Posts filed under ‘– Klein –’
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.
More on Family Firms
| Peter Klein |
Recent posts here at O&M and at orgtheory.net have discussed the nature and consequences of family ownership. Today’s Wall Street Journal ($) profiles Fiat’s John Elkann, great-great-grandson of founder Giovanni Agnelli and next in line for the top spot, and discusses the challenges of family capitalism more generally. Excerpts:
[A]s Mr. Elkann is poised to move into the driver’s seat at the 107-year-old icon, the European model of family capitalism espoused by his clan is struggling to endure. Financial markets have become impatient with family-dominated companies, which sometimes put dynastic interests first and occasionally have murky corporate-governance practices. There is also increased skepticism that companies controlled by Europe’s grand families can produce top-flight managers. . . .
Some argue that the model has served Europe poorly. “The sooner we get rid of family capitalism the better off we all are,” says Umberto Mosetti, a corporate-governance expert at the University of Siena and president of shareholder adviser Deminor.
When markets were regional, says Mr. Mosetti, families could finance their businesses through cash flow and loans from friendly local banks. As markets went global, large companies needed to go to capital markets to fuel expansion. Family-controlled firms were often ill-prepared. Something similar happened at Fiat. When competitors from Asia entered the European market, Fiat was caught flat-footed and lost market share; it has been trying to recover ever since.
Economics: Puzzles or Problems?
| Peter Klein |
I’ve enjoyed reading Wittgenstein’s Poker: The Story of a Ten-Minute Argument Between Two Great Philosophers, an engaging account of the famous “poker incident” at which Ludwig Wittgenstein may or may not have threatened a visiting Karl Popper with a fireplace poker during a 1946 meeting of Cambridge’s Moral Sciences Club. David Edmonds and John Eidinow perform a forensic reconstruction and conclude that Popper probably exaggerated what happened but that Wittgenstein did act like a boor. More important, Edmonds and Eidinow explore the background and aftermath and use the incident to anchor an elegant survey of twentieth-century philosophy putting Popper’s and Wittgenstein’s contributions in context.
(Incidentally, neither philosopher comes across as the sort of guy you’d want to spend an evening with. Popper appears petty and insecure, almost paranoid. As for Wittgenstein . . . I’m no philosopher, but I know what I like, and Wittgenstein — in his later incarnation, anyway — isn’t it. He’s revealed here as a spoiled brat, petulant and overbearing, and his linguistic approach to philosophy strikes me as little more than clever nonsense. In the spirit of full disclosure, I should mention that I first heard about the poker incident from Popper’s student W. W. Bartley, III, who was far from impartial. See The Fortunes of Liberalism, p. 179, footnote 5.)
At issue between Popper and Wittgenstein that night was the status of philosophy itself. Are there real philosophical problems, as Popper maintained, or merely “puzzles,” as Wittgenstein and his disciples insisted? Contemporary analytic philosophy has tended to gravitate toward the latter view, that philosophy is little more than word-play, a fun and interesting exercise but one with little bearing on the “big questions” of life.
What about economics? Over the last couple of decades economists have paid less attention to the “big questions” of unemployment, inflation, capitalism versus socialism, the quality of life, and so on, focusing instead on finding clever solutions to small, empirical puzzles — call it the “Freakonomics approach.” There are exceptions to this trend — the literature on institutions and economic growth, for example — but on the whole economists seem more interested in puzzles than problems. (more…)
Does Creativity Harm Innovation?
| Peter Klein |
The always-interesting Robin Hansen argues in Business Week that creativity may harm, not help, innovation.
[M]uch of the hoopla over creativity is a crock. Why? Because we are already up to our eyeballs in it. Make no mistake: Innovation matters. Nothing is more essential for long-term economic growth. But to get more innovation we may want less, not more, creativity.
The sobering truth is that the dramatic artistic creations or intellectual insights we most admire for their striking "creativity" matter little for economic growth. . . . Instead, the innovations that matter most are the millions of small changes we constantly make to our billions of daily procedures and arrangements. Such changes do not require free-spirited self-expression. Instead, people quite naturally think of changes as they go about their routine business and social lives. . . .
