Posts filed under ‘– Klein –’
NYT Smears Craig Pirrong, Scott Irwin
| Peter Klein |
The NYT runs a hatchet-job on the brilliant financial economist (and former O&M guest blogger) Craig Pirrong. Apparently Craig not only does academic research on commodity markets and participates in public policy debates about commodity-market regulation but also — gasp! — is a paid consultant for commodity-trading firms. Without detailing any specific impropriety, the Times implies that Craig is little more than a shill for big evil corporations, or something. “Academics Who Defend Wall St. Reap Reward,” screams the Times headline.
Thousands of economists are paid consultants for the Federal Reserve System, World Bank, IMF, USDA, and virtually every government agency around the world, but you will never hear the Times suggest that their research or public advocacy could in the slightest way be compromised by these ties. As Larry White and E. C. Pasour have pointed out, the academic work funded by government agencies nearly always — surprise! — comes out in defense of those agencies, their missions, and their generous contributions to the public good. Did the prospect of heading the world’s most powerful economic planing agency influence Janet Yellen’s public testimony, her research, or her leadership at the San Francisco Fed? Can you imagine a Times headline, “Academics Who Defend Fed Reap Reward”?
Scott Irwin, a distinguished agricultural economist at the University of Illinois is also targeted. Again, the message is clear. If you oppose the Times’s editorial position on regulation (or any other issue), you are compromised by financial or other ties. If you support the Times’s position, you are a scholar or public figure of great integrity.
Update: See also Felix Salmon’s excellent summary of the “non-scandal.”
Rate My Journals
| Peter Klein |
Researchers: You rate products and sellers on Amazon and Ebay, you describe your travel experiences on TripAdvisor, and your students judge you on ratemyprofessors.com. I don’t know any systematic evidence on this, but consultants and journalists seem to think that companies are better off letting customers rate (and rant) online, even if this makes it more difficult to manage the brand.
A new venture called SciRev is encouraging researchers to rate their experiences with particular journals: how long are papers turned around, how good are the referee reports, how responsive is the editorial office. It’s not quite open-source peer review, because the specific papers and authors are anonymous (as far as I can tell), but it represents an interesting experiment in opening up the publishing process, at least in terms of author feedback on journals.
SciRev is a website made by researchers for researchers. The information provided by you and your fellow authors is freely available to the entire research community. In this way we aim to make the scientific review process more transparent. Efficient journals get credits for their efforts to improve their review process and the way they handle manuscripts. Less efficient journals are stimulated to put energy in organizing things better. Researchers can search for a journal with a speedy review procedure and have their papers published earlier. Editors get the opportunity to compare their journal’s performance with that of others and to provide information about their journal at our website.
SciRev aims to help science by making the peer review process more efficient. This process is one of the weakest links in the process of scientific knowledge production. Valuable papers may spent several months to over a year at reviewers’ desks and editorial offices before a decision is taken. This is a serious time loss in a process that in other respects has become much more efficient in the last decades. SciRev helps speeding up this process by making it more transparent. Researchers get the possibility to share their review experiences with their colleagues, who therefore can make a better informed choice for a journal to submit their work to. Journals that manage to set up a more efficient review process and which handle manuscripts better are rewarded for this and may attract more and better manuscripts.
There are only a few reviews at this point, so not much information to consume, but I like the concept. And I may be submitting some reviews of my own… (Thanks to Bronwyn Hall for the tip.)
Business Groups in the US
| Peter Klein |
Diversification continues to be a central issue for strategic management, industrial organization, and corporate finance. There are huge research and practitioner literatures on why firms diversify, how diversification affects financial, operating, and innovative performance, what underlies inter-industry relatedness, how diversification ties into other aspects of firm strategy and organization, whether diversification is driven by regulation or other policy choices, and so on. There are many surveys of these literatures (Lasse and I contributed this one).
