Past Postings

_________

CEOs success credited to unbelievable handshake

Check the story here.  Obviously, in their strive to obtain increasing relevance, business schools must adopt hand-shaking courses. 

-- 06 October

Back from the JIBS Frontiers Conference

I returned back Saturday from the 3rd Annual Journal of International Business Studies Research Frontiers conference in Rotterdam.  The conference was very nicely organized by Henk Volberda. 

      I participated in a panel on absorptive capacity in the context of the multinational corporation, and argued that the notion of absorptive capacity is largely a black box.  In particular, it is not clear how individual knowledge, actions, etc. aggregate up to organization-level absorptive capacity. Relatedly, the organizational antecedents to AC are under-researched. I used the theory of organizational architectures (Sah & Stiglitz) to provide an example of how this could be modelled.  

     Unfortunately, my call for microfoundations were largely misunderstood as implying a call for naïvely "summing individuals" (NOT the first time). Many business administration academics need to be educated about the fundamentals of social science explanation!  They may know everything about LISREL, path analysis, probit etc. etc. but won't have a clue about what an "invisible hand explanation" is. 

-- 04 October 

 

Foss and Laursen Paper Published in JEBO

"Performance pay, delegation, and multitasking under uncertainty and innovativeness: an empirical investigation" by myself and Keld Laursen has just been published in a  special issue of the Journal of Economic Behavior and Organization, edited by Stephane Saussier and Pierre Garrouste, containing contributions from Robert Gibbons, Mark Casson and others. 

-- 03 October

 

ISNIE -- an Austrian Take 

Here is a thoughtful report from an Austrian perspective on the ISNIE conference that I posted on earlier. (Hattip to Peter Klein).  Frederic Sautet notes that

"The problem with NIE is that it operates in a neo-classical framework and thus meets the same limits as neo-classical theory. While most neo-institutionalists would not define themselves as neo-classical economists, as Austrians see the discipline, they are. It is true that NIE has pushed the neo-classical paradigm in very important directions and opened new roads offering very powerful explanations of economic problems. However, at the end of the day NIE is only comparative statics with an empirical obsession to measure transaction costs."

-- 02 October

More on BSchools and Relevance

About a month ago (23 Aug), I posted on the current US debate on the relevance of business schools. I just came across an exciting special issue of the British Journal of Management (Vol. 12, no.S1, 2001) which anticipates the current debate.  The lead article is Ken Starkey and Paula Medan's "Bridging the Relevance Gap: Aligning Stakeholders in the Future of Management Research," which builds strongly on the problematic notion of "Mode II research."  

    Karl Weick has an excellent commentary ("Gapping  the Relevance Bridge: Fashions Meet Fundamentals in Management Research") in which he points out that the so-called "relevance gap" may be as much caused by practicioners mindlessly chasing the latest silly management fad as it is caused by academics adopting an ivory tower attitude.  

     Weick also argues that we should "... entertain the possibility that relationships between academics and practicioners are tense, not because there is no bridge over the relevance gap, but rather because there is a bridge that satisfies no one. ... Practicioners cannot make up their mind what their problem is, and speed from guru to guru to find out. They label their frenzy 'the real world" and label as irrelevant those who are unimpressed with the content of the frenzy and who look instead for patterns across the episodes of frenzy." 

-- 29 September

Back from ISNIE

I am back from this year's ISNIE which took place in the fantastic city of Barcelona.  ISNIE itself was OK, but nothing special. The ISNIE conference in its European context strikes me as becoming quite like the conferences that are organized by the European Association for Evolutionary Political Economy (EAEPE), that is, largely verbal analysis of institutional matters with quite a large dose of heterodox economics ideas. 

     The relatively few highlights included an interesting presentation by Henry Hansman and particularly a fine performance by Ernst Fehr. And the food wasn't bad at all! .  Well, good food, a fantastic city and a few excellent presentations -- if truth be told, not many conferences can beat that combination ;-) 

    On a more serious note, ISNIE strikes me as having quite a generational problem in that the main stars -- Ronald Coase, Douglass North and Oliver Williamson -- are in their 90s, 80s and 70s, respectively.  It is unfortunately not that apparent that ISNIE has been able to attract or cultivate similar talent among the younger ranks.  

-- 27 September

ISNIE 2005

On Tuesday I will go to Barcelona to participate in the annual conference of the International Society of New Institutional Economics, titled "The Institutions of Market Exchange" (now, how did they come to think of that imaginative title?). 

     I took part in the founding conference in 1997 which was a fantastic experience.  I saw Ronald Coase, Douglass North, Oliver Williamson, Harold Demsetz and Mancur Olson for the first time.  They all impresssed me greatly (particularly Coase and Olson who were both shining intellects).  I was lucky to talk to Williamson and Demsetz.  I also met those great Williamson-students, Peter Klein, Jack Nickerson and Nick Argyres, for the first time. 

     After the fantastic start, a certain amount of "mean-regression" of the conference quality began, and I stopped going, except for the conference in 1998 in Paris and the 2000 in Tübingen.  I will post a report on this blog when I return. 

-- 18 September 

Scruton's Autobiography

I have just completed reading Roger Scruton's autobiography, Gentle Regrets: Thoughts From a Life. Or, more precisely, the book is a series of vignettes from Scruton's life.  

    Standouts include a description of a research trip to Finland for which the word "acerbic" is much too weak (Scruton is no friend of Finnish mentality), a hilarious description of his involvement with conservative politics in UK, and accounts of his trips to then-communist Eastern Europe to support opposition groups.  As he notes, "... the catholic university of Lublin was the only university I knew where a right-winger could speak openly in defence of his views" (p.72).  This is to be contrasted with the situation in UK, where Oxford University denied an honorary doctorate to Margaret Thatcher but eagerly bestowed it upon Bill Clinton, and where the likes of Robert Mugabe and Nicolai Ceacescu were made honorary doctors at other universities. 

     There is also a very nice and to the point smashing of the thought of Foucault (something that is always popular on this blog).  Of Foucault's Les Mot et les Choses -- "the bible of the soixante-huitards" -- Scruton notes that it is "... an artful work, composed with a satanic mendacity, selectively appropriating facts in order to show that culture and knowledge are nothing but the 'discourses' of power. The book is a not a work of philosophy but an exercise in rhetoric. Its goal is subversion, not truth ...The revolutionary spirit, which searches the world for things to hate, has found in Foucault  a new literary formula. Look everywhere for power, he tells his readers, and you will find it. Where there is power there is oppression. And where there is power there is the right to destroy." 

-- 17 September

 

In the Press

Readers of this blog with a command of Danish may be interested in this commentary from Børsen Executive that I have written with former PA Denmark executive Bjarne Nielsen.  The piece defends performance measurement and performance pay.

-- 16 September  

Nobel 2005

The Nobel Econ Prize hysteria is building up now.  The names I hear mentioned the most are Robert Barro, Paul Krugman and Edmund Phelps.  Barro is fine, but I would personally prefer Oliver Williamson, perhaps in a joint prize with Oliver Hart. (According to the market, the latter is, however, an "expired candidate"! So, unfortunately, is Sidney Winter). 

     Peter Kurrild-Klitgaard has drawn my attention to Gordon Tullock as somebody who is clearly "due."  Obviously, Peter has a political science bias, but Tullock is really quite amazing, and he has contributed to so much more than I knew. Here is his CV.  It runs 46 (fourty-six) pages!!!!  No wonder he lists his civil status as "unmarried." 

-- 12 September

Wish I could be in Paris now...

 

-- 10 September

More Canon

Danish-speaking (or reading) readers of this blog may be interested in the debate that my canon proposal has spurred on Punditokraterne. 

-- 8 September

A Canon for the Social Sciences? 

The current Danish government has an obsession with canons here, there and everywhere.  I certainly don't have a problem with canons in principle, but the whole thing is just a bit out of control here.  As an example of the canon obsession the Danish association of social scientists  ("DJØF" -- it is a trade union) has asked Danish social science professors to individually submit maximum a dozen classical contributions that may together add up to a canon of sorts. 

     Well, of course, I couldn't resist, in spite of my misgivings.  So, here is my very tentative bid:

Thomas Hobbes. 1651. Leviathan. 
David Hume. 1750’ish. Essays: Moral, Political and Literary. 
Adam Smith. 1776. The Wealth of Nations. 
Joseph A. Schumpeter. 1943. Capitalism, Socialism and Democracy.
Friedrich Hayek. 1948. Individualism and Economic Order.
Paul Samuelson 1948 Foundations of Economic Analysis.  
James March and Herbert A Simon 1958. Organization. 
Ronald H.Coase. 1960. “The Problem of Social Cost.” Journal of Law and Economics. 
James Buchanan and Gordon Tullock. 1962. The Calculus of Consent.
Milton Friedman. 1968. ”The Role of Monetary Policy,” American Economic Review. 
James Coleman. 1990. Foundations of Social Theory.  

My criteria?  A mix of what I like (Hume) or what I think has been extremely influential (but may not like -- Samuelson) or both (Coase).

    Any obvious contributions that I have missed?  Yes, perhaps Human Action.  Perhaps. Max Weber?  Could very well be. Foucault? Shut it, pomos!! 

-- 6 September.  

Online Lectures

I just came across this impressive online lecture library, assembled by the Intercollegiate Studies Institute.  The library includes talks by luminaries such as economists Milton Friedman, Ludwig von Mises and David Meiselman, the great fusionist  Frank Meyer and conservative icons such as Richard M Weawer.  My only complaint: Much too much Russell Kirk, and too little of Friedman and Mises!! 

-- 1 September

What I Have Been Reading This Summer

In addition to what has reported in earlier posts, I have been reading the following over the last month: 

1.Adamantios Diamantopolous and Judy Siguaw. An Introduction to LISREL (Sage, 2000) -- incredibly boring, but is has to be done, particularly if you frequently collaborate with Mr. LISREL (DK), Torben Pedersen, as I do.  Absolutely for the novice, absolutely for me!

2. James Bartholomew. The Welfare State We Are In (Politico's, 2004) -- a solid and well-informed smashing of the welfare state by a prominent British journalist with lots of terrifying anecdotes and some more solid empirical evidence of the cultural corrosion caused by welfarism.  

3.  Carl Ankerfeldt. Slentreture i Rom ("Walks in Rome") (2nd ed., Poul Kristensens Forlag) -- a classic on Rome (to which I haven't been in 10 years).  The late Ankerfelt, who was an executive in an insurance company, was a true authority on all things Roman.  

