Posts filed under ‘– Klein –’
O&M Two-Year Anniversary
| Peter Klein |
O&M went live 25 April 2006, exactly two years ago. Introducing ourselves to the world, we wrote:
We started this blog for two reasons. First, while there are many excellent blogs on economics, law, and public policy, there are relatively few on organization, strategy, and management, our main areas of research. Organizations and Markets hopes to help fill this gap. Second, we think we have a unique and interesting perspective on many of these issues, and we thought it would be fun to share this perspective with the world.
We may or may not be interesting (or fresh), but we think we’re still unique. While the econo-blogosphere has become thickly populated, only a few blogs focus on managerial and organizational issues. (Our blogroll includes most of our personal favorites.)
In the last two years we’ve written 1,275 posts in 32 categories (the most popular being Institutions, Management Theory, Methodology/Theory of Science, Strategic Management, Entrepreneurship, and, of course, Ephemera). We’ve hosted 283,822 unique visitors from dozens of countries (including, during just the last week, Slovenia, Iraq, Cameroon, Malaysia, and Guam). Thanks to our readers (students in particular), regular commentators, and former guest bloggers for their continued enthusiasm and support.
We’re planning significant changes to the site in the coming weeks. Watch this space for details!
Best Anti-IRB Article You’ll Read Today
| Peter Klein |
It’s Zachary Schrag’s “How Talking Became Human Subjects Research: The Federal Regulation of the Social Sciences, 1965-1991,” forthcoming in the Journal of Policy History.
In universities across the United States, institutional review boards, or IRBs, claim that they have the moral and legal authority to control the work of researchers in the humanities and social sciences. While IRBs may claim powers independent of federal regulations, they invariably point to these regulations as a key source of their authority. This article draws on previously untapped manuscript materials in the National Archives to trace the history of the federal regulation of social science research. Officials raised sincere concerns about dangers to participants in social science research, especially the unwarranted invasion of privacy as a result of poorly planned survey and observational research. On the other hand, the application of the regulations to the social sciences was far less careful than was the development of guidelines for biomedical research. Regulators failed to define the problem they were trying to solve, then insisted on a protective measure borrowed from biomedical research without investigating alternatives.
See also Schrag’s valuable Instituitional Reveiw Blog.
IRB oversight is particularly strong at the University of Missouri, across all departments, partly the result of a federal investigation in 1999 that came down hard on the medical school. One might wonder what this has to do with social-science research, but there you go.
The Nature of the (Law) Firm
| Peter Klein |
Gordon Smith shared an interesting report on a recent Georgetown conference, “The Future of the Global Law Firm.” Apparently there is a healthy literature in legal scholarship examining the boundaries and internal organization of law firms. Writes Gordon:
The participants seem to have reached a few points of consensus. First, the legal profession has changed dramatically in the past two decades and it remains under significant stress, meaning that more change is on the way. Second, the rules that constrain change (e.g., prohibition of non-lawyer ownership, rules relating to conflicts, non-competition rules) should be changed sooner rather than later. Third, the traditional legal form (partnership) is largely irrelevant to the current practice of law, even if law firms want to create an organizational structure that encourages the collegiality of a traditional partnership. Fourth, the law firms that will succeed in the future are those that get the organizational structure right.
In a follow-up email, Gordon explains that the organizational features being challenged include the partnership model, the up-or-out “Cravath system,” and the outsourcing of routine services (e.g., electronic discovery) to places like India. Gordon recommends Laura Empson’s Managing the Modern Law Firm for an overview of the issues. I said I thought there was some work by economists and management scholars on the economic organization of the law firm (and professional services firms more generally), but couldn’t come up with much, aside from a series of interesting papers by Luis Garicano and Thomas Hubbard (here, here, and here). Any suggestions from our readers? Is the persistence of the partnership form, for example, mainly the result of arcane professional-ethics rules or is there an underlying efficiency rationale? If consulting firms can have IPOs, why not law firms?
