Returning to Our Austrian Roots
| Peter Klein |
Here’s me lecturing last week at the Austrian Academy of Sciences in Vienna, in the very room where Carl Menger and Eugen von Böhm-Bawerk defended their Habilitation theses. It was a pretty amazing experience.
The room is a bit fancier than your average lecture hall:
My co-bloggers couldn’t make it but, on a tour of Austrian economics sites of interest, I snapped this picture of the former Green Anchor restaurant, where Mises and his students repaired after Mises’s university seminar. Notice the street name!
EGOS 2012, “Self-reinforcing Processes in Organizations, Networks and Professions”
| Peter Klein |
The European Group of Organizational Studies (EGOS) is having the 2012 annual conference in Helsinki, July 2-7. The overall theme is design, and one of the subthemes is “Self-reinforcing Processes in Organizations, Networks and Professions,” a subject sure to interest many O&Mers. See the links above for details. Blurb after the fold: (more…)
What We’re Really Doing
| Lasse Lien |
I’m often at pains to describe to my family what happens at academic conferences, and why its important that I attend them. But not any longer.
For further study, check out the associated paper.
HT: Eirik S. Knudsen
My First Publication
| Peter Klein |
A colleague recently sent me a copy of his first publication, a letter to the editor in Sports Illustrated magazine. This inspired me to search for my own first publication, which was exactly the same thing. It turns out SI has made its entire archive available online, so here it is:
If it’s nostalgia Fimrite wants, I suggest he pop a few new tubes in his radio, load it into his Model T, ride to Tiger Stadium and listen to a game in the parking lot. Then he can go home, write the game up on his manual typewriter and wire his article in over the telegraph.
Funny how it often turns out that those Luddite whiners who despise large, multipurpose modern stadiums also happen to be the people with the money or the connections to get good seats in the small, cramped “traditional” parks. The rest of us will gladly give up a little tradition just to get tickets.
PETER G. KLEIN
Chapel Hill, N.C.
May 2, 1988
I was writing in reaction to this piece by SI’s Ron Fimrite. I’m still looking for an opportunity to work the term “Luddite whiners” into an academic article.
I was particularly sensitive to this issue because, during my undergraduate days at North Carolina, the school replaced the old Carmichael Auditorium with the new Dean E. Smith Center (better known as the “Dean Dome”). I appreciated the hot, poorly lit, intimate, and idiosyncratic Carmichael as much as anybody, but was tired of the two-day campouts to get student tickets, and welcomed the Dean Dome’s larger student section. Even in those days, I was sensitive to the idea of trade-offs at the margin.
The sad thing is that this letter probably had more readers than all my subsequent publications combined.
Of Categories and Killers
| Peter Lewin |
A recent issue of the Review of Austrian Economics (edited by Virgil Storr) honors the contributions of Don Lavoie who died at a very young age in 2001. It contains contributions by Storr, Boettke and Prychitko, Klamer, Chamlee-Wright, Horwitz, Lewis, and High. In addition, published for the first time is a seminal article by Lavoie on the interpretive turn in economics.
Lavoie was an audacious pioneer. Like many such pioneers he was ahead of his time. The newly re-emergent Austrian school was not ready for him — did not understand what he was about. Most of them either ignored Lavoie’s products (and those of his collaborators at the Program on Social and Organizational Learning — a center he co-founded with Jack High), or else marginalized him. To the latter his preoccupation with late Continental Philosophy and hermeneutics was seen as a real threat to doing social science. His young, loyal and creative collaborators were caught in the crossfire. After his death the furor simply died down.
With the publication of this issue it is possible to gain a fresh perspective (something Lavoie’s hermeneutics might have predicted). For me it is a case of “distance lends enchantment to the view.” I confess I was in the group who neglected his work for lack of sufficient understanding of its significance.
For management and industrial organization types Lavoie’s work is highly relevant. There is a growing appreciation of the connection between language, communication, meaning, action, purpose and organization — about which Lavoie’s approach has much to say, not to mention his prescient contributions on culture, modularity, and computer science. For those wishing to benefit from his work, unless you have an interest in the epistemology of Continental philosophers, I would suggest concentrating on the contributions that have to do with information, knowledge, computing, and organization. (more…)
And Your Chicks for Free
| Peter Klein |
Fred McChesney, call your office.
