Private Legal Enforcement in Global Commerce
| Peter Klein |
A new paper by Margaret Blair, Cynthia Williams, and Li-Wen Lin, “Assurance Services as a Substitute for Law in Global Commerce,” describes the market for “assurance services” as private means of enforcing commercial arrangements.
In this article we examine the rapid emergence and expansion of a private-sector compliance and enforcement infrastructure that we believe may increasingly be providing a substitute for public and legal regulatory infrastructure in global commerce, especially in developing countries where rule of law is weak and court systems are absent or inadequate. This infrastructure is provided by a proliferation of performance codes and standards, and a rapidly-growing global army of privately-trained and authorized inspectors and certifiers that we call the “third-party assurance industry.” The growth in the third party assurance business has been phenomenal in the last decade. The business first developed to facilitate making and carrying out private contracts, but in recent years, assurance services are being deployed for purposes that are more appropriately seen as regulatory in nature. Third-party assurance may thus be providing a new institutional structure through which private commercial exchange is being harnessed and regulated for essentially public purposes.
See also Alex Tabarrok on private assurance contracts, which function similarly to enforce contributions to public goods and club goods.
Geek News de Jour
| Peter Klein |
Stata 10 ships June 25.
Expect overnight campers and long lines at the university bookstore, like the crazy scene at Best Buy when the Xbox 360 went on sale. (HT: SSSB)
Do We Need a Project Project?
| Steven Postrel |
A peculiar fact about business schools (at least in the USA) is that project management is not part of the regular MBA curriculum. Why is this peculiar? Only because a huge percentage of the work managers do is organized into projects, the success or failure of strategies often rests on the quality of execution of projects, and many of the principles and techniques of good project management are not immediately obvious. But hey, if anyone needs to know about this trivial stuff they can always go to a two-day workshop and get a certificate (probably from an engineering department). (more…)
Nurkse at 100
| Peter Klein |
Reader G. V. Varma reminds me that Ragnar Nurkse was born 100 years ago today, June 5. I don’t have anything to add to this earlier post except to share these funky diagrams from Nurkse’s 1935 Review of Economic Studies article on the structure of production. Each is supposed to illustrate a circular process in which fixed capital reproduces itself. (Neither, I’m afraid, will win an award for pedagogy.)
The spout-and-ring diagram is explained as follows: “The ‘ring’ is equivalent in meaning to Dept. I [which produces capital goods] and the ‘spout’ to Dept. II pouring forth its output of consumable goods. The output of Dept. I divides itself as the dotted line: part of it flows back into the ring (to maintain fixed capital in Dept. I itself). This picture, though less informative than the departmental scheme [pictured below] in bringing out the internal exchange relationships of a capitalist economy, may nevertheless be useful in illustrating the circular process of capital reproduction as lying, in a sense, behind the purposive orientation economic activity directed toward the creation of consumable income.”
Hopefully there is a Nurkse specialist out there who can help us make sense of the larger diagram.
Did Nobody Consider the Incentive Effects?
| Peter Klein |
Heard on NPR this morning:
SEOUL (AP) — A South Korean bank is offering to help heartbroken soldiers dumped by girlfriends while away on mandatory military service by providing special interest rates for stilted troops.
Soldiers who can show letters or e-mail proving their break-up to a bank clerk can receive a new deposit plan with better rates and waived service fees.
Look for a new Korean country-and-western song, “My Baby Dumped Me for a Basis Point.”
Pomo Periscope XII: Was Hayek a Pomo?