Some of the most interesting research deals with the institutional environment. For example, many US corporations were widely diversified in the 1960s and 1970s when the brokerage industry was small and protected by tough legal restrictions on entry, antitrust policy frowned on vertical and horizontal growth (maybe), and a volatile macroeconomic environment encouraged internalization of inter-firm transactions (also maybe). After the brokerage industry was deregulated in 1975, the antitrust environment became more relaxed, and the market for corporate control heated up, many conglomerates were restructured into more efficient, specialized firms. To quote myself:
The investment community in the 1960s has been described as a small, close-knit group wherein competition was minimal and peer influence strong (Bernstein, 1992). As Bhide (1990, p. 76) puts it, “internal capital markets … may well have possessed a significant edge because the external markets were not highly developed. In those days, one’s success on Wall Street reportedly depended far more on personal connections than analytical prowess.” When capital markets became more competitive in the 1970s, the relative importance of internal capital markets fell. “This competitive process has resulted in a significant increase in the ability of our external capital markets to monitor corporate performance and allocate resources” (Bhide, 1990, p. 77). As the cost of external finance has fallen, firms have tended to rely less on internal finance, and thus the value added from internal-capital-market allocation has fallen. . . .
Similarly, corporate refocusing can be explained as a consequence of the rise of takeover by tender offer rather than proxy contest, the emergence of new financial techniques and instruments like leveraged buyouts and high-yield bonds, and the appearance of takeover and breakup specialists like Kohlberg Kravis Roberts, which themselves performed many functions of the conglomerate headquarters (Williamson, 1992). A related literature looks at the relative importance of internal capital markets in developing economies, where external capital markets are limited (Khanna and Palepu 1999, 2000).
The key reference is to Amar Bhide’s 1990 article “Reversing Corporate Diversification,” which deserves to be better known. But note also the pointer to Khanna and Palepu’s important work on diversified business groups in emerging markets, which has also led to a vibrant empirical literature. The idea there is that weak institutions lead to poorly performing capital and labor markets, leading firms to internalize functions that would otherwise be performed between firms. More generally, firm strategy and organization varies systematically with the institutional environment, both over time and across countries and regions.
Surprisingly, diversified business groups were also common in the US, in the early 20th century, which brings me (finally) to the point of this post. A new NBER paper by Eugene Kandel, Konstantin Kosenko, Randall Morck, and Yishay Yafeh studies these groups and reaches some interesting and provocative conclusions. Check it out:
Eugene Kandel, Konstantin Kosenko, Randall Morck, Yishay Yafeh
NBER Working Paper No. 19691, December 2013The extent to which business groups ever existed in the United States and, if they did exist, the reasons for their disappearance are poorly understood. In this paper we use hitherto unexplored historical sources to construct a comprehensive data set to address this issue. We find that (1) business groups, often organized as pyramids, existed at least as early as the turn of the twentieth century and became a common corporate form in the 1930s and 1940s, mostly in public utilities (e.g., electricity, gas and transportation) but also in manufacturing; (2) In contrast with modern business groups in emerging markets that are typically diversified and tightly controlled, many US groups were focused in a single sector and controlled by apex firms with dispersed ownership; (3) The disappearance of US business groups was largely complete only in 1950, about 15 years after the major anti-group policy measures of the mid-1930s; (4) Chronologically, the demise of business groups preceded the emergence of conglomerates in the United States by about two decades and the sharp increase in stock market valuation by about a decade, so that a causal link between these events is hard to establish, although there may well be a connection between them. We conclude that the prevalence of business groups is not inconsistent with high levels of investor protection; that US corporate ownership as we know it today evolved gradually over several decades; and that policy makers should not expect policies that restrict business groups to have an immediate effect on corporate ownership.
Postrel on Dynamic Capabilities
| Peter Klein |
Former guest blogger Steve Postrel weighs in on the future of the dynamic capabilities approach (reprinted, with permission, from a thread on Academia.edu). Steve responds to the question, “Is the dynamic capabilities approach outdated?” with some typical insightful remarks.