4. Jim Fisch and L.B. Fred. Epiphone: the House of Stathopoulo (Amsco Pubs, 1996) -- normally I detest company histories, but this one is about one of my favorite guitar makers.  I must have that Emperor on page G-9!!

-- 29 August 

A Public Choice Perspective on Iraq

My co-Punditocrat, Peter Kurrild-Klitgaard had an excellent paper in Public Choice last year on "Blood, Bath and Beyond: the Constitutional Dilemma of Iraq." As Peter himself notes, what has recently happened in Iraq runs counter to almost every advice that can be teased out of his analysis.  Ahh, the influence of academics... 

-- 28 August

Why Isn't There a Micro-foundations 

Project in Management? 

Traditionally, some of the most troublesome issues in the social sciences have been those that relate to analytical levels and units For more than a hundred years, economics (e.g., Menger; Hayek; Arrow), sociology (e.g., Durkheim; Coleman ) and the philosophy of science (Popper; Kincaid ) has witnessed a debate about whether individuals (“micro”) or social collectives (“macro”) have explanatory primacy. 

     The issue carries with it heavy philosophical implications. For example, what is the ontological status of aggregate social entities (e.g., organizations)? In what sense can they be said to exist? Is it meaningful to ascribe intention to them?       

     The issue also carries very substantial explanatory implications: What are the relations between micro and macro levels? For example, for more than three decades much fundamental theoretical inquiry in economics has been devoted to establishing micro-foundations for macro-economics. The “micro-foundations project” implies the building of rigorous mathematical models that demonstrate how individual action and interaction may produce economy-wide consequences,, that is, mimic the real aggregate movements of the economy as captured in time series of central variables (Lucas).  

       In spite of considerable attention being paid to “levels issues”, “multiple level analysis” and the like () management has seen no comparable micro-foundations project.  Why is this?  As Teppo Felin uses to say, the most "elementary truth in management is that organizations are made up of individuals and there is no organization without individuals." 

      Indeed, as Chester Barnard emphasizes in his classic, The Functions of the Executive,  all management begins with the individual.  So, how can a situation with no clear micro-foundations (particularly in strategic management but certainly also in organization) persist?  How can managerially useful knowledge be produced, given this situation? 

     One may speculate that  the inherently pluralistic driven nature of management studies precludes building specific micro-foundations, or that its empirically driven character crowds out this sort of foundational inquiry.  Whatever that is, management studies neglect proper micro-foundations at its peril!

-- 27 August

The Trouble With Business Schools

I have occassionally questioned the social value of business schools in general and my own teaching and research activities more specifically.  It sure doesn't cure cancer!  The social contribution represented by the BSchools of the World would seem to count as nothing compared to the engineering and medical schools and, of course, natural science. 

    But perhaps I am entirely mistaken here.  In a recent paper, "What's Really Wrong With US Business Schools?," Harry DeAngelo, Linda DeAngelo and Jerold Zimmerman point out 1) that the US business schools account 25 % of all masters' degrees and 2) that the research focus of business schools may in actuality have had extreme social value.

    Using the field of finance as an example, the authors point out that 

 

.. in 1976  Vanguard introduced its first indexed mutual fund, inspired by the capital asset pricing model/efficient markets revolution of 1960s academic finance. Today Vanguard has USD 350 billion invested in its index funds, whose annual expense ratios are more than 1% below those of actively managed mutual funds.  Thus Vanguard delivers efficiently diversified portfolios to consumers at an annual cost savings of more than USD 3,5 billionor USD 175 billion in present value terms ...And this is but one example of research whose benefits are sufficiently large to render moot any debate over whether the knowledge created by modern business school research has yielded sufficient social benefits to warrant its costs (p.2-3).

    However, this highly valuable knowledge creation is currently being eroded by a dysfunctional competition for media rankings that diverts resources from long-run knowledge creation.   Research, undergrad education and PhD programs suffer as faculty time is diverted to constant MBA curriculum changes (remember E-Biz?) and PR efforts.  The remedy is to resist these media-driven tendencies, not necessarily by refusing to add data to media rankings but to insist that research be given a more heavy weight (currently research is only weigthed at 10 % in most rankings).  Solid research competence must be recognized as the central capability of business schools.  (The paper also contains a well-taken critique of Bennis and O'Toole's silly 2005 Harvard Business Review paper, "How Business Schools Lost Their Way" which argued that research faculty mindlessly embrace the "scientific model" and that this has made BSchools increasingly irrelevant).  

   An excellent read!! 

-- 23 August

Rationing by waiting (for Apples)

As a further indication that this blog is rapidly developing into a Yoram Barzel-fan site, let me note that one of my favorite Barzel papers is his 1974 Journal of Law and Economics paper, "A Theory of Rationing by Waiting." 

     Barzel discusses how attempts to set prices by regulation and otherwise disequilibrium prices lead to unanticipated attempts to circumvent the regulation and puts forward propositions about the amount of resources that will be spent on "waiting," who will spend how many resources, and the resulting equilibrium.  The logic of the paper  makes excellent pedagogical sense and is great for classroom use.

     Here is a nice illustrative newspaper story, describing how "Chaos erupted yesterday morning at Richmond International Raceway as people stampeded through the gates in a rush to buy used iBook laptops for $50 each." (Hattip to Marginal Revolution).

-- 19 August

Freakonomics

I am often suspicuous of blockbusters and bestsellers.  Much hyped books and films usually disappoint .  I thought the Da Vinci Code was awful, although I -- like everybody else -- read it to the bitter end.  I hated Titanic.  

     I have therefore been somewhat reluctant to begin reading Steven Levitt(and Stephen Dubner's Freakonomics: A Rogue Economist Explores the Hidden Side of Everything , William Morrow, 2005.  However, for once, the hype seems justified.   The book is very interesting, in places it is even hilarious, but certainly also very egocentric (and this goes for both authors).  The reasoning is very easy to follow, and there is a clear projection of a generally applicable common-sensical approach. (There is even an accompanying Freakonomics site that extends the approach of the book).  In short, this is excellent popular economics writing.  

     The title of the book strikes me as somewhat strange.  To be sure, the economics content in some of Levitt's work may sometimes seem to be overwhelmed by painstaking statistical inquiry that seem somewhat divorced from economics.  Levitt proclaims, however, that "Morality... represents the way that people would like the world to work, whereas economics represents how it actually does work. Economics is, above all, a science of measurement.' He is completely true to these dicta, and there is nothing freakish about Levitt's approach.  A perhaps better title would have been "Kelvinomics" to reflect the extreme emphasis on data and measurement. 

    Apparently, there has been discussion of whether Levitt's approach is really economics.  I agree that the finding for which he is probably most famous in the general public -- i.e., the crime-abortion link (which is not entirely unproblematic, cf. this link) -- would not seem to involve economics in any essential manner.  But usually  Levitt's approach to data seems clearly informed by a maximizing view of behavior, as in, for example, his examination of the prevalence of teachers cheating with their pupils' exams.  He is probably best thought of as an extreme Beckerian (as his adminiration for Becker might indicate).  

-- 15 August

The Scottish Enlightenment

I am reading Gertrude Himmelfarb's recent, highly learned and extremely well written book The Roads to Modernity: The British, French and American Enlightenments (Alfred A Knopf, 2005). The aim of the book is to establish the importance of the British (note: not "Scottish") Enlightenment, in contrast to scholars who have given preeminence to the French Enlightenment.

    This basic aim will of course not be anything new to readers of the works of Friedrich von Hayek.  It is well known that Hayek made a sharp distinction between the Scottish Enlightenment and its stress on beneficial unintended consequences and gradual evolution of social norms  and the common law on the one hand and the French, Cartesian, "constructivist" enlightenment on the other hand. Hayek's famous essay "Individualism: True and False" (in his Individualism and Economic Order, Chicago, 1948) may well be his most poignant statement of this distinction.

   However, Hayek has a strong tendency to rather indiscriminately lump the British Enlightenment thinkers together.  Himmelfarb makes no such mistakes.  For example, she is quite explicit that Bernard Mandeville's work -- which Hayek tends to read as part of (or a precursor to) the Scottish/British Enlightenment -- was in actuality "... a spirited but futile attempt to abort the social ethic that was the distinctive feature of the British Enlightenment" (p.31).    

 -- 13 August

New paper on Yoram Barzel

Dean Lueck has written an excellent paper on his mentor, Yoram Barzel (hattip to Peter Klein).  Barzel also happens to be one of the heroes of this blogger.  Lueck argues, quite rightly, that Barzel "... has been an important, yet unique and somewhat invisible, contributor to the new institutional economics." He also notes that "Barzel is a Becker-style economic imperialist, seeking to examine social behavior everywhere" and that his "most consistent trademark ... is his focus on testability."

-- 12 August

Game Theory in Strategy Research -- and Practice

Last year I participated in a very interesting pre-conference workshop at the Strategic Management Society Conference in St. Juan, Puerto Rico.  The subject was the use of game theory in strategy research and among the panelists were Adam Brandenburger.  Adam explained -- somewhat to my surprise -- that there were really little more than a dozen serious, game theory-based strategic management papers around in the major business administration journals.  In a later session at the conference itself, Pankaj Ghemawat mentioned a similar number.  

    It apparently turns out that not only strategy scholars but also real world strategists do not take much of an interest in game theory.  The people at FastCompany  "assembled a panel of 30 respected game theorists around the world, and we sent them a survey asking, "Can you think of any examples of real, live companies that have consciously applied game-theoretical concepts to a real business problem?" 

     The response was . . . a deafening chorus of head scratching."

-- 6 August. 

Robert Gordon's Photos of Economists

Here are some fun photos of top US economists, taken from 1969 t0 2005 by Robert J. Gordon.  Kevin at Truck and Barter informs us that his "favorite -- I'm not certain why -- is the young Don McCloskey." 

-- 6 August. 

Blog Rankings

Here is an interesting set of rankings of economics blogs constructed by Craig Newmark.  For example, using BlogPulse, Newmarks finds that in "a universe of 14.2 million blogs, three of the top 200 are economics blogs," namely Marginal Revolution, Tim Worstall and Crooked Timber. Café Hayek comes in no. 322 and, somewhat surprisingly, the Becker-Posner blog only comes in as no. 525.   Unfortunately, the rankings are not that robust to different ways of generating them.  

