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performativity: do economists make markets?

Teppo

A new edited book (by Donald Mackenzie, Fabian Muniesa, Lucia Siu) published by Princeton University Press further discusses ‘performativity’ (a frequently discussed and mentioned concept here at orgtheory.net):

Do Economists Make Markets? On the Performativity of Economics (here’s a pdf of the first chapter). More potentially later as one of us runs into a copy.

Update:  Here’s an earlier version of the Callon chapter, which Swedberg calls the “most important statement on performativity” – Callon, M. What does it mean to say that economics is performative?

Written by teppo

July 9, 2007 at 5:11 pm

Posted in books, teppo

book spotlight: the inner lives of markets by ray fisman and tim sullivan

inner lives

The Inner Lives of Markets: How People Shape Them and They Shape Us is a “popular economics” book by Ray Fisman and Tim Sullivan. The book is a lively discussion of what one might call the “greatest” theoretical hits of economics. Starting from the early 20th century, Fisman and Sullivan review a number of the major insights from the field of economics. The goal is to give the average person a sense of the interesting insights that economists have come up with as they have worked through various problems such as auction design, thinking about social welfare, behavioral economics, and allocation in a world without prices.

I’ve taken a bit of economics in my life, and I’m somewhat of a rational choicer, so I am quite familiar with the issues that Fisman and Sullivan talk about. I think the best reader for the book might a smart undergrad or a non-economic social scientist/policy researcher who wants a fun and easy tour of more advanced economics. They’ll get lots of interesting stories, like how baseball teams auction off player contracts and how algorithms are used to manage online dating websites.

What I like a lot about the book is that it doesn’t employ the condescending “economic imperialist” approach to economic communication, nor does it offer a Levitt-esque “cute-o-nomics” approach. Rather, Fisman and Sullivan explain the problems that actually occur in real life and then describe how economists have proposed to analyze or solve such issues. In that way, modern economics comes off in a good light – it’s an important toolbox for thinking about the choices that individuals, firms and policy makers must encounter. Definitely good reading for the orgtheorist. Recommended!

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Written by fabiorojas

October 19, 2017 at 4:08 am

nudging the economists (guest post by juan pablo pardo-guerra)

It is the best of prizes. It is the worst of prizes. Let me focus on the latter.

On Monday, the renowned behavioral economist Richard Thaler was awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel Prize in Economics. For the Washington Post, the award made “economics more human—and real”. For The Atlantic, it was a much-deserved recognition for someone whose “career has been a lifelong war on Homo economicus”. There may be much to celebrate, but there is even more to ponder.

Thaler’s award speaks to three problems in economics and its relation to the ‘real world’ it inhabits. Firstly, it is disparaging that the prize recognizes research showing “that people can be influenced by [mostly social] prompts to alter their behavior” given that other sections of the social sciences have been doing this for, well, just about forever (e.g. seems there was this French dude called Gabriel Tarde…). This year’s Nobel Prize was as much a recognition of behavioral economics within the intellectual firmament of the discipline as a legitimation of economic imperialism: a finding is only truly relevant if published by an economist (corollary: being an economist from Chicago helps).

This year’s Nobel Prize is problematic for a second reason. Behavioral economics does not seem to be in the same league as the politically troublesome contributions of some of the more controversial previous laureates (think: Milton Friedman or Robert Lucas), but as a matter of fact, it sort of is. Though it might make economics “more human—and real”, the behavioral turn doesn’t make away with the ontological commitments of discipline, privileging market processes and individual action as the fundamental sources of virtue. Consider the metaphor of the ‘nudge’, central to the type of applied behavioral economics that made Thaler’s research so publicly relevant. Rather than questioning the economics of general equilibrium, ‘nudging’ is a proposal in calculated engineering: we can build policies that create outcomes similar to those of theory by gently walking slightly irrational, bounded economic agents through the correct ‘architectures of choice’. I am not saying that this is not positive: I am sure that creating psychological incentives so that people increase their investments in retirement will eventually help them; but so would a stronger social security net and a stronger, better funded state welfare apparatus. At the end of the day, the metrics of success in behavioral economics are uncritical of how the economy is built and remit to the ‘less human’, more market-centered, and ‘more surreal’ varieties of economic analysis that behavioral economists like Thaler so bemoan at a first degree of approximation.

