Posts filed under ‘– Klein –’
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.)
The Treatment of Frequency in Transaction Cost Economics
| Peter Klein |
Every schoolboy knows that transactions are characterized by asset specificity, uncertainty, and frequency. (Every schoolboy schooled in transaction cost economics that is.) Yet, while asset specificity and uncertainty have been treated exhaustively in the literature, frequency has become the red-headed stepchild of the transaction cost triple.
As I read the TCE literature, frequency shows up in at least three distinct forms, not all of them compatible. (more…)
Swimming with the Stingrays
| Peter Klein |
Daniel Larison takes National Review’s Cliff May to task using Steve Irwin’s unfortunate death to score political points. “Poor Steve Irwin. He not only died in a horrible accident, but something far worse has happened to him: his death has become a kind of cautionary tale for neoconservative foreign policy. Leave the poor man alone, for goodness’ sake!”
It made me wonder: How long before someone makes Irwin’s death into a cheesy management metaphor? You know what I’m talking about. The competition is like a giant stingray, seemingly docile and minding its own businesses, but ready to lash out with its barbed tail when threatened. Or: Technology entrepreneurs, like the late Steve Irwin, think they have things under control, while danger lurks right under their feet. Spare us, please!
Economic Literacy in Fiction
| Peter Klein |
I blogged previously about the silly and boring political economy of the Star Trek universe (quoting Tim Cavanaugh’s brilliant line about Captain Kirk as “an interstellar Gen. Tommy Franks”). For those nerdy, libertarian sci-fi fans out there I offer now this analysis of the economic organization of Star Trek: Deep Space 9.
Speaking of high culture, what about that community in M. Night Shyamalan’s The Village? It’s a small town in the wilderness, completely cut off from the social division of labor, and yet the inhabitants have decent (19th-century) technology — buildings, tools, clothing, etc. (If you’ve seen the film, you know that the inhabitants actually have more advanced technological knowledge than they pretend to have, but still….) There is specialization within the village, and a little private property, but no evidence of money, prices, or exchange. How do they survive? Don’t these villagers know that trade is better than autarky? How do they solve the calculation problem? I can willingly suspend my disbelief only so far.
Industrial Entrepreneurship in Early Modern China
| Peter Klein |
Coase, Williamson, and others have long called for comparative institutional analysis across countries and across time. How do various institutional arrangements perform under alternative institutional environments? We are only beginning to understand this question. (Important contributors to the literature include Witold Henisz, Tarun Khanna, Masahiko Aoki, and various members of the Centre ATOM, among others.) Can changes in the institutional environment be regarded as exogenous “shift parameters,” as Williamson has articulated the problem, or is there a more subtle, complex co-evolution among institutions and organizational form?
These issues are raised in Madeleine Zelin’s The Merchants of Zigong: Industrial Entrepreneurship in Early Modern China (Columbia University Press, 2006), reviewed here by Carol Shiue for EH.Net. Zelin’s new book traces the history of the salt merchants of western Sichuan province, who created one of the first, vertically integrated industrial enterprises in modern China. Though not explicitly a comparative study, Zelin’s volume provides a useful companion to the landmark studies by Chandler and others of the history of modern enterprise in the West. As Shiue observes, “A recurrent theme of the book is that the business arrangements seen in the Chinese salt industry belie not only previous perceptions about the predatory influence of the ‘feudal’ state on entrepreneurial incentives in China, but also the purported uniqueness of Western business practice.”
See also Shiue’s earlier review of Zelin, Ocko, and Gardella, eds., Contract and Property in Early Modern China (Stanford University Press, 2004).
Entrepreneurship and Uncertainty Bearing
| Peter Klein |
A further point about entrepreneurial judgment: The claim that the essence of entrepreneurship is uncertainty bearing, that the entrepreneur is the party to whom gains and losses accrue in a dynamic, evolving economy, does not imply any particular view about the psychological characteristics of those individuals who perform this function. The entrepreneurial function is to bear uncertainty, regardless of how entrepreneurs interpret their own behavior.
This issue comes out in “Entrepreneurial Risk and Market Entry” by Brian Wu and Anne Marie Knott, from the September 2006 issue of Management Science (working paper version here). This paper, which has generated a lot of buzz, argues that entrepreneurs (defined here as individuals who start new businesses) are just as risk averse as other agents in the economy, but systematically tend to overestimate their own abilities. In other words, entrepreneurs engage in risky behavior even though they don’t like uncertainty, because they don’t think the results of their own actions are uncertain. (more…)
More on Artificial States
| Peter Klein |
Greg Mankiw and Amity Shales discuss applications of the Alesina, Easterly, and Matuszeski paper on “Artificial States” to US policies in Afghanistan and Iraq. The paper is fascinating, full of insight and innovative analysis. Of course, you read about it here first (with applications to management).