-- 5 August

A New Paper

I have recently completed the first draft of a programmatic paper ( writing these kind of "position" or "program" papers is an acquired bad habit of mine) on "The Knowledge Governance Approach."  Here is the Abstract: 

 

"An attempt is made to characterize a “knowledge governance approach” as a distinctive, emerging field that cuts across the fields of knowledge management, organisation studies, strategy and human resource management. Knowledge governance is taken up with how the deployment of administrative apparatus influences knowledge processes, such as sharing, retaining and creating knowledge. It insists on clear behavioural foundations, adopts an economizing perspective and examines efficient alignment between knowledge transactions with diverse characteristics and governance structures and mechanisms with diverse capabilities of handling these transactions. Various open research issues that a knowledge governance approach may illuminate are sketched. Although knowledge governance draws clear inspiration from organizational economics and “rational” organization theory, it recognizes that knowledge represents various challenges to more “closed” social science disciplines, notably economics."

Comments are, of course, welcome and invited! 

 

-- 1 August

I get mail

Karl Wenneberg, a doctoral student at the Stockholm School of Economics, who specializes in entrepreneurship writes: "I just wanted to make a brief comment on your call (finally someone pointing this out!) that strategic management research needs to return to the individual agent as a key unit of analysis if we ever want to be able to pinpoint the key antecedents of value creation and competitive advantages.
   strategy and management is readily able to answer your call. With its long tradition of research in the individual-environment nexus,
entrepreneurship could provide a valuable starting point for exploring the 'micro-foundations of strategic management'.
    Since building and maintaing an entrepreneurial momentum is considered a key issue these days for new and incumbent firms alike, strategic management could profit from an heightened awareness how these firms discover new types of profit opportunities and bring these to the market."

-- 7 July 

EGOS

Yesterday I went to the EGOS conference in Berlin.  I gave a talk on the organizational economics oriented approach to knowledge management that we have tried to cultivate at CBS (we call it "knowledge governance").  It went down surprisingly well with the audience, which -- like most of the EGOS crowd -- was apparently sociologists with interests in muzzy "theorists" such as Foucault, Derrida et al.  It sure is difficult to provoke these days!! 

      Next year's EGOS conference will take place in Bergen, Norway.  Here are some titles of the sessions: "Metaphors, Tropes and Discourse -- Implications for Organization Studies," "Popular Management," and "Dis/Organizing Identities."  Such session titles are, unfortunately,  symptomatic of organization studies in Europe, which largely draw on strange currents in philosophy, "discourse analysis," and recent sociology, most of which with dubious relevance to managerial practice in organization.  Luckily, pockets of sanity do exist in Europe, and serious scholars do work in this field, such as Renate Mayntz, Alfred Kieser, Anna Grandori and Mark Ebers. 

-- 02 July   

DRUID -- Day II

I presented the Felin and Foss paper on capabilities today at the DRUID, expecting to be stoned out of the lecture room.  DRUID is certainly a stronghold of capabilities thinking in Europe.  However, the paper was received extremely favorably by the discussants (Andrea Prencipe and Maria Brouwer) and the audience, and there seemed to be quite a lot of agreement that capabilities (competencies, dynamic capabilities, core competencies, etc etc etc) are concepts in need of clean definitions and micro-foundations before any serious measurement can be undertaken.  

-- 28 June

Special Issue of SJM on TCE

The first issue in this year of the Scandinavian Journal of Management has just been published (the frontpage says that this is the March issue!!).  

     The issue is a special issue on "Transaction Cost Economics in Scandinavian Business Administration," edited by me and with contributions from my colleagues at NHH in Bergen, Sven Haugland and Kjell Grønhaug, as well as papers by Gabriel Benito and Sverre Thomassen from BI in Oslo (with Jaime Bonache-Perez and José Pla-Barber); Arndt Buvik from Molde College; and Øystein Fjeldstad, BI.  Oliver Williamson has contributed a very nice paper on "Transaction Cost Economics and Business Administration."  I contribute a short introductory essay.  Unfortunately, this is the only Danish contribution.  "Scandinavian Business Administration" in this issue largely means "Norwegian Business Administration." 

    The papers come from a Scandinavian Workshop on Transaction Cost Economics in Business Administration" that I organized with my NHH colleagues Svein Ulsett and Sven Haugland in June 2003.  

-- 28 June

DRUID 2005

I went to the 10th annual conference of the Danish Research Unit of Industrial Dynamics today.  The DRUID conference also runs tomorrow and on Wednesday.   This year's DRUID is very well organized, with lots of helpful student assistants, nice paperwork, decent meals -- and its own sponsored penguin (at the Copenhagen Zoo)!   Wonderful job, Peter (Maskell)!!

    I presented the Foss and Foss paper on "Credible Delegation: the Role of Organizational Design" and received fine comments from Sid Winter and Ammon Salter.  Tomorrow, I will present the Felin and Foss critique of organizational capabilities. 

-- 27 June

Atlanta Competitive Advantage Conference

Just returned from the ACAC conference which was a real delight! It was superbly organized by Rich Makadok, Russ Coff, and others, and featured cutting-edge research at a level much higher than what you will meet at the Academy Meetings or the Strategic Management Society Meetings.   

    Dominant currents were empirical contract economics, IO, entrepreneurship research and various forays into absorptive capacity and the like. 

    I participated in a panel with Pankaj Ghemawat, Glenn MacDonald, Ken Smith, Harry Sapienza and others.  Here are my introductory panel comments. 

-- 25 June 

More on French Philosophy 

French philosophy seems to have fast become  a dominant  topic on this blog.  I just came across this paper by French sociologist Raymond Boudon, " The Freudian-Marxian-Structuralist (FMS) movement in France: variations on a theme by Sherry Turkle," Revue Tocqueville, vol. II, no. 1 (Winter 1980), pp. 5--24, which is highly recommended for its dissection of the FMS. 

   Boudon describes the FMS in terms of a number of characteristic features, such as 1) "its taste for opacity," 2) "a basic anti-Popperian epistemology," 3) "the truth ... is implicitly considered as revealed to some elected major intellectuals;" 4) "scholastic reasoning" (one point Boudon makes is that adherents to the FMS are incapable of understanding PD-like situations, and 5) "stylistic effects." 

   I particularly liked this critique of the highly celebrated Bourdieu: "For the sociologist Bourdieu 'violence' defines any situation where a subject has not explicitly and consciously chosen to do what he does. Once this innocent definition is accepted, it is easy to show that role learning, and as a matter of fact, any learning is the result of violence and .. domination.  Finally domination implies the existence of a dominant and of a dominated class. Hence the very existence of a schooling process is grounded in, and hence is a proof for the existence of a two class system. QED." 

-- 20 June

Atlanta Competitive Advantage Conference

I will go to the ACAC conference next week.  It looks fabulously good with many excellent names. See the program and the paper abstracts here. I really look forward to it.  I will post a report when I have returned. 

-- 19 June 

Excellent New Special issue

Earlier on this blog, I have lamented the poor scholarship in much of the knowledge management literature.  In particular, I have criticized  the almost complete absence from that literature of any choice theoretic foundations (something that I discuss in my paper with Volker Mahnke, “Knowledge Management: An Organizational Economics Perspective," in Marjorie Lyles and Easterby-Smith, eds.  Handbook of Knowledge Management and Organizational Learning. Oxford : Blackwell, 2004).  

     Things are changing in the KM field, at least if the recent special issue of MIS Quarterly is a good indicator (and it may well be, as MIS is a top informatics journal that also publishes a good deal of organizational economics related stuff).  The special issue concerns knowledge sharing and transfer and the scholarly level is almost uniformly high.  

     Of particular interest is an excellent article by Lihui Lin, Xianjun Geng, and Andrew B Whinston, "A Sender-Receiver Framework for Knowledge Transfer," which frames the knowledge transfer problem very neatly in a standard economics of information setting and derives a number of interesting propositions.  This is an approach that is very close indeed to the approach that we try to develop and refine in the Center of Knowledge Governance.

-- 18 June 

Jon Elster Site

I just came across this magnificent site dedicated to Norwegian sociologists and University of Chicago professor, Jon Elster.  It lists all Elster's works, including some unpublished papers. Some works are downloadable. Unfortunately, nothing seems to have been done on the site since appr. 2000.

-- 15 June

Paper  by Felin and Foss

Teppo Felin and I have just had our paper, "Strategic Organization: a Field in Search of Microfoundations," accepted for publication as a

"Editorial Essay" in Strategic Organization.  

     The paper argues that very considerable parts of contemporary strategy thinking break with metodological individualism by postulating that sources of heterogeneity are always placed on the collective level, and in general by failing to pay sufficient attention to individual level considerations.  

     The paper is deliberately somewhat over the top, because it is designed to provoke the rampant collectivism in strategic management.  We trust it will rock the boat, at least somewhat.

-- 13 June 

Intrinsic Motivation: A Red Herring? 

The notion of intrinsic motivation has recently  become extremely influential in management.  Much of the skepticism towards rewards (and more broadly transaction cost economics and agency theory) associated with Sumantra Ghoshal, Jeffrey Pfeffer et al. is implicitly based on an argument that explicit rewards drive out intrinsic motivation. Employees that face explicit monetary incentives cannot be "happy and productive" (hattip to Peter Klein).  Similar arguments have been made by Alfie Kohn, both in the context of management and in the context of education.

     A subtle argument that explicitly builds on the relevant experimental psychology research into intrinsic motivation can be found in Margit Osterloh and Bruno Frey's much cited 2001 paper "Motivation, Knowledge Transfer, and Organizational Forms." Organization Science, 11(5): 538-550.  Frey has for some time written extensively about intrinsic motivation in economics.   

    However, a recent book, Rewards and Intrinsic Motivation: Resolving the Controversy, by Judy Cameron and W. David Pierce (London: Bergin and Garvey, 2002) gives reasons to be somewhat suspicious about the reach of intrinsic motivation arguments. Among the reasons given by the authors, both psychologists, are these:

    The notion of "intrinsic motivation" is ill-defined and perhaps even circular, because intrinsic motivation is usually inferred from the very behavior it is said to cause.  

    The original experiments by Deci and others do not show what they are taken to show (including by Deci himself).  "All in all, it turns out that the evidence does not support the claim that rewards are generally harmful" (p.32). 

    There are activities that are associated with no intrinsic motivation.  Giving the advice based on intrinsic motivation arguments of not giving rewards for the performing these is bound to be bad for practice. 