Thirdly, the economics prize showcases and arguably reproduces the lack of diversity and intellectual variety in the discipline. Historically, the economics prize is overwhelmingly white and male. Only one woman received the prize to date—Elinor Ostrom, “for her analysis of economic governance”; the same is true for non-white economists—represented by Amartya Sen for his “research on the fundamental problems of welfare economics”. So while economics might expand its reach in colleges, universities, and government offices throughout the world, the Nobel committee reminds us year after year that there is pretty much one type of economics that is better than the rest. It has a race; it has a gender. This is quite regrettable, particularly in a year when discussions about gender in economics were so prominent in the news. There is no dearth of women or minorities in economics—example: Maureen O’Hara’s work in market microstructure theory is perhaps more relevant and intellectually important than Eugene Fama’s somewhat passé discussions of asset prices and market efficiency from the 1970s that were recognized with the Nobel Prize in 2013. (Harvard’s Carmen Reinhart also jumps to mind).

So this was the best of prizes (for Thaler—kitchen remodel) and the worst of prizes (for the rest—economics won’t change much), a missed opportunity to nudge the discipline in a slightly different direction. Perhaps this is asking too much from a committee that represents all too well the gendered dynamics of economics in Sweden (I could not find a female committee member, but I might be wrong): in 2005, Statistics Sweden only identified one full professor of economics in the entire country. How’s that for an architecture of choice?

Juan Pablo Pardo-Guerra is an assistant professor of sociology at UCSD. His research explores the connections between markets, cultures and technologies.

 

Written by jeffguhin

October 11, 2017 at 12:26 am

economists and survey skepticism

Over at Evil Twin, Nicolai Foss gently chides Bloom and Van Reenen for publishing a paper in the AER proceedings called “New Approaches to Surveying Organizations.” The issue is the validity of survey data versus other types of data:

As a rule register data are not available that can be used to address numerous interesting issues in organizational economics, labor economics, productivity research and so on. Scholars working on these issues have to resort to those softy surveys and interviews that have been the workhorses of business school faculty for decades. This is a new recognition in economics. Case in point: A recent paper by Nicholas Bloom and John Van Reenen, “New approaches to surveying organizations.”  There is absolutely nothing, I submit, in this short, well-written paper that would surprise virtually any empirically oriented business school professor (i.e., virtually all bschool professors) to whom this would not be anything “new” at all, but rather old hat.

This is not a critique of Profs. Bloom and Van Reenen at all (on the contrary, it is excellent that they educate their economist colleagues in this way). It is just striking and a little bit amusing, however, that we have had to wait until 2010 until empirical approaches that have been mainstream in management research for decades reach the pages of the American Economic Review.

I agree. In the comments, Bloom argues that he didn’t find any papers addressing these issues. This is odd, a lot of the suggestions for surveys make sense and many are well discussed in the literature on surveying individuals. For example, did they consult Dillman’s works? There are also handbooks discussing surveying organizations. There’s a huge industry of people who study survey bias.

A few additional comments: I have heard multiple economists express survey skepticism. The correct response is that reliability of survey responses varies and some questions are better than others. For example, people seem to be pretty good at reporting health, while they outright lie about attending church. Surveys by themselves aren’t good or bad, but individual questions can be high quality or low quality. Also, a lot of our most important data is from self-reports – like the Census, CPS, HRS, etc. I don’t see people ditching the Census.

Second, the real problem in survey research in organizations isn’t bias. It’s response rate. There’s all kinds of tricks to boost response rates for people, but getting people to respond at work (or about work) is really, really hard. And it’s miserable for longitudinal work. If Bloom and Van Reenen can produce a solution to low response rates from orgs, I’ll be really impressed.

