Entrepreneurship and Uncertainty Bearing
| Peter Klein |
A further point about entrepreneurial judgment: The claim that the essence of entrepreneurship is uncertainty bearing, that the entrepreneur is the party to whom gains and losses accrue in a dynamic, evolving economy, does not imply any particular view about the psychological characteristics of those individuals who perform this function. The entrepreneurial function is to bear uncertainty, regardless of how entrepreneurs interpret their own behavior.
This issue comes out in “Entrepreneurial Risk and Market Entry” by Brian Wu and Anne Marie Knott, from the September 2006 issue of Management Science (working paper version here). This paper, which has generated a lot of buzz, argues that entrepreneurs (defined here as individuals who start new businesses) are just as risk averse as other agents in the economy, but systematically tend to overestimate their own abilities. In other words, entrepreneurs engage in risky behavior even though they don’t like uncertainty, because they don’t think the results of their own actions are uncertain. (more…)
More on Artificial States
| Peter Klein |
Greg Mankiw and Amity Shales discuss applications of the Alesina, Easterly, and Matuszeski paper on “Artificial States” to US policies in Afghanistan and Iraq. The paper is fascinating, full of insight and innovative analysis. Of course, you read about it here first (with applications to management).
Classical Liberalism and Cultural Conservatism
| Peter Klein |
Astute readers will have noticed this blog’s professed interest in both classical liberalism (or libertarianism) and cultural conservatism. But are they compatible? Classical liberals are often portrayed as social and cultural libertines, products of the Enlightenment, modernism, and the secular revolt of Reason against traditional moral authority. Indeed, responding to an earlier post on the political leanings of sociologists, a commentator wrote: “I am honestly curious about how you square the rational ambitions of classical liberalism with the irrational conservative ideals on ‘orthodox Christianity’ and reliance on Authority?”
The answer is simple: classical liberalism is a political doctrine, and cultural conservatism is, well, a cultural doctrine — more precisely, a set of social, cultural, and moral beliefs or principles. (more…)
More on Strategic Factor Markets
| Nicolai Foss |
Jay Barney’s 1986 paper, “Strategic Factor Markets: Expectations, Luck and Business Strategy,” is a classic of recent strategic management literature and one of the key contributions to the resource-based view. It is also one of those papers where the argument — in this case that firms can only gain a competitive advantage if they buy at least some inputs at a price below the net present value of those inputs — seems so irritatingly obvious — that is, after you have read the paper. (more…)
Levels Issues II: Recommended Reading
| Nicolai Foss |
One of the most insightful discussions of what we may mean by “levels of the social” that I know of is a recent and apparently still unpublished paper with the same title by philosopher (and chancellor) Daniel Little. Litte defends micro-foundations, mechanism-based explanation, denies macro-macro causation, and argues that the “molecule” of social phenomena is the socially situated individual in a local context. Although the latter position may be too much to stomach for the die-hard methodological individualist, there is much with which Austrians and other economists can agree. An excellent read!
Thank You, Dick!
| Nicolai Foss |
Many thanks to Dick Langlois for guest blogging at O&M. Dick has contributed some excellent blog posts which are among the most viewed ones on the site. We hope Dick will continue to visit O&M in the future and post comments. Thanks, Dick, for allowing us to benefit from your fertile mind.
Judgment versus Alertness
| Peter Klein |
Nicolai and I have written several papers on the Knightian concept of entrepreneurship as judgment (e.g., here, here, and here). We contrast the judgment view of entrepreneurship with several other approaches, including Israel Kirzner’s idea of entrepreneurship as “discovery” or alertness to profit opportunities.
Readers and seminar participants are often confused by the distinction between judgment and alertness. We describe the judgment approach as “Austrian,” associating it not only with Knight but also with Austrian and proto-Austrian economists Richard Cantillon, Frank Fetter, Ludwig von Mises, and Murray Rothbard. But, we are asked, isn’t Kirzner an Austrian? Isn’t Kirzner’s entrepreneurial-discovery approach “the” Austrian view?
Not necessarily. Here’s why. (more…)
Is Austrian Economics Premature?
| Peter Klein |
Rafe Champion on “prematurity” in science:
This when a useful or even important discovery takes a long time to be picked up by the field at large. Mendel’s work on genetics is an example. And so is the Austrian approach to economics and social thought.
Here is Rafe’s review of Ernest B. Hook, ed., Prematurity in Scientific Discovery: On Resistance and Neglect (University of California Press, 2002), which explains it all. Personally, I prefer the moniker “ahead of my time,” but what the heck, I’ll take premature.
