Posts filed under ‘– Klein –’
Organizational Innovation: Evidence from Food and Agriculture
| Peter Klein |
Just in time to address some of the issues raised in Nicolai’s provocative post, my colleagues Harvey James, Mike Sykuta, and I have revised our paper, “Markets, Contracts, or Integration? The Adoption, Diffusion, and Evolution of Organizational Form,” which focuses on organizational innovation in US agriculture. Here is the abstract:
The rise of contract farming and vertical integration is one of the most important changes in modern agriculture. Yet the adoption and diffusion of these new forms of organization has varied widely across regions, commodities, and farm types. Transaction cost and other modern theories of the firm help explain the advantages of contracting and integration over reliance on spot markets and commodity brokers. However, these theories do not address the variation in adoption rates of new organizational forms. This paper lays out a more dynamic framework for understanding the evolution of organizational practices in U.S. agriculture, drawing on theories of the diffusion of technology and organizational complementarities. Using recent trends as stylized facts we argue that the agrifood sector is characterized by strong complementarities and that identifying and describing these complementarities more fully sheds considerable light on the organizational structure of agricultural production. We illustrate our arguments with case studies from the oilseed, poultry, and hog industries.
This is a draft, and comments are most welcome.
Empowerment at Netflix
| Peter Klein |
Strong delegation, despite potential drawbacks, can be effective in particular circumstances. DVD-by-mail pioneer Netflix has gone this route, with apparent success:
Netflix’s time off rules — or lack thereof — are part of a broad culture of employee autonomy instilled in the company when [CEO Reed] Hastings founded it a decade ago. The executives trust staffers to make their own decisions on everything — from whether to bring their dog to the office to how much of their salary they want in cash and how much in stock options. Workers are treated, as Chief Talent Officer Patty McCord likes to say, as adults.
“We want our employees to have great freedom — freedom to be brilliant or freedom to make mistakes,” Hastings said.
Curiously, there is nothing in the news story about how output is measured, how employees are compensated, or other elements of the firm’s organizational architecture. What happens, for instance, when employees make mistakes? As argued by Brickley, Smith, and Zimmerman in their 1995 article (and textbook), decentralization works only when bundled with appropriate compensation and performance evaluation systems. Or, in the words of that great philosopher, Spider-Man’s Uncle Ben, “With great power comes great responsibility.”
Thanks to Eddie Garrett for the tip.
Classic Books in Business and Economic History
| Peter Klein |
EH.Net’s Project 2000/2001 features new reviews of classic works in business and economic history. Here are some that may be of particular interest to O&M readers:
- David Landes on Chandler’s The Visible Hand: The Managerial Revolution in American Business
- Thomas McCraw on Schumpeter’s Capitalism, Socialism and Democracy
- Stanley Engerman on Weber’s Protestant Ethic and the Spirit of Capitalism
- Cynthia Taft Morris on Davis and North’s Institutional Change and American Economic Growth
- Paul Hohenberg on Landes’s The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present
- Winifred Rothenberg on Horwitz’s The Transformation of American Law
- Albert Fishlow on Gerschenkron’s Economic Backwardness in Historical Perspective
- Philip Coelho on North and Thomas’s The Rise of the Western World: A New Economic History
Lionel Robbins at 75
| Peter Klein |
This year’s Austrian Scholars Conference featured a panel on the 75th anniversary of Lionel Robbins’s influential Essay on the Nature and Significance of Economic Science. (Both the first and second editions of the book are available online at mises.org.) Robbins’s definition of economics as “the science which studies human behavior as a relationship between scarce means which have alternative uses” is sometimes considered so pedestrian, so completely subsumed into the mainstream of economic theory, that the book itself gets little attention today. However, as explained by the panelists at the Robbins session mentioned above, the book’s argument is sophisticated and nuanced, and definitely still worth reading.
The LSE, Robbins’s professional home, is hosting a conference on the book in December 2007, sponsored by the LSE and the journal Economica. “The purpose of this conference is both to renew the considerations of Robbins’s theme and reflect on the current nature and significance of economic science as well as examine Robbins’s own position from a historical perspective.” Details below the fold (courtesy of SSRN).