Hoping to fend off any antitrust action, Google has hired at least 13 lobbying and communications firms since May, when the Federal Trade Commission ramped up its probe of the Internet giant. Firms led by figures from both parties — including former House Democratic leader Richard Gephardt and the son of Indiana Republican Sen. Richard Lugar — are going to bat for the company.
Gentlemen, don’t forget to close that revolving door on your way out. . . .
BTW for an interesting, if somewhat confused, take on the antitrust industry, see a young Robert Reich.
Upcoming Events
| Peter Klein |
Readers new to O&M may not have noticed the “Events” tab above. Here we maintain an ad hoc list of conferences, seminars, and other activities of likely interest to students and scholars of organizations, strategy, entrepreneurship, institutions, and the like. (Readers are encouraged to forward their suggestions.) Sample:
- VI Research Workshop on Institutions and Organizations
Rio de Janeiro, 3-4 October 2011 - “Multi- and Micro-Level Issues in Strategic Entrepreneurship”
Copenhagen, 13-14 October 2011 - “Achieving Coexistence of Biotech, Conventional & Organic Foods in the Marketplace”
Vancouver, 26-28 October 2011 - International Agribusiness PAA-PENSA Conference
Buenos Aires, 30 November – 2 December 2011
(NB: The “Papers” and “Projects” tabs need some updating, but we’ll get right on it.)
16 September 2011 at 10:03 am Peter G. Klein Leave a comment
New Book on American Institutionalism
| Peter Klein |
It’s by Malcolm Rutherford, titled The Institutionalist Movement in American Economics, 1918-1947: Science and Social Control (Cambridge University Press, 2011). Rutherford reinterpretes the American (or “Old”) Institutional Economics as a much broader and deeper movement than simply the ideas of Veblen, Commons, and Mitchell. Reviewers Robert Van Horn and Richard McIntyre say that “institutional economics should be understood as a ‘movement’ that shared core ideas and beliefs and as a network of people with a self-conscious unity, and Rutherford marvelously shows how the self-conscious unity of this network shaped institutionalist economics and American economics more generally in the first half of the twentieth century.” The reviewers also praise Rutherford for debunking three important “myths” about the Old Institutionalists:
First, he challenges the notion that institutional economics was only a critique of neoclassical economics and that institutional economics disappeared because it did not make any substantial contributions to economics. Second, Rutherford successfully assails the idea that institutional economics was just a set of facts and bereft of theory. Third, Rutherford dispels the notion that institutional economics was Veblenian; he shows that Veblen was an intellectual inspiration to the movement but not central to the networking process.
My previous forays into the writings of the Old Institutionalists have not yielded much fruit, but I will look at Rutherford’s book and try to keep an open mind.
Da Vinci in the Kitchen
| Peter Klein |
More on engineering versus economic perspectives on innovation:
For Leonardo, every food was only as good as the machine that created it, the technique was as important as the taste. Leonardo’s work in the Sforza kitchen strove for efficiency, but often the result of all this time — saving was sheer insanity, reported the humanist courtier Sabba da Castiglione:
“Master Leonardo da Vinci’s kitchen is a bedlam. . . . At one end of the premise, a great waterwheel, driven by a raging waterfall over it, spewed and spattered forth its waters over all who passed beneath and made the floor a lake. Giant bellows, each twelve feet long, were suspended from the ceilings, hissing and roaring with intent to clear the fire smoke, but all they did accomplish was to fan the flames to the detriment of all who needed to negotiate by the fires — so fierce the wandering flames that a constant stream of men with buckets was employed in trying to quell them, even though other waters spouted forth on all from every corner of the ceilings.”
Every kitchen task could be mechanized — crushing garlic, pulling spaghetti, plucking ducks, cutting a pig into cubes — but the machines Leonardo imagined were sometimes far more elaborate than the task required. His invention for a giant whisk twice the size of a man involved an operator from within who was constantly in danger of being wisked into the sauce. . . . Another model involved a team of three horses engaged in the task of crushing a nut.
Michelle Legro has all the details (via Robin Varghese).
Pirrong on Regime Uncertainty
| Peter Klein |
A nice post from former guest blogger Craig Pirrong on regime uncertainty and its role in hampering economic recovery. As Craig points out, it’s not the level of government intervention per se that delays investment, but uncertainty about anticipated changes in government intervention. Options theory provides a useful way to see this.
Bob Higgs approves. And here are Craig’s old O&M posts.
In the Journals
| Peter Klein |
Three newly published papers of likely interest to O&Mers:
- Jeffrey L. Furman and Scott Stern, “Climbing atop the Shoulders of Giants: The Impact of Institutions on Cumulative Research,” American Economic Review 101, no. 5 (August 2011).