    Many behaviors that are explained by intrinsic motivation are in fact motivated by anticipated benefits. 

    Given that there is no case for arguing that rewards have pervasive negative effects, the task should be, the authors argue, to design those careful arrangements of rewards that enhance motivation, performance, and interest.

-- 11 June

An Interesting New Journal

The first issue of the Journal of Institutional Economics has just been published.  Edited by a team consisting of Geoff Hodgson, Bart Nooteboom, Elias Khalil, Ugo Pagano and Richard Langlois, the Journal "... is devoted to the study of the nature, role and evolution of institutions in the economy, including firms, states, markets, money, households and other vital institutions and organizations. It welcomes contributions by all schools of thought that can contribute to our understanding of the features, development and functions of real world economic institutions and organizations." 

     In other words, what is in prospect is an exciting journal characterized by "enlightened heterodoxy".  

     The first issue of Journal is offered for free.  It is highly recommended.  The papers by philosopher John Searle and by Viktor Vanberg are particularly good.  

     It is likely that JOIE like all upstart journals have manuscript inflow problems.  So, support this great initiative by submitting a paper. 

-- 9 June

 

There I go again ...

Running a personal site is an inherently narcissistic undertaking. In the spirit of recognizing this, let me note that "Value and Transaction Cost: How  Property Rights Econonomics Furthers the Resource-based View" by Kirsten Foss and I (Strategic Management Journal, June) is among the most frequently accessed papers on Wiley Interscience. 

-- 8 June

 

This Year's DRUID Conference

It is hard to believe, but DRUID -- the Danish Research Unit of Industrial Dynamics-- has entered its 10th year of existence.  Being one of the original members of the DRUID, it is just great to observe the continuous improvements that have characterized the DRUID conference series from the rather humble beginnings in 1995.  

     DRUID has never projected a distinct research program, but it has been able to become one of the leading European platforms for research in innovation, industrial dynamics, and the like. 

     This year's Anniversary Conference (Copenhagen, 27-29 June) looks particularly promising.  Among the interesting speakers are Anita McGahan, Robin Cowan, Janet Bercovitz, Mari Sako and Olav Sorenson.  

-- 7 June

Learning and Trust: Complements or Substitutes? 

Learning and trust have been hooray words in a number of fields in business administration, notably in organization, industrial marketing, and strategic management.   Innovation studies and economic geography have also placed much emphasis on learning and trust.  

     A key argument that runs through all this is that constraining interaction, e.g., by organizing within a firm or because interaction is geographically constrained (as in an industrial district) promotes trust.  In turn, trust promotes (organizational) learning.  And more learning is conducive to trust.  So, the relation between learning and trust is one of complementarity.  

     Very interesting new work on "learning to contract" -- cf. Kyle Mayer and Nicholas Argyres, "Learning to Contract: Evidence From the Personal Computer Industry," Organization Science, July-August 2004 -- suggests, however, that learning and trust may rather be substitutes.  Specifically, as learning about task specificities and about how to plan in an contingent manner improves, there is less and less need to rely on trust (understood as norms about how to react to unanticipated contingencies).  

 

-- 5 June

Lomborg adjunct professor at CBS today

Today Bjørn Lomborg assumed his adjunct professorship at CBS. Bjørn, who has upgraded dresswise from T- to Polo shirt, talked about the Copenhagen Consensus conference that he organized last year. The talk was elegant and dynamic.  It took place in the largest lecture hall of CBS.  Unfortunately, only about 50 persons showed up!  Perhaps Bjørn's messages are by now so familiar that many people did not feel the need to show up.  Or perhaps he was simply boycotted. (A peculiar Danish way of showing disagreement and opposition is not stating it explicitly, but just not showing up). Here is a photo of I, Lomborg and Professor Henrik Lando. 

-- 3 June

My stats (another self-serving posting)

You can check my stats and "ranking analysis" on RePec here.  RePec is maintained by a gentleman called Christian Zimmermann at the econ dept at UConn. 

     Out of the 7044 authors registered there, I am number 295, coming right after Judge Posner, and before people like Myron Scholes, Andrew Postlewaite, William Zame and Benjamin Klein.  Well, just another indication that markets for fame, reputation etc. are highly imperfect.

-- 2 June 

Bjørn Lomborg Adjunct Professor at CBS

My university, i.e. the Copenhagen Business School, has decided to make Bjørn Lomborg an Adjunct Professor.  

     The position is mainly an honorary one.  The difference to an honorary doctorate is that an adjunct professor is not expceted to have contributed as much academically as an honorary doctor usually is.  And the Adjunct Professor is expected to give occasional lectures, etc. Other CBS Adjunct Professors include Richard N. Langlois.

    Lomborg will assume his new position on Friday 3 June with a public lecture at CBS. 

-- 27 May

New paper by Foss and Foss

Kirsten and I have produced the 4th revision of "Credible Delegation: The Role of Organizational Design." Here is the abstract: 

"Credible delegation of discretion obtains when it is a rational strategy for managers not to overrule employee decisions that are based on delegated decision rights or renege on the level of delegated discretion (and this is common knowledge). Making delegation of discretion credible becomes a crucial issue when firms want to sustain the advantages that may flow from delegation: Such advantages are dependent on motivated employees, and managerial overruling or reneging is harmful to motivation. However, rather little work exists on how organizations and managers can make delegation credible.  We add to the literature by arguing that key elements of organizations ― notably organizational structure, coordination mechanisms, reward structures, and interdependencies between activities ¾ influence the credibility of delegation. In particular, we argue that the fit between these influence the credibility of delegation. This is because more fit configurations will reduce the probability of managerial intervention that may harm employee motivation. Refutable propositions are derived." 

-- 25 May

Foss and Foss in Strategic Management Journal

"Value and Transaction Cost: How  Property Rights Econonomics Furthers the Resource-based View" has just been published in the June issue of the Strategic Management Journal.

--24 May   

French Philosophy (Cont'd)

I just came across an excellent critical article that may interest readers of this blog (i.e., the guardians of science, rationality and good taste): Robert Nola and Gürol Irzik, "Incredulity towards Lyotard: a critique of a postmodernist account of science and knowledge," Studies in the History and Philosophy of Science 34 (2003): 391--421.  

      Here is the Abstract: 

"Philosophers of science have paid little attention, positive or negative, to Lyotard's book The postmodern condition, even though it has been popular in other fields. We set out some of the reasons for this neglect. Lyotard thought that sciences could be justified by non-scientific narratives (a position he later abandoned). We show why this is unacceptable, and why many of Lyotard's characterisations of science are either implausible or are narrowly positivist. One of Lyotard's themes is that the nature of knowledge has changed and thereby so has society itself. However much of what Lyotard says muddles epistemological matters about the definition of `knowledge' with sociological claims about how information circulates in modern society. We distinguish two kinds of legitimation of science: epistemic and socio-political. In proclaiming `incredulity towards metanarratives' Lyotard has nothing to say about how epistemic and methodological principles are to be justified (legitimated). He also gives a bad argument as to why there can be no epistemic legitimation, which is based on an act/content confusion, and a confusion between making an agreement and the content of what is agreed to. As for socio-political legitimation, Lyotard's discussion remains at the abstract level of science as a whole rather than at the level of the particular applications of sciences. Moreover his positive points can be accepted without taking on board any of his postmodernist account of science. Finally we argue that Lyotard's account of paralogy, which is meant to provide a `postmodern' style of justification, is a failure." 

--24 May

More on Austrian Calculation Arguments

I just came across a great book review (of GC Archibald's Information, Incentives and the Economics of Control) by Tyler Cowen (Journal of International and Comparative Economics 5: 243-249 (1995)).  (I am fond of book reviews because they often provide a lot of info in a very condensed form -- particularly about the reviewer's views!). 

    Cowen points out that the victors in the socialist calculation debate "... have shied away from the hard questions," and that it is necessary to "push the boundaries of the calculation argument." For example, what if a dictator who has read Mises instructed his managers to compete as in a regular market economy (i.e., not as in an Oskar Lange-economy), with the dictator being the residual claimant monitor?  Would that work? It might not, but that would primarily be because of excessive monitoring costs.  

    Cowen also indirectly questions the Misesian emphasis on calculating prices.  Experience shows that socialist managers systematically set prices too low (because they can gain from creating excess demand, while they cannot gain from setting the right prices).   But this would seem to presuppose that socialist "managers are in fact very good at calculating the proper price." 

-- 23 May 

 

Austrian Calculation Arguments

I have a paper forthcoming (written with Kirsten Foss) in the Review of Austrian Economics which takes issue with Hayekian arguments on the "impossibility" of socialist calculation.  Essentially, we argue that Hayek (or other Austrians) do not specify why exactly direction and authority (which are means of implementing plans) falter in the face of "dispersed" or distributed knowledge.  

     But there is also the so-called "Misesian" calculation argument, which is traditionally seen as different from the Hayekian argument. I must confess that I have not quite been able to make sense of recent statements of it.  Mises' original paper on the issue is clear enough.  However, later attempts, e.g., by Joseph Salerno and others that Lange, Lerner, etc. did not at all meet Mises' charge, as well as their attempts to interpret (reformulate?) the Misesian argument seem to me suffer from lack of clarity.  

     First, Salerno and others argue that there would there still be Misesian calculation problems, even if there were no Hayekian knowledge problems. 

     For example, Salerno writes "Mises demonstrates that, even with Hayekian knowledge problems thus banished from consideration, the planners would still be unable to calculate the optimal or any pattern of deployment for the factors of production. The reason is that the existing capital structure and acquired skills and locations of the labor force are initially maladjusted to the newly prevailing equilibrium configuration of the data. The planners therefore would be forced to decide how to allocate the flow of productive services among the myriads of potential technical production processes and labor retraining and relocation projects so as to secure the optimal path of adjustment to equilibrium for the existing stocks of capital goods, labor skills, and housing. The bewildering complexity of this allocation decision rests on the fact that the planners will be confronted with altered conditions at every moment of time during this disequilibrium transition process, since the quantities and qualities of the available productive services themselves are in constant flux due to the circumstance that they originate in the very stocks of physical assets and labor skills that are being progressively transformed."   

    It seems to me that Salerno here simply misses that if there were truly no Hayekian knowledge problems (i.e., the planner had essentially full knowledge/information about all preferences and technologies and resource availabilities and could calculate with infinite speed) (strictly speaking, we also need to abstract from problems of incentive compatibility), then the "bewildering complexity of [the] allocation decision" would be eliminated per assumption. 