Since DC is primarily an ex post facto construct measured by sampling on the dependent variable — i.e., if the firm successfully adapts, then it had DC — its prominence is not a sign that it is doing much intellectual work. . . .
[T]o a first approximation, arguments for the importance of DC have tended to be of the form “We know a priori that firms need to be able to change their operational capabilities from time to time; we have examples of successful firms that have adapted in this way and examples of less-successful firms that haven’t; therefore we can say that the successful adapters had more of this valuable thing we will call ‘dynamic capability.'”
Certainly there have been empirical papers that do better than that, by, for example, trying to look at firms that have adapted multiple times, or by identifying specific organizational structures and practices that might enhance adaptability. The difficult issue with looking at a “precursor” like experience is that theoretically experience could reduce DC by causing specialization and lock-in. Other putative precursors suffer from the ex post measurement problem — how do we know if a firm has the right knowledge for adaptation until we see whether it succeeds?
I suspect there are also deeper conceptual problems because DC is equivocal even with perfect measurement. It would be pretty hard to specify what one meant by the “amount” of DC a firm has or to compare the “amounts” that any two firms have. DC is certainly not a completely ordering relation and I’m not sure it’s even a partial order. Without presenting formal models and going back and forth between those and peoples’ intuition about what DC is “supposed” to mean, however, one really can’t pin these problems down enough to tell if they are serious. . . . (more…)
Kirzner and Entrepreneurship Research
| Peter Klein |
Per Bylund and I have written a paper on Israel Kirzner’s influence on the entrepreneurship literature. It’s titled “The Place of Austrian Economics in Contemporary Entrepreneurship Research” but deals mainly with Kirzner. Comments are appreciated.
The paper was written for a forthcoming special issue of the Review of Austrian Economics on Kirzner’s contributions. We take a nuanced position: While Kirzner’s work underlies the dominant opportunity-discovery perspective in the entrepreneurship research literature, this perspective is increasingly challenged among entrepreneurship scholars, for some of the same reasons that Kirzner’s theoretical framework has been criticized by his fellow Austrian economists. Nonetheless, it is impossible to make progress in entrepreneurship studies, or the Austrian analysis of the market, without engaging Kirzner’s ideas.
Veblen and Davenport
| Peter Klein |
Further to my earlier post on Veblen at Missouri, here’s a newly discovered photo of the university’s Faculty of Commerce from the mid nineteen-teens, featuring Dean Herbert J. Davenport in the center with Veblen to his right. (Thanks to @MizzouBusiness for the find.)
Entrepreneurship, Financial Capital, and Social Capital
| Peter Klein |
Two interesting new papers on entrepreneurship. The first deals with financial capital — specifically, the degree to which entrepreneurship (defined as self-employment) is constrained by credit availability. As regular readers know, I’ve been crusading against the idea that entrepreneurship consists of recognizing opportunities, in favor of the alternative idea that entrepreneurship involves putting assets at risk. The latter view directs our attention to how entrepreneurial activities are funded; rather than assuming that all positive-NPV opportunities are exploited, we should focus on the investor’s decision to allocate risk capital to one or another potential project. Put simply, “entrepreneurship is exercised not only by founders, but by funders.”
Funders care about collateral, which suggests that self-employment is constrained by the availability of durable personal assets like housing. In a new NBER working paper, “Housing Collateral and Entrepreneurship,” Martin Schmalz, David Sraer, and David Thesmar find a strong correlation between self-employment and house prices. “Our empirical strategy uses variations in local house prices as shocks to the value of collateral available to individuals owning a house and controls for local demand shocks by comparing entrepreneurial activity of homeowners and renters operating in the same region. We find that an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, entrepreneurs with access to more valuable collateral create larger firms and more value added, and are more likely to survive, even in the long run.”