NB: Israel Kirzner’s first book, The Economic Point of View (1960), about the history of the definition of economics, is also now available online. (more…)
The New Nordic Cuisine
| Peter Klein |
Because we have an above-average number of Nordic readers I’ll mention that the current issue of Food and Wine magazine profiles Danish super chef Claus Meyer, described as “Scandinavia’s answer to James Beard and Alice Waters.” Recommended Copenhagen restaurants include Meyer’s Noma along with MR Restaurant, The Paul, and Restaurant Paustian. Stop by on your next trip to Copenhagen and tell ’em O&M sent you.
Method versus Methodology
| Peter Klein |
Speaking of pet peeves, here’s another of mine: the regular misuse of the word “methodology” in academic papers. Methodology is the study of scientific methods, a branch of epistemology. Econometric techniques, strategies for gathering data, means of testing hypotheses, etc. are methods, not methodologies. Yet how many empirical papers include a section titled “Methodology” or “Data and Methodology”? It makes me cringe. “We use an instrumental-variables methodology,” or “our methodology employs case studies and structured interviews.” No, those are your methods. Unless you’re citing Popper or Kuhn or Lakatos or Feyerabend or Blaug or Mäki you probably don’t have a methodology section.
This passage from the American Heritage Dictionary (1992 edition) makes the point well:
In recent years . . . “methodology” has been increasingly used as a pretentious substitute for “method” in scientific and technical contexts, as in “The oil company has not yet decided on a methodology for restoring the beaches.” This usage may have been fostered in part by the tendency to use the adjective “methodological” to mean “pertaining to methods,” inasmuch as the regularly formed adjective “methodical” has been preempted to mean “orderly, systematic.” But the misuse of methodology obscures an important conceptual distinction between the tools of scientific investigation (properly “methods”) and the principles that determine how such tools are deployed and interpreted — a distinction that the scientific and scholarly communities, if not the wider public, should be expected to maintain.
Vertical Agriculture
| Peter Klein |
I’ve done some work on vertical integration in agriculture (e.g., this paper). But I learned only recently about vertical agriculture — growing crops inside a skyscraper. (HT: Creativity Exchange.)
At first I thought vertical farming couldn’t possibly be the highest-valued use of land in densely populated urban centers like New York or Hong Kong. Then again, if government ethanol subsdidies continue driving up the price of corn (poor people beware!), you never know.
Resources For Economics Teachers
| Peter Klein |
Old fogies like myself who teach economics to undergraduates need help to make the subject come alive to Generation Z (or whatever we’re up to now). Here are links to multimedia, popular song lyrics, in-class exercises, and other useful resources.
1. Common Sense Economics — accompanies the text by the same name by Jim Gwartney, Rick Stroup, and Dwight Lee. Look under “Really Cool Stuff” for some, well, really cool stuff.
2. AmosWeb — lots of of electronic resources for economics courses. Say the producers: “we take economics seriously, but with a touch of whimsy.” Much like our attitude here at O&M, but with more substance. (HT: Jan Dauve)
3. From ABBA to Zeppelin, Led: using music to teach economics — excerpts from popular song lyrics along with economic interpretations and classroom exercises. I’ve actually heard of some of the groups! (HT: Marginal Revolution)
4. Mises.org fun page — Austrian economics cartoons, crossword puzzles, and more. Be sure to scroll down for the Monty Python money song and Roderick Long’s Kant song.
Also, remember, lecturing is out, “learner-centered instruction” is in. You’re supposed to be the guide on the side, not the sage on the stage.
Words and Phrases to Avoid
| Peter Klein |
More on jargon: Here are some words and phrases to avoid. Also check out Eric Rasumssen’s “Aphorisms on Writing, Speaking, and Listening” and the Economist’s style guide for many useful tips. And whatever you do, flee from egregious PowerPoint mistakes.
Vaguely Defined Property Rights
| Peter Klein |
The shareholder model of the firm has come under increasing criticism from a variety of quarters. Stakeholder approaches argue that employees, suppliers, customers, community members, and others with relationships to the firm should have their preferences taken into account. Theories of worker empowerment, “flatter hierarchies,” and similar approaches advocate delegating decision rights to employees, not top management. Models of loose and open collaboration treat the firm as simply a node in a cluster or network of firms, with decision authority widely dispersed throughout the larger structure.