    Second, the Misesian calculation argument is presented in more recent writings as a mix of a number of conceptually distinct arguments, which makes it very hard to separate what is the distinctly Misesian contribution.  For example, Salerno's emphasis on "appraisal" as the key to the Misesian argument seems to me to rest on arguments on property rights as well as arguments that relate to a picture of the market process as selecting among rival appraisals.  But these are separate arguments that are treated in property rights economics and evolutionary economics, respectively. 

-- 21 May 

    

 

Copenhagen Conference on Strategic Management

The Copenhagen Conference on Strategic Management 2005: "Building Competitive Advantage: The Roles of Entrepreneurship and Innovation."  

Submit an abstract! 

-- 19 May

 

Peter G. Klein writes ... 

"Re: your blog entry of 12 May: are you simply saying that in an Arrow-Debreu world there can be no unintended consequences? And wouldn't this be an uncontroversial Hayekian point? I'm not sure exactly how this ties into the Coase theorem. ... In the absence of TCs, everything reduces to the "pure logic of choice" (as Hayek puts it) and there's no need for Hayek 1937, 1945. Then again, is the point to distinguish between Hayekian knowledge problems and Coasian TCs?"

    Let me try to clarify:

1. I did not mention the AD world, first, because the setting underlying the Coase theorem seems to be more general (it does not make specific assumptions about the number of agents or the characteristics of technology), second, because in such a world there may in fact be unintended outcomes. Prices, and, of course, the welfare properties of the allocation of resources are arguably such unintended outcomes.  The Coase Theorem seems different because its underlying logic is one of bargaining and bargaining outcomes are intended by the parties to the bargain.  

2. Social scientists have often discussed the criteria for using one rather than another mode of explanation (e.g. intentional, or invisible hand or functional modes).  I think that transaction costs is a key, unrecognized factor.  Thus, the presence of some transaction costs would seem to be a necessary condition for applying, for example, functional or invisible hand explanations. 
-- 17 May

 

Highly Recommended: Dilemmas in Economic Theory

In his excellent Dilemmas in Economic Theory: Persisting Foundational Problems of Microeconomics (Oxford University Press, 1999) Michael Mandler observes that while much has been written about the split between classical and neoclassical economics, "... an equally significant divide lies within neoclassical theory, separating the 'early neoclassicism' of the late nineteenth-early twentieth centuries from the general equilibrium models predominant since World War II" (p.3).  

    This is probably wellknown to most students of the recent history of economics -- however, Mandler goes on to argue in a very engaging and subtle way that while many of the central assumptions of early neoclassicism have been rejected (e.g., completeness of preferences, positivity of interest rates and determinacy of factor prices), "... the conclusions tied to those assumptions are tacitly (or even explicitly) maintained.  This seems to further reinforce my arguments against those (i.e., David Colander and Robert Solow) who think that neoclassical economics is all technique (cf. my 18 April posting). 

-- 15 May

 

Individual and Collective Levels of Analysis: 

a Transaction Cost Issue? 

I consider the Coase theorem to be the most important finding in all of social science (all that I know of, that is).  Coase's famous result seems to me to have an unrecognized implication.  If transaction costs are zero, this means that all uses of all goods can be transacted over at zero cost. This would seem to imply that perfect foresight rules.  

    However, this means that all so-called collective level outcomes are foreseen.  This would furthermore seem to be problematize the notion of unintended consequences.  Thus, allocations will, in a sense, be fully foreseen, and all institutions must be willfully designed.  There would seem to be no meaningful room for Hayekian "spontaneous orders" and "emergent institutions."  Perhaps the very distinction between individual and collective levels is even called into question if transaction costs are zero? 

    The other side of the coin is, of course, that to make room for unintended consequences, emergent institutions, etc. requires making an assumption about transaction costs somewhere in the underlying analytical structure.  

    I plan to write a paper on organizational capabilities and routines as transaction cost problems in this sense.  Comments, etc. are welcomed.  

-- 12 May 

 

The May Issue of the Strategic Management Journal

The latest issue of the SMJ contains a number of very nice research papers that have some considerable thematic unity as three out of the five papers deal with economic organization issues.  (There is also a fine research note by Yasemin Kor and Joe Mahoney on "How Dynamics, Management and Governance of Resource Deployments Influence Firm-level Performance). 

     The issue opens with a paper by Michael Jacobides and Sidney Winter, "The Co-evolution of Capabilities and Transaction Costs: Explaining the Institutional Structure of Production."  The authors elaborate on the point that capabilities and transaction costs are intertwined in the determination of vertical scope, and argue that this intertwining requires a dynamic and systemic approach that includes considering industry evolution. This is a theme that is familiar to readers of Richard Langlois' work, and the present blogger's 1993 PhD thesis (which was, stupidly, written in Danish), made many similar points.  However, Jacobides and Winter give the story a nice evolutionary spin.

    The second paper in the issue is "Adaptation in Vertical Relationships: Beyond Incentive Conflict" by Ranjay Gulati, Paul Lawrence and Phanish Puranam.  The paper uses ideas on coordination games (citing work by Colin Camerer and this blogger (thanks!)) to approach the adaptive capacity of various modes of procurement.  

   This issue confirms a tendency that has been discernible for some time: SMJ is becoming interesting again!  

-- 8 May 

EURAM 2005

I went to the meetings of the European Academy of Management (5-7 May) in Munich.  The conference title was "Responsible Management in an Uncertain World" (why is it that even established conferences choose these kind of completely empty and non-committing titles? what is the rationale of this? Tyler?) 

     The EURAM was established in 2001 as a sort of Euro-pendant to the North American (mainly US) based Academy of Management.  

      Well, the EURAM does have quite some way to go before it can begin to hope to match the AoM.  It was very clearly the case that the rejection rate was sub-optimally low.  It may be a good idea to place what are clearly PhD project presentations in a separate track, or prior to the conference itself.  And it is clearly not a very good idea to have track sessions while there are also keynote presentations going on!  

     Anyway, there were also many good points, and it was particularly good to see the beneficial effects of Americanism in academia (i.e., clarity in presentation) on mainly the younger Euro academics.   

     With Jetta Frost of Zeppelin University and JC Spender of Leeds University I was track chair on the Knowledge Management track. I tried to provoke the local Euro-subset of the KM community by arguing that KM is not a discipline, that it has no core, no heuristics, no key questions, and that it is likely to be coopted by neighbouring fields (strategic management, human resource management, organization studies, etc.) within the next decade or so. To my great surprise, most people in the audience seemed to agree. So much for provocation! And for KM? 

-- 7 May

Heavily cited -- but notoriously errorneous! 

In an earlier posting, I lamented the apparent irrationality of citation practices.  Here is a further example. 

      The example concerns the paper  “Production, Information Costs, and Economic Organization,” by Armen A. Alchian and Harold Demsetz, published in 1972, in American Economic Review 62(5): 772-795.  This is the famous "team-production" paper, one of the first papers to try to revitalize the Coasian research agenda of explaining the "nature" of the firm (cf. Ronald Coase 1937, "The Nature of the Firm," Economica), that is, explain why firms exist, and 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 of the points where the paper gets it wrong: 

 

1. Contra what the paper asserts, authority does make (economic) sense, and there is a difference between the authority exercised within the firm and the "authority" exercised in the marketplace.  This is so for legal reasons and because specialization may influence bargaining powers (Williamson, Masten, Hart).

2. Team production, i.e., technological inseparable production functions, is not necessary for the emergence of a "team problem" (Holmström).

3. The team problem cannot really explain the boundaries of firms; it doesn't explain vertical integration and it flies in the face of the conglomerate firm (Holmström and Tirole).

4. The paper does not really explain why and how the monitor/owner can overcome the informational asymmetries implied by the team problem. 

Etc.

    In spite of such errors the paper remains heavily cited.  Why? Note that is usually not cited in an explicit attempt to correct it (although its extremism with respect to the treatment of authority is sometimes critically mentioned).  It is very often cited as an early precursor.  (So, is Coase (1937), but the difference is that there aren't really any obvious errors in that paper; just an analysis calling for "operationalization").  

    Perhaps part of the reason is that the Alchian and Demsetz paper is very, very well written. And most of economics plainly isn't  Moreover, the team production story suggests all sorts of illuminating parables.  Students can immediatly relate to the agency problems that may arise in a group.  It is nice paper to teach. 

    I suggest that A&D remains a heavily cited paper because of its rhetorical and pedagogical qualities.  I will leave it to the reader to draw further conclusions about this. 

-- 3 May

New Paper by 2xFoss and 2xKlein

 

Kirsten Foss, Peter G Klein, and Sandra Klein, and I have just completed the paper,  ""Austrian Capital Theory and the Link Between Entrepreneurship and the Theory of the Firm," Here is the abstract: 

 

"Several writers link entrepreneurship to asset ownership, trying to incorporate the theory of entrepreneurship into the theory of the firm. The critical link, we argue, is capital heterogeneity. Transaction cost, property rights, and resource-based approaches to the firm assume that assets, both tangible and intangible, are heterogeneous; arranging these assets to minimize contractual hazards, to provide efficient investment incentives, or to exploit competitive advantage is conceived as the prime task of economic organization. None of these approaches, however, is based on a systematic theory of capital heterogeneity. In this paper we outline the approach to capital developed by the Austrian school of economics and integrate it into an entrepreneurial theory of the firm. We refine Austrian capital theory by defining capital heterogeneity in terms of subjectively perceived attributes, that is, the functions, characteristics, and uses of capital assets. Such attributes are not given, but have to be discovered by means of entrepreneurial action. Thinking of entrepreneurship as the organization of heterogeneous capital provides new insights into the emergence, boundaries, and internal organization of the firm, and it suggests testable implications about how and where entrepreneurship is manifested."

Enjoy! 

-- 2 May 

 

A reply to Thomas Basboll

1. It is not inconsistent with methodological individualism to argue that "ideas have consequences."  Staunch methodological individualists such as Karl Popper, Friedrich Hayek, Ludwig von Mises, and indeed everyone who argues in favor of methodological individualism, are, of course, trying to convince.  Their practice is not inconsistent with what they preach. 

 

2. I am not endorsing "ideological causation".  Claiming that an ideology has certain effects is merely shorthand for complex acts and practices of persuasion and rhetorics in complex networks of individual people.   There is no inconsistency here. 