Entrepreneurship and Business Education
| Peter Klein |
Kauffman Foundation president Carl Schramm joins a rising chorus of protest against contemporary business education with an op-ed, "The Broken MBA," in the Chronicle of Higher Education. US business schools, says Schramm, have missed the transition from "bureaucratic capitalism" to "entrepreneurial capitalism."
Although most major schools now have formal programs in entrepreneurship, the programs typically exist in isolation. Their precepts have had little impact on the core curriculum. It is hard to find serious research on entrepreneurial processes, and not much attention is paid to the importance of technology in entrepreneurial growth — even in large companies.
Instead, business schools have chosen to emphasize ethics and social responsibility, a move Schramm blasts as "ineffective, irrelevant, or even counterproductive." On ethics: "Presumably the goal is to prevent future Enron-like scandals, but how likely is it that human behavior can be changed for the better by tacking on a course on ethics?" On social responsibility, which he calls a "nebulous area": "The implicit message of those courses is often that business goals should be subordinate to political goals. Business serves society by creating wealth — that is its true social responsibility. Business schools do their students and society a disservice by teaching that corporations should pledge primary allegiance to political ends, which could harm their ability to create the wealth upon which civil society depends." (more…)
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)
Between Society and Market
| Peter Klein |
I know little about the economic history of the Middle East, but the title of this upcoming workshop, "Between Society and the Market: Novel Approaches to the Business History of the Middle East," caught my eye. The workshop, organized by Relli Shechter and Andrew Godley, is part of the 8th Mediterranean Research Meeting, coming in March 2007. From the call for papers:
In the period before independent states in the Middle East (the Ottoman and colonial eras), businesses were often studied in the context of community history. It is known that entrepreneurial ethnic minorities were very active, but little is known of their larger economic and social impact on the region, and even less on Muslim entrepreneurship. There is also a large body of literature on the activities of foreign multinationals in the region, especially in the oil industry of course, but also in banking (Bamberg, Clay, Ferrier, Corley, Codley et al Jones 1981, 1987, Yergin). While these multinationals were the progenitors of the modern commercial enterprise in the region, this literature overwhelmingly views their Middle Eastern activities through the lenses of the parent companies or corporate HQ rather than understanding how the introduction of new products, techniques and business forms may have influenced local entrepreneurs, workers and consumers. . . .
During the period of emerging nation-states nad the rapid build up of national economies . . . , the study of businesses was again relegated to a secondary status. Private businesses were either discredited or simply ignored, and the rise of public sector ones mostly discussed from an administrative and political perspective. How small, medium, and large (the latter mostly state owned) businesses actually operated, and how the role of management and workers changed during these transitions has hardly been discussed.
Read the rest here.
Tying Your Own Hands, BlackBerry Edition
| Peter Klein |
Joe writes below about time inconsistency, or the Ulysses problem: sometimes you can make yourself better off by deliberately limiting your own options ("tying your own hands"). This phenomenon has been widely studied in monetary policy (earning Finn Kydland and Edward Prescott a Nobel Prize), bargaining theory, and even internal organization.
From the New York Times we learn that a Chicago hotel has found a way to solve the time-inconsistency problem for heavy BlackBerry users: upon check-in, guests wishing to enjoy some downtime can give their device to the general manager, who agrees to keep it under lock and key for the duration of the stay. (I hope my wife isn't reading this.) (HT: Steven Dubner)
Rings and Promises
| Peter Klein |
Brayden King caught my eye today with a post titled "Is Power Sexy?" He's referring to a 2005 American Journal of Sociology paper with the same title. Of course, contemporary academic prose can make even sex and power seem dull — Using a set of network data from a large number of naturally occurring groups, this study seeks to determine whether powerful people are more likely to be seen as sexy by others than are persons without power [, and] disentangles two aspects of power that are often confused, namely power as a dyadic relationship and power as an individual characteristic or position (which the author calls "status") — but I believe Brayden when he says it's a fun paper to read and blog about.
This made me think, what are some papers in organizational economics that are fun to read? One is Margaret Brinig's "Rings and Promises" (1990), which applies Williamson's hostage model to diamond engagement rings. (more…)
Materials for PhD Course on the Theory of the Firm
| Peter Klein |
Our PhD course on the Theory of the Firm concluded yesterday with a research workshop on Joe Mahoney’s stakeholder approach. All the course materials, including readings and lecture slides, are now available at the course website. These materials might be useful for someone seeking an overview of the key issues and problems in transaction cost economics, the property-rights approach, and the resource-based and capabilities views, as well as Austrian, evolutionary, and entrepreneurial perspectives on the firm.