All these approaches, despite their differences, reject the standard shareholder model in which the firm’s owners, as residual claimants, possess unique rights of decision management and control. And yet, there is a substantial literature on the organizational costs of alternative models, particularly those in which residual claims are not alienable, separable from other agent roles in the organization, or marketable. These costs have not been widely appreciated in the literature on stakeholder management, worker-managed teams and firms, and the like.
My colleague Mike Cook, a specialist in cooperatives, describes these as costs of “vaguely defined property rights.” Mike argues that cooperatives, partnerships, and similar structures are plagued by two kinds of free-rider problems, a horizon problem, a portfolio problem, a control problem, and an influence costs problem, all because their equity shares are not alienable assets that trade in secondary markets. Consider each in turn. (more…)
Pomo Periscope XI: Clive James on Sartre
| Peter Klein |
Clive James on Jean-Paul Sartre, from Slate’s series of excerpts from James’s book Cultural Amnesia.
Skeptics might say that a knack for making duplicity look profound was inherent in Sartre’s style of argument. Students who tackle his creative prose in the novel sequence The Road to Freedom or the play Kean (his most convincing illustration of existentialism as a living philosophy) will find clear moments of narrative, but all clarity evaporates when it comes to the discursive prose of his avowedly philosophical works. But it should be said in fairnesss that even English philosopher Roger Scruton, otherwise a severe critic of Sartre, finds Sartre’s keystone work Being and Nothingness a substantial work; and Jean-François Revel, who took Sartre’s political philosophy apart brick by brick, still admired him as a philosopher who earned his own credentials, without depending on the university system for his prestige. But those of us unfettered by being either professional philosophers or patriotic Frenchmen can surely suggest that even Sartre’s first and most famous treatise shows all the signs of his later mummery. Where Sartre got it from is a mystery begging to be explained. It could have had something to do with his prewar period in Berlin, and especially with the influence of his admired Heidegger. In Sartre’s style of argument, German metaphysics met French sophistry in a kind of European Coal and Steel Community producing nothing but rhetorical gas.
Sartre’s admiration for Communist regimes, even after their atrocities were laid bare, is also emphasized. And there’s this: “After Camus died prematurely in a car crash, Sartre’s gauchiste vision was the style setter of French political thought, founding an orthodoxy that still saturates French intellectual life today and, to a certain extent, continues to set a standard of engagement for intellectual life all over the world.” (HT: Right Reason)
Super Top Secret Crazy Maps
| Peter Klein |
In the early days of World War II a map showing Hitler’s plans for dividing up South America after a German invasion began circulating in Washington. The map turned out to be a hoax created by British intelligence, part of a massive covert operation to persuade US officials to enter the war. (This is all documented in Thomas Mahl’s fascinating Desperate Deception: British Covert Operations in the United States, 1939-1944, one of the most interesting foreign-policy books no one has read.)
Now Strange Maps reveals a recently declassified Soviet memo from 1973 showing how the world would look without the North American continent, a result “which may happen as a result of correction of gravity field of the Earth by the A-241/BIS device.” A hoax, to be sure, but whose? I’m guessing the CIA or a US defense intelligence agency. Why waste time explaining bomber gaps and missile gaps to appropriations committee members when you can simply show them a map like this?
Update: The Brits are at it again, using a fake map showing a nonexistent Iran-Iraq maritime border to prove the HMS Cornwall was seized in Iraqi waters. Craig Murray reports here and here.
Breaking News
| Peter Klein |
Several important announcements for today, April 1:
Foss, Klein, Postrel Join Harvard Faculty
Nicolai, Steve, and I are pleased to announce that we have accepted chaired positions at Harvard University:
Cambridge, Mass., April 1, 2007 — World-renowned scholars Nicolai J. Foss, Peter G. Klein, and Steven R. Postrel will join the Harvard faculty as University Distinguished Professors and co-directors of the newly formed Long Tail Institute for the Global Economy. Says incoming President Drew Faust: “I am delighted that Professors Foss, Klein, and Postrel are joining our team. I have always admired Foss and Klein’s work on judgment-based entrepreneurship, and I enjoyed Postrel’s columns in the New York Times before he changed his name to ‘Steve.’ After reading their blog I knew they were the ones to lead Harvard into the global information age.”