 

3. That being said, I think that it is at least conceivable that "ideology" (as understood in the above sense) can cognitively frame certain actions and the incentives to engage in these actions. If we distinguish "ideology" from "incentives" we miss these interaction effects.  The point of the posting is exactly to argue in favor of inquiry into these effects.  

 

4. One of the main points of Dalrymple's book is that "poverty" is a very poor explanatory variable when it comes to accounting for the behavior of the "underbelly" of UK society.  Read the book. 

-- 28 April

 

Thomas Basboll on my "Cognition and Incentives" posting

 

Thomas Basboll mails the following: "Here’s a reflexive critique of your post on “Cognition and Incentives”. It seems to me that you are blaming ideology for crime on the basis of an argument that wants also to eschew appeals to “external causes”, i.e., to reject social explanations and, finally, to avoid ideological accounts of crime. The second part of your argument fits nicely with both your economic world view and methodological individualism. But your endorsement of ideological causation strikes me as inconsistent with these. From an economic point of view, it makes much better sense to distinguish “ideology” from “incentive” and then to define “the bottom” in terms of a particular configuration of incentives for criminal, but wholly rational, behaviour. This configuration is normally best called “poverty”. Ideology, as this book seems to suggest is just a way of obscuring the economic causes of social phenomena, i.e., the way that society emerges from the rational response of individual agents to material conditions.
     There is crime also at “the top”, of course. And the economic/institutional determination of the difference between top and bottom will not usefully be able to appeal to such social and collective vagueries as “ideology”. There are simply different incentives for rich people to commit crimes than there are for poor people. The configuration of these incentives go a long way toward explaining the institutions that we work in, even as we look beyond legal and punitive institutions. The appeal to ideology, that is, strikes me as garden-variety moralising that simply repeats the mistake that the criminal makes when explaining his own actions (before his accusers).
     Ideology, too, emerges from “society”."

-- 28 April.

Utilitarianism resurrected? 

I am reading Leland Yeager's Ethics as Social Science (2001) at the moment.  It is, in many ways, a brilliant and highly learned contribution.  Yeager's begins by noting that moral philosophy is besotted by "intuitions, revelations, and bombast." The remedy is to base ethics on sound social science, notably economics.  In particular, he stresses -- following Ludwig von Mises and Henry Hazzlitt -- that economics-based insights into the requirements of peaceful social cooperation are of paramount importance for ethics.  "Ought presupposes can," and the understanding of "can" is very much influenced by economics.  If, as Yeager argues, the ultimate value simply is that happiness is preferable to misery, economics has a lot to say about the (institutional) conditions of happiness. 

      Utilitarianism has had a decidedly bad press.  Even economists have been eager to distance themselves from utilitarianism (see the post on Colander below).  Yeager works hard to dispel what he thinks of as mistakes and myths concerning the interpretation of utilitarianism.  Thus, according to Yeager, utilitarianism is not collectivist. It does not presuppose the existence of some joint or collective sum that must be maximized.  Many of the presumed critiques of utilitarianism aren't really critiques.  In fact many of the critics (e.g., Murray Rothbard) make ample use themselves of utilitarian arguments. 

      Among the highlights is a very interesting discussion of non-utilitarian ethics. Yeager's main critique of such ethics is that they take too many judgments as fundamental rather than derived. Utilitarianism, in his view, only asserts at the fundamental level that happiness is better than misery; everything else is derived from that. 

       One disappointment, however, is that there is surprisingly little attempt to connect the analysis to the central notion of Pareto optimality.  First, some scholars (e.g., Kaplow and Shavell, but also Sen) insist on a strong separation between "welfarism" (which includes Pareto criteria) and "utilitarianism" (which says that aggregate welfare/utility should be maximized). Yeager's take on this (strange) division would be interesting.  Second, the neglect of the Pareto criteria seems to be inconsistent with the main aim of the book, namely to bring economics and ethics more explicitly into contact.  Another disappointment is Yeager's strange portrayal of Kantian ethics.  It is possible that he has been misled by Ayn Rand's equally strange portrayal. 

 

-- 25 April

Austrian economics and the theory of the firm:
a bibliography

Peter G Klein has prepared a nice online bibliography on the highly important research that takes place in the intersection between Austrian economics and the theory of the firm.

-- 20 April    

Should we drop the word "neoclassical"?  

In an extremely well written paper, "The Death of Neoclassical Economics," Journal of the History of Economic Thought 22: 127-143 (2000), David Colander claims that the "neoclassical classification should die."  Others, notably Mark Blaug, have also argued that the term is rather meaningless. 

     Colander's argument begins with a list of necessary criteria for  "neoclassical.  He then argues that most modern economists do not conform to these criteria.  The relevant criteria are: 1) focus on atemporal resource allocation, 2) acceptance of some kind of utilitarianism, 3) focus on marginal tradeoffs, 4) assumption of farsighted rationality, 5)methodological individualism, 6) general equilibrium.  Colander then for each points exemplifies how various modern economics contributions break with them.  For example, with respect to point 2), he says that "few modern economists today accept utilitarianism" (p.135) and with respect to 5) he invokes new institutitonal economists as engaged in work that is explicitly at variance with methodological individualism.  The upshot is the Solowian conclusion that the only thing that really unites modern economists is the modeling approach to social explanation. 

     While it is indeed hard to precisely define "neoclassical" economics, I think Colander (and Solow) goes much too far.  

     To some extent, it is based on a misreading on neoclassical economics.  For example, intertemporal resource allocation (i.e., contra 1)) was a major concern in the work of the Austrian capital theorists, Irving Fisher's work, etc.  Hayek did important work on intertemporal equilibrium in 1928.  Hicks'  developed temporary equilibrium.  The theoretical treatment of expectations was a big issue in the 1930s. 

      Colander also  jumps too easily to the conclusion that points 1) - 6) have been largely left in modern economics.   For example, contrary to what Colander says, methodological individualism has not been seriously questioned in economics, and certainly not abandoned (and most certainly not by new institutional economists).  Also, I would certainly think of most economists as accepting being consequentionalists, and while some may argue that  Paretianism is not utilitarianism, it is certainly closer than to ideas on rights.    In any case, all practical welfare assessments in economics are fundamentally utilitarian.  The distinction between "welfarism" and "utilitarianism," while theoretically meaningful, breaks down under the impact of reality. 

      Economists have relaxed much of the central core, but that is different from breaking with core propositions.  

-- 18 April

    

Cognition and Incentives 

I have just completed reading Theodore Dalrymple's splendid Life at the Bottom: the Worldview that makes the underclass.  This is both confirming, challenging and inspiring reading for somebody who subscribes, at least to some degree to the economic worldview, i.e. notions that people respond (rather predictably) to incentives and in many ways react fairly rationally, that separating actions and consequences is often highly unfortunate, etc.

     The author is a prison and hospital doctor in Birmingham. He has first-hand experience with the underbelly of UK society.   

     Dalrymple presents in one extremely well written chapter after another the dire consequences, particularly for the very poorest, of the separation of actions and consequences that effectively follows from the dominant ideology that defines the causes of crime, poverty, illiteracy, teenage births, fragmented families, alcoholism, child abuse, etc. as somehow emerging from "society."  Thus, the production of severe negative externalities is prompted by a particular ideology of social policy, a particular way of cognitively framing actions, responsibilities, and outcomes.  

      This is an instance of what sociologists call "reflexivity."  In case after case, Dalrymple shows how many evils, e.g., crime or drug abuse, are in fact very consciously chosen -- and that they are almost always rationalized ex post (by  the "victims" themselves) as caused by forces outside the chooser's control.  

     The interplay between incentives, opportunities and ideology in all this is fascinating (and highly scary!), particularly for the social scientist.  There is a strong suggestion that incentives and cognition interact in subtle ways.  To be sure, the incentives for engaging in all sorts of anti-social behavior are strengthened by a prevailing ideology of no-blame, no-consequences, no-shame, no-values, etc.  This suggests the existence of a cognitive and moral dimension to institutional design that economists have been particularly blind to. 

-- 17 April 2005

 

Highly Recommended

We will leave the subject of French philosophy temporarily (although it will surely pop up again at this blog), and instead recommend a paper that has just been published, namely JC Spender, "Review Article: An Essay of the State of Knowledge Management," Prometheus 23 (March): 101-116. This is a very thoughtful piece on KM that takes its point of departure in three recent books. Spender raises the issue of what is really new in KM, particularly since much contemporary KM consulting is just "old-style systems analysis, human resource management, or organisation development" (p.101). To carve out a distinct role for KM and revitalize the field, Spender suggests that KM scholars begin from Simon's notion of bounded rationality.  This is to be strongly applauded as one of the key problems in KM is the absence of any behavioral foundations. (cf. earlier posts on this blog).  

-- 14 April

Bent Meier Protests

My comments on French philosophy has resulted in a response from my colleague, Bent Meier (please note that I don't feel committed in general to upload comments, but Bent's comment is so eloquent that it is a must): 

Being one of the scholars who enjoys the double pleasure of both being collegue with Nicolai JF AND being engulfed in the writings of hard-to-get philosophers like Deleuze, Derrida and Kierkegaard, I feel motivated to contribute to the debate.

 

Of course, the debate could have had a better take off. Nicolai ’introduces’ Gilles Deleuze by randomly chopping out a couple of sentences from an oral lecture given by Deleuze in 1973. Subsequently, and without Deleuze’s collaboration, the taped lectures were transcribed and, much later, translated somewhat inadequately into English.

Nicolai also chooses to bring a piece which, taken out of context, is next to unreadable, even for the most stern postmodernist (which Deleuze, by the way, sternly rejected to be counted among).

So, the point made, despite whatever was the intended point, is that just like a chip of Bjørn Lomborg in his statistical excurses only makes sense to the incrowd, so does this piece of Deleuze only show the happy amateurism of the one cutting it out. It shows us nothing about Deleuze.

A number of Deleuze’s books are accessible to any aducated layman, I’ll mention but two: Gilles Deleuze and Claire Parnet (1987): Dialogues. New York: Columbia University Press. Coauthored with Felix Guattari, he also wrote (transl. 1994): What is Philosophy? New York: Columbia University Press.

