Posts filed under ‘– Klein –’
Crowdsourcing
| Peter Klein |
Combine increasingly thick markets for key inputs, rapidly declining costs of producing these inputs, and low transaction costs of organizing suppliers, and what do you get? Crowdsourcing, in which individual web users, mostly amateurs, compete to supply cheap inputs. Tim Swanson offers links and commentary at the Mises Blog. (A "wisdom of crowds" reference gives me a chance to plug the extremely interesting book by my college classmate Jim Surowiecki, The Wisdom of Crowds.)
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…)
Ken Lay, Local Boy
| Peter Klein |
Today’s edition of my local paper, the Columbia (Missouri) Daily Tribune, adds a little local color to the Enron story with this item on Ken Lay, a Missouri minister’s son who attended the University of Missouri in the 1960s and earned BA and MA degrees in economics. Lay was a protégé of economics professor Pinkney Walker, who brought Lay to Washington when Walker was appointed by Richard Nixon to head the Federal Power Commission (now FERC). That, for better or worse, is where Lay learned about the energy industry.
A 1991 profile of Lay in the Houston Chronicle goes further in crediting — certain people would say “blaming” — Lay’s economics training for his later accomplishments. “His sophomore year at the University of Missouri, in professor Pinkney Walker’s introductory economics class, the small-town boy who had never been outside the Missouri state line became hooked on the world of money, from Wall Street horse-trading to monetary policy and international trade. ‘It all became so clear, so logical,’ Lay says. ‘I could see how markets worked, how firms worked. All of it just sort of fit together.’ ”
Of course, Lay understood markets well, but was no friend of free ones. (more…)
Non-Monetary Compensation
| Peter Klein |
Managers: Looking for effective forms of non-monetary compensation? Scott Adams has suggestions here, here, and here.
Interview With Mark Blaug
| Peter Klein |
You readers with a passion for economic methodology (yes, both of you) will enjoy this interview with Mark Blaug. (HT to Rafe Champion, who calls Blaug "the man who did more than anyone to generate the cottage industry of 'new philosophy of science applied to economics.' ")
One excerpt: Blaug's problem with contemporary economics is
not just that economics has become technical; it is that economics prizes technicalities above everything else, and that is why I call it formalism. Formalism is the tendency to worship the form rather than the content of the argument. That is the kind of subject it has become. We care only about the form in which an economic theory or hypothesis is presented, and we care almost nothing about the actual content of the hypothesis.
I have my own problems with formalism, but I think Blaug overstates his case. His characterization may apply to general-equilibrium models in macroeconomics, growth theory, and some other fields, but in applied microeconomics (contract theory, agency theory, labor economics, parts of industrial organization) the situation is not nearly so dire. (more…)
Measuring Entrepreneurship
| Peter Klein |
Earlier this week the Kauffman Foundation released an Index of Entrepreneurial Activity for the US and for individual US states. A local TV station asked me to comment on the report (my state, Missouri, ranked sixth from the bottom, provoking much consternation), so I prepared a few sound bites. Here they are:
1. Entrepreneurship is difficult to define, let alone measure. The Kauffman index estimates the percentage of adults, not already owners of a business, who start a new business each month. But the common notion of "entrepreneurship" encompasses imagination, creativity, risk-taking, judgmental decision-making, and so on, activities or attributes not necessarily reflected in new firm formation.
2. The Kauffman index measures the rate at which new firms are established, not the number of firms that exist. The Census Bureau's Survey of Business Owners provides one measure of the latter. I haven't examined it in detail, state by state, but spot-checking suggests that its ranking doesn't correspond closely to the Kauffman ranking. (Missouri, for example, is 30 of 50 in the number of independent establishments.) (more…)
Austrian Economists and the Wealth of Nations
| Peter Klein |
David Warsh's Knowledge and the Wealth of Nations is eliciting praise from many quarters (Tyler Cowen; Paul Krugman; The Economist; Brayden King). Peter Gordon likes it too, but notes that "the book and its story are poignant for Austrian economists, whose contributions are hardly acknowledged. The question that goes unasked is: What has the neo-classicists' journey of discovery, as sketched by Warsh, contributed that is worthy beyond the Austrians' long-held focus on entrepreneurial discovery?"
