Posts filed under ‘Recommended Reading’
New Leoni Collection: Law, Liberty, and the Competitive Market
| Peter Klein |
Transaction Publishers and the Instituto Bruno Leoni have just published a new collection of essays by Bruno Leoni, Law, Liberty, and the Competitive Market, edited by Carlo Lottieri. The essays elaborate on Leoni’s distinction between law and legislation, and the analogy between the latter and centralized economic planning, themes introduced in his best-known book, Freedom and the Law. Richard Epstein provides an informative introduction.
New Foss Thought Piece
| Nicolai Foss |
I blatantly confess that I enjoy writing what are known in academic putdown-ese as “essays” or “thought pieces,” that is, “conceptual” papers that do not construct a theoretical model, and/or engage in empirical analysis. My most recent product in this genre is inelegantly titled, “Alternative Research Strategies in the Knowledge Movement: From Macro Bias to Micro-Foundations and Multi-level Explanation.” It is an invited paper for European Management Review (the other invited contributors are David Teece, Bronwyn Hall and Will Mitchell). Mail me at njf.smg@cbs.dk if you want a copy. Here is the abstract:
The emergence over the last two decades or so of “knowledge” as an important part of the explanatory structure of management research is an intellectual breakthrough that is comparable in terms of its transforming impact to the behavioral revolution of the 1960s. A veritable “knowledge movement” has emerged that spans several fields in management. I take stock on alternative research strategies with that movement, distinguishing between “capabilities first,” “networks first,” and “individuals first” strategies. Reasons are given why more research attention need to be allocated to the latter strategy if the knowledge movement is to continue making progress, but that the aim should ultimately be to reach towards multi-level research that combines aggregate constructs with top-down processes and bottom-up processes.
New Book on Knowledge Governance
| Nicolai Foss |
I and various other people, notably Prof. Anna Grandori (U. Bocconi), who came up with the term, have been pushing the notion of “knowledge governance” over the last five years or so.
The organizing knowledge governance idea is that processes of knowledge use, creation, retention, integration, and sharing can be influenced towards desired levels through the deployment of administrative apparatus. “Knowledge governance” signifies that this field is taken up with the interplay between knowledge processes and organizational processes. It represents the coalescing of a number of parallel developments, such as the convergence of organizational economics (i.e., transaction cost economics, property rights theory and agency theory) and the knowledge-based view in strategic management, and the emerging interface between knowledge management and perspectives from organization theory and organizational behavior. Here is a Primer on knowledge governance.
With Professor Snejina Michailova of the University of Auckland, I have edited Knowledge Governance: Processes and Perspectives, which was published this week by Oxford University Press. It features a number key contributors to the emerging knowledge governance field, including Anna Grandori, Jackson Nickerson, Todd Zenger, Linda Argote, and Teppo Felin. (more…)
Wernerfelt (1984)
| Nicolai Foss |
Birger Wernerfelt’s 1984 paper in the Strategic Management Journal, “A Resource-based Theory of the Firm,” is conventionally considered one of the founding contributions to the RBV, on par with Jay Barney’s 1986 and 1991 papers. The paper has more than 6,000 hits on Google Scholar (which probably translates into more than a thousand on Web of Science), while Barney’s 1991 paper has more than 10,000. Although the underlying conceptualization of the firm is similar, the papers address different dependent variables, namely diversification and growth (Wernerfelt) and sustained competitive advantage (Barney) (a point missed by those who indiscriminately cite both papers, usually in the context of competitive advantage).
In a recent paper in Organization Studies, “The Development of the Resource-based View: Reflections from Birger Wernerfelt,” Andy Lockett, Rory P. O’Shea, and Mike Wright draw on conversations with Wernerfelt to tell the story of the 1984 paper. (more…)
High-Powered Incentives
| David Gerard |
As I pack my bags for the American Economic Association meetings this weekend in San Francisco, I am reminded of a recent New Yorker article on the impacts of medical marijuana legalization. This is probably a rather mundane topic for you left-coasters, but here in Pennsylvania where we can’t even buy beer in grocery stores, it is a pretty exotic concept.