Ken Lay Chair Filled
| Peter Klein |
The University of Missouri’s Kenneth L. Lay Chair of Economics, which we’ve written about before, has been filled, by an internal candidate, Joe Haslag. Joe is a monetary economist who, unlike many macroeconomists, does policy work (some with the controversial Show-Me Institute) and, unlike many economists, is a warm and friendly person. (Did I just write that?)
For those who think that economists, like other social-science and business academics, tend to be overly narrow and specialized, note what Joe says about his patron:
Haslag acknowledged being relatively uninformed about the Enron affair. “Actually, it’s not an episode that’s part of the economics I teach,” he said. “There isn’t anything about the story that entices me to spend a lot of time on it. I couldn’t talk about it with any amount of detail or any analysis.”
Authors@Google
| Peter Klein |
From Marshall Jevons I just learned about the Authors@Google lecture series. Lots of good stuff there. The O&M crowd may especially enjoy the talks by Ian Ayres, Larry Lessig, Bob Litan, Richard Florida, John Searle, Daniel Solove, Steven Pinker, Robert Frank, Don Tapscott, Bill Easterly, and Tom Perkins.
Update: If you like this sort of thing check out TED as well (thanks to Art Carden for the pointer). The first person I saw when I visted the site yesterday was Yochai Benkler, whose book The Wealth of Networks I happen to be reviewing for The Independent Review.
Bacon Weave
| Peter Klein |
Michael Ruhlman, one of my favorite food writers, maintains that cooking is a craft, not an art. For example, writing in The Soul of A Chef about the Certified Master Chef exam, he writes:
Poetry is an art form. Cooking is a craft. (Oh, I know how the foodie blowhards — and even a lot of chefs — love to talk about food as art! But I’m sorry, noodles spun into towers and designs on plates with different-colored sauces do not equal art, so don’t talk to me about food as art or chefs as artistes.) As with any craft, there were artful levels and shared standards of excellence. The test’s very existence implied that great cooking, cooking at so-called master chef level, was not art, was only craft, the result of physical skills that were consistently measurable and comparable from one chef to the next. The Certified Master Chef exam aimed to set an objective standard of great cooking that existed regardless of this or that person’s own taste and preferences, something you could not do with an art such as poetry.
I used to agree with Ruhlman, until I saw the bacon weave. Now that’s art! (Thanks to Gary.)
On a more serious note, there are of course different schools of thought on the possibility of objective standards in art (not just visual arts but also music, literature, drama, and film). I don’t think Ruhlman’s distinction between art and craft implies some kind of postmodernism. Certainly one neen’t embrace pomo to understand that essay exams are a lot harder to grade than multiple-choice tests! (But see this.)
Ethical Standards for Business Professors
| Peter KIein |
You may have heard about the campaign to have John Yoo, author of the infamous Bush Administration torture memo, fired from his (tenured) position as professor of law at UC Berkeley. Brad DeLong has blogged a lot about this. (Here is Yoo’s response, last week, in Esquire, and here is a statement from Yoo’s dean.) Brad quoted something interesting on Tuesday from James Wimberly:
[T]he relevant fact [is] that . . . Professor Yoo is employed to teach a vocational subject, law. This isn’t a prestige issue. Particle physics, cultural studies and remedial English fall on one side of the vocational/non-vocational distinction; law, medicine, nursing, flying training and plumbing school on the other.
All teaching carries with it a minimum set of professional standards on plagiarism, harassment, favoritism and so on. Nobody has suggested John Yoo has violated these. But vocational education should also inculcate the specific ethical standards of the trade in question. It seems at least arguable that Yoo’s probable professional misconduct as legal enabler of war crimes taints his ability to train future advocates and judges. Should a flying school for airline pilots keep an instructor guilty of reckless flying in his own weekend plane? But the same conduct would be irrelevant to the employment of a professor of surgery.