Transgressing the Boundaries
| Peter Klein |
Our colleagues at orgtheory.net have been reporting on the recent meeting of the American Sociological Association. I’ve enjoyed following the discussion and learning more about what our sociologically inclined brethren say about organizations. But only today did I learn that the theme of this year’s ASA meeting was “Great Divides: Transgressing Boundaries.” Where, I thought, have I heard that expression before? Then I remembered: the title of Alan Sokal’s famous hoax paper was “Transgressing the Boundaries: Towards a Transformative Hermeneutics of Quantum Gravity.”
I guess sociologists have a sense of humor after all.
Down With Spitzer
| Peter Klein |
Professor Bainbridge reviews Brooke Masters’s biography of Eliot Spitzer:
A fair reading of Eliot Spitzer’s record as presented by Masters suggests that he is both a genuine cause crusader and a career political hack. Spitzer has consistently used — and abused — his authority as New York attorney general to level sweeping accusations against a wide swath of American business. In some cases, like the proverbial stopped clock, he got it right. In a lot of cases, however, the much ballyhooed charges got a lot of press attention but then quietly went away. Indeed, on the few occasions he’s taken one of these high profile business cases to trial, he’s lost at least as often as he’s won. Instead, his record consists mainly of using media pressure to extort settlements from frightened executives.
Oh, and by the way, down with Giuliani too.
Foucault and Economics
| Nicolai Foss |
Catallaxy has a post on “Foucault at the Sydney Institute.” More precisely, the post is about a presentation on Foucault by Foucault scholar, Clare O’Farrell:
She noted that Foucault’s ideas are rapidly growing in popularity and influence in a wide range of fields including the social sciences and the humanities, also nursing, health administration and education. Unfortunately this list coincides with a list of problem areas in my humble opinion, though I would not be rash enough to blame Foucault’s influence alone.
O’Farrell is then ” .. asked about Foucault’s economics … The reply did not address the specific issues but it seems that late in his life Foucault wrote a book (in French) on the rises of neoliberalism.” (more…)
Levels Issues I: Homogeneity and Heterogeneity
| Nicolai Foss |
Issues that relate to levels of analysis are some of the most vexing ones in social science, both theoretically and empirically. I plan to post on levels issues over the coming week or so. Today’s topic: Homogeneity and heterogeneity across levels of analysis. (more…)
Measuring Organizational Form
| Peter Klein |
A reader, inspired by our discussion on organizational form, asks for references to empirical papers relating organizational form to performance. My suggestions:
1. The literature from the 1970s and 1980s on the “M-form hypothesis.” The classification scheme is described in Williamson and Bhargava, “Assessing and Classifying the Internal Control Apparatus of the Modern Corporation,” in Keith Cowling, ed., Market Structure and Corporate Behavior (London: Gray Mills, 1972). Empirical papers (you’ll have to Google them) include Armour and Teece (1978), Steer and Cable (1978), Teece (1981), Thompson (1981), Harris (1983), Cable and Dirrheimer (1983), Cable and Yasuki (1984), and Hill (1985). I’m currently working on a paper revisiting these data using some updated techniques.
2. The “diversification discount” literature in empirical corporate finance. This literature is about organizational form to the extent that organizational form is correlated with the number of industry segments, the distribution of activities across industries, or some measure of relatedness. (Among the many papers in this literature, the best known are Lang and Stulz, 1994; Berger and Ofek, 1995; Campa and Kedia, 2003, Chevalier, 2004). A few papers try to infer organizational form from past activities, such as prior acquisitions (Hubbard and Palia, 1999; Klein, 2001).
3. More direct measures include segment or subsidiary counts within a single industry (Klein and Saidenberg, 2005, Sanzhar, 2006), the ratio of administrative staff to total employees (Zhang, 2005), the number of positions reporting directly to the CEO (Rajan and Wulf, 2003), and the average number of management levels between the CEO and division managers (Rajan and Wulf, 2003).
This will all be discussed in more detail in the magnum opus.
Ken Lay Chair Still Available
| Peter Klein |
The University of Missouri is once again trying to fill the Kenneth L. Lay Chair in Economics. Drop me a line if you’re interested. But you’d better move fast.
