Posts filed under ‘– Klein –’
The Missing Literature Review
| Peter Klein |
There’s a discussion at Marginal Revolution about Ariel Rubinstein’s paper that I mentioned here. The discussion focuses on the nature of mathematical economics. Does Rubinstein correctly characterize what formal theorists do? What are the strengths and weaknesses of formal methods? Etc.
This is fine, but a secondary issue, which I find particularly interesting, has been missed. It’s that one can write an article on economic methodology for a premier economics journal without knowing any of the literature on economic methodology. Imagine writing a paper on, say, labor economics, describing some features of a particular labor market, analyzing those features, and drawing conclusions, without including a single reference to prior studies of the labor market. A research paper with no literature review! (more…)
Is Entrepreneurship a Factor of Production?
| Peter Klein |
When explaining the returns to factors of production economists often define wages as the payment to labor, interest as the payment to capital, rent as the payment to land, and profit as the payment to entrepreneurship. Treating entrepreneurship as a factor of production, earning a return we label profit, poses some challenging problems, however. Does entrepreneurship have a marginal revenue product, corresponding to a firm’s profit? Is there an upward-sloping supply curve for entrepreneurship (more of it is offered to the market when profits rise)? Are there diminishing returns to entrepreneurship?
The answer given by the classic contributors to the economic theory of entrepreneurship such as Cantillon, Say, Schumpeter, Knight, Mises, Kirzner, and others is clearly no. They treat entrepreneurship as ubiquitous, an attribute of the market mechanism that can never be absent. This came out in John Matthews’s paper, “Rents versus Profits: What Are the Appropriate Goals of Strategizing?”, presented Wednesday at the CCSM. (more…)
Academic Insults: CCSM Edition
| Peter Klein |
Time to begin a new thread on academic insults (1, 2, 3). Overhead at the CCSM:
Session chair to audience: “Thank you, [Presenter], for your excellent time management.” [But not your paper.]
Discussant to presenter: “Your paper is beautifully written. When I got to the end I realized that I totally disagree with it, but I couldn’t remember where in the paper you started to go wrong.”
Audience member to presenter: “Your paper reminds me of my lecture on fallacies of strategic management research. You committed every one of them.”
The Foss Sandwich Shop
| Peter Klein |
Our first report from the CCSM is a humorous one. Jay Barney opened the conference with a plenary address offering an RBV approach to “strategic renewal.” As this was a practitioner-oriented session, and some audience members may have been unfamiliar with the VRIO framework, Jay began by analyzing the “Nicolai Foss Sandwich Shop,” identifying factors that might be sources of sustained competitive advantage. (Best candidate: Nicolai’s great-great-great-grandmother’s secret sauce.)
The example was obviously a joke (Rich Makadok’s attempt to sing the Foss Sandwich Shop jingle helped establish the mood). And yet, later in the afternoon, we discovered from our blog stats page that at least two web surfers had found O&M by searching for “Nicolai Foss sandwich.” Looks like lots of people are after that secret-sauce recipe!
EH.Net Classic Review: Usher’s A History of Mechanical Invention
| Peter Klein |
George Grantham reviews Abbott Payson Usher’s A History of Mechanical Invention (1929), the first book to “establish logical foundations for an empirically based explanation of economic change.”
By what intellectual and social processes do new methods of production, new products, and new patterns of behavior become objects of choice in the stream of economic and social life?
Historians traditionally answered this question in two ways. The first was that inventions are inspired intuition given to exceptionally gifted persons. This approach stressed the discontinuity of inventions and the importance of a small number of inventors in creating the modern world. Usher deemed it “transcendental,” because in taking invention to be what amounts to a miracle, it puts the event logically outside time, so that it can have no mere historical explanation. The second approach took the opposite tack of holding that inventions occur continuously in small steps induced by the stress of necessity, somewhat like Darwinian evolution. Usher termed this approach “mechanistic,” because it relegated the inventor to the status of “an instrument or an expression of cosmic forces.” Neither the transcendental nor the mechanistic account of invention, then, was historical in the sense that explanation necessarily takes the form of a narrative. To the transcendentalist, inventions just happen (and we should all be grateful they do); to the mechanist, they occur automatically in the fullness of time. Neither explains how inventions happen. . . .
Interview with Oliver Williamson
| Peter Klein |
Here is Oliver Williamson, interviewed on video by Ken Train (requires RealPlayer).
Others in the series include Nobel Laureates George Akerlof and Dan McFadden as well as David Card, Hal Varian, and Janet Yellen. (Thanks to Michael Greinecker for the tip.)
Dilemmas of Formal Economic Theory
| Peter Klein |
In “Dilemmas of an Economic Theorist” (Econometrica, July 2006) Ariel Rubinstein reflects on the meaning, implications, and relevance of formal economic modeling:
What are we trying to accomplish as economic theorists? We essentially play with toys called models. We have the luxury of remaining children over the course of our entire professional lives and we are even well paid for it. We get to call ourselves economists and the public naively thinks that we are improving the economy’s performance, increasing the rate of growth, or preventing economic catastrophes. Of course, we can justify this image by repeating some of the same fancy sounding slogans we use in our grant proposals, but do we ourselves believe in those slogans?
