Posts filed under ‘Papers’
Democracy and Credible Commitment in Universities
| Nicolai Foss |
In 2003, Denmark enacted what is the easily the least democratic university legislation in the world (the North Korean one may be less democratic). Essentially, faculty voting rights are now limited to selecting members of an “academic council” which mainly serves as a quality check on candidates for evaluation committees and as a body that offers advice to the university president and the deans. A board of directors (with a majority of external members) appoints the president, the president appoints the dean, and the dean appoints department heads.
This truly major change was partly motivated by the various inefficiencies of the earlier, much more democratic conditions. However, as autocratic systems also have well-known inefficiencies, the question is whether Denmark let the governance pendulum swing too much toward the opposite end. My colleague Henrik Lando directed my attention to a truly excellent paper by O&M guest blogger Scott Masten that is directly relevant to the understanding of this issue. (more…)
My Proudest Academic Achievement
| Peter Klein |
I’ve produced so many seminal papers in my long and distinguished career that I can’t name them all. Um, I can’t name any, actually. But here’s one for the ages: “‘They Have the Internet on Computers Now?’ Entrepreneurship and Economics in the Simpsons.” It’s coauthored with talented Missouri PhD students Per L. Bylund and Christopher H. Holbrook and is forthcoming in Joshua Hall, ed., Homer Economicus: The Simpsons and Economics (Springer, 2011), which should be on every economics and management teacher’s bookshelf.
The Viability of the Survivor Principle
| Lasse Lien |
The survivor principle holds that the competitive process weeds out inefficient firms, so that hypotheses about efficient behavior can be tested by observing how firms actually behave. This principle underlies a large body of empirical work in strategy, economics, and management. But do competitive markets actually display what is efficient? Can we safely make the shortcut of hypothesizing that, say X, is efficient, and then test that claim by observing whether firms actually do X? Surely the competitive process is somewhat noisy and imperfect. While we all know anecdotes that seem to disprove the SP it may still be a reasonable approximation in the aggregate. This astonishing paper tests the validity of the SP in the context of corporate diversification.
Does Research Productivity Decline with Age?
| Scott Masten |
I haven’t had a chance to read the article that Nicolai linked to below yet, but it reminded me of a not-unrelated article in last month’s American Psychologist, “The Graying of Academia: Will It Reduce Scientific Productivity?” Here’s the abstract:
The belief that science is a young person’s game and that only young scientists can be productive and publish high-quality research is still widely shared by university administrators and members of the scientific community. Since the average age of university faculties is increasing not only in the United States but also in Europe, the question arises as to whether this belief is correct. If it were valid, the abolition of compulsory retirement in the United States and some parts of Canada would lower the productivity of these university systems. To address this question, this article reviews research on the association of age and scientific productivity conducted during the last four decades in North America and Europe. Whereas early research typically showed a decline in productivity after the ages of 40 to 45 years, this decline has been absent in more recent studies. Explanations for this change are discussed.
Counterintuitive Is Cool: The Case of Markups
| Lasse Lien |
Counterintuitive empirical findings are endlessly more fascinating than expected or obvious ones. One counterintuitive finding I have picked up since the onset of the financial crisis is that markups are on average counter-cyclical. To spell it out: markups go up in a recessions and they fall in a boom (on average). Maybe it’s just me, but if asked about this two years ago I would have bet that markups were bid down during recessions in all but extreme market structures.
Here is a cool new paper that deals with this and several other interesting aspects of the dynamics of business cycles:
We characterise endogenous market structures under Bertrand and Cournot competition in a DSGE model. Short-run mark ups vary countercyclically because of the impact of entry on competition. Long-run mark ups are decreasing in the discount factor and in productivity, and increasing in the exit rate and in the entry costs. Dynamic inefficiency can emerge due to excessive entry under Cournot competition. Positive temporary shocks attract entry, which strengthens competition so as to reduce the mark ups temporarily and increase real wages: this competition effect creates an intertemporal substitution effect which boosts consumption and employment. Endogenous market structures improve the ability of a flexible prices model in matching impulse response functions and second moments for US data.