| Nicolai Foss |
It is well known that some Austro-libertarians have had a love-hate relation with the Left. The late Murray Rothbard quite actively flirted with the rather extreme Left for a substantial period in the 1960s (for an amusing historical account, see this). From the 1980s one manifestation of this perhaps latent Austrian tendency has been a flirtation with post-modernist currents that usually have a strong leaning to the left (for Rothbard’s hilarious take on this, see here). (more…)
Concise Summary of Chandler’s Achievements
| Peter Klein |
Louis Galambos, writing at EH.News:
When Alfred D. Chandler, Jr., entered the subdiscipline of business history, the field was producing very little scholarship of great interest, even to other historians. When Chandler, the world’s leading historian of business, died recently (May 9, 2007) at the age of 88, his legacy included a vibrant, influential body of scholarship and active scholars producing studies that intersected creatively with important developments in economics, sociology, and political science — as well as modern history. Chandler remade business history by publishing a long series of works characterized by meticulous, penetrating research; careful analysis of the data; and, above all, original, imaginative synthesis. Drawing upon the sociology of organizations and Schumpeterian economic analysis of innovation, Chandler reconstructed our understanding of the rise of large enterprise in America and Europe. The business bureaucracies he described were innovative and efficient. Economies of scale and scope, as well as aggressive, successful research and development, enabled them to hold their positions in a capitalist system that was changing rapidly in the second and third industrial revolutions. Their leaders were investors, not Robber Barons; they guided the evolution of the giant, multinational, multidivisional enterprises that have played a central role in capitalist progress since the late nineteenth century. Chandler left the politics of political economy, the labor relations of the firm, and the gender and racial themes of interest to many American scholars of late to other historians of business. His focus throughout his long, amazingly productive career was on the large, successful corporations that have played the central role in global economic development in the modern era.
Goals or Preferences?
| Nicolai Foss |
My two favorite sociologists are Peter Abell and Sigwart Lindenberg. Both stress rationality (and rationalism), micro-foundations for social science research, and are (not surprisingly) sympathetic to, even admiring of, economics. However, neither is an uncritical admirer of economics.
In “Why the Microfoundations of the Social Sciences Should be Based on Goals Rather than Preferences” (you can find it on this page), Lindenberg argues that economists tend to conflate preferences and goals, or at least leaves open or trivializes the relationship between the two. (more…)
Klein-Mahoney Smackdown
| Peter Klein |
Those of you in the Pacific Northwest may wish to drop by the annual meeting of the American Agricultural Economics Association, 29 July to August 1 in Portland, Oregon, for this session organized by Randy Westgren:
Economic Theories of Entrepreneurship
Monday, July 30, 10:30am – 12:00pmThis session will offer the chance to explore the economic foundations for the study of entrepreneurship. Joseph Mahoney and Peter Klein will engage in a “Point-Counterpoint” discussion on the theory of entrepreneurial behavior using the lenses of classical, neoclassical, Austrian, institutional, and Carnegie School economics. The discussion will explicitly evoke audience participation in an open and informal design. The various lenses will be used to highlight where the (usually) amorphous study of entrepreneurship can benefit from theoretical foundations.
Last man standing wins.
More Robbins
| Peter Klein |
Further commemorations of the 75th anniversary of Lionel Robbins’s Nature and Significance of Economic Science. Next week’s History of Economics Society annual meeting in Fairfax, Virginia includes a Robbins session with papers by Steve Medema and Roger Backhouse, Dave Colander, and Alain Marciano.
Rival Hypotheses in the Same Paper?
| Nicolai Foss |
Apparently, having rival hypotheses in the same paper is becoming a don’t do! — at least in management! My colleagues who are more empirically minded than I am tell me of rejections that are motivated solely by having rival hypotheses in the same paper. Big guys in the relevant field (e.g., strategic management, organization, international business) also argue against rival hypotheses-in-the-same-paper in doctoral consortia, professional development workshops, etc.
Instead, what is recommended is this:
1) concentrate on developing one set of non-rival hypotheses and deliberately neglect contraditory hypotheses
or
2) allow for hypotheses that may seem rival, but really aren’t, because they are special cases of a more over-arching framework. In the latter case, the theory development exercises become a matter of identifying the conditions under which H1 is true (and H2 is false) and the conditions under which H1 is false (but H2 is true) etc. (more…)
Color Me Beautiful
| Peter Klein |
The most popular colors on national flags are white and red, followed by blue, green, and black. Click here to see how the analysis was done, and to play a fun game of “identify the flag” (click on the pie charts to reveal the flags). (HT: SMCISS blog.)
I wonder how much of this clustering is explained by path dependence? The flags of many former European colonies are, of course, based on the mother country’s flag.