Announcing Guest Bloggers Jeff Pfeffer and Bob Sutton
We’re delighted to welcome Stanford University professors Jeff Pfeffer and Bob Sutton as our newest guest bloggers. Sutton writes: “Jeff and I have recently come out of what we call our ‘Blue Period,’ characterized by moodiness and irritability toward toward economists. We now realize that economic analysis is vital to the proper understanding of organizations. What better way to flaunt our new perspective than by joining the outstanding bloggers at Organizations and Markets? We’ll also be working on our new book, Not Ready to Make Nice in the Workplace.” Welcome, Jeff and Bob!
Google Acquires O&M
This hit the news wires today:
Mountain View, April 1, 2007 — Google Corporation announced today it has acquired a majority stake in the weblog Organizations and Markets, a leading provider of news and information on organizations, strategy, entrepreneurship, and anti-postmodernism. Google CEO Larry Schmidt noted that Google is seeking to expand beyond the search-engine business. “Let’s face it, search is yesterday’s technology. There’s too much junk out there. Instead of using computers to sort our information with confusing page-ranking algorithms, the time has come to hire experts to tell us what the world is really like. The authors of Organizations and Markets are just the experts we’ve been looking for.” Google shares dropped 42% in heavy trading upon the announcement.
Here are some important April 1 stories from prior years.
University of Illinois Scraps For-Profit Subsidiary
| Peter Klein |
We noted previously the University of Illinois’s Global Campus, a proposed for-profit subsidiary that would offer an innovative, unorthodox program competing with nontraditional institutions like the University of Phoenix. Now I learn from Richard Vedder that the for-profit model has been scrapped due to objections from faculty. States the Chronicle of Higher Ed:
[P]rofessors and trustees never shared [President Joseph] White’s vision. They worried that a for-profit university would be more interested in market share than in academic quality control, and that a less-than-rigorous online wing might damage the reputation of the bricks-and-mortar institution.
Now the skeptics have scored a major victory: Mr. White has scaled back his plans for Global Campus, pitching it as an academic unit within the university, not as a separate corporate entity. The president has also scotched plans to seek independent accreditation for the online institution — a move that would have allowed Global Campus to adopt a fairly freewheeling curricular model by quickly adding and eliminating programs based on student demand.
Vedder draws a more general lesson about institutional culture and organizational inertia:
Changing the culture of existing institutions is nearly impossible. While I am all for strategies, such as bribing faculty, to try to effect a culture of innovation and receptivity to change, I think most of the dramatic new innovations will come from institutions created from scratch outside the rubric of existing universities, private or public.
Kicking Some AAS
| Peter Klein |
Bob Sutton may have a clever name with his “No A–hole” project, but here’s an even better one: Kick All Agricultural Subsidies, a.k.a “kickAAS.” It’s a blog, sponsored by the Guardian (UK), seeking the abolition of farm subsidies. Lots of interesting material there.
Jargon Watch: Buckets, Not Silos
| Peter Klein |
I’ve never liked the term “silo,” as used in business administration to describe closed spaces like functional areas, research topics, or approaches. “Economists and sociologists need to come out of their silos and work together.” What are we, sacks of grain? Intercontinental ballistic missles? I long for simpler and less pretentious terms like “areas” or “topics.”
From Tuesday’s WSJ we now learn that silos are out. The new preferred term is buckets. Dow Chemical CEO Andrew Liveris says that ethanol “doesn’t help the conservation efficiency bucket — it helps the diversity of supply bucket.” Cingular Wireless thinks its new rate plan helps customers “dig into their big bucket of night and weekend minutes.” Is the combined India and US market best conceived “as a whole, or as two buckets?” asks a Citigroup analyst. Why do such silly terms proliferate?
Readers are invited to supply their own favorite examples of business and academic jargon. Perhaps we can hold a contest to choose the silliest.
See also previous entries on adjacencies, wikis, bad cover letters, and bad academic writing.
The Kaleidic Career
| Peter Klein |
Old-timers may remember Ludwig Lachmann’s metaphor of the kaleidoscope, popularized in his 1976 essay “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society” (Journal of Economic Literature 14, no. 1: 54-62). Lachmann borrowed the metaphor from G.L.S. Shackle, who wrote of a society “interspersing its moments or intervals of order, assurance and beauty with sudden disintegration and a cascade into a new pattern.” In this fundamentally disorderly system, Lachmann maintained, there are no systematic equilibrating tendencies. As Roger Garrison succinctly put it, “In a kaleidic world, one pattern of prices gives way to another, but there can be no claim that a given pattern is any closer to a general equilibrium, or represents any higher degree of coordination, than the one that preceded it.”