Non-Market Motivators
| Peter Klein |
Some scholars and consultants say that incentive plans are harmful, that managers should instead try to create within organizations a sense of duty, collective identity, and overall communitarian spirit. If so, why not dump that dreadful motivational art and decorate the office with these Soviet propaganda posters? (HT: Jeff Tucker)
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…)
Formal Economic Theory: Beautiful but Useless?
| Peter Klein |
Greg Mankiw, reflecting on the "poetry" of Paul Romer's growth theory, offers this assessment of modern, mathematical, neoclassical economic theory: "Too much of it is beautiful but useless."
Let's leave beauty in the eye of the beholder, for now, and focus on the second part of Mankiw's description. How much has formal, mathematical economic theory contributed to our understanding of the world? What economic phenomena do we understand better today than we did, say, before World War II, when the principal language of English-speaking economists was, well, English? (more…)
Natural and Artificial States, and Firms
| Peter Klein |
Among the last published papers of the libertarian polymath Murray N. Rothbard — one of my intellectual heroes — is his 1994 article “Nations by Consent: Decomposing the Nation-State.” Here Rothbard distinguishes sharply between the state, as a political entity, and the nation, a “complex and varying constellation of different forms of communities, languages, ethnic groups, or religions.” He goes on to develop a theory of appropriate national boundaries, based on the principle of volunary association and the empirical claim that people tend to associate with particular familial, linguistic, cultural, and religious groups. “One goal for libertarians should be to transform existing nation-states into national entities whose boundaries could be called just, in the same sense that private property boundaries are just; that is, to decompose existing coercive nation-states into genuine nations, or nations by consent.”
A March 2006 working paper by Alberto Alesina, William Easterly, and Janina Matuszeski, “Artificial States,” proposes several measures of the degree to which state boundaries are “natural” — corresponding roughly to Rothbard’s nations — or “artificial.” One measure identifies state borders that split ethnic groups into separate states, while another uses fractal geometry to characterize borders as straight or squiggly, assuming that straight borders are more likely to be articifially drawn and not corresponding to natural geographic or ethnic boundaries. The authors show that their measures are closely correlated with the usual measures of national economic performance (the more natural, the better).
What does all this have to do with organizations? The capabilities literature distinguishes between firm boundaries that are “natural,” or organic, and those that are artificially constructed. (more…)
Capabilities as Compensation
| Peter Klein |
Lots of blogospheric buzz today about this paper on local production externalities and researcher compensation (Mankiw, Caplan). The paper examines output and pay for economics and finance professors and concludes that the productivity effect of being at an “elite” university — i.e., having daily personal contact with top-notch colleagues and students — has fallen sharply over the last three decades. (Advances in information technology are seen as the likely cause.) Moreover, as compensation theory would predict, these spillover effects and faculty salaries appear to be substitutes; as the intangible benefits of co-location decrease, universities must increase wages to retain top staff.
The empirical approach used in the paper has obvious applications to the knowledge-management and capabilities literatures more generally. To the extent that the firm’s capabilities are consumed by employees — XYZ Company is an exciting, dynamic, enjoyable place to work — the firm should be able to pay lower wages, other things equal. Using panel data and fixed effects it should be possible, econometrically, to estimate firm-specific capabilities that are reflected in below-market wages. I’m not aware of any capabilities or knowledge-management papers that utilize this approach, however. Am I wrong?
Those Right-Wing Economists
| Peter Klein |
Several posts below allude to arguments by Jeffrey Pfeffer, Sumantra Ghoshal, and others that economic models and concepts (agency problems, transaction costs, opportunism, and the like) are taking management theory in the wrong direction and are harmful to management practice. A subtext of these arguments is that economists are ideologically biased toward the free market, against community and informal social ties, and toward cynical, atomistic, and even “reactionary” views of human nature. (Even if we’re not actually dismal.)
Surveys of economists’ political preferences reveal a more complex picture, however. A forthcoming article in Public Choice by Daniel Klein and Charlotta Stern analyzes a 2003 American Economic Association member survey:
The responses show that most economists are supporters of safety regulations, gun control, redistribution, public schooling, and anti-discrimination laws. They are evenly mixed on personal choice issues, military action, and the minimum wage. Most economists oppose tighter immigration controls, government ownership of enterprise and tariffs. In voting, the Democratic:Republican ratio is 2.5:1.