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Written by fabiorojas

March 20, 2012 at 12:01 am

performativity of markets and endogeneity

I believe someone on this blog banned the word “performativity” some time ago — but, I’m going to lift the ban for a second and give a quick report on the performativity session at the Academy of Management in Montreal last week.

The session was well attended and good fun.  It involved Fabrizio Ferraro and Daniel Beunza, Yuval Millo, Nicolai Foss and me, and Bruce Kogut.  As I’m sure that the Socializing Finance folks will also give a report,  I’ll just give a quick summary of our presentation.

First, we (this is co-work with Nicolai) discussed some good news (slide #1) about the performativity argument vis-a-vis markets:

  • It attempts to open the black box (construction) of “markets.”
  • Performativity focuses on actors and their subjectivity, along with the specific tools, devices and socio-political machinery of market construction.
  • Often provides rich histories of economic phenomena.

Then the bad news about the performativity of markets argument:

  • Simply: it’s wrong (this was slide #2).

More seriously, one way to perhaps summarize the issue with the performativity argument is that it suffers from a serious endogeneity problem.  Namely, the performativity approach selects a particular model (theory, device, etc) and traces it’s “effect” (diffusion, use) through history, post hoc, without looking at the set of possible models (or devices) that might have been chosen or created.  In fact, performativity assumes that models, a priori, are “arbitrary” and thus ignores (even rejects) the underlying “reasons” for why the particular model (or device etc) has an effect or perhaps is better than feasible alternatives.    So, let me elaborate:

  • The performativity argument mistakes uncertainty for performativity.  In other words, what seemingly looks like performativity is actually the “best efforts” and guesses of actors to understand states of the world or create devices to explain it.  Given this uncertainty it is unfair to simply label this initial work by actors as a performance, though this is precisely what the performativity argument does: it takes imperfect models, developed by informationally-constrained actors, and traces the diffusion, uses and aberrations of these models (the data of performativistas).
  • Put differently, performativity samples on the dependent variable by only focusing on the successful models rather than the set of possible models (or looking at how, given heterogeneity, a particular model emerges).
  • Furthermore, performativity not only dispenses with notions of truth, but also comparative notions such as “better.” According to performativity, there is no way to judge a priori, the truth of models is directly linked with the diffusion or social acceptance of these model, and their self-fulfilling nature.
  • So, performativity, then, essentially confounds social acceptance and diffusion with performance itself without recognizing the rationality and informational constraints of human agents. That’s a problem.
  • Performativity rejects any notions of being (granted, subjectively) able to assess the environment.  To get more concrete — Fabrizio for example talked about how socially responsible investment vehicles (tools, markets, etc) were created, and cited performativity as the explanation.  But clearly the construction of this market is not impervious to an actual, real market opportunity.  Or?  Can any market be performed?
  • The whole counter-performativity notion directly refutes performativity itself.  The performativity argument is self-refuting in several ways.  First, performativity has to logically allow, though doesn’t, for some kind of a priori reality that is being modified by the performance.  Second, if performance is the only act in town, then there is no way for counter-performance to emerge.  For example, the notion of a bubble (well, specifically the “pop” of a bubble) is logically not explainable from a performativity perspective.
  • I have often wondered how the performativity program reflexively sees itself.  So, for example, if, as performativistas say, economists are engaged in an arbitrary performance, what is the performativity program itself doing?  It seems to implicitly take on a rather privileged stance vis-a-vis itself, though this stance (again) is self-refuting given the assumptions that performativity makes about the exercise that others are engaged in.
  • Yuval kept talking about “testable reality” and “prediction” vis-a-vis performativity.  His point, I think, was that social acceptance is the test, but note again that agents are deliberating about the potential uses of a model or device under uncertainty, with feasible alternatives and informational constraints, and that is quite different from performativity.  One can’t simply point at Ptolemy’s geocentric model and tell a performativity story.
  • A final concern is that the performativity of markets/finance argument builds directly on the Edinburgh strong programme of research (and science and technology studies), which fundamentally dispenses with the very notions of science and knowledge (a la Barnes and Bloor: prediction and explanation, reason and rationality are thrown out the door).

