier. Daifeng He and Jackson Nickerson’s “Why Do Firms Make and Buy? Efficiency, Appropriability, and Competition in the Trucking Industry” (Strategic Organization, February 2006) tells a more nuanced story in which “the interaction of efficiency, appropriability and competition concerns” explains simultaneous bi-sourcing. He and Nickerson provide empirical analysis inconsisent with market-power, capacity-constraint, agency-theoretic, and property-rights explanations for the results.
Both papers contribute to a growing understanding that vertical relationships are frequently more subtle and complex than what can be captured by simple “make-or-buy” models. (Even our canonical examples deserve further scrutiny.)
Outliving Your Enemies
| Peter Klein |
Most of us know the quip “science progresses one funeral at a time.” The reference is to Thomas Kuhn’s Structure of Scientific Revolutions, and this passage in particular: “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.” (A line Kuhn borrows from Max Planck.)
I recently heard an amusing illustration. J. Harlen Bretz was a geologist who studied a large area called the Channeled Scablands in eastern Washington, Idaho, and western Montana in the early 1920s. He concluded that this area had suffered a massive, ancient flood during the melting of the glaciers during the last ice age. For decades no one believed him, but finally his findings became generally accepted in the 1970s, when Bretz was in his 90s. Asked how it felt to be vindicated after so many years; he reportedly said “All my enemies are dead, so I have no one to gloat over.”
Nothing New Under the Sun
| Peter Klein |
Back when the “New Economy” was in vogue I enjoyed challenging the claim that the “new” phenomena were really new. Before the internet, there was the telegraph. Before the Yahoo! directory there was the telephone book. Before the personal computer there was electric service, the refrigerator, the washing machine, the telephone, and the VCR. In short, such breathlessly touted phenomena as network effects, the rapid diffusion of technological innovation, and highly valued intangible assets are nothing new.
Now comes an interesting paper in the current issue of Economic History Review by Jochen Streb, Jörg Baten, and Shuxi Yin, “Technological and Geographical Knowledge Spillover in the German Empire 1877-1918.” The authors use patent and geographic data to identify four distinct technological waves during this period, drive by innovation in railways, dyes, chemicals, and electrical engineering, respectively. The general claim is that “inter-industry knowledge spillovers between technologically, economically, and geographically related industries were a major source for innovative activities during German industrialization,” and that “technological change affected the geographical distribution of innovative regions.” A nice application of the modern literature on clusters, innovation, and knowledge spillovers to the recent past. Perhaps Ecclesiastes was right after all.
14 September 2006 at 10:44 am Peter G. Klein Leave a comment
Economics and Sociology: Gains from Trade?
| Peter Klein |
Indiana University’s Fabio Rojas, who blogs at orgtheory.net, has an interesting paper, “Economics and Sociology: What are the Gains of Trade?,” forthcoming in Geoff Hodgson’s Journal of Institutional Economics. A review and critique of contemporary economic sociology, the paper points out that “research findings and theoretical developments [in economic sociology] are rarely reconciled or integrated with economic research.” Moreover, the critics tend to deal with a stylized, and rather stale, caricature of neoclassical economics, rather than the best work in modern organizational economics, Austrian or evolutionary economics, or the newer strand of behavioral research (a point made repeatedly on these pages). A good read.
14 September 2006 at 12:30 am Peter G. Klein Leave a comment
Swedish Economists
| Peter Klein |
When Sweden was hit by a deep economic crisis in the fall of 1992 and was forced to abandon the pegged exchange rate, the government appointed a commission of primarily university economists under the chairmanship of Assar Lindbeck, the most well-known economist in the country at the time. The commission was assigned to present an analysis of the problems facing Sweden. Appearing in March 1993, the report had a major impact in the media and in public debate. Several of its 113 proposals eventually served as a source of inspiration for political action.
This event illustrates the strong position of the economics profession in Swedish society -— no historians, philosophers, management consultants or former political leaders were considered for this task, as may have been the case in other countries. Economists play a prominent role in public debate in Sweden, many appear on radio and television, write for the daily press, magazines and books, and serve as experts on government inquiries and commissions. In Sweden, economists probably have more influence than any other category of social scientists.
This is from “Knut Wicksell, Gustav Cassel, Eli Heckscher, Bertil Ohlin and Gunnar Myrdal on the Role of the Economist in Public Debate” by Benny Carlson and Lars Jonung in the September 2006 issue of EconJournalWatch. Can any of our Nordic readers explain why Swedish economists have so much influence? (And if so, why the Swedish economy isn’t in better shape?)
N.B.: Also recommended, from the same issue of EconJournalWatch, is the exchange between Robert Lawson and critics on the use of the Gwartney et al. Economic Freedom Index.
Majoring in IBM
| Peter Klein |
Allowing students to write their own textbooks is controversial enough. What if IBM wrote them?
When graduate students at North Carolina State University took their seats on the first day of a class called Services Management, the kickoff lecture wasn’t delivered by a professor. Instead, it was given by a manager from International Business Machines Corp.
The company, in fact, helped develop the curriculum and awarded grants to the school with the expectation that the course would be taught — all with the aim of producing graduates better prepared to work for IBM.
This is from a report in today’s W$J on a growing trend toward business-school courses, and even entire curricula, designed for particular firms. (Disclaimer: I am affiliated with this.)
12 September 2006 at 12:20 pm Peter G. Klein Leave a comment
Coase and the Myth of Fisher Body
| Peter Klein |
I vividly recall, at the inaugural meeting of the International Society for New Institutional Economics in 1997, a discussion about the best empirical strategy for that emerging discipline. Harold Demsetz stood up and said “Please, no more papers about Fisher Body and GM!” The Fisher-GM case had become the canonical example of holdup in transaction cost economics and was considered stale and even trite. Ronald Coase, who was at the podium, replied (I’m paraphrasing from memory) “Sorry, Harold, that is exactly the subject of my next paper!”