My Missouri colleague Colleen Heflin, along with Seok-Woo Kwon and Martin Ruef, have a new paper in the American Sociological Review on social capital and self-employment. Many papers have examined how an individual’s “social capital” — defined as networks of social and professional relationships — affects various economic outcomes, including the propensity to start a firm. Colleen and her colleagues focus at the community level and find that “individuals in communities with high levels of social trust are more likely to be self-employed compared to individuals in communities with lower levels of social trust. Additionally, membership in organizations connected to the larger community is associated with higher levels of self-employment, but membership in isolated organizations that lack connections to the larger community is associated with lower levels of self-employment.”
Of course, self-employment is only a crude proxy for entrepreneurship in the functional sense, but it is a widely used proxy in the empirical literature. I suppose entrepreneurship researchers, like other social scientists, resemble the drunk looking for his car keys under the lamppost. Who am I to complain?
ISNIE 2014
| Peter Klein |
The ISNIE 2014 Call for Papers is now available. The conference is at Duke University, 19-21 June 2014, home of President-Elect and Program Committee Chair John de Figueiredo. Bob Gibbons and Timur Kuran are keynote speakers. ISNIE is one of our favorite conferences, so please consider submitting a proposal! Submissions are due 30 January 2014.
Your Favorite Books, in One Sentence
| Peter Klein |
Craig Newmark pointed me to this list of “15 Famous Business Books Summarized In One Sentence Each.” I don’t think highly of any of the books on the list except Innovator’s Dilemma, but it’s an interesting exercise. Care to try your hand? I’ll start:
Oliver Williamson, Economic Institutions of Capitalism: Be shrewd in your dealings with suppliers and customers; they may not do what they promised.
Edith Penrose, Theory of the Growth of the Firm: The more you do what you’re good at, the better you get at similar things that may surprise you.
Ludwig von Mises, Bureaucracy: Fixed rules are better than employee discretion when you’re producing stuff that isn’t bought and sold on markets.
Michael Porter, Competitive Strategy: Be efficient and productive, but pay attention to your rivals and partners, or they’ll eat you for lunch.
John Maynard Keynes, The General Theory: Chicken chicken chicken, chicken chicken chicken chicken chicken.
Field Experiment in Multitasking
| Peter Klein |
It finds what you’d expect: When agents are assigned multiple tasks, and evaluated using objective performance criteria, they will tend to favor those tasks that produce measurable outputs, at the expense of equally important, but harder-to-measure tasks. This is why, for example, professors at research universities often neglect their teaching duties. Sure it’s important, but quality is hard to demonstrate, so I’ll concentrate on publications, grants, and other research activities.
Testing the Theory of Multitasking: Evidence from a Natural Field Experiment in Chinese Factories
Fuhai Hong, Tanjim Hossain, John A. List, and Migiwa Tanaka
NBER Working Paper No. 19660, November 2013A well-recognized problem in the multitasking literature is that workers might substantially reduce their effort on tasks that produce unobservable outputs as they seek the salient rewards to observable outputs. Since the theory related to multitasking is decades ahead of the empirical evidence, the economic costs of standard incentive schemes under multitasking contexts remain largely unknown. This study provides empirical insights quantifying such effects using a field experiment in Chinese factories. Using more than 2200 data points across 126 workers, we find sharp evidence that workers do trade off the incented output (quantity) at the expense of the non-incented one (quality) as a result of a piece rate bonus scheme. Consistent with our theoretical model, treatment effects are much stronger for workers whose base salary structure is a flat wage compared to those under a piece rate base salary. While the incentives result in a large increase in quantity and a sharp decrease in quality for workers under a flat base salary, they result only in a small increase in quantity without affecting quality for workers under a piece rate base salary.
Academia QoTD
| Peter Klein |
Gladwell has more in common with his academic critics than either he or they realize, or care to admit. Academic writing is rarely a pursuit of unpopular truths; much of the time it is an attempt to bolster prevailing orthodoxies and shore up widely felt but ill-founded hopes.
