Posts filed under ‘– Klein –’
More on the Economic Organization of Law Firms
| Peter Klein |
As a follow up to these comments about the organizational structure of professional-services firms, law firms in particular, note Tom Ulen’s remarks on some recent trends, e.g., the growing importance of specialized, niche firms that provide specific services to corporate clients on a short-term basis.
An Even Better Procrastinator’s Clock
| Peter Klein |
I blogged previously on an alarm clock designed for procrastinators and people with time-inconsistent preferences. It runs up to 15 minutes fast but in a random pattern so you don’t know how fast it really is. Here’s an even better clock: if you don’t wake up it starts dialing numbers randomly chosen from your phone’s contact list, annoying the living s__ t out of your friends until you turn it off. As Engadget notes, this is brilliance — “pure, sadistic, barbarous brilliance.”
The Ecconomics of Organizing Economists
| Peter Klein |
Most regulatory agencies are staffed by a mix of attorneys and economists. Members of these groups do not always play well together. How, then, should such an agency be organized — functionally, putting the economists in a single unit, reporting to a chief economist, or divisionally, spreading the economists throughout divisions organized by legal issue, industry sector, geographic region, etc. and having them report to an attorney in charge of each division? An interesting application of the U-form versus M-form problem posed by Chandler (1962).
An analysis of organizational structure at US and European competition agencies by Luke Froeb, Paul Pautler, and Lars-Hendrik Roller (via Dan Sokol) finds that
the main advantage of a functional organization is higher quality economic analysis while the disadvantage is that the analysis may not be focused on legal questions of concern, and is less easily communicated to the ultimate decision makers. Likewise, the advantages of a divisional organization are decentralized, and faster, decision making; however, the quality of the economic analysis is likely to be lower and can result in less information reaching the ultimate decision makers.
Froeb, Pautler, and Roller suggest that hybrid forms, such as (a) functional organizations with strong horizontal links between economists and attorneys or (b) divisional organizations with strong vertical links between economists and attorneys, and managers trained in both law and economics, are best.
My own experience at the CEA confirms the importance of both the vertical and horizontal links. We economists were organized into a focused unit for major projects like the Economic Report of the President but were also assigned to ad hoc, inter-Agency teams working on specific policy issues (I dealt with spectrum auctions, the pricing of air traffic control, and foreign ownership of domestic telecom assets, among other things). I was typically the lone economist (though hardly the nerdiest member) on each team.
Russ Coff Guest Blogging at orgtheory.net
| Peter Klein |
Russ Coff, whose work is popular in these parts, is guest blogging over at orgtheory.net. Look for some good stuff in the coming weeks.
Update: Here’s his first post.
More on the File Sharing Contretemps
| Peter Klein |
Stan Liebowitz has posted another comment on the JPE file sharing controversy. Stan ups the ante by including, as appendices, a synopsis of the controversy, copies of correspondence between himself and the authors of the original article, and copies of the JPE referee reports and editor Steve Levitt’s rejection letter. Readers outside of academia may enjoy this rare window into the arcane world of peer review. (Via Craig Newmark.)
Question: If the authors of the original paper, Oberholzer-Gee and Strumpf, published their response to Stan, would we refer to it as OS/2?
Update: Stan reminds me to emphasize that the negative referee report from the JPE, the basis of Levitt’s rejection decision, was, in fact, written by Oberholzer-Gee and Strumpf. In other words, there is an OS/2, and you can read it as one of Stan’s appendices. The core of Stan’s paper is a detailed reply to OS/2, arguing that they don’t have a legitimate response to the critiques in his original comment.
IRB in the Movies
| Peter Klein |
Took my son to see The Incredible Hulk today. Best scene (paraphrasing from memory):
Bad guy Emil Blonsky, demanding at gunpoint for nerdy science professor to inject him with Bruce Banner’s radiation-infected blood: “Make me like him!”
Professor: “It’s extremely dangerous. You don’t know what it could do to you!”
Blonsky grabs professor by the throat and hoists him over his head.
Professor: “I didn’t say I wouldn’t do it. I just need informed consent.”
The Puzzle of the Publicly Held Private-Equity Firm
| Peter Klein |
Like many observers, I was puzzled by last year’s IPO of the Blackstone Group, one of the nation’s largest private-equity firms. After all, the ability of PE firms to restructure and improve poorly performing companies owes a lot to their isolation from the day-to-day pressures of satisfying public investors. PE firms already face potential agency conflicts between their general partners and the managers of their portfolio companies, and between their general and limited partners; why add agency problems between the partners and public shareholders? Has the credit squeeze raised the cost of debt finance that much?