Classical Liberalism and Cultural Conservatism
| Peter Klein |
Astute readers will have noticed this blog’s professed interest in both classical liberalism (or libertarianism) and cultural conservatism. But are they compatible? Classical liberals are often portrayed as social and cultural libertines, products of the Enlightenment, modernism, and the secular revolt of Reason against traditional moral authority. Indeed, responding to an earlier post on the political leanings of sociologists, a commentator wrote: “I am honestly curious about how you square the rational ambitions of classical liberalism with the irrational conservative ideals on ‘orthodox Christianity’ and reliance on Authority?”
The answer is simple: classical liberalism is a political doctrine, and cultural conservatism is, well, a cultural doctrine — more precisely, a set of social, cultural, and moral beliefs or principles. (more…)
Judgment versus Alertness
| Peter Klein |
Nicolai and I have written several papers on the Knightian concept of entrepreneurship as judgment (e.g., here, here, and here). We contrast the judgment view of entrepreneurship with several other approaches, including Israel Kirzner’s idea of entrepreneurship as “discovery” or alertness to profit opportunities.
Readers and seminar participants are often confused by the distinction between judgment and alertness. We describe the judgment approach as “Austrian,” associating it not only with Knight but also with Austrian and proto-Austrian economists Richard Cantillon, Frank Fetter, Ludwig von Mises, and Murray Rothbard. But, we are asked, isn’t Kirzner an Austrian? Isn’t Kirzner’s entrepreneurial-discovery approach “the” Austrian view?
Not necessarily. Here’s why. (more…)
Is Austrian Economics Premature?
| Peter Klein |
Rafe Champion on “prematurity” in science:
This when a useful or even important discovery takes a long time to be picked up by the field at large. Mendel’s work on genetics is an example. And so is the Austrian approach to economics and social thought.
Here is Rafe’s review of Ernest B. Hook, ed., Prematurity in Scientific Discovery: On Resistance and Neglect (University of California Press, 2002), which explains it all. Personally, I prefer the moniker “ahead of my time,” but what the heck, I’ll take premature.
Transgressing the Boundaries
| Peter Klein |
Our colleagues at orgtheory.net have been reporting on the recent meeting of the American Sociological Association. I’ve enjoyed following the discussion and learning more about what our sociologically inclined brethren say about organizations. But only today did I learn that the theme of this year’s ASA meeting was “Great Divides: Transgressing Boundaries.” Where, I thought, have I heard that expression before? Then I remembered: the title of Alan Sokal’s famous hoax paper was “Transgressing the Boundaries: Towards a Transformative Hermeneutics of Quantum Gravity.”
I guess sociologists have a sense of humor after all.
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.
Measuring Organizational Form
| Peter Klein |
A reader, inspired by our discussion on organizational form, asks for references to empirical papers relating organizational form to performance. My suggestions:
1. The literature from the 1970s and 1980s on the “M-form hypothesis.” The classification scheme is described in Williamson and Bhargava, “Assessing and Classifying the Internal Control Apparatus of the Modern Corporation,” in Keith Cowling, ed., Market Structure and Corporate Behavior (London: Gray Mills, 1972). Empirical papers (you’ll have to Google them) include Armour and Teece (1978), Steer and Cable (1978), Teece (1981), Thompson (1981), Harris (1983), Cable and Dirrheimer (1983), Cable and Yasuki (1984), and Hill (1985). I’m currently working on a paper revisiting these data using some updated techniques.
2. The “diversification discount” literature in empirical corporate finance. This literature is about organizational form to the extent that organizational form is correlated with the number of industry segments, the distribution of activities across industries, or some measure of relatedness. (Among the many papers in this literature, the best known are Lang and Stulz, 1994; Berger and Ofek, 1995; Campa and Kedia, 2003, Chevalier, 2004). A few papers try to infer organizational form from past activities, such as prior acquisitions (Hubbard and Palia, 1999; Klein, 2001).
3. More direct measures include segment or subsidiary counts within a single industry (Klein and Saidenberg, 2005, Sanzhar, 2006), the ratio of administrative staff to total employees (Zhang, 2005), the number of positions reporting directly to the CEO (Rajan and Wulf, 2003), and the average number of management levels between the CEO and division managers (Rajan and Wulf, 2003).
This will all be discussed in more detail in the magnum opus.
Ken Lay Chair Still Available
| Peter Klein |
The University of Missouri is once again trying to fill the Kenneth L. Lay Chair in Economics. Drop me a line if you’re interested. But you’d better move fast.
The Corporation versus Tom Cruise
| Peter Klein |
Hollywood studios are standing up to eccentric, pampered stars like Tom Cruise and Lindsay Lohan. At last, says Professor Bainbridge, corporate studios are acting like corporations. “Once again, the public corporation and its norm of shareholder wealth maximization prove to be a force for good.” (Prof. B. is not a fan of stakeholder theory, if you didn’t know.)
On the other hand, if the dependent variable is individual film revenues, rather than film studio market value, the presence (and presumably behavior) of particular stars seems to have little impact on performance. So says Art DeVany (via Marginal Revolution).
