Posts filed under ‘Theory of the Firm’
Happy Hierarchies
| Peter Klein |
Nicolai and I have tended to be skeptical about the new wave of happiness research, particularly as applied to intrinsic motivation, empowerment, and other trendy organizational issues. Economists Tyler Cowen and Arnold Kling agree. Corporate law professor Stephen Bainbridge, in his latest column, attacks the idea that participatory management increases worker happiness (and, presumably, productivity). On the contrary, says Bainbridge, workers often prefer hierarchy, for a variety of reasons (risk aversion, resistance to change, preference for standardized rules and procedures, and so on). “Whether the taste for participation or for hierarchy is more common is hard to say from the evidence to date, but at the very least the history of participatory management has taught us that not everyone wants more autonomy, challenge, and responsibility.”
Further details are provided in Bainbridge’s Williamsonian paper “Privately Ordered Participatory Management: An Organizational Failures Analysis.”
The Nature of the (Family) Firm
| Peter Klein |
Brayden King at orgtheory.net has a nice post today about family-owned firms. He summarizes a recent sociology paper on the transformation of the Scottish [hooray!] shipbuilding industry from one of mostly family firms to one dominated by corporate firms. Writes Brayden: “Family businesses and corporations are clearly different creatures, but we [organizational scholars] usually just take the word of legal scholars in this matter. . . . My take-away is that, besides temporal continuity established through lines of heredity, the distinguishing feature of family firms is that affective relationships serves as the glue holding together various components of the business. This affect, which translates into close identification with the organization, is a distinctive competency of the family firm.”
I have a footnote. One industry, unlike virtually every other mature industry in the developed world, continues to be populated by small, family-owned firms: agriculture. Why? Public policy is surely part of the explanation, but not all. The best analysis of the puzzle, in my view, is the pioneering work by Doug Allen and Dean Lueck, appropriately (and wittily) titled “The Nature of the Farm” (article version here, book version here). They argue that family ownership results from agriculture’s unique combination of seasonality and random variation, which makes it difficult to design and enforce effective incentive contracts that mitigate moral hazard. Instead, sole proprietorships, with the farmer or farm family as residual claimant, outperform joint ownership arrangements, such as corporations.
I provide some further information on organizational characteristics of agriculture here.
Heavily Cited, But Wrong
| Nicolai Foss |
Here is an example of the apparent irrationality of citation practices. The example concerns the paper “Production, Information Costs, and Economic Organization,” by Armen A. Alchian and Harold Demsetz (American Economic Review 62, 1972, 772-95). This is the famous “team-production” paper, one of the first to try to revitalize the Coasian agenda of explaining the “nature” of the firm (why firms exist, what explains their scope and internal organization). It is also one of the first agency theory papers (in what is sometimes misleadingly called “positive agency theory”).
However, the analysis in the paper is flatly errorneous. Here are some points where the paper gets it wrong: (more…)
Malthus and the Most Cited Economist in the World
| Nicolai Foss |
Who is the world's most cited economist? I thought Ronald Coase. When I asked some of my economist colleagues they virtually all came up with either Kenneth Arrow or John Maynard Keynes.
No, says Geoff Hodgson, Research Professor at the University of Hertfordshire, UK, and one of today's leading "heterodox" economists. It's Oliver Williamson. Geoff says so announcing the following event:
Williamson will give the Second Malthus Lecture, organized by Geoff Hodgson, at 6pm on Thursday 19th October at the University of Hertfordshire, in the Fielder Centre in Hatfield, UK. All are welcome. The topic of Williamson's lecture will be: "Corporate Governance and Economic Organization: A Contractual and Organizational Perspective." The First Malthus Lecture — commemorating the Hertfordshire economist Thomas Robert Malthus — was given by Nobel Laureate Douglass North in May 2005.
I am sure the management-gurus-turned-economics-bashers that I critized in my post of yesterday will be delighted by the association between Malthus — who was the reason why economics was christened the "dismal science" — and Williamson!
The New Bashing of Economics: The Case of Management Theory
| Nicolai Foss |
Where is the place to go for real, hardcore economics-bashing? Anthropology? Sociology? Hardly. At least for the outside observer (i.e., this blogger), these disciplines seem to have become so absorbed in terminological nitty-gritty, paradigm proliferation, and pomo excesses that they seem to have lost much interest in neighbouring disciplines. No, the answer is, management theory.
Cases in point? Check out any of these rather recent papers by management heavyweights: (more…)
We Got a Contract, We Got a Contract!!
| Nicolai Foss |
Peter and I have been working for some time on an idea for a book volume, entitled The Theory of the Firm: Emergence, Synthesis, Challenges, and New Directions.
There are several textbooks that present or make extensive use of the theory of the firm (e.g., Paul Milgrom and John Roberts, Economics, Organization, and Management; George Hendrikse, Economics and Management of Organizations; James Brickley, Clifford W. Smith, and William Zimmerman, Managerial Economics and Organizational Architecture; etc.). There are also lots of readers and reference collections (e.g., Louis Putterman, The Economic Nature of the Firm and Jay Barney and William Ouchi, Organizational Economics).
There is no need for yet another textbook or reader/reference collection. What the literature lacks, however, is a critical synthesis of the various streams in the theory of the firm, one that places these streams in a historical and methodological context, discusses the various controversies that have stimulated internal development in the theory of the firm, and assesses the many critiques that have been leveled at the theory by scholars in sociology, psychology and management.
Peter and I think we can write such a book. Luckily, Cambridge University Press agrees with us, and will offer a contract. (more…)
New Foss-Foss-Klein working paper
| Peter Klein |
A new item has just been added to our working papers page, “Original and Derived Judgment: An Entrepreneurial Theory of Economic Organization,” by Kirsten Foss, Nicolai J. Foss, and Peter G. Klein. This is an early draft, and comments are most welcome. Here’s the abstract: (more…)
Organizations and Markets 
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