Rubinstein goes on to identify four dilemmas facing the formal economic theorist: (more…)
Friendship is Cheap
| Peter Klein |
File under “pet peeves.” I recently received an invitation to attend a reception for a particular journal at the upcoming ASSA meeting. It began “Dear Friend of [Journal].” I’m not a subscriber, am not on the editorial board, and have never reviewed for this journal. Our only relationship is that I’ve twice had papers rejected there. Some friendship!
Open-Source National Security
| Peter Klein |
US defense officials are relying increasingly on decentralized, open-source methods of gathering and processing intelligence information. This weekend’s New York Times features a lengthy profile. And here is Calvin Andrus’s paper “The Wiki and the Blog: Toward a Complex Adaptive Intelligence Community,” which won a CIA-sponsored competition to develop new ideas on information sharing.
For organization theorists, the key question is whether government bureaucracies can effectively implement a highly decentralized system for knowledge management. Besides the problems faced by any organization using market-based management, government agencies face the fundamental problem identified by Mises in 1944 that their output is not sold on markets, making it impossible to measure performance using market signals of customer satisfaction.
The History of Marketing
| Peter Klein |
History has been defined as “one damn thing after another.” What, then, would you call the history of marketing — one damn advertising campaign after another?
If you want to know, come to this symposium at the University of Glasgow, “The Value of the Past: A Symposium on Marketing and History.” The event, 19 January 2007, examines “both the history of marketing and the marketing of company histories.”
We will emphasise the ways in which historical artefacts of trade (such as advertisements and illustrations in a variety of media, trade cards and catalogues, pamphlets, consumer education campaigns, testimonials and endorsements) are useful both in crafting business history and also as contemporary marketing tools. As marketing materials often reflect the relationship between firms and consumers, they are also sites to learn more about consumer response to products and services over time. We will explore the value of documents originally intended to be ephemeral, and discuss conservation of and access to these materials in corporate and other archives or in other forms such as the internet.
Sounds interesting. I believe it was Santayana who said: “Those who cannot remember their past marketing campaigns are condemned to repeat them.”
Four Theories of the Firm
| Peter Klein |
This week in my PhD course, “Economics of Institutions and Organizations,” we discussed Bob Gibbons’s paper ”Four Formal(izable) Theories of the Firm” (JEBO, 2005; working-paper version here). Lest readers think I oppose formalization per se, let me take a moment to strongly recommend this paper, which provides an excellent summary and synthesis of several critical issues in the economic theory of the firm. (This review is also pretty good.) While the paper can be read profitably even without working through the mathematical models, Gibbons’s training in formal theory was obviously an asset in sorting out the similarities and differences among theories, harmonizing the diverse and sometimes-confusing terminology in this literature, and identifying the core assumptions of various approaches.
Gibbons distinguishes among four theories of the firm: rent seeking, property rights, incentive systems, and adaptation. Rent seeking is his label for TCE as expressed by Williamson and Klein, Crawford, and Alchian (1978). Students find the formulation of TCE in rent-seeking language, a la Tullock — “individually optimal (but socially destructive) haggling over appropriable quasi-rents” — useful and informative. Gibbons also provides an excellent discussion of the differences between TCE and the property-rights approach, showing that Grossman, Hart, and Moore’s model is not “a formalization of Williamson” (a distinction also emphasized by Williamson in his 2000 JEL piece and by Mike Whinston here and here). (more…)
John Chapman at AEI
| Peter Klein |
Kudos to my former PhD student John Chapman for landing a prestigious National Research Initiative Fellowship with the American Enterprise Institute. John is working on a book with Glenn Hubbard (official link; fun link) on the history and economic impact of the US private equity sector. For more information about the project contact John.
Is Math More Precise Than Words?
| Peter Klein |
Commentator Michael Greinecker suggests below that mathematics, as a language for expressing economic arguments, is more precise than words. Indeed, Samuelson’s landmark Foundations of Economic Analysis (1947) opens with this statement from J. Willard Gibbs: “Mathematics is a language.” Samuelson felt he had to justify his translation of conventional economic analysis into mathematics — a defense hardly needed today!
As Roger Garrison once noted, mathematics is indeed a language, but so is music:
There is no reason for economists to observe a categorical prohibition against either mathematical formulation or musical expression. The relevant question is: What sort of language — music, mathematics, or, say, English — allows economists best to communicate their ideas? Which language serves the economist without imposing constraints of its own upon his subject matter?
Garrison argues for English (or French, German, Spanish, whatever) on the grounds that mathematics cannot express causality, and economics — here Garrison follows Menger and Mises — is essentially a causal science. (I make this point about Menger here.) That is a subject for another day, however. (more…)
How To Screw Up an Email Negotiation
| Peter Klein |
From WebWorkerDaily, tips on how to screw up an email negotiation. Highly recommended. Generalizes easily to other kinds of email exchanges.