Business administration, like law, is a vocational subject (despite the top-notch scholarship conducted by some business professors). What are the ethical responsibilities of a business professor? Clearly someone who engages in unethical business practices, or encourages students to do the same, is in danger. But what about borderline issues — say, an accounting professor who favors the liberal use of special purpose entities? A critic might even claim that Henry Manne’s endorsement of insider trading is akin to Yoo’s endorsement of “harsh interrogation techniques.” (I think the comparison is ludicrous, but wouldn’t be surprised to hear it from the bashers.) What about business conduct? Certainly a failed entrepreneur can be an entrepreneurship professor; indeed, the experience may even be an advantage. Is a business professor’s consulting activity a purely private matter, or should it have some bearing on his or her professorial standing?
Aoki on North
| Peter Klein |
Masahiko Aoki’s contribution to a forthcoming North symposium, “Understanding Douglss North in Game-Theoretic Language,” is available on SSRN. North’s 1990 book Institutions, Institutional Change and Economic Performance, writes Aoki,
laid the foundation for New Institutional Economics by conceptualizing institutions as the rules of the game, pointing out the vital importance of effective enforcement and arguing for the crucial roles they play in determining economic performance. Thus it became a seminal book. But if the rules of the game are so crucial, then why doesn’t a lagging economy emulates the rules that prevail in more advanced economies? Why cannot the rules of the game be changed and enforced by emulation? It seemed that in his [1990] book North regarded it as the essential role of polity to change and enforce the (formal) rules of the (economic) game. But in his view, political markets are imperfect and inefficient so that better rules cannot be emulated/devised or enforced as desired. Thus a further question is raised regarding how rules of political games are determined. This problem of potential infinite regression needs to be answered by going back in historical time to the past. Thus history matters to our understanding of institutions and thus the performance of an economy. . . .
In [Understanding the Process of Economic Change, 2005], particularly in Part I, he has made critical progress toward understanding to the nature of this process. He is now more explicit and vocal about the evolutionary nature of institutional change. . . . He innovatively focuses on the evolution of belief systems that human agents hold, arguing that we perceive the “human landscape,” interpret it, discover problems within it and intend to solve them. In this way, we collectively and incrementally change the societal rules of the game. In other words, we may say that there is a coevolution of belief systems and institutions.
See also reviews of the newer book by Alex Field, Stefan Voigt and Stanley Engerman.
Best Billboard I Saw Today
| Peter Klein |
OK, I didn’t see the actual billboard, just a photo of it. My colleague Peter Sukovsky, a professor of animal science at MU and a specialist in reproductive physiology, gave a presentation on his startup company AndroLogika at the University of Missouri’s Life Sciences Week. Peter concluded by showing us this picture, helping to illustrate that Missouri is a particularly good state for doing reproductive research. Where else would you find a summer festival like this? (In case you’re wondering, it’s a food festival; you can see examples of the cuisine here. It ain’t Guo-li-zhuang, but in the same genre.)
Erasmus Journal for Philosophy and Economics
| Peter Klein |
The Erasmus Journal for Philosophy and Economics is a new journal focusing on economic methodology, the history of economic thought, relationships between economics and other disciplines, and similar “meta” issues. Here’s the call for papers for the inaugural issue. The journal advertises that it is “particularly friendly to Young Scholars (graduate students and recent PhD graduates).”
Do Economists Believe in “Atomistic Individualism”?
| Peter Klein |
To many critics economics goes astray in characterizing people as isolated, autistic, self-interested, individualistic utility maximizers, unconnected from the broader social fabric in which they are embedded. The celebrated Ferraro, Pfeffer, and Sutton paper (AMR, 2005), and the broader “performativity” critique of economics, is a typical example of this attitude. Some heterodox economists even long for a “post autistic” version of the discipline.