Secondly, Nicolai mentions the issue of meta-theorizing. There is certainly some merit to this question, only, the philosophers that here recieves attention are explicitly rejecting that current philosophy should have that mission. Philosophy is what is does, says Deleuze, ie, a philosophy that doesn’t do anything (except maybe fascinates by its eloquence), is worth nothing. Such a warrant would also, in Deleuze’s wiev, be out for economy. On top of a discussion of accessability comes our ’current condition’: new conditions require new vocabulary, says Deleuze further. We could mention ”knowledge management” and ”heterogeneous capital” as examples.

Nicolais third objection deserves a reprint: ”Third, recent French philosophers do have a reputation for being, ehhmmm, hard to comprehend, even among professional philosophers.” Of course, this is a blog-discussion, but I will be so kind as not to share with you what I have, ehhmmm, heard about economists, why they turned to economy after having given up girls (or whatever), and why they don’t dare to try out non-economic world views, Nicolai and Mirowski (as a historian, but you know what I mean) being possible exceptions. At least Nicolai googled ”Deleuze”: who else does that in the e-camp?

Finally, Nicolai has to drag out Sokal himself (Nicolai once in his life qouting a full blown Marxist!). Lets stick to Deleuze: in the age of 25 he had to choose between mathematics and philosophy. He has read, understood and produced more mathematics than ANYONE that reads this blog. Moreover, it has been documented, with explicit reference to Sokal and Bricmont’s book, by (the hard science/rationalist/analytical philosopher) Manuel DeLanda, that all of the math and physics – in every detail – in Deleuze and Guattari’s writings is fully compatible with the decisive post-war scientific progress within these fields, see Manuel Delanda (2002): Intensive Science and Virtual Philosophy. London: Continuum. (Cf. also my discussion of the book in Bent Meier Sørensen (2003): 'Gilles Deleuze and the Intensification of Social Theory' in ephemera. theory and politics in organizations 3(1).)

The real interesting point in my view, however, is that both philisophy and economics seems to be moveable feasts these days: let’s here make reference to a third collegue at our department: Jakob Vestergaard, who has published ”The Asian crisis and the shaping of ‘proper’ economies” in Cambridge Journal of Economics, 3 November 2004, vol. 28, no. 6, pp. 809-827(19). For the first time in the history of CJE is Michel Foucault now a keyword.

All this should guarantee some feasts in the future, even for people without the great luck of having the collegues that I have.

 

-- 14 April

 

More on French Philosophy

I have received a number of comments on yesterday's entry on French philosophy.  One person objected along the following lines: "Why is it only philosophy that has to be written so that everybody can understand it?."  

     This is not at all a stupid objection.  Productive specialization in the sciences always implies specialized terminology.  Why not make the requirement that particle physicists write so that the "educated layman" can comprehend particle physicists?  Obviously, such a requirement is absurd; why then present (French) philosophers with such a requirement?

     Well, there are various answers, although perhaps none that are entirely definitive.  

     First of all, I would maintain that quite a lot of existing Western philosophy is in fact accessible to the intelligent layman.  Reading the Critique of Pure Reason or even The Phenomenology of Spirit, for example, is actually possible without being a professional philosopher.  Certainly, Karl Popper is highly accessible (and he is also famous for insisting on clear and accessible writing).  I would also consider much of what is published in the contemporary professional philosophy journals accessible "in principle" to the educated layman (meaning that it would require some hard work, but not a degree a philosophy to read these papers).  Some of Foucault's stuff is accessible. 

     Second, some philosophers, particularly philosophers of science,  think of what they do as meta-theorizing.  Don't they have an obligation to write so that those relative to whom they are "meta" can understand it?  Other philosophers simply argue that their trade consists in rigorous, abstract reasoning about the fundamental issues.  Because this, too, is in a sense an overarching undertaking, it would also seem to me to imply some kind of obligation towards being comprehensible to others than professional philosophers.  (Although one can surely have a specialized terminology about, say, moral philosophy and ontology). 

     Third, recent French philosophers do have a reputation for being, ehhmmm, hard to comprehend, even among professional philosophers.   

     Fourth, it has been definitively established that certain parts of recent French philosophy are  mumbo-jumbo, namely when people like Julie Kristeva, Jacques Lacan and Felix Guattari grossly misuse mathematical and natural science notions that they demonstrably have not understood.  See Alan Sokal and Jean Bricmont, Fashionable Nonsense: Postmodern Intellectuals' Abuse of Science, New York, Picador, 1998. 

-- 12 April

 

Needed: Some Economics of French Philosophy

A number of my CBS colleagues endorse the thought of Foucault, Derrida, Deleuze and others.  They think that the thoughts of these philosophers have profound implications for management studies.  Many management scholars, particularly in Europe, would seem to agree.  

      I have never been really able to make sense of the summaries I have been given of the thoughts of recent French philosophers, with the thought of Foucault as a partial exception. I am not one who automatically dismiss a field because of its seemingly garbled terminology, as many of my economist friends routinely do (perhaps a bit too hastily, given that econ has its amount of mumbo-jumbo).

      However, what is one to do with a passage such as this from Gilles Deleuze, the alledgedly most "radical" of the bunch: "There is a book from which one can learn many things, entitled Sexual Life in Ancient China .... This book shows clearly that manuals of love and manuals of military strategy are indiscernible, and that new strategic and military statements are produced at the same time as new amorous statements.  That's curious.  I ask myself: OK, how can we extract ourselves, at the same time, from a structuralist vision that seeks correspondences, analogies and homologies, and from a Marxist vision that seeks determinants.  I indeed see one possible hypothesis, but it's so confused ... It' perfect. It would consist in saying: at a given moment, for reasons that, of course, must still be determined, it is as if social space were covered by what we would have to call an abstract machine. We would have to give a name to this non-qualified abstract machine, a name that would mark its absence of qualification, so that everything would be clear. We could call it -- at the same time, this abstract machine, at a give moment, will break with the abstract machine of the preceding epochs -- in other words, it will always be at the cutting edge ... thus it would receive the name machinic point ."  And so it continues.   (From www.webdeleuze.com). 

      Deleuze, I am being told, is hip.  He is strong in the humanities.  His interpreters are legion.  Why, I ask myself, can many people read and endorse what my gut feeling tells me is simply pretentious mumbo-jumbo (and, again, I won't rule completely out that this gut feeling is wrong and Deleuze does make sense, but .... )? We need some economic reasoning to reveal the rationality behind this silliness.  Is it the case that entry into the industry of interpreting the particularly dull texts is one that may be particularly profitable?  It would seem so.  Could the reason be that one can make a living out of interpreting mumbo-jumbo (since almost any interpretation will do)? Can one get a reputation from being particularly profound in this industry (as Tyler Cowen would seem to suggest; see his What Price Fame?).  

 

-- 11 April

Copenhagen Conference on the "Microfoundations of Organizational Capabilities and Knowledge Processes."

 

With Teppo Felin I am organizing a conference at the Copenhagen Business School on the above subject, to take place 1-2 December.  Among those who have agreed to participate are Peter Abell, Paul Carlile, Anna Grandori, JC Spender, and Ulrich Witt.  More information here.

If you are interesting in participating, please drop a mail to Teppo or me with a prelim title and abstract. 

-- 9 April

Vacant Positions at the Strategic Management Group, CBS

See the CBS Job Database for more info on the vacant assistant professorship in strategic management, the associate professorship in knowledge management and the associate professorship in strategic management. Application deadline is 17 May. 

-- 9 April

A Neglected Classic: Lomborg (1996) 

Before Bjørn Lomborg was catapulted to international fame with his  The Skeptical Environmentalist he did extremely interesting work on the basic issues in social science.  Lomborg's first published paper is “Nucleus and Shield: The Evolution of Social Structure in the Iterated Prisoner’s Dilemma,” published in the highly prestiguous American Sociological Review (vol. 61, pp. 278-307) in 1996.  The paper takes its point of departure in the Hobbesian problem of social order, and therefore links up with the large literature on the prisoners’ dilemma-game as the main parable of this problem.  

      One important novelty of the paper is, however, that it deals with a key sociological argument against methodological individualism, namely that the argument that PD-problems may be resolved is superficial, because this only moves the PD-game to a higher level.  Therefore, the argument asserts, in order to argue for norms, it is necessary to call on other norms – which invalidates strict methodological individualism.  

      However, Lomborg makes an attempt to vindicate methodological individualism by means of non-cooperative game theory approach, specifically in a multi-agent (>1.000.000 players) setting where, accordingly, atomism rules, and where interaction is anonymous.  Agents are modelled as bounded rational, thus, they follow heuristics, but they can learn from interaction and they can come up with new strategies (this is different from the approach of Axelrod and others that focus on the robustness of strategies in an iterated game). Noise is explicitly introduced to complicate the setting.  

       In this setting, Lomborg is able to demonstrate (by means of a simulation approach) that cooperation can be achieved and is stable, even if the level of noise is high.  The level of cooperation achieved by agents that can learn and innovate is higher than that achieved by agents that consistently play tit-for-tat.  Interestingly, the analysis suggests that the problem of social cooperation may partly be a problem of keeping out “too nice” strategies, because they make exploitation too tempting. Methodologically, the analysis suggests that indeed a purely individualistic approach is feasible. 

     When the whole nonsense thing about Lomborg being scientifically dishonest broke out, there were plenty of suggestions that Lomborg was "not a real scientists."  This paper proves otherwise! 

      On a personal note, I was a colleague with Lomborg for about a year at CBS around 1992, and remember him presenting what essentially became Lomborg (1996) to an audience of mainly sociology-oriented colleagues.  The entertainment value of this exercise was substantial. 

-- 7 April 

The Press and the Pope

There is an excellent comment by John Cavanaugh on reasononline on the press' coverage of the death of John Paul II.  Cavanaugh argues that  "The power positions in the media (and in fact in most of the country's institutions) belong to secularists, rationalists. These people are not necessarily indifferent to religious belief; they just aren't equipped to deal in the non-rational, unscientific, non-empirical (or more often, selectively empirical) interests of religious believers. The things that are of vital, world-beating importance to people of faith are items that the average media personality (or pundit or politically motivated blogger) is incapable of treating except in the tones TV meteorologists employ while tracking Santa's sleigh on Christmas Eve.

Is one of these two sides right and the other wrong? In the smart media, and certainly at this publication, it's popular to lament the powerful irrationality of the faithful, and note that faith in miracles and dispensations is a constantly losing battle against facts and logic. Against that, I'd only say that I would not want my country defended by an army of rationalists, nor would I like to live in a society governed to the specifications of social scientists (even libertarian social scientists), nor do I think the head of UNICEF or a Harvard president or two former Beatles would have been as effective in opposing the Jaruzelski regime as was John Paul II."