General-Purpose Technologies and Long-Term Economic Growth
| Peter Klein |
Another interesting book review from EH.Net, this time by Joel Mokyr on Economic Transformations: General Purpose Technologies and Long-Term Economic Growth by Richard G. Lipsey, Kenneth I. Carlaw, and Clifford T. Bekar.
The book is hard to summarize because it is unusually rich and diverse. It contains long discussions of technological change, its nature, sources, and consequences. Lipsey maintains that technology is at the heart of modern economic growth and asks — once again — what the sources of Western success are. Among other things, the book also treats at length the economics of technological change, the history of science, and population dynamics. It is part grand synthesis, part textbook, part statement of the author’s idiosyncratic views, and throughout an excellent read — informed, curious, unafraid of being unconventional or politically incorrect.
And:
Lipsey joins a large number of economists who, when thinking about the long run, feel that evolutionary models are more appropriate than standard neoclassical ones.
Hopefully, as if responding to Nicolai’s plea, Lipsey et al. also discuss some policy implications of their evolutionary perspective.
Editors, Reviewers, and Academic Judgment
| Peter Klein |
Further to Nicolai’s remarks below:
1. Marginal Revolution had a thread a while back about the best economics journal editors. Don’t know of a similar discussion for other disciplines.
2. The suggestion that editors may defer too heavily to reviewers, rather than forming their own, independent judgments of quality, brings to mind a recent exchange between Leland Yeager and David Laband and Robert Tollison on what Yeager called “secondhandism.” Yeager decried the practice of hiring, promoting, and tenuring faculty based only on quantitative measures of output such as journal rankings, citations, and similar metrics. Laband (who specializes in ranking economics journals) and Tollison replied that hiring and promotion committees should rely, not on their own idiosyncratic opinions, but on the “market test.” Here is Yeager, followed by Laband and Tollison, and Yeager again.
More Interesting Links
| Peter Klein |
More links for O&M readers to enjoy. (Celebrity readers, you too!)
- B o G, U + S, Eric Beerkens’s blog on globalization, universities, and social science
- Signum sine tinnitu by Guy Kawasaki, venture capitalist with attitude (see, e.g., his top ten lies of entrepreneurs and top ten lies of venture capitalists)
- Edge Perspectives by consultant and author John Hagel
- Truth on the Market, by a group of business law professors
- Vic Fleischer’s Taxing Blog, for corporate tax law wonks (you know who you are)
- And, courtesy of Mario Sundar, here the top 10 corporate blogs and top 10 CEO blogs.
Readings on Structural Equations Modeling
| Peter Klein |
I posted a while back on the increasing interest in structural equations modeling (SEM) among economists and management scholars. My PhD student Frayne Olson, an SEM enthusiast (and, incidentally, the nephew of Mancur), sent me some introductory references, which I hereby pass along:
- Rex B. Kline, Principles and Practice of Structural Equation Modeling, 2nd ed. (Guilford Press, 2005). (“A very easy to understand presentation of the SEM concepts and applications.”)
- Ralph O. Mueller, Basic Principles of Structural Equation Modeling: An Introduction to LISREL and EQS (Springer, 1996). (“Uses basic matrix algebra to explain how SEM coefficients are estimated. I have found this to be closer to the typical teaching format used within econometrics textbooks. It may be easier to make the transitions and linkages to traditional regression analysis by reading this book.”)
Addendum: Every good SEM analysis includes a path diagram (like the boxes-and-arrows models filling the pages of the Academy of Management Review). This paper tells you all you could ever want to know, and more, about the theory underlying such diagrams. (Via Technology Ideas for Teachers.) And wouldn’t you much rather see path diagrams like these?
Dissing Prahalad
| Peter Klein |
Management theory superstar C.K. Prahalad, having conquered the corporation in Competing for the Future, then turned his attention to global poverty. His plan urged firms to tap into the purchasing power of the world’s poorest consumers, creating large gains for both buyers and sellers. But there are doubters.
C.K. Prahalad’s theory on the purchasing power at the “bottom of the pyramid” (BOP) has a legion of enthusiastic supporters. The BOP argument that savvy multinationals will enrich themselves and the poor by selling to this market is “at best a harmless illusion and potentially a dangerous delusion,” according to Michigan professor Aneel Karnani. His new working paper, Fortune at the bottom of the pyramid: a mirage, is the strongest criticism I’ve seen of Prahalad and his devotees.
This is from Christine Bowers at the World Bank’s PSD Blog. Karani’s paper calls the BOP argument “seductively appealing, [but] riddled with fallacies.” Says Karani:
Not only is the BOP market quite small, it is unlikely to be very profitable, especially for a large company. The costs of serving the markets at the bottom of the pyramid are very high. The poor are often geographically dispersed (except for the urban poor concentrated into slums) and culturally heterogeneous. This increases distribution and marketing costs and makes it difficult to exploit economies of scale. Weak infrastructure (transportation, communication, media, and legal) further increases cost of doing business. Another factor leading to high costs is the small size of each transaction.
Read the paper here.
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