OK, that’s my quick laundry list.

Overall, despite my pessimism about performativity argument, I do think that we need additional theorizing and empirical unpacking of the notion of “markets” — something that the performativity program is attempting to do.   There are clearly important processes of social construction going on in markets, and understanding the actors, their subjective assessments and models, influence processes and mechanisms, tools, devices etc seems central for a proper understanding of markets.  So, I’m glad the performativity folks are also addressing these types of issues and are willing to engage in friendly interactions and lively debates.

Written by teppo

August 17, 2010 at 10:44 pm

Posted in markets

markets on trial

I attended a really interesting conference this weekend that brought together some leading economic sociologists and organizational scholars to talk about the financial crisis.  Research in the Sociology of Organizations will publish the conference’s papers. You can download early drafts of the papers here.

The authors were asked to think about what sociological theory has to say about the causes of the financial crisis and to speculate about potential solutions. The conference was mainly focused on the former question, although towards the end discussion drifted to policy.  The papers were very diverse, but one idea came up in several papers. The idea was that the crisis was a kind of normal accident that was made possible by the organizational structure of the financial system. As Charles Perrow theorized, accidents can be thought of as the product of organizational systems that are highly complex and tightly coupled. Decision-makers have a hard time figuring out how the system works as a whole due to its complexity, but when one part of the system breaks down, for whatever reason, the entire system is vulnerable to collapse due to the interdependence of the different parts. The idea comes out most strongly in the papers by Schneiberg and Bartley and Palmer and Maher.

The conference created a lot of lively discussion about the need to make economic sociology more relevant to policy.  Although no single policy solution emerged, it was one of the best conversations I’ve ever been a part of in which economic sociologists strive to make their research relevant and not just theoretically interesting. So it was a good step forward. Still, I wondered what policy experts and regulators would say to the commentary. As Jerry Davis remarked in his concluding comments, “markets on trial” felt a bit like a kangaroo court. No financial economists or fed officials attended. Of course, I don’t think that the ideas need to be validated by an economist to make them good, but if economic sociology is ever going to make a move into the realm of regulation and policymaking, that interaction needs to take place.

The other part of this equation is the political mobilization it would take to make the policy solutions of economic sociologists politically viable.  One only needs to look to law and economics to see an example of how academics mobilized their ideas as part of a political coalition to institutionalize a particular set of policy solutions. As we talked about in a series of posts last year, Steven Teles’s fascinating book about the rise of the conservative legal movement illustrates how this coalition formed and influenced regulatory processes. Making major transformations like some of the scholars propose requires having access to mobilizing resources and a political will that economic sociologists haven’t had in the past.  The workshop was a great opportunity to get something like that started.

 

Written by brayden king

October 25, 2009 at 10:43 pm

if at first you don’t succeed …

Gabriel 

Yesterday the New York Times reported that FCC Chairman Kevin Martin is planning on changing media ownership regulations. This is an issue I follow pretty closely since it was the subject of my dissertation and I know a lot of people who care a lot about this issue. I haven’t seen many details on what exactly he is proposing, but it sounds like he’s resurrecting some form of Michael Powell’s 2003 proposal for a “diversity index” (FCC-DI) which would treat different media within a market as fungible and allow diffuse ownership in one medium to balance out oligopoly in another. The main practical impact is that it would make it easier for a single firm to own both broadcasting and print in the same market. (Currently this requires a waiver). The Powell FCC passed the diversity index but it was struck down by the courts, mostly because the FCC-DI didn’t include weights for media outlet size (e.g., some rinky dink UHF station with no ratings would count as much as a network affiliate). There are a lot of interesting angles for orgheads to see in this policy push: the perspective of org theory itself, performativity, and the role of social movements.

