Posts filed under ‘New Institutional Economics’

Conference in Honor of Oliver Williamson

| Peter Klein |

The University Paris-Dauphine is awarding an honorary doctorate to Oliver Williamson Friday, 19 October 2012, and organizing a one-day conference to honor his work. The conference is co-sponsored by the European School on New Institutional Economics (ESNIE). Speakers include Carmine Guerriero (U. of Amsterdam), Roger Guesnerie (Collège de France), David Martimort (EHESS & PSE), Marian Moszoro (IESE Business School, Barcelona), Jens Prüfer (Tilburg U.), and Brian Silverman (Rotman Business School, U. of Toronto), and Williamson will give a speech during the formal award ceremony. Registration is required. See the conference website for details.

3 September 2012 at 4:05 pm Leave a comment

Elinor Ostrom (1933-2012)

| Peter Klein |

A guest post from former guest blogger Joe Mahoney, the Caterpillar Chair in Business and Director of Graduate Studies in the Department of Business Administration, University of Illinois:

As many readers of O&M know by now, Elinor Ostrom of Indiana University (born August 7, 1933) died of pancreatic cancer on Tuesday, June 12th at the age of 78.  She shared the Nobel Prize in Economics in 2009 with Professor Oliver Williamson (UC-Berkeley). Elinor along with her husband Vincent Ostrom (now 93) founded Indiana University’s Workshop in Political Theory and Policy in the mid-1960s, in which she remained active until this Spring, only a couple of weeks before her hospitalization. She also donated most of her Nobel Prize money to the Workshop, as Elinor and Vincent had no children and few living relatives.  Williamson said in a statement that Ostrom was “a great human being,” an inspiring teacher and colleague and accomplished social scientist. “She had a wonderful sense of joy about the importance of her work that she successfully communicated to others,” he said. A record five women won Nobel prizes in 2009, and Elinor Ostrom is the only woman to have been awarded the prize in Economics.

Elinor Ostrom, who was born and raised in Los Angeles as a child of the Great Depression, and received her education from undergraduate through Ph.D. at UCLA, contributed to our understanding of the evolution of institutions for collective action in common resource contexts such as forests, fisheries, oil fields, and grazing lands. She emphasized citizen involvement, the creativity of local communities, and cutting through sterile dichotomous classifications and ideological “solutions” that are glib and inaccurate. Ostrom states that “neither the State nor the market is uniformly successful in enabling individuals to sustain long-term, productive use of natural resources” (1990: 1). She emphasized the complementarities between public and private mechanisms for solving collective good problems (see Governing the Commons, Cambridge University Press, 1990.) Ostrom conducted field studies of the world’s fisheries, roamed with shepherds in Swiss pastures, and trudged around the Los Angeles water basin (during her dissertation work) to distill the essentials of harnessing cooperation. She writes in the preface to her 1990 book: “It is my conviction that knowledge accrues by the continual process of moving back and forth from empirical observation to serious efforts at theoretical formulation.” From this theoretically informed field case study method Elinor Ostrom concludes that instead of presuming that individuals sharing a common resource are “inevitably caught in a trap from which they cannot escape, . . . the capacity of individuals to extricate themselves from various types of dilemma situations varies from situation to situation” (1990: 14).

Ostrom championed unlocking the spirit of “public entrepreneurship” — a term she coined in her 1965 UCLA dissertation. Her spirit can live on within us, if we decide to “make it so.” Good years.

13 June 2012 at 6:44 pm 2 comments

7th São Paulo Workshop on Institutions and Organizations

| Peter Klein |

The next São Paulo Research Workshop on Institutions and Organizations is 1-2 October 2012. Proposals are due 15 June, so hurry! The keynote speakers are not yet announced but they’ve had, ahem, some good ones before, so expectations are high. Click the link above for details.

31 May 2012 at 4:51 pm Leave a comment

More Coase

| Peter Klein |

Russ Roberts interviews Coase on EconTalk. Familiar stuff, but it’s great to hear Coase talk about it at age 101. Some highlights:

Roberts: “[I]t’s hard to measure transactions costs; it’s hard to quantify the theory. Is that correct or is it irrelevant.” Coase: “It’s very relevant. But the state of economics is such that people don’t try to measure these things, to study them, and so people can engage in discussions and explanations without any real knowledge of what happens in the real world.”