While cumulative knowledge production is central to growth, little empirical research investigates how institutions shape whether existing knowledge can be exploited to create new knowledge. This paper assesses the impact of a specific institution, a biological resource center, whose objective is to certify and disseminate knowledge. We disentangle the marginal impact of this institution on cumulative research from the impact of selection, in which the most important discoveries are endogenously linked to research-enhancing institutions. Exploiting exogenous shifts of biomaterials across institutional settings and employing a difference-in-differences approach, we find that effective institutions amplify the cumulative impact of individual scientific discoveries.
- Antti Kauhanen, “The Perils of Altering Incentive Plans: A Case Study,” Managerial and Decision Economics 32, no. 6 (September 2011).
This paper studies a retail chain that introduced a sales incentive plan that rewarded for exceeding a sales target and subsequently cut the incentive intensity in addition to increasing the target. Utilizing monthly panel data for 54 months for all 53 units of the chain the paper shows that the introduction of the sales incentive plan increased sales and profitability, whereas the changes in the plan lead to a marked drop in sales and profitability. Thus, modifying the incentive plan proved costly for the firm. The results are consistent with the gift-exchange model of labor contracts.
- Oriana Bandiera, Iwan Barankay, and Imran Rasul, “Field Experiments with Firms,” Journal of Economic Perspectives 25, no. 3 (Summer 2011).
We discuss how the use of field experiments sheds light on long-standing research questions relating to firm behavior. We present insights from two classes of experiments—within and across firms—and draw common lessons from both sets. Field experiments within firms generally aim to shed light on the nature of agency problems. Along these lines, we discuss how field experiments have provided new insights on shirking behavior and the provision of monetary and nonmonetary incentives. Field experiments across firms generally aim to uncover firms’ binding constraints by exogenously varying the availability of key inputs such as labor, physical capital, and managerial capital. We conclude by discussing some of the practical issues researchers face when designing experiments and by highlighting areas for further research.
“Micro Chauvinists” Pushing Back …
| Nicolai Foss |
A reviewer of a recent book proposal by Teppo Felin and me (which was accepted, BTW; details later) had the effrontery to note that “Felin and Foss get considerable pushback when they take a strong stand on methodology.” Of course, this reviewer got it all wrong. To wit:
- Teppo and I recently published “The endogenous origins of experience, routines and organizational capabilities: The poverty of stimulus” in the Journal of Institutional Economics, accompanied by critical comments by Sidney Winter, Brian Pentland, Geoff Hodgson and Thorbjørn Knudsen. Here is our response to the comments of our critics. The response has been accepted for publication in the Journal of Institutional Economics.
- In a recent paper in Sociological Theory, influential sociologists Ronald Jepperson and John W Meyer took issue with the rampant “micro-chauvinism” that, in their opionion, increasingly dominates social science, and called for multi-level explanation that admits a role for causation that (in some unexplained fashion) takes place at levels above that of individuals. In this brief note, Teppo and I (and Peter Abell of LSE) take issue with their arguments, and argue that they fundamentally misunderstand methodological individualism and its crucial role in understanding those phenomena that are “multi-level”, “complex” and “emergent.”
Thus, the macro chauvinists are the ones who are getting the pushback ;-)
“A Simple Model of the Evolution of Simple Models of Evolution”
| Lasse Lien |
If you don’t think this title is cool there is something very wrong with you. Here is the associated abstract:
Abstract: In the spirit of the many recent simple models of evolution inspired by statistical physics, we put forward a simple model of the evolution of such models. Like its objects of study, it is (one supposes) in principle testable and capable of making predictions, and gives qualitative insights into a hitherto mysterious process.
And this is the essence of the simple model(2):
- A physicist runs across or concocts from whole cloth a mathematical model which is simple, neat, and contains a great many variables of the same sort.
- The physicists has heard of Darwin (1859), and may even have read Dawkins (1985) or some essays by Gould, but wouldn’t know Fisher (1958), Haldane (1932), and Wright (1986) from the Three Magi, and doesn’t dream that such a subject as mathematical evolutionary biology exists.
- The physicist is aware that lots of other physicists are interested in annexing biology as a province of statistical physics.
- The physicist interprets his multitude of variables as species or (if slightly more sophisticated) as genotypes, and proclaims that he has found “Darwin’s Equations” (cf. Bak et al. (1994)), or, more modestly, has made an important step towards eventually finding those equations.