Etro, F. and Colciago, A., “Endogenous Market Structures and the Business Cycle,” Economic Journal 120 (2010): 1201–33.
Do Economic Freedom and Entrepreneurship Impact Total Factor Productivity?
| Nicolai Foss |
Cross-country studies of the antecedents and consequences of entrepreneurship have become something of a cottage industry. My contribution to the industry is an earlier paper with Christian Bjørnskov, as well as rather recent one, also written with Christian, “Do Economic Freedom and Entrepreneurship Impact Total Factor Productivity?” (and we have a third paper in the works with a certain Klein).
In the former paper we analyzed institutions and economic policies as determinants of entrepreneurship, paying particular attention to “freedom variables,” like sound money and a stable legal framework. In the latter paper, we focus on where the action is in the growth process, namely Total Factor Productivity, and proffer Austro-institutional arguments why entrepreneurship and the institutions associated with a free society may be expected to positively impact TFP.
While we find that entrepreneurship strongly and significantly impacts TFP, our results only partially support the intuition that institutions of liberty as well as liberal economic policies promote growth in productivity. In fact, we find no significant effects of sound money and legal quality on TFP in the medium run. When some of the freedom variables are interacted with the entrepreneurship variable, we in fact find that entrepreneurial activity is more effective in raising levels of TFP in environments dominated or strongly influenced by government activity, either through production in government-owned enterprises and investments or in its financing activities. Thus, increasing the active involvement of the government in the economy as well as the tax burden actually increases the impact of entrepreneurship on TFP. Our explanation of this somewhat surprising finding is that a reduced supply of entrepreneurship increases the marginal productivity of entrepreneurship; thus, the best ideas do survive even in the relatively hostile welfare state environment. (more…)
The Ownership of the Firm under a Property Rights Approach
| Dick Langlois |
That’s the title of a new working paper by my Ph.D. student Leshui He. Here’s the abstract:
The boundaries of the firm and the ownership of the firm have been two of the main themes of the economics of organization over the past several decades. In this paper, I develop a general multi-party framework that integrates the ownership of the firm into the property-rights approach to the firm. I consider the ownership of the firm as the ownership of the rights to terminate cooperation with any party while maintaining a contractual or employment relation with all the other related parties of the firm. The model in this paper allows for the separation of the ownership of the firm from the ownership of the alienable assets that partly constitute it. Such a general multi-party setup may provide new tools for the study of the problem of the firm’s boundaries as well as inspiration for further applications of the theory of property rights.
This will be Leshui’s job market paper. Comments (and job offers) welcome.
Krugman on Interstellar Trade
| Lasse Lien |
You may disagree with Paul Krugman, but you cannot deny that he’s dealing with really, really big issues. Here is the abstract from his most recent paper:
This article extends interplanetary trade theory to an interstellar setting. It is chiefly concerned with the following question: how should interest charges on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer traveling with the goods than to a stationary observer. A solution is derived from economic theory, and two useless but true theorems are proved. (JEL F10, F30)
The full reference and the paper can be found here. The next step is to extend Krugman’s work to intergalaxy trade and wormholes in spacetime.
RBV Primer
| Nicolai Foss |
With Nils Stieglitz I have written “Modern Resource-Based Theory(ies)” (creative title, eh?) for the Handbook on the Economics and Theory of the Firm (apparently, “economics” and “theory” are different things), edited by Michael Dietrich and Jackie Krafft (Edward Elgar, 2011). The paper is mainly an overview. However, we also argue that there are many indications that the different strands of the RBV are increasingly converging.
In Defence of L’Ancien Regime
| Nicolai Foss |
It is sometimes instructive to reflect on the massive changes that the University has undergone since the Second World War. On the negative side, the advent of the mass university has very likely led to a dumbing down of the curriculum in many disciplines and a fall in the requirements for entry. It has paved the way for a powerful bureaucratic caste, and the “bureaucrat-professor” who is in the academic industry because of his specialized management skill, and not because of his wish to engage in scholarly pursuits and the training of the most intelligent persons in a given society. On the benefit side, many more people can now share in science and general learning, very likely contributing to economic growth.