Here’s another interesting example of chromatic clustering: corporate logos. The graphic below (click to enlarge) ran in the June 2003 issue of Wired, in a feature called “The Battle for Blue.” This blurb accompanied the graphic:
Companies spend millions trying to differentiate from others. Yet a quick look at the logos of major corporations reveals that in color as in real estate, it’s all about location, location, location. The result is an ever more frantic competition for the best neighborhood.
I use this example in class to illustrate Hotelling’s law.
Today in Business History
| Peter Klein |
The Friends of Business History newsletter includes a fun feature, This Day in Business History. June 1 was a busy day.
- 1495: Friar John Cor records the first known batch of Scotch whiskey in the Exchequer Rolls of Scotland.
- 1774: The British government orders Port of Boston closed.
- 1812: President James Madison calls on Congress to declare war on Great Britain, after fiscally minded measures fail to dissuade the British from harassing American ports and ships.
- 1869: Thomas Edison receives a patent for a voting machine. It was his first patent for a device.
- 1905: The first world’s fair to be held in the Pacific Northwest, the Lewis & Clark Centennial and American Pacific Exposition and Oriental Fair opens in Portland, Oregon.
- 1911: The Equitable Life Assurance Society of New York issues the first U.S. group insurance policy to the Pantasote Leather Company and its 121 employees.
- 1917: Henry Leland, founder of the Cadillac Motor Car Company, resigns as company president.
- 1947: Corning Glass Works publicly announces its development of photosensitive glass.
- 1961: Regular FM multiplex stereo broadcasting debuts in Schenectady, New York and Chicago, Illinois.
Celebrate with me by pouring a glass of scotch, buying an insurance policy, selling your Cadillac, turning up the radio, and punching an Englishman.
Core Economics for Managers
| Peter Klein |
Previously I’ve noted the new managerial economics texts by Dwight Lee and Richard McKenzie and Luke Froeb and Brian McCann. Joshua Gans was kind enough to send me a copy of his Core Economics for Managers (Thomson, 2005) and it looks like a good option as well.
The first thing one notices about the book is its brevity and clean, minimalist design: just 206 pages, no fancy graphics, and few sidebars or mini-cases. The book focuses on the “core” areas of pricing, competitive strategy, incentives, and contracts, omitting corporate strategy, human resource management, and peripheral areas like ethics. As its main pricing model, the book features not the increasingly irrelevant perfectly competitive (general or partial) equilibrium model, but a negotiation framework like that in Brandenburger and Nalebuff’s 1996 book Co-opetition. That is, unlike the typical strategy text, cooperative game theory gets as much attention as its more familiar noncooperative counterpart.
Part IV of the book, on contracting, looks particularly good. It favors the property-rights approach to the firm (in my judgment, the correct approach) over the nexus-of-contracts approach, and features a section on relational contracting, a topic usually omitted from introductory managerial texts.
Joshua will be revising the text in the coming months for a new edition and would appreciate suggestions for improvement.
More on the Austrian Firm Conference
| Peter Klein |
Anthony Evans offers further reflections on the “Austrian Market-Based Approaches to the Theory and Operation of the Business Firm” conference, including the epic Klein-Sautet showdown.
Gintis Smashing Heterodox Economics
| Nicolai Foss |
Remember the “post-autistic” movement in economics that began in France in 2000? Have you, too, been irritated by the sometimes, ehmm, bizarre claims that are put forward by members of the “post-autistic economics network“? Do you think utterances such as the following one are, to put it nicely, not accurate representations of modern economic theory:
Game theory cannot be “applied”: it only tells little “stories” about the possible consequences of rational individuals’ choices made once and for all and simultaneously by all of them. . . . Akerlof, Spence and Stiglitz have no new “findings”, they just present, in a mathematical form, some very old ideas — long known by insurance companies and by those who organize auctions and second hand markets. . . . Amartya Sen, as an economist, is a standard microeconomist (that is what he was awarded the Nobel Prize for): only the vocabulary is different (“capabilities”, “functionings”, etc.).