The subject here is Malcolm Gladwell, a favorite punching-bag here at O&M, but the general point is worth pondering. Despite the myth of the brave academic, wielding his tenured position as a shield against the powerful interests trying to bring him down, academics typically crave influence, acceptance, and security and are attracted to power — in particular, political power — like moths to flame. There are exceptions, of course.
Solution to the Economic Crisis? More Keynes and Marx
| Peter Klein |
We’ve previously discussed attempts to blame the accounting scandals of the early 2000s on the teaching of transaction cost economics and agency theory. By describing the hazards of opportunistic behavior and shirking, professors were allegedly encouraging students to be opportunistic and to shirk. Then we were told that business schools teach “a particular brand of free-market ideology” — the view that “the market always ‘gets prices right’ and “[a]n individual’s worth can be reduced to one’s worth in the market” — and that this ideology was partly responsible for the financial crisis. (My initial reaction: Where to I sign up for these courses?!)
The Guardian reports now on a movement in the UK to address “the crisis in economics teaching, which critics say has remained largely unchanged since the 2008 financial crash despite the failure of many in the profession to spot the looming credit crunch and worst recession for 100 years.” If you think this refers to a movement to discredit orthodox Keynesianism, which dominates monetary theory and practice in all countries, and its view that discretionary fiscal and (especially) monetary policy are needed to steer the economy on a smooth course, with particular attention to asset markets where prices must be rising at all times, you’d be wrong. No, the reformers are calling for “economics courses to embrace the teachings of Marx and Keynes to undermine the dominance of neoclassical free-market theories.” To their credit, the reformers appear also to want more attention to economic history and the history of economic thought, which is all to the good. But the reformers’ basic premise seems to be that mainstream economics is too friendly toward the free market, and that this has left students unprepared to understand the “post-2008” world.
To a non-Keyensian and non-Marixian like me, these arguments seem to come from a bizarro world where the sky is green, water runs uphill, and Janet Yellen is seven feet tall. It’s true that most economists reject economy-wide central planning, but the vast majority endorse some version of Keynesian economic policy complete with activist fiscal and monetary interventions, substantial regulation of markets (especially financial markets), fiat money under the control of a central bank, social policy to encourage home ownership, and all the rest. We’ve pointed many times on this blog to research on the social and political views of economists, who lean “left” by a ratio of about 2.5 to 1 — yes, nothing like the sociologists’ zillion to 1, but hardly evidence for a rigid, free-market orthodoxy. I note that the reformers described in the Guardian piece never, ever offer any kind of empirical evidence on the views of economists, the content of economics courses, or the influence of economics courses on economic policy. They simply assert that they don’t like this or that economic theory or pedagogy, which somehow contributed to this or that economic problem. They seem blissfully unaware of the possibility that their own policy preferences might actually be favored in the textbooks and classrooms, and might have just a teeny bit to do with bad economic policies.
I’m reminded of Sheldon Richman’s pithy summary: “No matter how much the government controls the economic system, any problem will be blamed on whatever small zone of freedom that remains.”
Guiso, Sapienza, and Zingales on Corporate Culture
| Peter Klein |
Luigi Guiso, Paola Sapienza, and Luigi Zingales tackle the elusive concept of corporate culture in a new NBER paper. Using survey data from the Great Place to Work Initiative they show that firm performance is higher, other things equal, when employees perceive top management as trustworthy and ethical. They control for corporate governance variables and try to separate the effects of an ethical culture from the halo effect that distorts perceptions of high-performing firms. The data are cross-sectional, so it’s impossible to say that a strong corporate culture causes strong performance, rather than the other way around, but the findings are extremely interesting nonetheless.
Ronald Coase at Dundee
| Peter Klein |
The University of Dundee’s Scottish Centre for Economic Methodology is hosting a conference 18 November 2013, “Origins of the Theory of the Firm: Ronald Coase at Dundee, 1932-1934.” The program looks really interesting:
- Keith Tribe, “Dundee and Interwar Commercial Education.”