We’ve previously shared some ideas on ruining a PowerPoint presentation (use tiny fonts, a busy background, garish colors, lots of graphics and animation, inconsistent grammar, and read the slides word for word).
Coming soon: How to screw up a blog entry.
Best Business Movies
| Peter Klein |
The American Enterprise Institute gives us a list of the ten best business movies (via Craig Newmark). “[W]e looked for three qualities: (1) a great movie, (2) a relatively realistic picture of business, and (3) an attitude not openly hostile to capitalism as we know and love it.”
Here are some movies about entrepreneurs. And here is an entire blog about the treatment of capitalism in film.
You Know You’re Nobody If. . .
| Peter Klein |
. . . your entry gets booted off Wikipedia.
(I’m sure there is a serious lesson here about distributed knowledge, the voluntary enforcement of social norms, crowdsourcing, open-source programming, rational ignorance, or something. No time to think about it, though; gotta write my own Wikipedia entry.)
Management Theory and the Social Sciences
| Peter Klein |
The theme for the 2007 meeting of the European Academy of Management (Paris, 16-19 May) is “Current Management Thinking: Drawing from Social Sciences and Humanities to Address Contemporary Challenges.”
Researchers in management are invited to join us in Paris to reflect on the roots of Management, both as a scientific discipline and as a practice. In particular, Management’s focus on organisational performance is one of the critical underpinnings that transform the discipline’s borrowings from established social sciences into an autonomous field of academic investigation. This raises questions about the degree of subordination vs. emancipation of Management vis-à-vis the basic disciplines from which it draws.
Of course, the relationship between management theory and its core academic disciplines — economics, sociology, and psychology, primarily, but also history, philosophy, and political science — are key themes of this blog.
Here is the call for papers. Submissions are due 2 January 2007.
Economics of Multiple Voting Shares
| Peter Klein |
During the 1920s, the phenomenon of multiple voting shares expanded all over France and the world. This contributed significantly to the separation of ownership and control emphasized by Berle and Means (1932), and very much discussed by the foreign contemporaries. As is the case today, some argued that the reinforcement of the power of majority shareholders facilitated their firms’ development, while others emphasized the high agency costs that might result from managers’ and major shareholders’ absolute control. In this paper, we present detailed data on the development of multiple voting shares in France in the 1920s. We reword the arguments of the authors writing during the interwar period by using an interpretative framework of recent concepts in corporate finance and corporate governance. We test two alternative views from our data on the Stock Market performances: the “agency view,” in which the concentration of control did not affect the performances of firms issuing multiple voting shares, and the “timing view,” in which the issuing of these shares was favoured by the long bull market of the 1920s.
The paper is Muriel Petit-Konczyk, “Big Changes in Ownership Structures: Multiple Voting Shares in Interwar France,” Working Paper, ESA Lille2 University, 2006. Via EH.Net Abstracts.
Kleins in the News
| Peter Klein |
As noted previously, Ronald Coase has serious disagreements with UCLA economist Benjamin Klein. A few years ago, Coase and I had an extended, and pleasant, conversation about his work. He concluded by announcing, with evident satisfaction: “I see all Kleins are not alike.”
Indeed, I tend to disassociate myself from some Kleins, but am enthusiastic about others, such as George Mason University economist Daniel Klein. Dan has done outstanding research on the ideological profile of university professors. Dan’s work is challenged in the current issue of Public Opinion Quarterly by sociologists John F. Zipp and Rudy Fenwick, who deny the existence of “liberal bias” in the academy. Dan and Charlotta Stern have written a reply, currently under review at the same journal. Here’s the abstract:
In a recent Public Opinion Quarterly article “Is the Academy a Liberal Hegemony?,” John Zipp and Rudy Fenwick pit themselves against “right-wing activists and scholars,” citing our scholarship (Klein and Stern 2005a; Klein and Western 2005). Here we analyze Zipp and Fenwick’s characterization of our research and find it faulty in three important respects. We then turn to their “liberal v. conservative” findings and show they concord with our analysis. If one feels that it is a problem that humanities and social science faculty at four-year colleges and universities are vastly predominantly Democratic voters, mostly with what may called establishment-left or progressive views, then such concerns should not be allayed by Zipp and Fenwick’s article.
Gourlay on Tacit Knowledge
| Peter Klein |
More on tacit knowledge: Steven Gourlay takes on Nonaka and Takeuchi in the current issue of the Journal of Management Studies (vo. 43, November 2006):
Nonaka’s proposition that knowledge is created through the interaction of tacit and explicit knowledge involving four modes of knowledge conversion is flawed. Three of the modes appear plausible but none are supported by evidence that cannot be explained more simply. The conceptual framework omits inherently tacit knowledge, and uses a radically subjective definition of knowledge: knowledge is in effect created by managers. A new framework is proposed suggesting that different kinds of knowledge are created by different kinds of behaviour. Following Dewey, non-reflectional behaviour is distinguished from reflective behaviour, the former being associated with tacit knowledge, and the latter with explicit knowledge. Some of the implications for academic and managerial practice are considered.
Organizations and Markets 
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