The article highlights a number of ways in which legalization foments organizational change, and also gives some anecdotal evidence on sharecropping terms, suggesting different terms for indoor and outdoor operations.
The easiest way to make this kind of small indoor scene work is to live in someone else’s house and nurture the plants in exchange for a third or half the profits, and that is how the Kid would be spending her time for the next two months.
On the outdoor side, however, this description of the “Humboldt Slide” suggests that landlords appear more willing to change the contracting terms:
“You start at this really great percentage, and you’re buddy-buddy and everything’s great,” Emily said. As the harvest approaches, growers inevitably begin to run out of money and get greedy, and the sharecroppers lose whatever leverage they had earlier in the growing cycle, when their daily attention was necessary for the young plants to survive. Emily’s wage the previous year was initially set at a third of the value of the plants that she harvested. Later, her boss “slid” her percentage to a sixth, meaning that she owned only a dozen of the eighty plants that she grew that season.
The explanation is that the laborers have no legal recourse, so the landlord is free to rewrite contracts as he pleases, but then wouldn’t we expect a slide in the case of the indoor operations as well?
I welcome suggestions for more systematic treatments for effects of the California legalization. One effect that I don’t expect is for it to have much of an impact on the average sobriety level at this weekend’s conference.
New History of Economics Blog
| Peter Klein |
It’s the History of Economics Playground, written by a team of young scholars in a charmingly irreverent style. “We will trade references. We will review books. We will bear witness to seminars and conferences. We will debate and gossip and express our feelings about life in scholarship.” Sounds like the program here at O&M. Except for this: “The terms of our senior colleagues and supervisors need not be our own.” Eh? What’s that? Speak up, sonny.
Spawning: The Small-Firm Effect
| Nicolai Foss |
Entrepreneurs are usually dissatisfied employees from large companies who find their ideas crushed under the weight of the corporate hierarchy, right? No so, say Dan Elfenbein, Barton Hamilton and Todd Zenger in a recent (well, March 2008) paper, “The Entrepreneurial Spawning of Scientists and Engineers: Stars, Slugs, and the Small Firm Effect.” In fact, they point out, “roughly two-thirds of all entrepreneurial ventures started between 1995 and 2001 by scientists and engineers in the US, were founded by individuals employed immediately prior in firms of less than 100 employees” (p. 1). Interestingly, they also find that new ventures founded by employees coming from small firms perform better than ventures founded by employees from large firms. These small firms effects, the authors argue, are not just driven by sorting effects, but also because employees in small firms tend to acquire more entrepreneurial skills. An excellent contribution to the generally interesting spawning literature. Highly recommended. (more…)
How Well Does the Market Handle Network Effects?
| Peter Klein |
Quite well, according to Dan Spulber’s paper “Consumer Coordination in the Small and in the Large: Implications for Antitrust in Markets with Network Effects,” out recently in the Journal of Competition Law and Economics (June 2008). Dan distinguishes between network effects in small- and large-numbers bargaining situations; Coasean bargaining can solve the problem in the former while Hayekian “spontaneous order” can emerge in the latter. The paper also contains a useful, up-to-date summary of the network effects literature. Highly recommended!
Hoselitz’s “Early History of Entrepreneurial Theory”
| Peter Klein |
Thanks to my dedicated assistants Per Bylund and Mario Mondelli we now have an electronic copy of Bert Hoselitz’s hard-to-find 1951 essay, “The Early History of Entrepreneurial Theory” (Explorations in Entrepreneurial History, volme 3, pp. 193-220) and are happy to share it. This is one of the best surveys of the concept of entrepreneurship in pre-classical economics (but also including J. B. Say). (Hébert and Link (1988) think Hoselitz draws too sharp a line between Cantillon and Say.)