Org theory’s perspective on media ownership

Until the 1970s, the sociology of culture was completely dominated by functionalist and Marxist approaches which both mostly amounted to reflection theory. But then organizational scholars like Paul Hirsch, Richard “Pete” Peterson, and Paul DiMaggio began studying popular culture by more or less ignoring meaning and focusing on the processes through which cultural goods are produced. In a seminal 1975 article on how rock and roll replaced tin pan alley, Peterson and Berger found that industrial oligopoly led to creative stagnation and that creativity was only restored when a series of exogenous shocks created opportunities for new market entrants like Chess and Sun to meet unsated demand for more regional and ethnic music. Later the finding was qualified by Lopes and again by Dowd that the effect is ameliorated if the oligopoly decentralizes creative control to low level managers and subcontractors. Thus org theory inspired sociology of culture implies that oligopoly will be bad for the culture if the oligopoly centralizes control. Some research by Eric Klinenberg suggests that this may be the case. The FCC’s main stated goal in local media markets is the integrity of local news. Klinenberg has found that increasingly when a single firm owns multiple news outlets in a single market, it tends to pool journalists across the different operations, which not only centralizes control of the outlets, but creates a convergence of journalism styles. Two co-owned tv stations in LA have even made this the basis of an advertising campaign. Parenthetically, it gives me the creeps that the ad looks like a still from Apocalypse Now. Are they trying to imply that they just strafed the NBC station?

(btw, the org colonization of sociology of culture continues to the present. For the last five years leading economic sociologists like Brian Uzzi, Olav Sorenson, and Ezra Zuckerman have been doing some very cool work using data from the culture industries, and like the earlier generation they bracket the issue of meaning, though unlike them they mostly focus on social networks rather than ownership).

Performativity

The big deal in media economics is the Hotelling-Steiner effect, which holds that a competitive market will lead to excessive concentration of goods aimed at the median consumer. Imagine that in a market there are two taste groups called A (worth 80% of revenues) and B (20%). If you have two firms serving this market, both will try to serve group A and neglect group B since half of 80% is greater than all of 20%. Ironically, a monopolist with two properties will be better at serving both A and B because by directing one property at A and the other at B is can capture all of both markets. So this leads to the Gekko-esque conclusion that monopoly is good. The FCC takes this theory very seriously in crafting and justifying policy, especially for radio. There has been something of an arms race of studies with first the FCC giving a grant to Joel Waldfogel to demonstrate the effect empirically, then the Future of Music Coalition’s Pete DiCola criticized the first study (basically he demonstrated that there is too much similarity between market positions in radio to call them meaningful variation), and finally the National Association of Broadcasters gave a grant to Andrew Sweeting to replicate the Waldfogel study in a way that was sensitive to DiCola’s methodological critique. (I should note that I think it is entirely ethical to take funding from interested parties so long as there’s no embargo clause and I think all three economists are talented and honorable). In part this is a scholarly debate over theory, but it wasn’t only that, for the funding was motivated by the impact that it might have on policy. Whether the Hotelling-Steiner effect can be demonstrated doesn’t just affect whether an article will get published, but whether some very large corporate mergers can go through.

(FWIW, my own reservation with the Hotelling-Steiner research tradition is that it treats market positions as point masses rather than niches with variable breadth. Therefore even Sweeting’s very sophisticated methods confuse cutting up a field more narrowly with enlarging the scope of the field. In plain English, I think empirically most of what the economists are capturing is that under oligopoly Adult Contemporary stations are splitting into the narrow subformats of Hot AC and Soft AC, which is different from the true increase in diversity implied by the original theory which would be something like the redundant AC stations switching to some completely novel format. My hunch as to why this is so is that a) truly novel market positions are risky and b) the radio chains are more interested in TSL than cume).