As the universities are broadly speaking financed by the taxpayer, politicians and their henchmen in the ministeries of education, science, technology, etc. happily undertake to steer the universities. Thus, inspired by as-yet-largely-unvalidated claims of a general shift in the “mode of knowledge production,” university bureaucrats, managers, and politicians are calling for increased “inter-disciplinarity” and “relevance,” notably in the form of mobilizing multiple disciplines in the context of concrete problem-solving in “business” (the so-called “Mode II”). In the context of business schools, it seems almost de rigeur in certain quarters to deem business schools largely “irrelevant” (meanwhile, business happily employs the products of business schools, paying MBA and other graduates hefty salaries, presumably motivated by the high usefulness, indeed, “relevance,” of these graduates).
Contrast all this with universities not so many decades back. There are not many who stand up on behalf of l’ancien regime of universities. But here are two who do, one implicitly and the other one (much) more explicitly. (more…)
Interview with Josh Lerner
| Peter Klein |
Paul Kedrosky interviews Josh Lerner for Kauffman’s “Infectious Talk” series. Josh is one of the top researchers and teachers working at the intersection of entrepreneurship and finance, and is always worth reading (or listening to, if you prefer the podcast version).
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Strategy Making and PowerPoint
| Nicolai Foss |
We have blogged more than two dozen times on PowerPoint (here) and at least as many times on pomo (here), never realizing that the two themes are connected. In a recent paper, “Strategy and PowerPoint: An Inquiry into the Epistemic Culture and Machinery of Strategy Making” (forthcoming in Organization Science), the ever-interesting Sarah Kaplan poses the question, “How is PowerPoint engaged in the discursive practices that make up the epistemic culture of strategy making?”
Yes, this does smack of hardcore pomo, and would prima facie seem to be up for hard lashing under the O&M rubric of “Pomo Periscope.” However, upon reading, it turns out that this is highly reasonable, well executed, and meaningful pomo. In a nutshell, Sarah argues that PP is a privileged strategy-making support tool, and that it may usefully be analyzed as a genre. And it matters to strategy making, as suggested in this key passage in the paper:
I show how the affordances of PowerPoint enabled the difficult task of collaborating to negotiate meaning in a highly uncertain environment, creating a space for discussion, making combinations and recombinations possible, allowing for rapid adjustments as ideas evolved and providing access to a wide range of actors, no matter how dispersed over space or time. Yet, I found, these affordances also supported cartographic efforts to draw boundaries around the scope of a strategy, certifying certain ideas and not others, and allowing document owners to include or exclude certain slides or participants and control access to information. Cartography in the world of ideas is similar to cartography of the physical landscape: drawing maps and defining boundaries help people navigate otherwise uncertain terrain. These collaborative and cartographic practices shaped the strategic choices and actions taken in the organization.
Miscellaneous Conference and Paper Links
| Peter Klein |
SSRN has a new Philosophy and Methodology of Economics working-paper series, sponsored by the International Network for Economic Method.
Here’s a CFP for a Special Issue of the E-conomics e-Journal on the Social Returns to Higher Education, R&D and Innovation.
You can watch a live stream of this weekend’s SEJ Special Issue Conference on Knowledge Spillovers & Strategic Entrepreneurship.
The registration and accommodations section of the ISNIE 2010 website is now open.
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Why Are the Dutch So Clean?
| Nicolai Foss |
Folk wisdom holds that people stopped bathing after the fall of the Roman Empire. Thus, it is commonly held that all of Europe was, until recently, quite smelly indeed. Some hold the view that this is still the case.
There were serious exceptions, of course. I cannot resist mentioning a particularly well taken example, reported by the prior of St. Fridswides, John of Wallingford, “who complained bitterly that the Danes bathed once a week, combed their hair regularly, and changed their clothes regularly. The result was that English women were easily seduced by the nice-smelling Danes” (here).