As emphasized repeatedly on this blog, however, the criticism is fundamentally mistaken. At heart, it confuses methodological individualism with ontological individualism. The assumption of individual utility maximization, the simplified model of an isolated individual, and the like are principles of explanation, not descriptions (or, a fortiori, prescriptions). Now, I do think that economists have gone astray by emphasizing “rationality,” modeled with consistent preferences, a utility function that is monotonic and non-decreasing, etc., rather than the broader concept of “purposeful action,” as Mises described it, which is what most economists before the formalist revolution seemed to have had in mind. (more…)
For My Next Blog. . . .
| Peter Klein |
What would be a fun and cool name for an econ-org-strategy-methodology-law-history-culture blog? I mean something clever, like Marginal Revolution, Asymmetrical Information [“Asymmetric”?], Division of Labour, Truck and Barter, Knowledge Problem, ArgMax, and the like. “Organizations and Markets” is descriptive, and easy to remember, but not terribly witty. Here are some better names. (These are mostly inside jokes, so they’re either funny or they’re not.)
- Stochastic Dominance
- Fundamental Transformation
- Apodictic Certainty
- Exogenous Shock
- Rationality Unbound
I believe these URLs are still available (cybersquatters, take note). Readers, what would you suggest?
Heard on NPR This Morning
| Peter Klein |
An item on the upcoming Italian elections featured a clip from comedian-activist Beppe Grillo denouncing both leading candidates, former PM Sylvio Berlusconi and former Rome mayor Walter Veltroni. Grillo, according to NPR’s Sylvia Poggioli, “has become the most powerful voice of protest in Italy. His blog is ranked among the 10 most-visited in the world, according to blog search engine Technorati.” I’m quite sure that’s the first time I’ve heard a national news program cite someone’s Technorati ranking as his main qualification!
Also curious: Later in the story Poggioli quotes Franco Ferrarotti, described as “one of Italy’s best-known sociologists.” How often have you heard an academic sociologist quoted in a general-interest news story?
Defending the Undefendable, Online
| Peter Klein |
I forgot to mention that Defending the Undefendable is also available in a free online edition. Text and pictures!
Table of contents below the fold: (more…)
Hart on Transaction Costs
| Peter Klein |
In a new paper, “Reference Points and the Theory of the Firm,” Oliver Hart reflects on the progress economists have made on the theory of the firm since 1937. He argues that despite many advances, economists still have difficulty operationalizing Coase’s notion of transaction costs, or “haggling costs,” as Hart calls them. Why, he asks, can’t managers strike efficient bargains — call them Coasian bargains, ironically, after Coase 1960 — with managers of other firms?
The transaction cost literature . . . has implicitly assumed the existence of haggling (or rent-seeking) costs: it has not confronted the issue of how to model them. The more formal property rights approach has sided with Coase (1960), thereby avoiding haggling costs. In a typical model the parties bargain costlessly ex post, and the focus is on ex ante investment inefficiencies. I have argued elsewhere (Hart and Moore (2007)) that, while such an approach can yield useful insights about optimal asset ownership, it is unlikely to be helpful for studying the internal organization of large firms. Specifically, in a world of Coasian bargaining, it is hard to see why important aspects of organizational form such as authority, hierarchy, and delegation matter. Why wouldn’t the parties simply bargain about everything all the time, using monetary sidepayments?
The answer, Hart suggests, lies in the concept of “reference points,” discussed here (and later published here). Drawing on concepts from behavioral economics, Hart argues that parties enter transactions with some notion of fairness, and renege on commitments or shirk on performance to the extent that they feel aggrieved, or shortchanged relative to this reference point. (more…)
Econ Grad Student Music Videos
| Peter Klein |
From the Berkeley econ skit party: No Dissertation and Stronger (via Mankiw).
As not only a former participant in, but also a two-time Master of Ceremonies for, said skit party, all I can say is thank goodness there was no YouTube in my day.
A Really Old Family Firm
| Peter Klein |
One advantage of the public corporation over the family-owned firm is longevity: few family firms last beyond two or three generations. Saturday’s WSJ profiled an interesting exception: Marchesi Antinori Srl, a wine business founded by Giovanni di Pietro Antinori in 1385 and run today by Piero Antinori, 26 generations later. Some of the Antinoris’ unusual business practices:
The Antinoris have flourished in part because of their willingness to flout conventional wisdom over how a family company should be run. Instead of creating clear lines that separate the family’s interests from the company’s, the Antinoris blur the two beyond recognition. The Marquis, his wife and their youngest daughter still live on the top two floors of the 15th-century Palazzo Antinori, a few steps from the Florence cathedral, where the family has resided for the past five centuries.