- His paper is submitted for review to other physicists, who are just as ignorant of biology as he, but see that it’s about equivalent to the other papers on evolution by physicists. They publish it.
- The paper is read by other physicists, because at least it’s not another derivation of specific heats on some convoluted lattice under a Hamiltonian named for some Central European worthy now otherwise totally forgotten. Said physicists think this is cutting-edge evolutionary theory.
- Some of those physicists will know or discover simple, neat models with lots of variables of the same type.
(Shalizi and Tozier, 1999, p. 2)
What could substitute for physics and evolution here if we wanted to make a social science analogy? I think game theory could play the role of physics in many cases. What else?
Overdue on Boundaries/Crises
| Lasse Lien |
Good papers often seem like they are long overdue. One can’t help but wonder why they weren’t written a long time ago since the questions they raise are of such obvious interest and importance. In that sense I think this paper qualifies as overdue:
Abstract: How economic crises impact the boundaries of firms has been offered virtually no attention in the literature on the theory of the firm. I review the best-known theories of the firm and identify the variables that matter for the explanation of firm boundaries. I then examine how an economic crisis may impact these variables and change efficient firm boundaries. The various theories of the firm have difficulties explaining how firms efficiently adapt their boundaries to such prominent characteristics of economic crisis as declining demand and increased costs of external finance. However, all these theories stress uncertainty as an antecedent of firm organization, and as uncertainty is also an important characteristic of an economic crisis I examine how uncertainty is allowed to play out in the various theories in order to identify what predictions we can derive from the theory regarding changes in efficient firm boundaries as consequence of changes in uncertainty. The analysis suggests that we need to be more precise in describing the nature of the uncertainty that is assumed in the various theories. Moreover, allowing for changes in levels of uncertainty requires that we take the processes of boundary changes into account in the theory of firm boundaries.
Foss, Kirsten. 2010. How do economic crises impact firm boundaries? European Management Review7: 217–27.
The Institutional Revolution
| Peter Klein |
I’m very excited about Doug Allen’s forthcoming book The Institutional Revolution (University of Chicago Press). Trained by Yoram Barzel (and hence part of the Tree of Zvi), Doug is a leading contemporary scholar on property rights, transaction costs, contracting, and economic history. His work on agricultural contracting with Dean Lueck, including their 2002 book The Nature of the Farm, is a classic contribution to the economics literature on economic organization. He also has a very good introductory textbook. More information is at Doug’s informative (and amusing) website.
Here’s the cover blurb for the new book:
Few events in the history of humanity rival the Industrial Revolution. Following its onset in eighteenth-century Britain, sweeping changes in agriculture, manufacturing, transportation, and technology began to gain unstoppable momentum throughout Europe, North America, and eventually much of the world—with profound effects on socioeconomic and cultural conditions.
In The Institutional Revolution, Douglas W. Allen offers a thought-provoking account of another, quieter revolution that took place at the end of the eighteenth century and allowed for the full exploitation of the many new technological innovations. Fundamental to this shift were dramatic changes in institutions, or the rules that govern society, which reflected significant improvements in the ability to measure performance—whether of government officials, laborers, or naval officers—thereby reducing the role of nature and the hazards of variance in daily affairs. Along the way, Allen provides readers with a fascinating explanation of the critical roles played by seemingly bizarre institutions, from dueling to the purchase of one’s rank in the British Army.
Engagingly written, The Institutional Revolution traces the dramatic shift from premodern institutions based on patronage, purchase, and personal ties toward modern institutions based on standardization, merit, and wage labor—a shift which was crucial to the explosive economic growth of the Industrial Revolution.
Bonus: Here’s the syllabus from Doug’s course on the economics of property rights.
HR News of the Day
| Peter Klein |
A somewhat disheartening report on US workplace safety:
The Bureau of Labor Statistics has its fascinatingly morbid fatality census report out! Are you a manager of some sort? Watch your back, because the study says if you die on the job, there’s a 10% chance it’s murder.
That’s correct. Out of the 4,547 workplace deaths in 2010, 10% of the kaput management was a direct result of homicide. Gulp.
Gizmodo has all the macabre details. If you prefer bureaucratese, head right to the BLS press release. But what about the stock-price reactions?