Scientific Progress in Strategic Management?
| Nicolai Foss |
OK, I persist in using O&M for the purpose of shameless self-promotion: I have written “Theory of Science Perspectives on Strategic Management Research: Debates and a Novel View” (I know — not an elegant title) for The Elgar Handbook of Research on Competitive Strategy, edited by Giovanni Battista Dagnino. I will be happy to send you a copy if you drop me a mail at njf.smg@cbs.dk. (more…)
Average versus Marginal: Blowback Edition
| Peter Klein |
Republican Presidential candidate Ron Paul caused a stir recently by suggesting, to the horror of the other Republican candidates, that US foreign policy might have something to do with Muslim anger toward the US. The Bush Administration, of course, maintains that “they hate us for our freedom.” No matter what the US government does, in other words, Islamic extremists will target Americans in retaliation for the Declaration of Independence, McDonalds, and Paris Hilton. (Rudy Giuliani, incredibly, claims he has never even heard of blowback.)
Of course, these explanations are not incompatible. US culture and institutions could, in theory, account for the average level of anti-Americanism in the Islamic world. To explain a specific terrorist act, however, we have to think in marginal terms. What we call “terrorism,” as Robert Pape has brilliantly explained, is a tactic, not an ideology. Whatever his general attitude toward the enemy, the terrorist must choose to attack this target or that, to attack now or later, to select one more target or one less. Even if exogenous US characteristics were responsible for overall terrorist attitudes and beliefs, blowback is probably still the best explanation for specific terrorist acts.
Note that this is an application of a more general point about intrinsic and extrinsic motivation, an important issue for management theory. (more…)
O&M at the AoM
| Peter Klein |
O&M will be well represented at the Academy of Management annual meeting in Philadelphia, 3-8 August 2007. Former guest blogger (and Philly native) Joe Mahoney is president-elect and program chair for the Business Policy and Strategy Division, so you know the program will be good.
I am chairing a Professional Development Workshop (PDW) titled “The Austrian School of Economics: Applications to Organization, Strategy, and Entrepreneurship” featuring former guest bloggers Mahoney and Dick Langlois along with Elaine Mosakowski, Yasemin Kor, Nicolai, and myself. Teppo of orgtheory.net has put together a session on “Entrepreneurship and Strategic Organization: Taking Stock, Problems, and Future Directions” which includes Jay Barney, Todd Zenger, Kirsten Foss, Mosakowski, Nicolai, and me. Other sessions of note include a PDW on the fifth anniversary of the excellent Strategic Organization (Nicolai is in that one too, along with O&M favorite and guest blogger Chihmao Hsieh’s mentor Jackson Nickerson); a session on the philosophical and epistemological foundations of strategy and organization theory, organized by Teppo and featuring regular O&M commentator J. C. Spender; a session on cognitition in organizational economics; and many other interesting workshops, lectures, and sessions on organization, strategy, entrepreneurship, and the market process.
PS: Before you go, be sure to study this article on Philadelphia dining from the current issue of Food and Wine Magazine.
War, American Idol, the New “Kidney” Reality Show, and Markets for Attention
| Chihmao Hsieh |
I read two news articles today. One of them describes Cindy Sheehan’s decision to give up her anti-war protest, where she exclaims that Americans live in “a country which cares more about who will be the next American Idol than how many people will be killed in the next few months.” (For those of you who don’t watch any TV, American Idol is the American version of that popular season-long show where 15-20 contestants sing and compete for a record contract, voted upon via SMS text messaging by TV viewers like you and me.) The other news article describes the newest reality TV program in the Netherlands, where a patient with an inoperable brain tumor is donating her kidney and choosing the beneficiary based on televised interviews of three contestants, in a manner apparently reminiscent of a game show format.
How I described the latter article may not make you furl your eyebrows, but listen to this: TV viewers will vote via SMS text messaging who gets to receive the kidney.
Likely many types of societal issues are raised by the juxtaposition of these two news articles. One of the likely-provocative questions I have for the readership: Would you prefer to associate with a world that promotes “American Idol” or a world that promotes this new kidney donation game show?
UPDATE: The kidney reality show was all apparently an elaborate hoax.
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