Cars for Comrades
| Peter Klein |
A while back we posted a video from an East German Trabant factory that got a lot of hits. A video is worth more than a thousand words on the political economy of socialism, right?
Indeed, the automobile played an important role in the eventual collapse of the communist system, according to Lewis Siegelbaum’s Cars for Comrades: The Life of the Soviet Automobile (Cornell University Press, 2008). As Perry Patterson notes in his review for EH.Net:
As incomes and economic complexity grew over time, the Soviet state found it necessary to produce more and more vehicles of all sorts, and private cars in particular. But policymakers also discovered that the existence of cars generated additional demands for consumer services, and discontent when the economy could not provide them. As Siegelbaum puts the matter, “cars, cars, and more cars seem to have played a particularly large and invidious role in popular disillusionment with Soviet socialism.” Worse perhaps for the Soviet state, private automobiles and the culture that grew up around them also opened up numerous ways for individuals to evade and undermine the official command economy. For example, cars facilitated private conversions, private dealmaking, the generation of “unearned” income from taxi rides, and the unplanned movement of (sometimes stolen) goods.
The quality of Soviet cars was, well, about what you’d expect. The book “provides extensive examples of the mental knots in which the Communist leaders tied themselves, wanting on the one hand to boast about their superiority over the West on all fronts, and being unable and unwilling to match it when it came to cars,” notes the Economist.
My first “serious” research paper, written in Glen Elder’s undergraduate sociology class, dealt with the social and cultural impact of “automobility” in the US, so this subject is near and dear to my heart. (Fortunately, the paper is buried deep in a secret vault and will never see the light of day.)
Creative Capitalism Blog
| Peter Klein |
Via Mankiw, here is Michael Kinsley and Conor Clarke’s Creative Capitalism Blog. Check out the list of contributors. Wow. I haven’t seen a team that impressive since these guys. OK, Creative Capitalism isn’t a traditional blog (there’s an oxymoron for you) but, as Kinsley and Clarke explain,
a web experiment designed to produce a book — a collection of essays and commentary on capitalism, philanthropy and global development — to be edited by us and published by Simon and Schuster in the fall of 2008. The book takes as its starting point a speech Bill Gates delivered this January at the World Economic Forum in Davos. In it, he said that many of the world’s problems are too big for philanthropy — even on the scale of the Gates Foundation. And he said that the free-market capitalist system itself would have to solve them.
This is the public blog of a private website where a group of invited economists have spent the past couple of weeks criticizing and debating those claims.
Climate (Change) and Agricultural Adaptation
| Dick Langlois |
Just for the fun of it, I drove up to Cambridge on Friday to take in one day of an interesting NBER conference on Climate Change: Past and Present. The conference was organized by Gary Libecap, whom I’ve known for years, and Richard Steckel, whose work I have always read with interest. Steckel is one of the people who have pioneered the use of archaeological techniques in economic history, notably measuring the heights of skeletons for evidence on nutrition in historical populations. This time he talked about using tree rings in historical research involving climate.