The most concrete way that social science has shaped media policy is the Prometheus v FCC case that struck down the original FCC-DI. In the Telecommunications Act of 1996, Congress delegated to the FCC the authority to periodically review media ownership policy and relax constraints that it finds to be inappropriate. Basically, the 3rd Circuit Court interpreted this to mean that the FCC can’t act arbitrarily but must make decisions that are supported by social science. Indeed, the court explicitly said that it was not forever rejecting the FCC-DI, just requiring that the FCC present more social science evidence to justify it. The FCC had in fact presented a batch of studies to justify the FCC-DI and the court found some of them convincing on their own terms, but it found that treating media outlets as equivalent regardless of revenues or circulation was not justified (or even addressed) by the social science evidence. I think the lack of weights might be justified by classic liberal political theory since an option is still an option even if few people avail themselves of it, but the interesting thing is that the court was basically holding that the issue had to be decided by the facts, and the facts had to be decided by economists. This message was heard loud and clear by the media policy community. After Prometheus, the FCC commissioned a new round of studies. On the other side, the Ford foundation gave a decent sized grant to the Social Science Research Council’s program on “Necessary Knowledge for a Democratic Public Sphere” which is an academic program but has a very strong emphasis on policy. For instance, for my own Necessary Knowledge grant I’m not just doing research on payola, but am partnered with the Future of Music Coalition to disseminate the findings and turn them into policy.

Social movements

It’s an understatement to say that concentrated media ownership is unpopular. At both public meetings and in correspondence the FCC has gotten a huge volume of complaints that is literally 99% opposed to media conglomeration. The interesting thing is that these complaints mostly come from the left but a nontrivial fraction are from the social conservative right. My intuition is that for people with very strong views about politics, the media serves as an all purpose whipping boy to explain their own political failure by recourse to a version of false consciousness theory. This sentiment is captured in the media reform movement’s proverb that whatever your issue is, your other issue is the media. I think this the only way to explain the coalition of the progressive left and the social conservative right to both oppose concentrated media ownership since it doesn’t seem like they could both be right about the consequences of reform for their chances on other issues.

There’s actually a traveling road show of sorts where you can witness this. After the FCC-DI debacle the FCC commissioners have traveled around the country several times to have open mic public meetings. Theoretically these are to learn what the public is concerned about with media but as demonstrated by Martin’s resurrection of cross-ownership deregulation there is very obviously no impact on policy whatsoever. Rather the real function is some kind of medieval-style penitence where the commissioners atone for their sins by traveling from city to city and allowing aggrieved commoners to verbally flagellate them for hours on end. Last year I attended the road show engagement at USC and it was fascinating. It was held in the middle of a workday but it managed to completely fill a huge auditorium to standing room only as well as much of a close-circuit tv overflow room. (And despite being at a school, very few of the people there were students). At the line to get in, there were media reform activists passing out forms to structure your open mic testimony that basically read “Hi my name is (X) and I represent (insert ethnic or other identity group here). I’m here to tell you how big media corporations are hurting my community ….” As an elitist technocrat of the sort that Prometheus implied should be setting policy, I’ll be blunt, many of the complaints were totally crazy. A fairly typical bit of testimony is one guy told the FCC a story about how he spent a few weeks traveling across the state trying to raise awareness of some obscure issue but not a single reporter showed up to any of his events. It is my professional opinion as a media scholar that the reason nobody covered this guy’s road trip is because it wasn’t newsworthy and this would be the same even if the media were all run by journalist soviets instead of Rupert Murdoch. On the other hand, many complaints voiced against media concentration were extremely rational. For instance, at the same FCC open mic thing there were a couple dozen people from Hollywood demanding that the FCC restore a version of fin-syn so as to reduce vertical integration between studios and networks and allow television producers more bargaining power vis-a-vis the conglomerates.