- Billy Kenefick, “‘A great industrial cul-de-sac, a grim monument to “man’s inhumanity to man.” ‘ Dundee by the early 1930s.”
- Carlo Morelli, “Market & Non-Market Co-ordination: Dundee and its Jute Industry – The Case Study for Ronald Coase?”
- David Campbell, “Agency, Authority and Co-operation in the Firm: Coase, Macneil, Marx.”
- Alice Belcher, “Coase and the Concept of Direction: How Valuable are Legal Concepts in the Theory of the Firm?”
- Brian Loasby, “Ronald Coase’s Theory of the Firm and the Scope of Economics.”
- Alistair Dow & Sheila Dow, “Coase and Scottish Political Economy.”
- Eyup Ozveren & Ilhan Can Ozen, “Coase versus Coase: What if the Market Were One Big Firm Instead?”
- Neil Kay, “Coase, The Nature of the Firm, and the Principles of Marginal Analysis.”
Easy Money and Asset Bubbles
| Peter Klein |
Central to the “Austrian” understanding of business cycles is the idea that monetary expansion — in Wicksellian terms, money printing that pushes interest rates below their “natural” levels — leads to overinvestment in long-term, capital-intensive projects and long-lived, durable assets (and underinvestment in other types of projects, hence the more general term “malinvestment”). As one example, Austrians interpret asset price bubbles — such as the US housing price bubble of the 1990s and 2000s, the tech bubble of the 1990s, the farmland bubble that may now be going on — as the result, at least partly, of loose monetary policy coming from the central bank. In contrast, some financial economists, such as Laureate Fama, deny that bubbles exist (or can even be defined), while others, such as Laureate Shiller, see bubbles as endemic but unrelated to government policy, resulting simply from irrationality on the part of market participants.
Michael Bordo and John Landon-Lane have released two new working papers on monetary policy and asset price bubbles, “Does Expansionary Monetary Policy Cause Asset Price Booms; Some Historical and Empirical Evidence,” and “What Explains House Price Booms?: History and Empirical Evidence.” (Both are gated by NBER, unfortunately, but there may be ungated copies floating around.) These are technical, time-series econometrics papers, but in both cases, the conclusions are straightforward: easy money is a main cause of asset price bubbles. Other factors are also important, particularly regarding the recent US housing bubble (I suspect that housing regulation shows up in their residual terms), but the link between monetary policy and bubbles is very clear. To be sure, Bordo and Landon-Lane don’t define easy money in exactly the Austrian-Wicksellian way, which references natural rates (the rates that reflect the time preferences of borrowers and savers), but as interest rates below (or money growth rates above) the targets set by policymakers. Still, the general recognition that bubbles are not random, or endogenous to financial markets, but connected to specific government policies designed to stimulate the economy, is a very important result that will hopefully influence current economic policy debates.
Symposium on Allen’s Institutional Revolution
| Peter Klein |
Here is a symposium on Doug Allen’s very important book The Institutional Revolution (Chicago, 2011). The symposium features essays by Deirdre McCloskey, Joel Mokyr and José-Antonio Espín-Sánchez, and our own Dick Langlois, along with a reply by Doug. The issue revolves around the role of measurement, and Doug’s thesis that reductions in measurement costs are central to improved economic performance.
My favorite line, from Doug’s reply:
I have read “The Problem of Social Cost” more times than I can recall, and study as I may, I have never found a logical error in it. But here is the point: if the author, both at the time and 30 years later, still failed to fully grasp his own perfect work, then it is an understatement to note that the ideas are subtle.
Recent Videos from Top Business Professors
| Peter Klein |
Michael Porter: “Why Business Can Be Good at Solving Social Problems”
Costas Markides: “Strategy Is about Making Choices”
Clayton Christensen: “Disruptive Innovation”
Private, For-Profit Legal Education
| Peter Klein |
The WSJ profiles InfiLaw, a network of private-equity backed, for-profit law schools that is challenging the established model of legal education. From what I understand, InfiLaw seems to be the University of Phoenix of law schools, providing vocationally oriented training for the lower-end of the market (but, unlike for-profit business schools, charging upmarket prices).