Today’s WSJ reports that KKR, which considered going public last year but pulled out, is again pondering an IPO:
The storied corporate-buyout firm has quietly and aggressively hired a battery of executives in recent months, creating an organization chart that looks remarkably similar to that of a public company. It has brought on a general counsel, a public-affairs chief, a chief compliance officer, a chief technology officer, a chief talent officer and a chief human-resources officer. . . .
[P]eople close to KKR acknowledge that it is still keen on becoming a public company and a raft of recent shifts, including the hiring spree, speak to a broader change at the firm and how it views its business.
Perhaps the publicly held PE firm is best described as a new hybrid form, an organization that combines the governance advantages of private equity with the lower capital costs of the publicly traded corporation. Or does it combine the worst features of both?
Award-Winning CEOs
| Peter Klein |
They make more money, sit on more boards, write more books, and have lower golf handicaps than CEOs of similarly performing firms who haven’t won awards (e.g. from Business Week). However, according to a new paper by Ulrike Malmendier Geoffrey Tate, their firms perform poorly after they win awards, compared to a matched set of firms headed by rank-and-file CEOs.
Compensation, status, and press coverage of managers in the U.S. follow a highly skewed distribution: a small number of “superstars” enjoy the bulk of the rewards. We evaluate the impact of CEOs achieving superstar status on the performance of their firms, using prestigious business awards to measure shocks to CEO status. We find that award-winning CEOs subsequently underperform, both relative to their prior performance and relative to a matched sample of non-winning CEOs. At the same time, they extract more compensation following the award, both in absolute amounts and relative to other top executives in their firms. They also spend more time on public and private activities outside their companies, such as assuming board seats or writing books. The incidence of earnings management increases after winning awards. The effects are strongest in firms with weak governance, even though the frequency of obtaining superstar status is independent of corporate governance. Our results suggest that the ex-post consequences of media-induced superstar status for shareholders are negative.
The pointer is from Justin Lahart, who blogs for the WSJ.
IRBs and Social-Science Research
| Peter Klein |
Most US research universities have an Institutional Review Board, or IRB, tasked with supervising “human-subjects” research. Unfortunately, the performance of the typical IRB is nothing short of disastrous, as we’ve noted before. IRB officials are trained to work with the physical and biomedical sciences, and have little knowledge of social-science research, though their mandate usually covers all research done at the university.
The July 2008 issue of Political Science & Politics, published by the American Political Science Association, contains a symposium on “Protecting Human Research Participants, IRBs, and Political Science Redux.” As editor Robert J-P. Hauck notes in his introduction:
By the 1990s, “IRBs had expanded their mission to include all research, not just research funded by the federal government, enhancing their scope of authority while slowing the timeliness of reviews. Similarly, and with the same result, IRBs were evaluating secondary research as well as primary research. Although the federal legislation provided for a nuanced assessment of risk, the distinction between potentially risk-laden research necessitating a full IRB review and research posing minimal or no risk that could be either exempted or given expedited review was disappearing. The length of the review process threatened the beginning or completion of course work and degree programs. IRBs were judging the merits of research projects rather than the risks involved. This trend was especially problematic because representation on many IRBs was skewed toward biological and behavioral scientists often unfamiliar with the methods and fields of political science and the other social sciences. And the list went on.
In the years that followed there have been several efforts to reform human subject regulation. . . . In the face of these and other efforts, are IRBs better able to effectively and efficiently protect human subjects in social science research?
Judging from the comments of the symposium authors, the answer is no. Now as in the past, IRBs have no consistently applied metric for measuring risk and corresponding levels of IRB review. Mitchell Seligson, Felice Levine and Paula Skedsvold, and Dvora Yanow and Peregrine Schwartz-Shea confirm that the review process has not and perhaps cannot accommodate survey methods and ethnographic and field research. The pace of the IRB review process continues to hinder undergraduate and graduate empirical research. IRBs’ rigid interpretations of requirements produce logically inconsistent directives such as when researchers are told to destroy data they diligently collected and anticipated sharing in order to protect research subjects’ anonymity (Seligson 2008; Yanow and Schwartz-Shea 2008; and Levine and Skedsvold 2008).
The pointer is from Zachary Schrag, who promises to comment on each article in the symposium.
Greif Responds to Edwards and Ogilvie
| Peter Klein |
I blogged earlier on Jeremy Edwards and Sheilagh Ogilvie’s provocative claim that Avner Greif misread the Geniza documents in constructing his influential account of the emergence of long-distance trade. Edwards and Ogilvie claim that formal law, not norms and custom, governed the behavior of the Maghribi traders.
Greif has prepared a formal response, now available on SSRN. Here’s the abstract:
Edwards and Ogilvie (2008) dispute the empirical basis for the view (Greif, e.g., 1989, 1994, 2006) that multilateral reputation mechanism mitigated agency problems among the eleventh-century Maghribi traders. Specifically, they assert that the relations among merchants and agents were law-based. This paper refutes this assertion and vindicates the position that the legal system had a marginal role in mitigating agency problems in long-distance trade in this historical era. The claim that merchants’ relations with their overseas agents were law-based is wrong.