-- 4 April 

I get mail: Citations and quality

Giampaolo Garzarelli writes: "I read your blog of April 1 (reported below) about how there may not always be a direct causal link between an author's most cited paper(s) and the quality of such paper(s). You correctly point out that this may be frustating, especially if later on one publishes papers of higher quality that do not end up being cited much, or at all. You accordingly raise some provocative questions about the consequeeces and reasons for all this and possible (again, provoking) solutions for avoiding this. Well, isn't this an embeddness and knowledge growth issue as well? Or, to pose the same question differently, isn't this a relative rather than an absolute issue as well? At the time you wrote the 'low quality' papers you didn't know yet that they would be -- perhaps -- low quality contributions because neither you nor the Invisible College that accepted them perhaps knew much about the topic. Relatedly, because those contributions were among your first they were de facto your first 'business cards' diffused to the Invisible College and became (yes, in a path dependent way) what you became identified with: they are the historical memory, as it were, of Nicolai Foss to the his Invisible College. Some other considerations/questions:
1) The science of ex post, as it is often remarked, is always an exact science--again, knowledge grows;
2) Your other "better papers" do they really completely deviate from the orginal research program defined by the earlier, lower quality papers?
3) Is this an endogenous proof that the knowledge growth program is actually a relatively more fertile research program?
4) Don't scientists, science and the sociology of science have different development paths? And can't these paths themselves be path dependent?
5) Isn't embeddedness after all just a knowledge issue as well?"

-- 2 April  

Citation Numbers Frustrations and Reflections

One of my most cited papers is a paper on "Theories of the Firm: Competence and Contractual Perspectives," published in the Journal of Evolutionary Economics in 1993.  I essentially wrote the paper as a first year PhD student, and the quality reflect this: The paper is pretty awful.  My most downloaded paper is "Capabilities and the Theory of the Firm" (1996) which, I got to admit, isn't exactly a quality product either.   Some of my better papers aren't cited nearly as much -- or at all.  What are the implications of this? Never publish before the age of 40? (impossible -- unless of course you begin your PhD pretty late).  Don't publish crap? (well, grap's got its audience). What is published and heavily cited cannot be that crappy? (and I am wrong).  Etc. I am sure there is a strong case for some kind of government intervention here. 

-- 1 April 

More on KM and Related Issues

Peter Klein writes: "Saw your blog entries on KM. Very interesting. Another problem I have with the KM literature I've seen (admittedly not much) is that it seems to ignore the concept of the margin. Knowledge sharing is treated as an absolute thing -- a firm either has it or it doesn't -- rather than something that a firm can have a little more or a little less of, on the margin. The same is true of the "happy-is-productive" approach favored by people like Ghoshal. They argue that using incentives retards intrinsic motivation. Even supposing that's true, it could be that on the margin, the benefits of increased productivity from extrinsic motivation exceed the costs of reduced intrinsic motivation, so there is a net gain from incentive pay."

-- 30 March

 

Yoram Barzel 

Barzel is without much doubt one of the most original contemporary economists. I just came across this moving tribute to him, written by one of his former students, Doug Allen.  

      Allen notes that "Yoram has been extremely influential.  There are many people in our profession with more than 40 papers to their credit. Yet very few of us have written papers that others care about. In contrast, some of Yoram’s papers are the most cited in our discipline, and his ideas permeate much of the writings of others. In particular his 68 paper on racing to innovate and his 76 paper on taxation are frequently ranked in the top 20 cited papers of all time. Other paper’s by Yoram are so important that they have defined a literature. Here I’m thinking of his 77 paper on information costs and his 82 paper on measurement. When people talk about the ABC’s of Property Rights, they might have Alchian and Coase in mind, but the B stands for Barzel. To a lot of us the work of Yoram is the bedrock of this field."    

      Allen may be exaggerating a bit, because when economists nowadays talk about property rights they don't talk about the ABCs but perhaps rather the GHMs (Grossman-Hart-Moore). However, in many ways Barzel's analysis is far more sophisticated than the GHM treatment. For a paper that makes this claim, see Kirsten Foss and Nicolai Foss. 2001.    “Assets, Attributes and Ownership,” International Journal of the Economics of Business 8: 19 -37.

-- 30 March

Furthering research in KM  - Part II

In the post immediately below, I lamented the lack of a rigourous understanding of the behavioral foundations of knowledge management research and the links from knowledge sharing to organizational outcomes.  On Friday 1 April the research project "Foundations of Knowledge Sharing: Behaviors and Outcomes" (FOKS) will officially begin. It is supported by 3,5 millions Danish Kroner by the Danish Social Science Research Council, and will be organized under the Center for Knowledge Governance at CBS (you can also find a project description at the CKG site). The project is designed to throw light on the behavioral foundations of, organizational context for, and organizational outcomes of knowledge sharing.  Joining me in the project are a number of excellent colleagues, notably Peter Abell, Torben Pedersen, Keld Laursen, Thorbjørn Knudsen, Kirsten Foss, Jens Gammelgaard, Dana Minbaeva, Sara McGaughey, and Lars Bo Jeppesen. 

 

-- 28 March

Furthering research in KM  - Part I

"Knowledge management" (KM) has for a long time had a somewhat problematic reputation.  On the one hand, it has an even for business administration unusually high amount of sloppy and mysterious concepts and arguments; on the other hand, it is hard to deny that it is on to something real.  Here is a personal list of problems that should be high on the KM research agenda -- but actually aren't: 

1. Understanding the role of extrinsic and intrinsic motivation in knowledge sharing -- in particular, does a motivation crowding out problem exist?  In other words, do you actually harm knowledge sharing if pecuniary rewards for sharing are given? 

2. Opening the black box between knowledge sharing and performance at the firm level? At present the benefits of knowledge sharing seems to be taken for granted with little attention being devoted to exploring how exactly knowledge sharing improves performance.  How does the sharing of knowledge improve the carrying out of specific activities?  What is the role played by organizational factors in this process? 

3. Relatedly, more attention should be devoted to the costs of knowledge sharing.  Because of the relative lack of serious attention to the benefits and cost of knowledge sharing, there is no framing of optimal knowledge sharing in the literature. 

-- 25 March

Talk on entrepreneurship 

and the theory of the firm

Today I gave a talk at the Stockholm School of Economics to the entrepreneurship group.  The talk is here (powerpoint slides).  The audience made numerous excellent points, including pointing to the need to develop a more fine-grained analysis of the organization of entrepreneurial judgment, and a questioning of the claim, implicitly made by Knight, Mises, Rothbard, and many others that entrepreneurial judgment is non-tradeable.  In other words, what is required is a fine-grained discussion of the scope of ownership in an entrepreneurial setting. 

    Milo Bianchi and Magnus Henrekson from the Stockholm School have written a very nice paper on entrepreneurship in neoclassical economics, "Is Neoclassical Economics Still Entrepreneurless?".  They essentially conclude that although neoclassical economics has made significant strides forward in treating important aspects of entrepreneurship, some of its essential characteristics (Knightian uncertainty, disequilibrating) are likely to remain outside of the orbit of neoclassical economics.

 

-- 22 March 2005

Sumantra Ghoshal on economics and its imperialistic attacks on business administration

I have just read Sumantra Ghoshal's diatribe against (neoclassical) economics and its imperialistic inroads into business administration in the latest issue of Academy of Management Learning and Education.  Until his untimely death last year, Ghoshal was a highly respected professor at the London Business School. 

     Ghoshal's piece is essentially a generalization on his earlier attack (with Peter Moran, Academy of Management Review, 1996) on transaction cost economics.  The archvillain in the present work, however, is agency theory. 

     In Ghoshal's reading a "pretense of knowledge" (Hayek receives generous acknowledgment) combined with "ideology-based gloomy vision," both prompted by a mixture of classical liberalism and neoclassical economics, has invaded business administration with disastrous consequences, notably the corporate scandals of recent years.  In general, because of the "reflexivity" that characterizes social sciences, these villainous ideas may transform corporate behavior in a manifesly undesirable direction.  

    Much of this is over the top, to put it mildly, and some of it is so far out that it has to be read to be believed.  Why do people continue to characterize "neoclassical economics" patterned on the 1970s Chicago price theory stereoype?  And why doesn't the Academy of Management Learning and Education ask some economists for reactions to Ghoshal's piece? You wouldn't expect Henry Mintzberg and Jeffrey Pfeffer to disagree that much, would you?  

    Lest I be taken to condemn Ghoshal as cranky, let me note that there is clearly something to much of what he says.  As Ghoshal points out, the emphasis on shareholder value maximization is simply theoretically unfounded, given the importance of incomplete contracts in the real world. And we do need to come much better to grips with the role of intrinsic motivation in organizations? But why does it have to be presented in this un-nuanced, stereotyping, primitive way? Ghoshal essentially portrays economics as Chicago-style 1970s price theory, but economics has progressed and changed immensely since then. Shouldn't Ghoshal develop some kind of empirical evidence for the many essentially falsifiable propositions about the impact of economics on corporate reality?  Etc. 

 

-- 20 March 2005

 

Abell and Reyniers on Castells

 

There is not much passion left in the social sciences, at least not in those that make sense.  While sociologists, particularly European ones, often conduct their discourse (!) with considerable passion, blaming – implicitly or explicitly -- capitalism, Ariel Sharon, George Bush, Milton Friedman, etc etc., for whatever evil in this world, passion is seldom encounted in the more analytical social sciences.  In particular, why does it  have to be so boring to read formal economics?

Anyway, here is rational choice sociologist (and Copenhagen Business School colleague), Peter Abell and economist Diane Reyniers (LSE), in a paper that I re-read today, firing away: “None of the chapters of Castells’ book would easily find a place on the pages of a respectable social science journal supported by appropriate refereeing standards. The quality of the writing and the often inept and selective (secondary) use of data would rule this out.”  Phewww!

Any rational person who has tried struggling with Castells’ murky prose will appreciate Abell and Reyniers’ efforts.  It is quite possible that Abell and Reyniers’ critique is over the top.  Trouble is: It is hard to tell, because making sense of Castells is difficult – which in itself vindicates Abell and Reyniers. You can find Abell and Reynier's effort in Peter Abell and Diane Reyniers. 2000. “On the Failure of Social Theory,” British Journal of Sociology 51: 739-750.

-- 19 March 2005