The Corporation versus Tom Cruise
| Peter Klein |
Hollywood studios are standing up to eccentric, pampered stars like Tom Cruise and Lindsay Lohan. At last, says Professor Bainbridge, corporate studios are acting like corporations. “Once again, the public corporation and its norm of shareholder wealth maximization prove to be a force for good.” (Prof. B. is not a fan of stakeholder theory, if you didn’t know.)
On the other hand, if the dependent variable is individual film revenues, rather than film studio market value, the presence (and presumably behavior) of particular stars seems to have little impact on performance. So says Art DeVany (via Marginal Revolution).
General-Purpose Technologies and Long-Term Economic Growth
| Peter Klein |
Another interesting book review from EH.Net, this time by Joel Mokyr on Economic Transformations: General Purpose Technologies and Long-Term Economic Growth by Richard G. Lipsey, Kenneth I. Carlaw, and Clifford T. Bekar.
The book is hard to summarize because it is unusually rich and diverse. It contains long discussions of technological change, its nature, sources, and consequences. Lipsey maintains that technology is at the heart of modern economic growth and asks — once again — what the sources of Western success are. Among other things, the book also treats at length the economics of technological change, the history of science, and population dynamics. It is part grand synthesis, part textbook, part statement of the author’s idiosyncratic views, and throughout an excellent read — informed, curious, unafraid of being unconventional or politically incorrect.
And:
Lipsey joins a large number of economists who, when thinking about the long run, feel that evolutionary models are more appropriate than standard neoclassical ones.
Hopefully, as if responding to Nicolai’s plea, Lipsey et al. also discuss some policy implications of their evolutionary perspective.
Editors, Reviewers, and Academic Judgment
| Peter Klein |
Further to Nicolai’s remarks below:
1. Marginal Revolution had a thread a while back about the best economics journal editors. Don’t know of a similar discussion for other disciplines.
2. The suggestion that editors may defer too heavily to reviewers, rather than forming their own, independent judgments of quality, brings to mind a recent exchange between Leland Yeager and David Laband and Robert Tollison on what Yeager called “secondhandism.” Yeager decried the practice of hiring, promoting, and tenuring faculty based only on quantitative measures of output such as journal rankings, citations, and similar metrics. Laband (who specializes in ranking economics journals) and Tollison replied that hiring and promotion committees should rely, not on their own idiosyncratic opinions, but on the “market test.” Here is Yeager, followed by Laband and Tollison, and Yeager again.
Are Reviewers Too Powerful?
| Nicolai Foss|
Reviewers certainly are powerful. Are they too powerful?
When I served as Departmental Editor of the Journal of International Business Studies it occassionally happened that I issued invitations to revise and resubmit , against the advice of the reviewers. I often accepted papers for publication that at least one and sometimes two reviewers hated. Once it happened that after I had accepted such a paper, a very dissatisfied reviewer — a prominent Wharton scholar — wrote to the chief editor, complaining that I was undermining the refereeing institution. Well, I thought the reviewer was wrong and that I (and the author) was right. And I thought I had no obligation to slavishly follow his advice, which was just that, a piece of advice, and not a verdict. (more…)
Who Killed the History of Economics?
| Peter Klein |
As discussed here before, economists are not generally familiar with the history of economic thought. Roy Weintraub offers this explanation: Heterodox economists often specialize in the history of economic thought, so mainstream economists come to associate doctrinal history with heterodoxy, thus turning them off to the history of economics itself. (Thanks to Mark Thornton for the cite.)
This explanation strikes me as misguided, for two reasons. First, many heterodox economists publish in history-of-thought journals, attend history-of-thought conferences, and the like not by choice, but because they cannot get their work published in mainstream journals. The perceived link between heterodoxy and the history of economic thought is thus endogenous, begging the question of why mainstream economists are willing to tolerate heterodoxy as history but not otherwise.
Second, and more important, mainstream economists’ lack of interest in doctrinal history is more likely due to the general Whiggishness pervading modern social science. (more…)
More Interesting Links
| Peter Klein |
More links for O&M readers to enjoy. (Celebrity readers, you too!)
- B o G, U + S, Eric Beerkens’s blog on globalization, universities, and social science
- Signum sine tinnitu by Guy Kawasaki, venture capitalist with attitude (see, e.g., his top ten lies of entrepreneurs and top ten lies of venture capitalists)
- Edge Perspectives by consultant and author John Hagel
- Truth on the Market, by a group of business law professors
- Vic Fleischer’s Taxing Blog, for corporate tax law wonks (you know who you are)
- And, courtesy of Mario Sundar, here the top 10 corporate blogs and top 10 CEO blogs.
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