The evidence presented here is based on quantitative analyses of the corpuses containing the hundreds of documents on which the literature relies and a careful review of the documents and the literature Edwards and Ogilvie cite. Their assertion is shown to be based on unrepresentative and irrelevant examples, an inaccurate description of the literature, and a consistent misreading of the few sources they consulted. This paper thereby reaffirms the empirical basis for the multilateral reputation view. Indeed, this empirical basis is stronger than originally perceived. In addition, this paper sheds light on the roles of the legal system and reputation mechanism during this period.
Stop Using Management Buzzwords
| Peter Klein |
That’s the command to town and village officials from Britain’s Local Government Association, which urges its members to dump trite words and phrases like core values, evidence base, facilitate, fast-track, holistic, level playing field, process driven, quick hit, and my personal favorite, predictors of beaconicity (no idea what it means). Here’s the list, and here’s the CNN story (via Josh). From CNN:
The list includes the popular but vague term “empowerment;” “coterminosity,” a situation in which two organizations oversee the same geographical area; and “synergies,” combinations in which the whole is greater than the sum of its parts.
Officials were told to ditch the term “revenue stream” for income, as well as the imprecise “sustainable communities.” The association also said councils should stop referring to local residents as “customers” or “stakeholders.”
The association’s chairman, Simon Milton, said officials should not “hide behind impenetrable jargon and phrases.”
Business-school educators, please take note!
Creative Capitalism Blog
| Peter Klein |
Via Mankiw, here is Michael Kinsley and Conor Clarke’s Creative Capitalism Blog. Check out the list of contributors. Wow. I haven’t seen a team that impressive since these guys. OK, Creative Capitalism isn’t a traditional blog (there’s an oxymoron for you) but, as Kinsley and Clarke explain,
a web experiment designed to produce a book — a collection of essays and commentary on capitalism, philanthropy and global development — to be edited by us and published by Simon and Schuster in the fall of 2008. The book takes as its starting point a speech Bill Gates delivered this January at the World Economic Forum in Davos. In it, he said that many of the world’s problems are too big for philanthropy — even on the scale of the Gates Foundation. And he said that the free-market capitalist system itself would have to solve them.
This is the public blog of a private website where a group of invited economists have spent the past couple of weeks criticizing and debating those claims.
Gore Vidal on Academic Biographers
| Peter Klein |
Gore Vidal, writing in 1981 in the New York Review of Books:
Lately, American biography has fallen more and more into the hands not of writers but of academics. That some academics write very well indeed is, of course, perfectly true and, of course, perfectly rare. When it comes to any one of the glorious founders of our imperial republic, the ten-volume hagiography is now the rule. Under the direction of a tenured Capo, squads of graduate students spend years assembling every known fact, legend, statistic. The Capo then factors everything into the text, like sand into a cement mixer. The result is, literally, monumental, and unreadable.
Thanks to LRC for the tip. The context is Gore’s praise for David McCullough’s short biography of Teddy Roosevelt (who Vidal calls a “sissy”), Mornings on Horseback.
Of course there are some terrific academic biographers writing today such as Thomas McCraw and Guido Hülsmann. But they are probably the exceptions that prove the rule.
Whither Chicago Economics?
| Peter Klein |
Steve Levitt, writing on the controversy surrounding the University of Chicago’s proposed Milton Friedman Institute, says this:
The Chicago economics department views the world differently than anyone else, even other economics departments. Having learned my economics at Harvard and M.I.T., I took my first teaching job at Chicago with the very explicit idea that I would spend two or three years in Chicago to get to “know the enemy.” After I figured out how they thought, I would escape back to more comfortable surroundings.
Well two things happened that I didn’t expect. First, it turned out that it wasn’t so easy to learn to think like a Chicago economist. I’ve been trying to learn for more than a decade and I still have learned only the rudiments. Every day my colleagues teach me something I should know, but don’t. Second, I decided that the Chicago approach to economics was the right one for me, even though I am not that good at it.
I wish Levitt would elaborate on the differences between contemporary Chicago economics and the economics of Harvard, MIT, Princeton, and Stanford, because I don’t see any. The Chicago economics of 1970 or even 1980 was distinct from that of its East and West coast rivals. The Journal of Political Economy, and even more so the Journal of Law and Economics, had a unique style and approach. Chicago-influenced economics departments at UCLA, Washington, Texas A&M, Clemson, and elsewhere were disseminating (and deepening) the brand. But that’s all gone. It’s hard to see any unique vision today. Indeed, the diversity among US economics departments seems a thing of the past, as I noted before. They are all mini-MITs. How, exactly, is Chicago economics any different?