Roberts: “What was your reaction to [game theory] and its influence on the study of the firm?” Coase: “I think the influence was wholly bad, because people developed high theoretical approaches instead of approaches based on what actually happens.”

Roberts: “[D]id you have contact with Keynes and Hayek, two great economists of that era in England?” Coase: “Yes. I was very friendly with Hayek. I liked him, and he liked me. But we didn’t have great contact. He tended to deal with these big questions, and I’m always interested in how the actual system operates. Therefore, in much smaller matters than Hayek.” Roberts: “And how about Keynes? Did you know Keynes?” Coase: “I can tell you– I was helping when Britain was trying to get a loan from the United States immediately after the war, and I was talking to one of Keynes’s assistants. And Keynes came in the room and walked over to us and the man I was talking to us said, ‘This is Coase, who is helping us with the statistics. I don’t think you know him.’ And Keynes said, ‘No, I don’t.’ And walked off. And that’s my life with Keynes. “

22 May 2012 at 11:59 pm 1 comment

Coase on NPR

| Peter Klein |

Last week.

11 May 2012 at 3:07 pm 2 comments

A Curious Case of Vertical Integration

| Peter Klein |

The WSJ reports that Delta Airlines wants to acquire a Pennsylvania oil refinery. The reporters, quoting the ubiquitous “people familiar with the situation,” says that Delta “could save between $20 and $25 a barrel on some of its jet-fuel costs by acquiring the refinery, a big advantage as industry costs now approach $140 a barrel, up 11% so far this year.” But how? No particular economies of integration are mentioned in the article (apparently the WSJ doesn’t consider this an important point). Jet fuel is a standardized commodity, so asset specificity isn’t an issue. Organizational capabilities don’t seem to be relevant. Market power? Price discrimination? I don’t see it. In short, I can’t imagine where these cost savings would come from. Any ideas?

10 April 2012 at 1:51 pm 11 comments

Review of Allen’s Institutional Revolution

| Peter Klein |

I wrote earlier about Doug Allen’s The Institutional Revolution (University of Chicago Press, 2011). Here’s a new EH.Net review by Mark Koyama.

Institutions in Allen’s view minimize transaction costs, where transaction costs include the costs associated with opportunistic behavior. Transaction costs precluded “first-best” institutions from developing in the pre-industrial world. Instead, apparently inefficient institutions such as tax farming, the sale of offices, and the aristocratic dominance of politics persisted for centuries. Allen argues that these apparently inefficient institutions were, in fact, efficient given the existing configuration of transaction costs. This insight, which builds on the ideas of Yoram Barzel, provides a powerful hypothesis for studying institutional change. Allen places particular emphasis on the importance of measurement. In the high variance pre-modern world, measurement was costly or impossible and consequently bureaucrats, soldiers, sailors, and policemen could not be paid on the basis of observable inputs. Alternative institutions had to emerge to deter opportunism and reward effort. These institutions were often elaborate, and sometimes strange; they involved making the bureaucrats, soldiers, or tax collectors residual claimants of some sort. The story of how these institutions disappeared and were replaced by modern institutions is The Institutional Revolution.

The institutional revolution Allen proposes is linked to the industrial revolution because technological change drove institutional change by reducing measurement costs. Standardization reduced variance. This reduction in variance lessened the possibilities for opportunistic behavior and enabled institutions based around the idea of rewarding individuals for their marginal contribution to emerge.

7 February 2012 at 10:16 pm Leave a comment

Conference on the Law & Economics of Organization: New Challenges and Directions

| Peter Klein |

Via Scott Masten, an important call for papers:

The Walter A. Haas School of Business at the University of California, with support from the Alfred P. Sloan Foundation, is issuing a call for original research papers to be presented at the Conference on the Law & Economics of Organization: New Challenges and Directions.  The conference will be held at the Haas School of Business in Berkeley, CA, on Friday, Nov. 30, and Saturday, Dec. 1, 2012. The purpose of the conference is to take stock of recent advances in the analysis of economic organization and institutions inspired by the work of 2009 Nobel Laureate Oliver Williamson and to examine its implications for contemporary problems of organization and regulation. Empirical research and research informed by detailed industry and institutional knowledge is especially welcome.  Conference papers will be published in a special issue of the Journal of Law, Economics, & Organization. Submissions are due March 31, 2012.  See the Call for Papers for details.

