Doing Business Blog
| Peter Klein |
The World Bank’s Doing Business group, which provides valuable information on business regulation and enforcement across the globe, has a new blog. (Via PSD.)
This Week’s Sign of the Apocalypse
| Peter Klein |
The University of Chicago’s Graduate School of Business now requires prospective students to submit a PowerPoint presentation as part of their applications (via Cliff). “We wanted to have a freeform space for students to be able to say what they think is important, not always having the school run that dialogue,” says Rose Martinelli, associate dean for student recruitment and admissions. “To me this is just four pieces of blank paper. You do what you want. It can be a presentation. It can be poetry. It can be anything.” I suppose requiring a written essay, in English prose and following conventional rules of grammar and style, would be unduly confining.
According to Dean Martinelli, as reported in the Washington Post, students “won’t be judged on the quality of their slides. Rather the slides are an outlet for judging the kind of creativity the business world needs.” Adds second-year MBA student Michael Avidan: “If there’s one foundation of business, it’s innovation, and this is your chance to elevate yourself and show you can do something innovative.” Huh?
Ratings Agencies
| Steve Phelan |
One of my hobbies is to perform counterfactual exercises in organization design (yes, sad, I know). Here is my current challenge. Ratings agencies like Moody’s are paid by the issuers of securities rather than the purchasers of the securities. This creates an agency problem because the rater has an incentive to give high ratings to stay in the good graces of the issuer — who will presumably “shop around” to get the best ratings.
Assuming this arrangement is efficient then what are the counterbalancing factors that offset the agency costs? How much would agency costs have to increase to trigger an adjustment in design? Was the the subprime fiasco such a trigger? What would the new design look like?
I know that economists are reluctant to second-guess how the market will work out its problems — but strategists are in the business of being proactive about these things :-)
Financial Innovation
| Steve Phelan |
In his recent NY Times op-ed, Paul Krugman railed against the evils of financial innovation:
How did things get so opaque? The answer is “financial innovation” — two words that should, from now on, strike fear into investors’ hearts.
O.K., to be fair, some kinds of financial innovation are good. . . . But the innovations of recent years — the alphabet soup of C.D.O.’s and S.I.V.’s, R.M.B.S. and A.B.C.P. — were sold on false pretenses. They were promoted as ways to spread risk. . . . What they did instead — aside from making their creators a lot of money, which they didn’t have to repay when it all went bust — was to spread confusion, luring investors into taking on more risk than they realized.
Folsom’s (1991) “Myth of the Robber Barons” contrasts “political entrepreneurs,” who basically engage in rent-seeking, from “market entrepreneurs,” who seek entrepreneurial rents and improve social welfare. (HT: Rafe Champion.) I’m wondering if we need a new category of entrepreneurs?
(more…)
Pros and Cons of Academic Blogging
| Peter Klein |
Scott Eric Kaufman, a PhD candidate in English literature who blogs at Acephalous, says academic blogging connects scholarship to the wider world:
There’s no reason our community needs to consist solely of people we knew in grad school. Why not write for people who don’t already how you think about everything? Why not force yourself to articulate your points in such a way that strangers could come to know your thought as intimately as your friends from grad school do?
The informal publishing mechanisms available online can facilitate such communication so long as bloggers write for an audience informally. Senior faculty might continue to orient their scholarly production to the four people whose scholarly journals don’t pile up in the corner of the living room, slowly buried beneath unpaid bills and unread New Yorkers. Whether they know it or not, bloggers write for an audience larger than the search committees we hope to impress. They have already started eye-balling the rest of the world, asking themselves how they can communicate with it without seeming to pander to it.
But the signal-to-noise ratio is very low, counters Adam Kotsko, a PhD student in theology: (more…)
Austrian Economics and Pictograms: A Connection?
| Nicolai Foss |
Here is a possible research subject for a historian of ideas. The invention of pictograms is very often ascribed to Otto Neurath, Austrian philosopher (hardcore positivist) and political economist. Of course, pictograms go back much longer. For example, “A” is essentially a pictogram, namely the inverted head of a cow. Still, Neurath contributed very significantly in coming up with new designs for pictograms, designs that are still with us, codifying the art of the pictogram, disseminating and propagandizing for their use, etc.
Now, Neurath was a participant in the Böhm-Bawerk seminar, and a contemporary of Ludwig von Mises whom he clearly knew. Mises didn’t symphatize with Neurath’s view, and this lack of sympathy may have been reciprocated by Neurath. Still, it is at least conceivable that Mises’ views on prices as necessary for rational economic action may have influenced Neurath-the-inventor-of-the-pictogram (Mises’ views were formed and published before Neurath’s work on pictograms). Prices summarize information and provide direction in a complex world. Pictograms do the same. A possible connection?