The student participants were impressive, and the three instructors made a fabulous team. (To hire us for your upcoming gig, please contact our agent at BR-549.)
Danish Economists
| Peter Klein |
This post definitely merits the ephemera tag, but here it is anyway, largely for the benefit of my Danish co-blogger.
Where are the important Danish economists? The Swedes have Wicksell, Myrdall, Hecksher, Ohlin, Lindbeck, and Holmström. Norway gave us Trygve Haavelmo and Finn Kydland. The president-elect of ISNIE is Icelander Thrainn Eggertsson. (Sorry, Finns!) So, what happened to the Danes? Did they exhaust all their collective intellectual capital on philosophy, physics, and literature?
Government Did Invent the Internet, Sort Of
| Peter Klein |
Here is a short general-interest piece on the history and significance of government involvement with the internet. The article is based on a talk I gave over ten years ago, and I have to admit the basic argument has held up rather well. As Hal Varian says in the preface to Information Rules, "technology changes, economic laws do not."
Hart on Ex-Post Governance
| Peter Klein |
Nicolai, Joe Mahoney, and I had the pleasure of lunching yesterday with Oliver Hart, who was in Copenhagen to attend our PhD course and learn something about the theory of the firm. (Ha ha, just checking to see if you're paying attention; actually he was in town for a workshop.)
Hart is writing a new paper (with John Moore), currently titled "Partial Contracts," responding to the charge that incomplete-contracting models of the firm ignore the temporal, sequential processes of coordination that characterize the firm. Robert Gibbons, characterizing the asset-specificity approaches of Williamson (1971, 1979, 1985) and Klein, Crawford, and Alchian (1978) as rent-seeking theories of the firm, calls the Grossman-Hart-Moore property-rights approach
the inverse of the rent-seeking theory. Specifically, where the rent-seeking theory envisions socially destructive haggling ex post, the property-rights theory assumes efficient bargaining, and where the rent-seeking theory is consistent with contractible specific investments ex ante, the property-rights theory requires non-contractible specific investments. These distinctions should already make it clear that the property-rights theory in no sense formalizes the rent-seeking theory (i.e., Grossman-Hart did not formalize Williamson….).
Williamson puts it thusly: "GHM vaporize ex post maladaptation by their assumptions of common knowledge and costless ex post bargaining." (more…)
PhD Course on the Theory of the Firm
| Peter Klein |
This week I join Nicolai and Joe Mahoney for a four-day PhD Course, "Theories of the Firm and Their Application in Business Administration," at the Copenhagen Business School. The course outline, reading list, and notes for some lectures are available here. (More notes will be added as we go.) No webcast or live-blogging, but if anything exciting happens during the week, O&M readers will be the first to know.
Has Corporate Corruption Increased?
| Peter Klein |
Teppo Felin asks an important question: has corporate malfeasance — earnings manipulation, information distortion, and outright fraud — increased systematically in recent decades, or are Enron, WorldCom, Global Crossing, and their ilk just a few bad apples?
Despite all the sound and fury over this question, the evidence appears to be surprisingly thin. First, there is the obvious methodological problem that we don't observe corruption per se, but only responses to alleged or actual corrpution. We know when firms restate their earnings, but not when firms should have restated their earnings and didn't. We observe SEC investigations and enforcement actions, but not the (presumably many) instances of Type I or II error.
Second, the time-series evidence on even these proxies is slim. Several descriptive studies document an increase in earnings restatements over the past 20 years (especially the last 5-7 years), though as far as I know there are no studies looking at longer time periods. (more…)
Was Taylor a Taylorite?
| Peter Klein |
Speaking of scientific management, one of Frederick W. Taylor's biographers tells us that Taylor himself was no Taylorite. Yesterday I was looking for an article by Gavin Wright and stumbled upon Wright's review of Daniel Nelson's 1980 book Frederick W. Taylor and the Rise of Scientific Management. (JSTOR subscribers can read the review here.) According to Nelson, Taylor was primarily an engineer — a very creative and successful one — with little interest in labor management. His inventions revolutionized the machine-tool industry, and he later ventured into "popular" management writing as a PR gimmick, to enhance his personal reputation and build his consulting practice. (We also learn that Taylor was a champion lawn tennis player, inventor of a spoon-shaped tennis racket and a two-handled golf club that was later banned, and the son of a radical feminist and abolitionist mother.)