19 January 2012 at 10:25 am Leave a comment

The Science of Design

| Peter Klein |

Rob King’s 2011 AAEA Presidential Address, “The Science of Design,” takes its cue from Herbert Simon.

[M]uch of what we do as economists is akin to what Simon calls natural science. We develop theories about how the economy works, and we conduct empirical studies that test these theories or estimate the parameters of key economic relationships that explain how general results derived from our theories manifest themselves in a particular context.We strive for results that explain what is or that predict what will be. . . .

Economists also design economic artifacts (e.g., markets, contracts, organizational structures, public policies) that reshape economic systems in order to better meet human needs. This work, which I will call economic design, is complementary with but differs fundamentally from economic analysis. While economic analysis is motivated by a question or a puzzle and focuses on explaining what is and predicting what will be, economic design is motivated by a problem or opportunity and focuses on what can be and ought to be or on what will yield a satisfactory outcome. . . .

While we are comfortable in recognizing “good science” in economic analysis, I believe we have devoted less attention to developing a shared understanding of “good science” in economic design.

It is certainly true that economists are increasingly involved in economic design (a trend that accelerated around WWII) though I am less sure this is a good idea. A lot of economic design — specifying “optimal” contracts, for example — might be considered the domain of entrepreneurs, not social scientists. But applied policy work is certainly of this character, so the essay may be read as a call for applied economists to pay closer attention to issues like decomposability, modularity, search, creativity, etc.  (See Dick’s work for rich discussions of these issues.)

Kudos to Rob for a thoughtful and intelligent piece. A friend calls it “perhaps the most interesting President’s Address from AAEA in the last 20 years.”

11 January 2012 at 10:56 am 1 comment

The Economic Organization of Disaster Relief

| Peter Klein |

J. Vernon Henderson and Yong Suk Lee have released a fascinating study of the make-or-buy decision in the provision of disaster relief. “We distinguish four organizational structures by implementation method. . . . (1) donor-implementers who are NGO donors who do their own implementation in villages, (2) international implementers who represent different donors who choose not to do their own implementation, (3) domestic implementers hired by donors which have chosen neither to do their own implementation nor to hire an international implementer, and (4) a country level governmental organization . . . used primarily by domestic and foreign governments.” Henderson and Lee find that donor-implementers offer the highest-quality aid, and the government agency the lowest, with the contract implementers in-between. The framework is agency theory, not transaction cost economics, but there may be a role for asset specificity as well, particularly in cases where a longer-term commitment is required. In any case, this is an interesting and important application of organizational economics to an unconventional setting.

2 January 2012 at 1:01 pm 1 comment

Job Openings of Interest to O&M Readers

| Nicolai Foss |

It is not yet online, but the University of Paris-Sorbonne is looking for a Full Professor in the Economics of Organization (see the ad text below). Importantly, proficiency in French is not a requirement … “upfront,” at least.

Very apropos (if I may) the Department of Strategic Management and Globalization will be hiring one assistant professor and three associate professors in “strategic and international management” over the next few months. Proficiency in French, or Danish for that matter, is not required at all. The job ads are here. Or, contact me directly on (more…)

18 December 2011 at 12:22 pm 2 comments

Complete Contracts: Roomate Agreement Edition

| Peter Klein |

Contractual completeness is a core issue in organizational economics. A colleague helpfully suggested this illustration of a nearly complete contract. Note the deliberate omission of language dealing with an extreme low-probability event (time for Nicolai and Scott to resume their debate over bounded rationality?).

15 November 2011 at 12:12 pm 4 comments


| Peter Klein |

The Call for Papers for the 2012 ISNIE conference, 14-16 June 2012 at the University of Southern California, is now posted. Proposals are due 30 January 2012, so start working on those abstracts!

I have been involved with ISNIE for many years and currently serve as the organization’s treasurer. The conferences are terrific, with a variety of papers, panels, and keynotes spanning the broad range of institutional and organizational social science research.