Hawthorne Experiments Online Exhibition
| Peter Klein |
As part of its 100th anniversary HBS is featuring a number of online exhibitions, including this one on the famous Hawthorne Experiments from 1924 to 1933. A nice set of photos, documents, and commentary.
Here is Jeffrey Sonnenfeld’s 1985 article on the Hawthorne studies (JSTOR), emphasizing their role in challenging the Taylorite “scientific management” paradigm and laying the groundwork for the modern discipline of organizational behavior. “The prevailing notions of the time of the Hawthorne studies were that individual human behavior was to be corrected for and controlled. The study of purely formal static social structures all but disappeared with the publication of the Hawthorne research. . . . [T]he Hawthorne researchers were the first to emphasize the social complexities of organization life and what came to be called a systems approach (p. 115).”
Here is the Wikipedia entry on the Hawthorne effect, the phenomenon of subjects in a behavioral experiment changing their behavior in response to being observed (or, more generally, anyone behaving differently in response to attention). The section of the exhibit on the Hawthorne effect is slicker but less detailed.
How Commies Build Cars
| Peter Klein |
A funny clip from an old Trabant factory in East Germany. (Via Per Bylund.)
The Perils of Microcelebrity
| Peter Klein |
I was pleased to learn that I might be a microcelebrity: someone “extremely well known not to millions but to a small group — a thousand people, or maybe only a few dozen.” This definition comes from Clive Thompson, who suggests in the current issue of Wired that anyone with a blog, a Facebook page, a Flickr account, or a similar web presence can be a microcelebrity in this sense. “Odds are there are complete strangers who know about you — and maybe even talk about you.”
Okay, in my case perhaps “nanocelebrity” is the better term. The broader point, according to Thompson, is that in today’s highly transparent, densely networked, web 2.0 world in which more and more of our personal information ends up preserved for posterity in the Google cache, people may be reluctant to say or do anything that could be controversial.
Blog pioneer Dave Winer has found his idle industry-conference chitchat so frequently live-blogged that he now feels “like a presidential candidate” and worries about making off-the-cuff remarks. Some pundits fret that microcelebrity will soon force everyone to write blog posts and even talk in the bland, focus-grouped cadences of Hillary Clinton (minus the cackle).
As a university professor I worry about this from time to time. Will some off-hand remark made in class end up on a student’s blog? Some students record my lectures on their mp3 players (usually, though not always, with prior permission). Will audio clips — or, heaven forbid, video clips — of me fumbling and stumbling over some difficult concept end up on YouTube?
Was Whole Foods Choking On Their -5% Net?
| David Hoopes |
I’ve used a couple of Ben and Jerry’s cases over the years. One of the interesting things about B&J is that they seem to suffocate under their desire to “do good.” In general, it seems they would have been able to donate a good deal more to charity if they had run their business to be a good business. Then, Ben and Jerry could have taken their salaries or capital gains or dividends and given them to their favorite charities.
Whole Foods, like B&J had a concentrated ownership for quite a while. I don’t know what it’s like now. For a long time John Mackey and his Dad owned 51%. John did not take a large salary. So, giving away Whole Foods’ profits was like he was spending his own money anyway. And, anyone involved with WFM after John got rid of his co-founders knew WFM was John’s thing.
The point with WFM is that it’s an unusual example of corporate charity in part because of concentrated ownership, the marketing benefits of donating money, and the political inclinations of many if not most of its employees (far more left-wing than J. Mackey). Unlike B&J, WFM did not suffocate itself by not paying professional executives. Also, Mackey never felt guilty about turning a profit and is a tried and true capitalist (guilt free).
I worked for Whole Foods when they only had two stores in Austin (oh so long ago). I’m afraid John considered me a pest (I suppose I was).
Did they ever buy Wild Oats? That’s another story.
Pomo Periscope XVI: An Unusually Honest Journal
| Nicolai Foss |
It might be that the most popular category of posts on O&M has the same name as this journal — but, seriously, would you read a journal that is this explicit about its aims, content, readership, etc.? Then again, if you do you might be exposed to nifty little nuggets like this delicately titled piece. Or, you might be able to join a conference where
Researchers, activists and media-artists meet on the Trans-Siberian train from Moscow to Beijing September 11th-20th 2005.