The bottom line

The devil is in the details, but in principle viewing conglomeration at a market level rather than a market-medium level makes a certain amount of sense — it all depends on how the index is calculated and what thresholds are set as policy triggers. However viewing it purely as a political matter, there is too much grassroots and Congressional opposition to anything that smells like allowing media concentration for it to work. I mean, a Congress that has flirted with restoring the fairness doctrine (which would effectively censor Rush Limbaugh), is hardly going to be receptive to gutting the remnants of media antitrust policy. I imagine at the very least Congress will hold hearings opposing Martin’s proposal and very possibly outright reverse it through legislation freezing current ownership policy. They wouldn’t have a veto-proof majority though and lately Bush hasn’t been too concerned about whether his vetoes will be popular. If the FCC does pass it, and if Bush does veto a Congressional reversal, there’s still the issue of the courts. If the new proposal includes weights for ownership size it will probably be allowed by the courts, though it’s just as likely that they would issue a stay for about a year while they ruminate on it. In the meantime we’ll have an election and the FCC may very well reverse itself or Congress can pass a re-regulation bill again without getting vetoed.

Written by gabrielrossman

October 19, 2007 at 5:29 pm

making markets in our own image

Brayden

Rob Norton has a nice article on innovations in modern finance. Registration is required for the website, but it’s worth traversing for the content of the article.

It took a revolution in the field of finance to produce the theories and techniques that make possible today’s more sophisticated markets. This revolution started in the 1950s inside the heads of a few dozen economists, mathematicians, statisticians, and physicists working at universities and consulting firms. Modern quantitative finance came of age between the 1970s and 1990s, but is only reaching full maturity now. With the exception of the computer and the Internet, no modern development has affected business more powerfully.

Despite the fact that finance scholars and financial economists routinely describe their innovations in these terms, organizational and management scholars are much less sympathetic to the idea that finance drastically changed business strategy. Rarely, do we see the implications of the capital asset pricing model discussed in our literature.

In economic sociology, however, there is a different trend. One of the hottest areas of the subfield, I think, is the sociology of financial markets. People like Donald Mackenzie and Michel Callon expanded this field in recent years. Rather than searching for underlying patterns of behavior that might explain variation in stock price volatility or some other financial measure, as the network analysts had done for years, (e.g. Wayne Baker) the new economic sociology of financial markets takes the tools of financial economics as their independent variable to explain the evolution of markets. Like the finance scholars themselves, the sociologists of finance adamantly believe that the new financial innovations have drastically changed market behavior. The concept they use, performativity, describes the transformation of behavior by the tools created to solve practical problems. Economists create theories and analytical tools, like the CAP model, and these in turn shape the way traders, brokers, CFOs, and other financial specialists behave in the marketplace. In a very real way, the tools change the terrain of the market to fit the conditions that were theorized.

Donald Mackenzie has a new book on the subject, which I have not yet read but that is currently in my reading pile. Here is a review of the book by the widely-read David Warsh.

Written by brayden king

September 30, 2006 at 4:29 pm

some good social science books of 2006-2007

Fabio

Recent books that might interest orgheads:

And of course, the books by the orgtheory guys make great Christmas presents!  Order them here and here.

Written by fabiorojas

December 12, 2007 at 6:33 am

Posted in books, fabio

books i’ve been reading

Teppo

A few books I have been reading:

Gregory Clark, A Farewell to Alms: A Brief Economic History of the World (given MarginalRevolution’s recommendation, plus, I have enjoyed Mokyr’s work who edits the series in question)

Cass Sunstein, Infotopia: How Many Minds Produce Knowledge

Michael Suk-Young Chwe, Rational Ritual: Culture, Coordination, and Common Knowledge

Ralph Waldo Emerson, The Essential Writings of Ralph Waldo Emerson

Friedrich Schiller, On the Aesthetic Education of Man (Wilkinson-Willoughby edition)

MacKenzie et al, (eds), Do Economists Make Markets: On the Performativity of Econonomics (here’s a previous orgtheory post on the book)

Written by teppo

September 3, 2007 at 5:38 am

Posted in academia, books, teppo

book spotlight: beyond technonationalism by kathryn ibata-arens

At SASE 2019 in the New School, NYC, I served as a critic on an author-meets-critic session for Vincent de Paul Professor of Political Science Kathryn Ibata-Arens‘s latest book, Beyond Technonationalism: Biomedical Innovation and Entrepreneurship in Asia.  