A perhaps better-known example of European cleanliness is that of the Dutch. It is also the most seriously researched example. In the 17th and 18th century, visitors to Holland wondered about Dutch cleanliness, indeed, obsession with hygiene. Some have argued that this, somehow, reflected Dutch Calvinism. No, argue Bas van Bavel and Oscar Gelderblom in “The Economic Origins of Cleanliness in the Dutch Golden Age,” the reason is . . . butter! And here is the explanation (Abstract):
This paper explores why early modern Holland, and particularly its women, had an international reputation for cleanliness. We argue that economic factors were crucially important in shaping this habit. Between 1500 and 1800 numerous travellers reported on the habit housewives and maids had of meticulously cleaning the interior and exterior of their houses. We argue that it was the commercialization of dairy farming that led to improvements in household hygiene. In the fourteenth century peasants as well as urban dwellers began to produce large quantities of butter and cheese for the market. In their small production units women, and their daughters, worked to secure a clean environment for proper curdling and churning. We estimate that, at the turn of the sixteenth century, half of all rural households and up to one third of urban households in Holland produced butter and cheese. These numbers declined in the sixteenth century as peasants sold their land and larger farms were set up. Initially the migration of entire peasant families to towns, the hiring of farmers’ daughters as housemaids, and the exceptionally high consumption of dairy products continued to encourage the habit of regular cleaning in urban households. However, by the mid-seventeenth century the direct link between dairy farming and cleanliness was, for the most part, lost.
Where to Submit?
| Lasse Lien |
If you havent optimized your submission strategy this paper might be useful. Here’s the abstract:
In this paper, we analyze the problem faced by impatient researchers attempting to balance the considerations of journal quality, submission lags, and acceptance probabilities in choosing appropriate outlets for their work. We first study the case in which probabilities of submission outcomes are exogenous parameters and show that authors can find the optimal submission path through the use of journal ‘scores’ based only on the journals’ characteristics and the author’s degree of impatience. Then, we analyze a more realistic framework in which acceptance probability is determined by the quality of the manuscript, in which the reviewing process may be imperfect, and in which authors may not be certain of the manuscript’s quality. Throughout, we illustrate our analysis with data on actual economics journals. We also consider the problem of journals facing a large number of submissions, limited space, and limited resources to review papers and, in particular, we examine the relative effectiveness of using submission fees and reviewing lags to ration article submissions.
Reference: Martin Heintzelman and Diego Nocetti, Diego (2009), “Where Should we Submit our Manuscript? An Analysis of Journal Submission Strategies,” The B.E. Journal of Economic Analysis & Policy: 9 : Iss. 1 (Advances), Article 39.
Why Academic Freedom?
| Nicolai Foss |
At least in Europe, academic freedom is under siege. Politicians justify their meddling with the fact that universities are (largely) financed by taxpayers’ money, and they are assisted in their meddling by a growing class of bureaucrats in ministries, the EU and increasingly in universities themselves. All this derives legitimacy from a questionable ideology of Mode II research that broadly asserts that most important scientific advance (now) happens in the intersection of disciplines and as a result of collaborative relations between universities and business (here is the Wiki on Mode II).
Given this, it seems necessary to rethink the defense of academia and academic freedom. There is, of course, Polanyi’s application of Hayek’s unplanned order idea in the context of the “republic of science.” However, that argument lacks concreteness and cutting power against those bureaucrats/politicians who wants to intervene just a tiny bit but doesn’t want centrally planned science.
In a recent paper, “Academic Freedom, Private-sector Focus, and the Process of Innovation,” Aghion, Dewatripont, and Stein provide a rationale — derived from property rights economics rather than from considerations of appropriability — for academia. Academia is defined as an organizational form which “represents a precommitment to leave control over the choice of research strategy in the hands of individual scientists” (p. 621) (note that this does not necessarily entail public funding). (more…)
Org. Structure and Diversification
| Peter Klein |
The March 2010 issue of the Journal of Industrial Economics has just come out, and it features my paper with Marc Saidenberg, “Organizational Structure and the Diversification Discount: Evidence from Commercial Banking.” I’m quite happy with the paper, which went through many rounds of revision and consumed a great deal of time and energy. I blogged the details earlier. The published version is behind a firewall; if you can’t get through I’d be happy to mail you a copy.