The conference “Capturing the Moving Minds” gathers a pack of people … artists, economists, researchers, philosophers, activists … who are interested in the new logic of the economy, the new form of war against terrorism and in the new cooperative modes of creation and resistance, together in a space moving in time. Spatially moving bodies and bodies moving in time (through the different time zones) creates an event, a meeting that not really ‘is’ but ‘is going on’.
The nonsense continues in the same vein; read the rest yourself. One thing is certain: This will not be the last time that the Periscope zooms in on Ephemera!
Bounded Rationality and Economic Organization
| Nicolai Foss |
While many economists and management scholars agree that bounded rationality is important to the understanding of economic organization and there is no shortage of calls for integrating it more with existing theory (e.g., here), how exactly this should be done has been unclear. A problem is that there are so many different conceptions of bounded rationality. Thus, should Ariel Rubinstein´s approach be foundational in attempts to integrate BR with organizational economics? Or the behavioral tradition that stems from Tversky and Kahneman’s research? Or something else?
Moreover, it seems to be notoriously more difficult to work with cognitive assumptions derived from bounded rationality ideas than to doctor utility functions, which may explain why we currently see more research on how alternative specifications of agent motivation (rather than agent cognition) influence economic organization. It is therefore not surprising that to the extent that bounded rationality appears in the organizational economics literature, it is either as a label for “something that makes contracts incomplete” (Williamson, Hart) or as “whatever makes agents commit errors of evaluation” (Sah and Stiglitz) or “whatever makes agents’ information processing speed less than infinite” (team theory). Anything seems to go when it comes to modelling BR, and one is often left wondering what exactly BR is. (more…)
Shane Seminar in Entrepreneurship
| Peter Klein |
Scott Shane’s PhD seminar in entrepreneurship takes place twice this summer, 23-27 June and 4-8 August 2008. Two of my PhD students have gone in recent years and each came back with a glowing report. (I wouldn’t mind seeing some of these papers on the reading list, but hey, nobody’s perfect!)
Fundamental Questions About Organizations
| Peter Klein |
Our most popular tag here at O&M seems to be ephemera, but occasionally we write a “big think” post (e.g., this one). Today I’ll offer another. A colleague recently asked me to write down, for a research project we’re sketching out, some “fundamental questions about organizations.” He wanted my off-the-cuff response, not a carefully crafted set of ideas. Here’s what I came up with:
1. Does organizational form matter? How much does it really affect performance, however measured? Organizational form might not be that important because (a) its effects on performance are small relative to the performance effects of technical or allocative efficiency; (b) organizational form is easily changed and always chosen optimally to fit the circumstances; or (c) organizational form is merely a legal distinction without any economic significance. (more…)
Integrity and the Academy: Are Academicians in a Position to Preach About Social Responsibility?
| David Hoopes |
Do college faculty — generally untrained in ethics (except for philosophy professors, etc.) — have any business teaching social responsibility and ethics? This question comes from my most recent post.
I interviewed for a job at the Army War College a few years back. I was fortunate enough to hear a high-ranking general speak to the students (mostly lt. colonels). One of things he said is that he stayed in the armed services because of the high integrity of its members. I know in some corners this will be scoffed at. However, I think there is no small amount of truth to this.
I thought, “Cannot say that about academia.” Why so cynical? There are many things one could complain about. There are more passive-aggressive people in the academy than most other place. Academics seem especially prone to speaking with a forked tongue.
The clearest example I can think of is the tenure process. Certainly the tenure process can bring the worst out in people. Beyond that, it is amazing how sexually biased the tenure process seems to be. It is especially amazing to see how entrenched the “old boy” network is among men who fancy themselves liberal or progressive.
I have no proof that the tenure process is sexually biased. Nevertheless, in management it certainly seems easy to think of women getting left out of the loop. Thus, fewer social interactions, fewer coauthored papers, less mentoring. Now part of this may have to do with where I have worked: schools that have had multiple discrimination and harassment charges brought against them.
Yet, I don’t think this is limited to management departments. It’s pretty strange that an institution that fancies itself as being so progressive is so backwards when it comes to mentoring and networking women through the old (or young) boys clubs.
Here is a link that offers some evidence. I found the stuff at the bottom of the page most useful.
Teaching Social Responsibility
| David Hoopes |
I am on the planning committee and the goals committee here at Cal State Dominguez Hills. At a recent meeting it came up that one of the schools goals was academic excellence and social responsibility. I suggested that they are two very different topics but was roundly rebuked. I have a few problems with considering social responsibility to be part of the same goal as academic excellence for college professors.
My first complaint is that “social responsibility” is not very easy to define or operationalize. Usually, it seems to imply donating money to some left wing cause. I might be able to find some left wing causes I like. However, I’m not sure how teaching students to tithe is similar to teaching students a course of study or an academic discipline.