The Power of Walt
| Peter Klein |
“If you could be anyone in the world, who would it be?” My usual answer is Walt Mossberg, the legendary WSJ technology reviewer. Imagine having access to nearly every cool gadget in the world, and being paid to play with them. Nerd-topia!
But I underestimated Walt’s power. Two marketing professors have discovered that a positive review by Walt generates a 10-percent increase in the parent firm’s abnormal returns while a negative review causes a 5-percent drop. Those are big numbers in event-study world. (Via Gizmodo.)
Controversy Over JPE Paper on File Sharing
| Peter Klein |
Stan Liebowitz, no stranger to controversy (1, 2), maintains that the Oberholzer-Gee and Strumpf paper on file sharing, published last year in the Journal of Political Economy, is fundamentally flawed. Stan submitted a comment (longer version here) to the JPE which was rejected by editor Steve Levitt. Stan believes that Oberholzer-Gee and Strumpf are guilty not merely of sloppiness, but academic dishonesty, and is upset that they refuse to share their data. The German newspaper Handelsblatt has written an article about the controversy. Handelsblatt focuses on Levitt’s decision to ask Strumpf to write a reply and then to use the reply as an anonymous referee report in rejecting Liebowitz’s comment. That doesn’t trouble me as much as the authors’ unwillingness to share the data (and the JPE’s refusal to insist on it). More generally, notes the newspaper:
The impression that procedural standards of economics journals are not particularly strict is widely shared in the profession. Zurich-based economist Ernst Fehr, an associate editor of the top-five journal “Quarterly Journal of Economics” and of “Science” points to a lack of clear rules as to when an editor should recuse himself because of potential prejudice. Science journals also seem to deal more openly with the competition among scientists. “Authors who submit an article to a science journal can say who they do not want to review their article”, praises Fehr, a choice which is typically not given to economists.
One internationally renowned economist, who did not want to be named, expresses the complaint more bluntly: “Little scandals and big scandals are commonplace: editors who publish articles in their own journals, referees or editors who decide about articles submitted by their own doctoral students.”
The pointer is from Craig Newmark, who writes: “Until important empirical results in economics are, as a matter of routine, carefully scrutinized and until they are provably replicable, economics will never get the respect that physics and biology and chemistry get. And that’s a shame.”
Update: Additional comments from John Lott and John Palmer.
Business History Bleg: British Trading Houses
| Peter Klein |
I’m advising a PhD student in sociology (yes, it’s true) who’s studying the rise of British commercial influence in the Far East. He’s particularly interested in Jardine Matheson & Company, a Hong Kong trading company founded in 1832 that grew quickly into a pre-modern industrial conglomerate. Can anyone recommend references on the organization and strategy of 19th-century trading firms, their political, social, and cultural activities and influence, and their role in trade and economic growth more broadly?
Overheard at the Conference
| Peter Klein |
A prominent economic theorist, introducing a well-known business professor who has published in several fields: “In addition to his important scholarly contributions, he has also written several articles in management journals.”
Searle Center Conference on the Economics and Law of the Entrepreneur
| Peter Klein |
I used to judge an academic conference by the number of big-name scholars in attendance. Now I look for big-name bloggers. What a delight, then, to be at the Searle Center Conference on the Economics and Law of the Entrepreneur with two of my favorite bloggers, Gordon from Conglomerate and Lynne from Knowledge Problem. The conference, organized by Dan Spulber, brings together economists and legal scholars to grapple with the challenges facing entrepreneurship research. Today’s sessions focused on venture finance and law, and tomorrow’s deal with economic growth, innovation, and the social context of entrepreneurship. I’m moderating a session featuring Simon Parker, Mirjam van Praag, Doug Cumming, Robert Miller, and Linda Yueh. The papers are available at the conference site and a selection will appear in a special issue of JEMS.
This the second Searle Center event I’ve attended this year and I’ve been impressed with both. The Center is only a year old but, under Henry Butler’s guidance, has already established itself as a major player in the fields of regulatory and entrepreneurial studies.
Organizational Charts from 1915
| Peter Klein |
These images come from Frank Fetter’s second principles treatise, his Economic Principles (1915), which included chapters on “Enterprise” and “Management.” Note that at the top of the hierarchy sits the “enterpriser,” a term Fetter borrowed from Frederick Hawley), instead of “entrepreneur” or “adventurer,” both of which were then in common use to describe the business person. (Adventurer meant simply “one who undertakes a venture.”) Hawley preferred enterpriser because it suggested not simply management, but “responsibility,” or “the subjection [of one’s actions] to the results of production” (Hawley, 1908, p. 470). This is essentially the concept of entrepreneurship proposed in recent Foss-Klein papers (some of which you can find here), namely judgmental decision-making about the deployment of resources in the face of Knightian uncertainty.
Organizations and Markets 
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