Trivia: I first met the good Professor Foss at the inaugural ISNIE conference in 1997 in St. Louis So if it weren’t for ISNIE, this blog might not exist. . . .

15 November 2011 at 9:50 am Leave a comment

“Poor Economics” Wins FT Best Book Award

| Peter Klein |

The Financial Times has named Abhijit Banerjee and Esther Duflo’s Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty the best business book of 2011. Here’s the book’s webpage. Here are previous O&M posts on the Banerjee-Duflo approach, which is obviously gaining momentum.

4 November 2011 at 11:40 am 1 comment

Papers of Interest from the NSF’s Call for Long-Term Research Agendas

| Peter Klein |

The NSF recently commissioned a set of papers on long-term research agendas in economics:

This is a compendium of fifty-four papers written by distinguished economists in response to an invitation by the National Science Foundation’s Directorate for the Social, Behavioral and Economic Sciences (NSF/SBE) to economists and relevant research communities in August 2010 to write white papers that describe grand challenge questions in their sciences that transcend near-term funding cycles and are “likely to drive next generation research in the social, behavioral, and economic sciences.” These papers offer a number of exciting and at times provocative ideas about future research agendas in economics. The papers could also generate compelling ideas for infrastructure projects, new methodologies and important research topics.

Here are a few of particular interest for O&Mers:

Challenges for Social Sciences: Institutions and Economic Development
Daron Acemoglu

Making the Case for Contract Theory
Oliver Hart

Research Opportunities in Social and Economic Networks
Matthew O. Jackson

The Economics of Digitization: An Agenda for NSF
Shane M. Greenstein, Josh Lerner, and Scott Stern

The Productivity Grand Challenge: Why Do Organizations Differ so Much?
John Van Reenen

You can find the whole set at SSRN.

21 October 2011 at 9:05 am 2 comments

Reader Bleg: Transaction Costs and the Boundaries of the State

| Peter Klein |

O&M reader VL asks:

I have noticed an interesting link between transaction cost economics and the explanation of the long-term political units size (as Braudel would have said, on “la longue durée”). For example, it is highly probable that classical Greek poleis were being integrated and desintegrated in response to changes in the nature of military and political contracts. I wish to explore that perspective in my own doctoral thesis and I would like to ask for your help. Do you know about any work that examines that matter? I have read books of Coase, Williamson, and North, and further articles of Alchian, Demsetz, and others. But I don’t know of any work treating organization economics from a political anthropological or political historical perspective.

I suggested privately that he look at David Friedman’s 1977 JPE paper and recent work by Alberto Alesina and coauthors, though none of these works from a transaction cost perspective. Can the rest of you offer some suggestions? If not TCE, then how about resource-based, dynamic capabilities, or property-rights perspectives on the boundaries of the polis?

4 October 2011 at 2:14 pm 3 comments

New Book on American Institutionalism

| Peter Klein |

It’s by Malcolm Rutherford, titled The Institutionalist Movement in American Economics, 1918-1947: Science and Social Control (Cambridge University Press, 2011). Rutherford reinterpretes the American (or “Old”) Institutional Economics as a much broader and deeper movement than simply the ideas of Veblen, Commons, and Mitchell. Reviewers Robert Van Horn and Richard McIntyre say that “institutional economics should be understood as a ‘movement’ that shared core ideas and beliefs and as a network of people with a self-conscious unity, and Rutherford marvelously shows how the self-conscious unity of this network shaped institutionalist economics and American economics more generally in the first half of the twentieth century.” The reviewers also praise Rutherford for debunking three important “myths” about the Old Institutionalists:

First, he challenges the notion that institutional economics was only a critique of neoclassical economics and that institutional economics disappeared because it did not make any substantial contributions to economics.  Second, Rutherford successfully assails the idea that institutional economics was just a set of facts and bereft of theory.  Third, Rutherford dispels the notion that institutional economics was Veblenian; he shows that Veblen was an intellectual inspiration to the movement but not central to the networking process.

My previous forays into the writings of the Old Institutionalists have not yielded much fruit, but I will look at Rutherford’s book and try to keep an open mind.