InfiLaw’s schools aren’t designed to compete with the Harvards and Stanfords. The approach, the company says, has mostly been to target students, including many minorities, whose grade-point averages or LSAT scores don’t qualify them for admission at the top schools. . . .
Some in the academy think InfiLaw is compounding the problems in legal education, which is graduating far more students than there are entry-level jobs for lawyers. Critics, including former students who have sued Florida Coastal, see the company as a predatory outfit that peddles false promises to students in exchange for high tuitions.
Others think criticisms of InfiLaw are based on elitism embedded within the legal academy,
As we’ve noted before, it is unlikely that newer, private, for-profit colleges, universities, and professional schools can compete head-to-head with the traditional schools, but why should they? Certainly there is room for more creativity, experimentation, and innovation, structurally and pedagogically, in legal education, as with other forms of higher learning. InfiLaw may be ineffective, or even a scam, but viva la diversité!
Davenport’s Theory of Enterprise
| Peter Klein |
Kudos to Richard Ebeling for a nice piece on Herbert J. Davenport, one of the most American economists of the early twentieth century, mostly forgotten today. (One exception: Daveport was the founding Dean of the University of Missouri’s business school, which named its donor society after him.) Davenport, one of Frank Knight’s teachers, was an early adopter of the subjective theory of value introduced by Carl Menger and, along with Philip Wicksteed and Frank Fetter, helped to spread the marginal revolution in the English-speaking world.
Davenport was also a contributor to the economic theory of entrepreneurship, as noted by Ebeling:
Here was the mechanism by which the logical causality between demands and supplies was brought into actual implementation in the complexity of market activities. The entrepreneur stood, Davenport argued, “as the intermediary in the case, representing in his hiring and buying of productive factors, the demand of the purchasing public, and representing in his cost computations, the degree of scarcity of the productive factors relative to the demand for their products.”
On the one hand, it was “the entrepreneurs who furnished the demand for all . . . the things which are called production goods,” he explained. On the other hand, it was “the competition of the entrepreneurs of each industry with the other entrepreneurs of the same industry, and the competition of the entrepreneurs of each industry with those of other industries” that brought about the emergence of factor prices. All the money outlays, the objectified market “costs” that an entrepreneur had to incur, all traced back to the demand for other things as reflected in the bids of competing entrepreneurs. . . .
“The various markets in which he [the entrepreneur] must hire and buy are fluctuating in their prices,” he said. “And the price at which he will finally market his product is uncertain . . . His alternative lines of activities, also, are subject to uncertainties.” All of the entrepreneur’s calculations, therefore, were expectiational.
His computations of “costs of production,” Davenport went on, “appears to be backward-looking computation,” but in reality was “only a basis for a further and forward-looking computation.” The entrepreneur’s glance was turned towards those future – uncertain – opportunities that still lie before him, and from which he would have to choose the one that he believed offered the greatest net advantages.
Ultimately, then, the entrepreneur’s “cost” of production was reducible to his individual judgments,
Ebeling is quoting Davenport’s 1913 book The Economics of Enterprise, which hints at the “judgment-based view” of entrepreneurship elucidated more fully by Knight.
From MOOC to MOOR
| Peter Klein |
Via John Hagel, a story on MOOR — Massively Open Online Research. A UC San Diego computer science and engineering professor is teaching a MOOC (massively open online course) that includes a research component. “All students who sign up for the course will be given an opportunity to work on specific research projects under the leadership of prominent bioinformatics scientists from different countries, who have agreed to interact and mentor their respective teams.” The idea of crowdsourcing research isn’t completely new, but this particular blend of MOO-ish teaching and research constitutes an interesting experiment (see also this). The MOO model is gaining some traction in the scientific publishing world as well.
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