My second complaint is that I don’t think academicians are qualified to teach social responsibility. I admit to being jaded and cynical. But I do not find academicians to be shining examples of virtue. Getting a Ph.D. in management, economics, or sociology hardly qualifies one to determine what students should consider to be socially virtuous.
I do think colleges (especially state funded) have some obligation to promote citizenship and promote and encourage ethical and moral behavior. Additionally, I am very happy to have those who specialize in ethics and related topics to teach them (the philosophy department?).
However, again, I don’t see this as our primary mandate. I might feel better about this if I felt that academics were paragons of ethical and moral behavior. On the contrary, I am continually disappointed in the standards to which academicians hold themselves. Having worked a variety of odd and not so odd jobs before heading to the academy I feel pretty comfortable saying that academicians certainly do not appear to have superior ethical and moral behavior.
What, you might ask, makes me think of academics as being ethically or morally lacking? Well that’s for another post.
Pure Inflation and Nominal Interest Rates
| Steve Phelan |
Can someone with a solid macro background tell me if this paper supports Austrian monetary theory (or not)?
Relative Goods’ Prices and Pure Inflation, by Ricardo Reis and Mark W. Watson, NBER WP 13615, November 2007 [open link]:
Abstract: This paper uses a dynamic factor model for the quarterly changes in consumption goods’ prices to separate them into three components: idiosyncratic relative-price changes, aggregate relative-price changes, and changes in the unit of account. The model identifies a measure of “pure” inflation: the common component in goods’ inflation rates that has an equiproportional effect on all prices and is uncorrelated with relative price changes at all dates. The estimates of pure inflation and of the aggregate relative-price components allow us to re-examine three classic macro-correlations. First, we find that pure inflation accounts for 15-20% of the variability in overall inflation, so that most changes in inflation are associated with changes in goods’ relative prices. Second, we find that the Phillips correlation between inflation and measures of real activity essentially disappears once we control for goods’ relative-price changes. Third, we find that, at business-cycle frequencies, the correlation between inflation and money is close to zero, while the correlation with nominal interest rates is around 0.5, confirming previous findings on the link between monetary policy and inflation.
(HT: Mark Thoma at Economist’s View)
The Power of Incentives, Monday Morning Edition
| Peter Klein |
1. The Vatican is trying incentive pay. (Prediction from Bob, Jeff, and company: performance will fall as worldly, extrinsic motivation pushes out warm, ethereal “feelings for the entity.”) (Via Luke Froeb)
2. My friend Tim Terrell reports on this new program at Wofford College:
My college recently instituted a free bicycle sharing program on campus. There was a lot of self-satisfied puffery from those responsible for the program, with even a “Blessing of the Bikes” ceremony carried out by our chaplain.
Informal polls I conducted in my classrooms indicated that the bikes are being tossed in the shrubbery, left unlocked, used as makeshift shot-puts on Fraternity Row, etc. etc. I passed one left lying on the grass, unlocked of course, on my short walk in to my office this morning. One student says he saw a vagrant in the neighborhood riding around on one. After a little over a week, another student remarked that most of the bikes were in the maintenance shop for repairs. We are now subject to a barrage of flyers, e-mail announcements, etc. pleading with students to treat the bikes well and lock them up (there is a single code to all the combination locks — want to guess how long it took people from the neighboring campus to figure out the code?).
Bob and Jeff, what happened? Surely all these opportunistic, ethically challenged students can’t be economics majors.
Capabilities and Comparative Advantage
| Steve Phelan |
Brad DeLong recently posted an interesting set of questions on his blog about corporate nationality: (more…)
JMS Special Issue on the Entrepreneurial Theory of the Firm
| Peter Klein |
In the Spring of 2005 I attended a terrific workshop on “The Entrepreneurial Theory of the Firm,” organized by Sharon Alvarez and Jay Barney and held at Ohio State University. Participants included Mark Casson, Dick Langlois, Sid Winter, Ulrich Witt, Ivo Zander, Simon Parker, Todd Zenger, Steve Michael, Bill Schultze, and several others. The papers and discussions explored a variety of approaches for linking the theory of entrepreneurship to the economic and strategic theory of the firm, a subject near and dear to our hearts here at O&M.
The workshop papers have now been published as a special issue of the Journal of Management Studies (volume 44, number 7, November 2007), edited by Sharon and Jay. A special contribution from Brian Loasby, who wasn’t able to attend the workshop, is included. And don’t miss this paper from an unusually structured joint-spousal team.
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