16 September 2011 at 9:51 am Leave a comment

The Institutional Revolution

| Peter Klein |

I’m very excited about Doug Allen’s forthcoming book The Institutional Revolution (University of Chicago Press). Trained by Yoram Barzel (and hence part of the Tree of Zvi), Doug is a leading contemporary scholar on property rights, transaction costs, contracting, and economic history. His work on agricultural contracting with Dean Lueck, including their 2002 book The Nature of the Farm, is a classic contribution to the economics literature on economic organization. He also has a very good introductory textbook. More information is at Doug’s informative (and amusing) website.

Here’s the cover blurb for the new book:

Few events in the history of humanity rival the Industrial Revolution. Following its onset in eighteenth-century Britain, sweeping changes in agriculture, manufacturing, transportation, and technology began to gain unstoppable momentum throughout Europe, North America, and eventually much of the world—with profound effects on socioeconomic and cultural conditions.

In The Institutional Revolution, Douglas W. Allen offers a thought-provoking account of another, quieter revolution that took place at the end of the eighteenth century and allowed for the full exploitation of the many new technological innovations. Fundamental to this shift were dramatic changes in institutions, or the rules that govern society, which reflected significant improvements in the ability to measure performance—whether of government officials, laborers, or naval officers—thereby reducing the role of nature and the hazards of variance in daily affairs. Along the way, Allen provides readers with a fascinating explanation of the critical roles played by seemingly bizarre institutions, from dueling to the purchase of one’s rank in the British Army.

Engagingly written, The Institutional Revolution traces the dramatic shift from premodern institutions based on patronage, purchase, and personal ties toward modern institutions based on standardization, merit, and wage labor—a shift which was crucial to the explosive economic growth of the Industrial Revolution.

Bonus: Here’s the syllabus from Doug’s course on the economics of property rights.

4 September 2011 at 9:43 pm 3 comments

Journal of Institutional Economics

| Nicolai Foss |

I confess that I was a bit skeptical when I was invited by Geoff Hodgson eight years ago (or so) to join the editorial board of the Journal of Institutional Economics. Given Hodgson’s prolific work within the tradition of so-called “old” institutional economics, I frankly saw a risk that what was lined up could end up as another (in addition to the Journal of Economic Issues or the Cambridge Journal of Economics) journal specialized in Williamson-bashing and Veblen-exegesis, crusading against “individualism” (methodological, ontological, political), “mainstream economics,” and the like. 

Now, Hodgson is, of course, non-doctrinaire and open-minded, and he enlisted prolific co-editors (O&M blogger Dick Langlois, Esther-Mirjam Sent, Benito Arrunada and Jason Potts), who, although all non-mainstream, were non-mainstream in quite different ways. The result, now in its 7th year of existence, has been an undeniable success, publishing all sorts of institutional economics papers (including some relatively mainstream ones), and featuring contributions by luminaries such as Robin Dunbar and Richard Posner. 

As a result of a sustained emphasis on quality, JoIE has now been selected by Reuters Thomson for the SSCI, Journal Citation Reports (Social Sciences Edition) and Current Contents (Social and Behavioral Sciences), that is, it is now what was formerly called an ISI journal. Congratulations to Geoff, Dick and the rest of the gang for founding and very efficiently running a journal that caters to the interests of O&M and our readers!

21 August 2011 at 9:41 am 2 comments

Another Benefit of Globalization

| Peter Klein |

Better management practice:

The Land that Lean Manufacturing Forgot? Management Practices in Transition Countries
Nicholas Bloom, Helena Schweiger, John Van Reenen
NBER Working Paper No. 17231, July 2011

We have conducted the first survey on management practices in transition countries. We found that Central Asian transition countries, such as Uzbekistan and Kazakhstan, have on average very poor management practices. Their average scores are below emerging countries such as Brazil, China and India. In contrast, the central European transition countries such as Poland and Lithuania operate with management practices that are only moderately worse than those of western European countries such as Germany. Since we find these practices are strongly linked to firm performance, this suggests poor management practices may be impeding the development of Central Asian transition countries. We find that competition, multinational ownership, private ownership and human capital are all strongly correlated with better management. This implies that the continued opening of markets to domestic and foreign competition, privatisation of state-owned firms and increased levels of workforce education should promote better management, and ultimately faster economic growth.

25 July 2011 at 9:55 pm 1 comment

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Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).