Cliometrica
| Peter Klein |
We already have Econometrica and Psychometrika, so it was only a matter of time before the economic historians — whose Cliometric Society has been around since 1983 — started a new quantitative economic history journal, Cliometrica. I received an announcement today, which included this description:
The journal encourages the methodological debate, the use of economic theory in general and model building in particular, the reliance upon quantification to buttress the models with historical data, the use of the more standard historical knowledge to broaden the understanding and suggesting new avenues of research, and the use of statistical theory and econometrics to combine models with data in a single consistent explanation.
I'm not sure how this is supposed to distinguish the journal from the Journal of Economic History or Explorations in Economic History; perhaps they are not quantitative enough? (more…)
The Management Myth?
| Peter Klein |
Lots of chatter on the net about an article in the June 2006 Atlantic, “The Management Myth,” by Oxford-trained philosopher and former consultant Matthew Stewart. (Online version for magazine subscribers only.)
Most of management theory is inane, writes our correspondent, the founder of a consulting firm. If you want to succeed in business, don’t get an M.B.A. Study philosophy instead.
Most commentators (1, 2, 3) seem to find the article challenging and profound. Paul Kedrosky demurs, saying Stewart “accomplished the impossible. He made me like management theory, MBAs, and consultants more, while liking philosophy (and Oxford philosophers) less.” Kedrosky calls the article “disjointed, dull, obvious, smug, poorly written, and full of falsely-elevated faux philosophy chatter.” Hmmmm, sounds like a perfect candidate for Academy of Management Review! (Note to AMR editors and referees: just kidding.)
Update: Lynne Kiesling likes Stewart’s book on Spinoza and Leibnitz.
Wicksteed on “Economic Man”
| Peter Klein |
As an economist, I'm continually frustrated by complaints from my fellow social scientists that economics falsely conceives human beings as narrow, selfish, greedy materialists — a canard refuted in even the most elementary textbooks. Economics is a theory of preference and action; it assumes nothing whatsoever about the content of people's preferences, whether they be noble or base, pure or vile, or whatever.
The proper conception of economics as a general theory of action has been around for, I don't know, about a hundred years, at least. I recently came across this nice statement from Lionel Robbins, introducing the 1933 edition of Philip Wicksteed's Common Sense of Political Economy (1910).
Before Wicksteed wrote, it was still possible for intelligent men to give countenance to the belief that the whole structure of Economics depends upon the assumption of a world of economic men, each actuated by egocentric or hedonistic motives. For anyone who has read the Common Sense, the expression of such a view is no longer consistent with intellectual honesty. Wicksteed shattered this misconception once and for all. . . .
[Modern value theory has] thrown the whole corpus of economic science into an entirely new light — a light in which Economics is seen to be a discussion not of the nature of certain kinds of behavior arbitrarily separated off from all others, but of a certain aspect of behavior viewed as a whole. . . . [W]hen [the] final history [of modern economics] comes to be written, I think it will be found that Wicksteed's exhaustive examination of the "economic relationship," and his insistence that there can be no logical dividing line between the operations of the market and other forms of rational action, are by no means among the least important or least original." (pp. xxi-xxii)
I wonder how much of the current contretemps over economic methods in organization and management is simply a re-hash of controversies already covered by Wicksteed, Clark (1, 2), Robbins, etc.
Another New Buzzword: Adjacencies
| Peter Klein |
From today's WSJ feature on Time-Warner we learn that "synergies" are out. Now it's all about "adjacencies."
In deal after deal, [Time-Warner] executives promised to create a well-oiled, "vertically integrated" profit machine. Books and magazines and music would feed television and movie and Internet empires, each strengthening the others. But this vision never panned out. . . . Now divisions are encouraged to cooperate only if they can't get a better deal on the open market. The company's units are expected to be "best in class" — corporate-speak for being an industry leader — and those that fall short are threatened with being sold.
A return to the 1960s and "management by the numbers"? (We do know, for instance, that the conglomerates weren't so bad after all — see this, this, and this.)
Who will write the first RBV paper on adjacencies?
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