The GM-Fisher case was introduced into the transaction cost literature by Klein, Crawford, and Alchian in their 1978 paper “Vertical Integration, Appropriable Rents and the Competitive Contracting Process.” They cited the case as a classic example of vertical integration designed to mitigate holdup in the presence of asset specificity. As the story is told, Fisher refused to locate its plants near G.M. assembly plants and to change its production technology in the face of an unanticipated increase in the demand for car bodies. This led G.M. to terminate its existing ten-year supply contract with Fisher and to acquire full ownership of Fisher.
The basic facts of the account, and the interpretation of these facts, were challenged in five independently written papers, all appearing in 2000. Three of the papers, by Coase, Casadesus-Masanell and Spulber, and Freeland, are in the April 2000 Journal of Law and Economics. A fourth paper by Helper, MacDuffie, and Sabel appears in Industiral and Corporate Change and one by Miwa and Ramseyer is in the Michigan Law Review. These papers showed that nearly every detail of the canonical account is wrong. (more…)
Introducing Guest Blogger David Gordon
| Peter Klein |
It is a delight to welcome David Gordon, Senior Fellow of the Ludwig von Mises Institute and author of The Mises Review, as our newest guest blogger. David is a philospoher and intellectual historian whose expertise encompasses — well, pretty much everything. He has written extensively on methodology, epistemology, political philosophy, the history of economic thought, and other subjects. His bibliographic knowledge is immense. And he knows (and appreciates) more bad jokes than I do. (Did I mention that he’s also an authority on professional wrestling?)
We look forward to David sharing his wit and wisdom over the next few weeks. Welcome, David!
Quote of the Day
| Peter Klein |
As a regular feature at O&M we will begin sharing our favorite quotations, particularly on days when we have nothing original to say. Today, as a professional educator and amateur cynic, I offer this classic passage from H.L Mencken, describing the condition of American universities, circa 1928:
[T]he great majority of American colleges are so incompetent and vicious that, in any really civilized country, they would be closed by the police. . . . In the typical American state they are staffed by quacks and hag-ridden by fanatics. Everywhere they tend to become, not centers of enlightenment, but simply reservoirs of idiocy. Not one professional pedagogue out of twenty is a man of any genuine intelligence. The profession mainly attracts, not young men of quick minds and force of character, but flabby, feeble fellows who yearn for easy jobs. The childish mumbo-jumbo that passes for technique among them scarcely goes beyond the capacities of a moron. To take a Ph.D. in education, at most American seminaries, is an enterprise that requires no more real acumen or information than taking a degree in window dressing. . . . Their programs of study sound like the fantastic inventions of comedians gone insane. — H.L. Mencken, “The War Upon Intelligence,” Baltimore Evening Sun, December 31, 1928.
I leave it to the reader to assess how much things have changed.
Against Freakonomics
| Peter Klein |
We’ve discussed the Freakonomics phenomenon on these pages, but said little about the substance of Levitt and Dubner’s famous book. (Nicolai offered some brief remarks here — scroll down to the 15 August entry — in the dark days before Organizations and Markets.)
Several new critiques are floating around. Gene Epstein’s book Econospinning: How to Read Between the Lines When the Media Manipulate the Numbers challenges the chapters on real-estate agent services and the abortion-crime link. And from Division of Labour I learn that Ariel Rubinstein reviewed the book, quite harshly, for Haaretz. Rubenstein thinks the book is clever and entertaining, but not really economics. He also takes Levitt and Dubner to task for playing fast and loose with the facts. (more…)
Wikis Are Great, But. . . .
| Peter Klein |
Like Mike Giberson, I’m high on wikis. Of course, as with any open-source product wikis have both strengths and weaknesses compared with conventional, more hierarchical production methods. For many applications, though, the wiki model seems to work remarkably well.
But should students write their own textbooks? My former colleague Rick Watson thinks so. Here is the website of his Global Text Project, an attempt to create free, open-source textbooks for students in the developing world. Great tagline: Engaging many for the benefit of many more. (You expect clever verbiage from a guy who came up with the acronym CISL — go on, say it out loud — for his center.) Here is the projects’s blog. Here is a press release. (Via Dorai Thodla)
“Coase and Simon Got It Right, Alchian and Demsetz Got It Wrong”
| Peter Klein |
A reader asks: “In a response to a prominent economist who asked ‘what have we learned about . . . organizations,’ you provided a list that began with ‘Organizations can have market-like features, but are inherently different from markets. I.e., authority is real — Coase and Simon got it right, Alchian and Demsetz got it wrong.’ What are the major papers that led to this conclusion?”
I have in mind the Alchian-Demsetz notion that the firm is a legal fiction, a convenient label for a nexus of contracts. (Recall the famous passage in their 1972 paper about “firing the grocer.”) Classic formulations of the opposite view — that the firm does, in fact, have some power of fiat — come from the two Olivers, Williamson and Hart. (more…)
Sometimes I Wish I Were a Professor of “Critical Studies”
| Peter Klein |
Then I could write sentences like this:
Gang of Four locate their Marxist theory in the Althusserian notion of expressing resistance through the contradictions inherent in the Ideological State Apparatuses (ISA) of the corporate-controlled rock music industry, and the way in which Gang of Four express their theory of Marxist thought is by inducing in the listener an alternative consciousness achieved through contradictions and disorientations that serve to mirror the very sense of disorientation and contradiction that capitalistic consciousness creates.
The reference is to the pop group group Gang of Four, not this Gang of Four (or, for that matter, this one). I suppose the analysis is deep, in a critical studies kind of way. (Crooked Timber has all the gory details.)
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