Unfairly Neglected Papers
| Lasse Lien |
I guess we’ve all read papers thinking: Why isn’t this paper routinely cited and part of the canon of …………. (insert whatever). Here is an example of such a paper — IMHO. Be warned that the abstract isn’t close to doing justice to the paper itself. I would love to see examples of the papers O&M readers think are most unfairly neglected. Of course we all feel that our own papers top this list, but ignoring those, which are they?
Product and Factor Markets in the RBV
| Nicolai Foss |
It is often argued that firm strategy is fundamentally rooted in various imperfections. Strategic management has long been characterized by an intellectual division of labor in which the resource-based view handled (strategic) factor market imperfections and various positioning approaches took care of product market imperfections. This dichotomy is beginning to break down. Two recent papers, one a theory of science-based piece, the other a theory piece, discuss the product/factor market dichotomy and show why it is problematic.
In “Theoretical Isolation and the Resource-based View: Symmetry Requirements and the Separation Between Product and Factor Markets,” Niklas Hallberg and yours truly argue that the RBV treats factor markets as imperfect and product markets as perfect (an approach that we argue is adopted from mainstream economics and its tendency to work with on-off assumptions). We argue that this asymmetry is problematic, as there is a general case to be made for symmetrical assumptions and as it borders on logical inconsistency to assume — within the same model — that one set of markets is perfect and another set is imperfect. The paper isn’t online, but you can email me at njf.smg@cbs.dk for a copy. (Abstract below).
In “Chicken, Stag, or Rabbit? Strategic Factor Markets and the Moderating Role of Downstream Competition,” my CBS (Center for Strategic Management and Globalization) colleague, Dr. Christian Geisler Asmussen, models various deviations from perfect(ly competitive) product markets and shows how these impacts firms’ factor market behaviors and whether they can derive rents from resources purchased on these markets. I believe this is the first systematic study of its kind in the literature (and there are some seriously counter-intuitive findings in it). Very highly recommended! (more…)
Cooperation and the Team Problem
| Nicolai Foss |
Alchian and Demsetz’s famous 1972 paper on the team problem and how resolving that problem may call for the “classical capitalist firm” is one of my teaching favorites. Students like the stark, stylized reasoning in the paper, and the team problem is a great way to introduce agency theory, among other things, because it so directly links to what is usually the only piece of game theory they know, namely the PD game.
However, I often experience that some students (particularly those who are following an OB or HRM class) are worried about the reasoning in Alchian and Demsetz, and are not convinced by the argument that it is basically counterfactual (provided they understand this point). I usually also explain that experimental evidence from the public goods literature suggests that cooperativeness declines over time (e.g., here) unless cooperation is backed up by various flanking arrangements (a recent Nobel can now be invoked in support of this).
A recent experimental paper, “Not just hot air: normative codes of conduct induce cooperative behavior,” — written by a German team (Thomas Lauer, Bettina Rockenbach, and Peter Walgenbach), and published in the newly founded Review of Managerial Science — suggests that the verbal framing of a work environment with cooperative connotations may go a long way towards inducing cooperativeness in team settings. In their experiments, the authors implement five “treatments” that differ only in terms of the framing, specifically in the extent to which reference is made to a cooperative firm context.
The basic experimental setup is team production with teams of four members that each have to make decisions on whether to invest or not in a team project. Each unit invested generates a benefit of 1.6 units for the team — but those benefits are divided equally among all team members. In this setting, changes in framing dramatically influence outcomes. I recommend the paper as a fascinating example of the emerging intersection of the economics of the firm, OB, and experimental methods.
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