A Democratic-to-Republican ratio of only 2.5 to 1 may seem shockingly low to our colleagues in sociology or cultural studies, but hardly seems to indicate pervasive “right-wing” bias.
Happy Hierarchies
| Peter Klein |
Nicolai and I have tended to be skeptical about the new wave of happiness research, particularly as applied to intrinsic motivation, empowerment, and other trendy organizational issues. Economists Tyler Cowen and Arnold Kling agree. Corporate law professor Stephen Bainbridge, in his latest column, attacks the idea that participatory management increases worker happiness (and, presumably, productivity). On the contrary, says Bainbridge, workers often prefer hierarchy, for a variety of reasons (risk aversion, resistance to change, preference for standardized rules and procedures, and so on). “Whether the taste for participation or for hierarchy is more common is hard to say from the evidence to date, but at the very least the history of participatory management has taught us that not everyone wants more autonomy, challenge, and responsibility.”
Further details are provided in Bainbridge’s Williamsonian paper “Privately Ordered Participatory Management: An Organizational Failures Analysis.”
How Bad Is Academic Writing, Really?
| Peter Klein |
Few social scientists are known for their lucid and elegant prose. Frank Knight or Joseph Schumpeter, perhaps. Most academic writing, however, is just plain awful: dull, pedantic, full of jargon and unnecessarily complex words and phrases, generally painful to read. Most manuscripts in organizational economics and strategy should come with a warning: “Do not operate heavy machinery after reading.”
How bad is it, exactly? Can bad writing be quantified? Yes, according to a new (to me, anyway) feature from Amazon.com. For some books — those for which Amazon offers the “Search Inside” feature — Amazon now provides several objective measures of readability. (more…)
The Nature of the (Family) Firm
| Peter Klein |
Brayden King at orgtheory.net has a nice post today about family-owned firms. He summarizes a recent sociology paper on the transformation of the Scottish [hooray!] shipbuilding industry from one of mostly family firms to one dominated by corporate firms. Writes Brayden: “Family businesses and corporations are clearly different creatures, but we [organizational scholars] usually just take the word of legal scholars in this matter. . . . My take-away is that, besides temporal continuity established through lines of heredity, the distinguishing feature of family firms is that affective relationships serves as the glue holding together various components of the business. This affect, which translates into close identification with the organization, is a distinctive competency of the family firm.”
I have a footnote. One industry, unlike virtually every other mature industry in the developed world, continues to be populated by small, family-owned firms: agriculture. Why? Public policy is surely part of the explanation, but not all. The best analysis of the puzzle, in my view, is the pioneering work by Doug Allen and Dean Lueck, appropriately (and wittily) titled “The Nature of the Farm” (article version here, book version here). They argue that family ownership results from agriculture’s unique combination of seasonality and random variation, which makes it difficult to design and enforce effective incentive contracts that mitigate moral hazard. Instead, sole proprietorships, with the farmer or farm family as residual claimant, outperform joint ownership arrangements, such as corporations.
I provide some further information on organizational characteristics of agriculture here.
Higher Education in France
| Peter Klein |
Having been in Paris during the recent mini-uprising over the CPE (a proposed change in French labor law making it easier for firms to fire, and thus presumably more attractive to hire, younger workers), I’m particularly interested in the French higher-education system. Today’s New York Times (simple registration required) has an illuminating piece on this. In higher education, as in so many areas, the Gauls buck modern trends:
There are 32,000 students at the Nanterre campus of the University of Paris, but no student center, no bookstore, no student-run newspaper, no freshman orientation, no corporate recruiting system.
The 480,000-volume central library is open only 10 hours a day, closed on Sundays and holidays. Only 30 of the library’s 100 computers have Internet access.
The campus cafeterias close after lunch. Professors often do not have office hours; many have no office. Some classrooms are so overcrowded that at exam time many students have to find seats elsewhere. By late afternoon every day the campus is largely empty.
Sandwiched between a prison and an unemployment office just outside Paris, the university here is neither the best nor the worst place to study in this fairly wealthy country. Rather, it reflects the crisis of France’s archaic state-owned university system: overcrowded, underfinanced, disorganized and resistant to the changes demanded by the outside world.
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