The business is still run on the palazzo’s bottom two floors, and the three daughters are top executives. . . .
Though the company has a six-person board of directors — including two non-family members — the Marquis says it only meets “for formalities.” The real board meeting, he says, “happens every Sunday, when we sit down to lunch.” That often takes place in one of the family’s nearby vineyards, either in the hills of Chianti, or along the Tuscan coast.
Instead of focusing on quarterly results, the Antinoris plan far into the future, laying the foundations for a company their grandchildren can run. They have been wary of following popular business trends. The family is suspicious of growing too much, which they say can compromise quality and run a company into debt.
One should be wary of drawing strong inferences from a sample of one. Of course, as Herbert Simon once noted, a sample of one is infinitely more informative than a sample of none.
Here is the Antinori wikipedia page. are some older posts on family firms.
Overheard at Starbucks This Morning
| Peter Klein |
“She always referred to herself as ‘Dr. S____,’ so I assumed she was a medical doctor. Then I found out she was a former School Superintendent, with a Doctorate in Education.”
“Yeah, the only people who call themselves ‘Dr.’ are medical doctors and people with Doctorates in Education.”
Incentives Matter, Red-Light Camera Edition
| Peter Klein |
Auto-safety laws have an ambiguous effect on injuries because people drive less carefully when they feel protected from harm. (My former colleague Dwight Lee prefers a more colorful example: Distributing condoms on college campuses may increase the rate of sexually transmitted disease because students less reluctant to, um, engage in certain behaviors when they think their actions don’t carry consequences. Of course, as Dwight points out, the net effect depends on . . . wait for it . . . elasticity.)
Now we learn that red-light cameras, installed to boost city ticket revenues by recording violations and issuing fines automatically, are actually bringing revenues down, as drivers at those intersections learn not to run red lights. Naturally, city governments are upset and plan to remove the cameras. (HT: Anthony Gregory.)
Accounting and Modern Management
| Peter Klein |
In assessing the role of accountants during the industrial revolution, historians generally have been guided by Sidney Pollard’s interpretation expressed in The Genesis of Modern Management (1965). Pollard contended that early industrial accounting exhibited a marked confusion between capital and revenues. This confusion suggested to him that early industrialists were more concerned with calculating and extracting interest on their investments rather than maximizing their rate of return. Thus, Pollard concluded, these early entrepreneurs apparently lacked the true profit motive possessed by modern capitalists.
David Oldroyd’s book seeks to test these contentions by subjecting the financial accounts of three northern [coal] estates to detailed analysis in four specific areas: the performance of contracts, investment planning, labor management, and managerial behavior. . . .
The result is a discussion of early industrial entrepreneurship that is both revealing and nuanced. For example, Oldroyd shows that an extensive network of contracts regulated the exploitation of the Durham and Northumberland coalfield. These contracts covered a myriad of circumstances involved in both the underground mining and aboveground transportation of minerals. A typical enterprise might need to contract the leasing or subcontracting of a mine, aboveground “wayleaves” to transport coal across neighboring properties, the shipment of coal to London or other ports, and the off-loading of coal at the point of sale. In all of these areas, accounting records carefully quantified not only total production and transport, but very often unit costs as well. Oldroyd therefore concludes that, contrary to Pollard, accounting was an essential and extremely adaptable tool promoting economic efficiency during this era.
This is from James Jaffe’s EH.Net review of David Oldroyd’s Estates, Enterprise and Investment at the Dawn of the Industrial Revolution (Ashgate, 2007). Interesting fodder for business historians and specialists in contracting and organization. And here are some previous posts on accounting (1, 2, 3, 4, 5, 6).
Organizations and Markets 
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