Personally, I find the kaleidic metaphor rather unhelpful. As I’ve noted before, I see the Kirzner-versus-Lachmann debate over the “tendency toward equilibrium” that dominated Austrian economics during the 1980s as a big distraction. The point is not whether markets actually converge to some kind of long-run equilibrium, but whether in the absence of any change in the underlying data prices would tend to converge toward “final” equilibrium values. The founding Austrians such as Menger, Böhm-Bawerk, and Mises thought the profit motive was sufficient to establish such tendencies, but they were not primarily interested in long-run equilibrium prices. Instead, they sought a framework for explaining the actual, day-to-day prices that unfold in historical time. (Look for a paper on this soon.)
Anyway, the kaleidic metaphor eventually fell out of favor with Austrian economists. But now it’s back, in the context of the “kaleidic career.” (more…)
More on Prematurity
| Peter Klein |
We noted before some work on prematurity, the phenomenon in which scientific discoveries are initially resisted because they lie too far outside the mainstream consensus.
Here is a paper — appropriately enough, not yet published — listing discoveries resisted, and scientific papers rejected, even though their authors would go on to win Nobel prizes for these same discoveries. (HT: Bayesian Heresy.) All the examples are from the hard sciences, but I was reminded of Joshua Gans and George Shepherd’s “How Are the Mighty Fallen: Rejected Classic Articles by Leading Economists” (Journal of Economic Perspectives, Winter, 1994). Akerlof’s “Market for Lemons” was rejected by three journals before the QJE agreed to publish it in 1970. Robert Lucas’s “Expecations and the Neutrality of Money” (1972) was dismissed by the AER as too technical. William Sharpe’s 1964 paper introducing the CAPM model was rejected by the Journal of Finance because of its “preposterous” assumption that investors share common beliefs (a new set of editors subsequently accepted a revised version). There are many other examples.
These stories are interesting, but I’m not sure they tell us much about the journal publication process, or scientific discovery, more generally. After all, there are surely many more examples of Type II error than these examples of Type I error — pick up the current issue of your favorite academic journal if you don’t believe me! Would a different system of peer review, or an alternative sociology of science, produce a better overall result?
See, We Can Study Religion Too
| Peter Klein |
Dan Hammond shows how economists approach religion with this cheeky summary of Ekelund, Hébert, and Tollison’s Marketplace of Christianity (MIT, 2006).
The Roman Catholic Church had an enviable monopoly for centuries, so powerful that it was able to engage in first degree price discrimination. Like all monopolists, though, it struggled with technical inefficiency and potential entry. The former manifested itself in excess capital investment in beautiful cathedrals and paintings. To forestall entry it practiced usual monopolistic techniques such as limit pricing, but also tortured and killed competitors. By the end of the fifteenth century the Vatican’s pursuit of ever larger monopoly rents against the background of technological progress (the printing press) set the stage for successful entry by an entrepreneurial monk named Martin Luther. Once Luther’s firm got a foothold, all hell broke loose. Actually, it was not all hell; it was all heaven. For as every student of economics learns, when monopoly gives way to competition consumer surplus expands. There were direct gains for consumers as the price fell from the breakup of the Catholic monopoly and, in addition, the entrants lowered real production costs.
The latter welfare gains warrant explanation. What happened is that the entry of Protestant firms reduced the real cost of itch relief by doing away with ornate churches, daily masses, pilgrimages, sacraments, and middlemen confessors. This is a classic case of efficiency gains from entrepreneurial innovation, not unlike the more recent case of Wal-Mart.
And you wonder why people worry about economic imperialism?
Reader’s Reports on The Road to Serfdom
| Peter Klein |
A new edition of The Road to Serfdom is coming out this year, positioned as volume 2 of The Collected Works of F. A. Hayek. Like all the volumes in the Collected Works, it includes a new foreword (here by series editor Bruce Caldwell), standardized and corrected notes and references, and previously unpublished supplementary material. This week’s Chronicle of Higher Education features some excerpts from the new material. Here, for example, are the reader’s reports on the manuscript, solicited by the University of Chicago Press in 1943 from Frank Knight and Jacob Marschak: (more…)
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