There were several excellent papers, which are available at the conference website. The two I liked the best have a flavor of evolutionary economics as well as evolutionary biology. Richard Sutch talked about the history of hybrid corn in the U. S. An important figure in the story is Henry Wallace, who founded one of the earliest hybrid-corn seed companies and, as Secretary of Agriculture, evangelized for hybrid corn and higher corn yields at the same time he was implementing pro-cyclical New Deal farm policies that restricted agricultural output in other commodities. But the main story is one of evolutionary learning. The major midwestern droughts of 1934 and 1936 accidentally revealed the (unintended) benefits of one kind of hybrid corn that was resistant to drought, thus changing the perceived payoffs to farmers of adopting the new technology, whose primary benefit was ultimately increasing yields. (more…)
Something to Abuse Graduate Students
| Randy Westgren |
I carried a few articles along with me to punctuate the tedium of consuming as many Belgian beers as one can, in tacit competition with 24 20-year olds. One of these is “The Sociology of Markets” by Neil Fligstein and Luke Dauter, from the 2007 Annual Review of Sociology (ungated version here). Those of you who throw brickbats at sociology will find this an interesting read, as Fligstein and Dauter describe the three major camps and a few lesser cabals as a “cacophony of voices” talking past each other. For others, the piece is a useful entry point for students to see the clear expositions of the development of network theory (i.e. Burt, White, and Granovetter) and institutional theory (i.e. DiMaggio and Powell, Durkheim, and Fligstein, himself). They also review the performativity school — unfortunately named and unfortunately constituted. They tie the review to March and Simon, Williamson, and some of the corporate governance literature, and discuss the roles efficiency plays in the alternative conceptions of markets.There is also some useful allusion to equilibrium and disequilibrium conceptions of markets. This is worth a read, or at least, worth making your grad students read. The entree to seminal literature that undergirds current articles in the management journals is useful.
I’d fault the review only for its insistence on trying to make population ecology appear to be a useful piece of sociology for the study of markets, though the authors admit it really isn’t true. Pop ecology should, like an overly large litter of unwanted kittens, be placed in a burlap sack with a large stone and cast into a deep river.
Free E-Books
| Peter Klein |
The Mises Institute continues to have the best library of free e-books on economics and related subjects (new additions: Say’s Treatise on Political Economy, Mencken’s Notes on Democracy, the 1960 collection Essays in European Economic Thought, Lachmann’s Macro-economic Thinking and the Market Economy). Michael Greinecker points out that the Cowles Foundation monographs are also available online. Classics include Marschak and Radner’s Economic Theory of Teams, Markowitz’s Portfolio Selection, Arrow’s Social Choice and Individual Values, and, for those whose tastes run to such things, Debreu’s Theory of Value. Viva la Revolución Digital!
Special Issue of JEM on Thomas Schelling
| Nicolai Foss |
Nobel Prize winner (2005) Thomas Schelling makes social science come alive. He has contributed fundamental insights to game theory (e.g., the notion of a focal point, the importance of commitment, early insights in the epistemic conditions of Nash equilibrium, signaling, etc.) and to the understanding of social dynamics (e.g., the famous 1971 checkerboard segregation model; early insights in “critical mass” and “tipping”). He is among the founders of game-theoretic conflict theory.
Schelling has an amazing knack for drawing fundamental lessons from simple illustrations. He rarely uses advanced mathematics, he is more interested in processes than in equilibrium states, and substantial parts of his work is accessible to the educated layman (e.g., this one and this one). He is quite an unusual social scientist.
The latest (Dec.) issue of the ever-interesting Journal of Economic Methodology features a Symposium on Thomas Schelling edited by Abu Rizvi (who, in other journals and volumes, has published some of the most penetrating meta-theoretical work on game theory). (more…)
The Journal of Human Capital
| Nicolai Foss |
Although human capital theory goes back to at least the 1950s, and is a thriving area that has yielded at least two Nobels, the field hasn’t had a dedicated journal. That is, until two days ago when Chicago Journals announced the inaugural issue of the Journal of Human Capital. The papers look controversial and therefore interesting, such as Todd and Wolpin’s finding that the main determinant of differences in educational performance is the home environment, as measured by the mother’s score on the Armed Forces Qualification test. (more…)
Demsetz, Coase, Postrel, and Williamson
| David Hoopes |
A recent post by Nicolai ponders Demsetz’s approach to transaction costs. My understanding (interpretation) of Demsetz’s “The Theory of the Firm Revisited” is quite different from Nicolai’s. Here’s how I remember that paper.