The Stresses of New Technology in Firm and Family
| Peter Lewin |
Many of the same theoretical tools and concepts that we use for the business firm are applicable to that other ubiquitous social institution, the family; though of course there are important differences (even though I am sure you know people who are “all business”). Steve Horwitz and I have written a paper that illustrates some of this.
The affects of the march of technology on the firm — for example, rendering obsolete certain kinds of physical and human capital, reducing production cost, increasing specialization and product variation, etc. — receive considerable attention. I have not seen much on these affects insude the family. Our article does analyze the long-term effects of the rising opportunity cost of labor in general and of women’s work in particular, which is the theme of a massive research literature. I have in mind rather the “mundane” effects on the family, and on the marriage, of unanticipated technological changes that, for example, affect the spouses differently. In effect, this is an unanticipated change in the marriage bargain that will plausibly bring with it additional un-bargained for stresses and tensions — an unanticipated rise in the cost of marriage (or of staying in the marriage).
I love my wife and I am not contemplating leaving, but I do feel the stress of having to perform all of the 21st century tasks for which I have a substantial comparative advantage, and which have become necessary and routine — like ordering things online, backing up data, downloading audio books (a necessity for exercising!) and so on. I wonder how common this is.
I might be in real trouble for this one :-).
AoM Slides
| Peter Klein |
Thanks to Peter L. for his report on the “Austrian Economics and Entrepreneurship Studies” PDW at the Academy of Management conference. Here, for your viewing pleasure, are the slides: my opening remarks on the origins and development of the Austrian school, Henrik’s discussion of Israel Kirzner and his influence on entrepreneurship scholarship, and Todd’s presentation on Ludwig Lachmann’s unique approach. Enjoy!
Two Interesting and Different Strategies for Tie-in
| Peter Lewin|
I have an all-in-one color printer, fax, scanner (Canon MX7600). It is pricey, but the real kicker is the cost of the toner. It uses 6 different cartridges. Some of them run out pretty frequently. Each costs around $20, basically for a small container of ink. When any one of the cartridges runs out the machine shuts down — though it could easily print black and white when one of the colors runs out. Also, and this is the interesting thing, when any toner cartridge runs out all of the other functions of the machine shut down — no outgoing faxes, no scanning — even though these have nothing to do with printing. This way I am inclined to replace the cartridge sooner rather than later. Annoying. I suspect this is deliberate and maybe not enough of a nuisance to be a selling point in the competition for consumers.
Very different: I am running out of my blood-pressure medicine. I have my own blood pressure machine, and as horrendously complicated as it is to use it, I have somehow managed to master the art. My blood pressure is normal while on the medication. I attempt to refill the prescription (which costs $12 without insurance — not even worth claiming). No refills left. The pharmacy calls the doctor. The doctor’s office calls me to make an appointment. For what? To get my blood pressure taken. I have my own machine. That is not good enough. We have to do it! My appointment is at 10:45. I see the nurse at 11:15, after filling out paperwork that I have filled out multiple times before. I see the doctor at 11:45. I leave the doctor’s office at 12:05 after he has sent in my refill prescription. I pay him $30 copay. The insurance pays him about $150 for an office visit. Do the math to see how much this $12 prescription cost me (include the opportunity cost of my time and the cost of the office visit — which is reflected in my insurance premium). This ability to tie-in the purchase of a prescribed medicine with the purchase of an office visit is a massive social cost that we all face. It is the result of the non-market delivery of health-care.
Technology Quote of the Day
| Peter Klein |
Jobs and Apple have done the best job of answering with their products the question posed by wiki inventory Ward Cunningham: What’s the simplest thing that could possibly work? As I’ve stressed before, most technologists / nerds / geeks don’t think this way — they think that success comes from cramming in features and functions, bells and whistles.
I’ve made this point many times in my speaking and teaching on technology and innovation, particularly with regard to so-called “QWERTY effects” and the claim that markets with network externalities tend to select suboptimal technologies. A serious problem in this literature is that “optimal” is almost always defined from the engineer’s point of view, not the consumer’s (e.g., Betamax was “really” better than VHS because the picture quality was higher and the tapes more compact, even though the recording time was shorter and the recorders much more expensive). Aside from what the market chooses, by what standard do we deem one technology more “efficient” — in an economic sense — than another?
As one disgruntled RIM employee complained recently to upper management: “The whole campaign around the [Blackberry] Playbook seems to be ‘IT DOES FLASH! LOOK!’ . . . but honestly, my mother doesn’t know or care about that. She wants to know ‘can I play Angry Birds?'”
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