One of Demsetz’s complaints about transaction costs economics is that a number of very different events are bundled together under the term “transaction.” Williamson’s take on transaction costs focuses largely on comparative governance costs. How does making sure a supplier doesn’t cheat you compare to making sure your employees don’t cheat you? Coase’s version of transaction costs is very different. Coase tends to talk about a variety of other frictions that can occur independently of governance costs. These are what Demsetz calls management costs. Demsetz thinks (quite correctly) that referring to these two types of costs using the same term is confusing. In his Nobel speech Coase notes how his beliefs were more consistent with Demsetz’s than with those emphasizing governance.
Steve Postrel and I (in disucssing capabilities in SMJ 1999) separate cooperation costs from coordination costs. I think of this as fitting the Williamson versus Demsetz and Coase types of transaction costs (or management costs as Harold says). Costs dedicated to aligning incentives are different from costs of making sure everyone has the same plan. Steve and I go on to differentiate the costs of sharing specialized knowledge from the costs of coordinating. (Notice how I moved from Coase and Demsetz to myself?!).
Back to Harold. Demsetz believes that you needn’t have oppourtunism to have organizations. Postrel (2003) in an earlier version compared knowledge and governance as theories of the firm. Where Demsetz believes firms economize on managerial costs (or Coasian transaction costs) Postrel believes that without opportunism the firm is unnecessary.
I’m more with Harold (at least in my own mind I’m not sure Harold really wants me tagging along).
Pomo Periscope XV: Orientalistic Pomo
| Nicolai Foss |
One of most influential modern disciples of pomo was the late Edward Saïd, a follower of Michel Foucault and Jacques Derrida. His famous, highly problematic, but surprisingly widely accepted thesis in Orientalism concerns the (alleged) European construction of the Islamic orient as a something radically different from Europe, a construction that developed from the 18th century on and became an instrument of European colonialism and imperialism vis-a-vis the Orient. However, the construction was just that, a mere construction; “Orientalism” was at best a mirror of Europe and not of the Islamic “Orient.” (Here is an intro to the critique of Saïd, and here is a forthcoming bashing). (more…)
Why Are Markets So Scary? Some Things (Liberal) Academics Get Wrong
| David Hoopes |
Many people make incorrect assumptions about capitalism. Some would have us believe that capitalism is based on greed, selfishness, and promotes behavior that is completely self-centered. This is a common interpretation of Smith’s advice to allow people to make decisions based on self-interest. Examples are easy to find in the many organization theory-based papers complaining about economics and economists.
Two very good papers can aid in a deeper understanding of the invisible hand. First is James Q. Wilson’s “Adam Smith on Business Ethics.” A central point Wilson makes is that Adam Smith assumed people will behave with a moral sense. Wilson, “A moral man is one whose sense of duty is shaped by conscience; that is, by that impartial spectator within our breast who evaluates our own actions as others would evaluate it.” By suggesting people be allowed to make decisions based on their own self interest Smith was not advocating selfishness and greed. What then was he advocating?
This leads to the second paper, Harold Demstez’s “The Theory of the Firm Revisited.” In the third paragraph Demsetz notes that the debate between mercantilists and free traders was over the role of the government in the economic affairs of the state. “Is central economic planning necessary to avoid chaotic economic conditions?” The great achievement of the perfect competition model, what Demsetz argues should be called perfect decentralization, is its abstraction from centralized control of the economy.
Thus, the central element to capitalism is that decision making is pushed down as far as possible. (more…)
What Are Hybrid Forms and How Can They Be Modeled?
| Nicolai Foss |
Many scholars have argued that hierarchies are increasingly infused by market mechanisms (e.g., here and here), and that elements of authority can increasingly be witnessed in market transactions. This has been referred to as the “swollen middle hypothesis.” A major step forward in the understanding of such hybrid governance is Williamson’s seminal 1991 paper in the ASQ, “Comparative Economic Organization: The Analysis of Discrete Structural Alternatives,” and Holmström and Milgrom’s equally important 1994 paper in the AER, “The Firm as an Incentive System.” (more…)
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