Beyondtechnonationalismcover

Here, I’ll share my critic’s comments in the hopes that you will consider reading or assigning this book and perhaps bringing the author, an organizations researcher and Asia studies specialist at DePaul, in for an invigorating talk!

“Ibata-Arens’s book demonstrates impressive mastery in its coverage of how 4 countries address a pressing policy question that concerns all nation-states, especially those with shifting markets and labor pools.  With its 4 cases (Japan, China, India, and Singapore),  Beyond Technonationalism: Biomedical Innovation and Entrepreneurship in Asia covers impressive scope in explicating the organizational dimensions and national governmental policies that promote – or inhibit – innovations and entrepreneurship in markets.

The book deftly compares cases with rich contextual details about nation-states’ polices and examples of ventures that have thrived under these policies.  Throughout, the book offers cautionary stories details how innovation policies may be undercut by concurrent forces.  Corruption, in particular, can suppress innovation. Espionage also makes an appearance, with China copying’s Japan’s JR rail-line specs, but according to an anonymous Japanese official source, is considered in ill taste to openly mention in polite company. Openness to immigration and migration policies also impact national capacity to build tacit knowledge needed for entrepreneurial ventures.  Finally, as many of us in the academy are intimately familiar, demonstrating bureaucratic accountability can consume time and resources otherwise spent on productive research activities.

As always, with projects of this breadth, choices must made in what to amplify and highlight in the analysis.  Perhaps because I am a sociologist, what could be developed more – perhaps for another related project – are highlighting the consequences of what happens when nation-states and organizations permit or feed relational inequality mechanisms at the interpersonal, intra-organizational, interorganizational, and transnational levels.  When we allow companies and other organizations to, for example, amplify gender inequalities through practices that favor advantaged groups over other groups, what’s diminished, even for the advantaged groups?

Such points appear throughout the book, as sort of bon mots of surprise, described inequality most explicitly with India’s efforts to rectify its stratifying caste system with quotas and Singapore’s efforts to promote meritocracy based on talent.  The book also alludes to inequality more subtly with references to Japan’s insularity, particularly regarding immigration and migration. To a less obvious degree, inequality mechanisms are apparent in China’s reliance upon guanxi networks, which favors those who are well-connected. Here, we can see the impact of not channeling talent, whether talent is lost to outright exploitation of labor or social closure efforts that advantage some at the expense of others.

But ultimately individuals, organizations, and nations may not particularly care about how they waste individual and collective human potential.  At best, they may signal muted attention to these issues via symbolic statements; at worst, in the pursuit of multiple, competing interests such as consolidating power and resources for a few, they may enshrine and even celebrate practices that deny basic dignities to whole swathes of our communities.

Another area that warrants more highlighting are various nations’ interdependence, transnationally, with various organizations.  These include higher education organizations in the US and Europe that train students and encourage research/entrepreneurial start-ups/partnerships.  Also, nations are also dependent upon receiving countries’ policies on immigration.  This is especially apparent now with the election of publicly elected officials who promote divisions based on national origin and other categorical distinctions, dampening the types and numbers of migrants who can train in the US and elsewhere.

Finally, I wonder what else could be discerned by looking into the state, at a more granular level, as a field of departments and policies that are mostly decoupled and at odds. Particularly in China, we can see regional vs. centralized government struggles.”

During the author-meets-critics session, Ibata-Arens described how nation-states are increasingly concerned about the implications of elected officials upon immigration policy and by extension, transnational relationships necessary to innovation that could be severed if immigration policies become more restrictive.

Several other experts have weighed in on the book’s merits:

Kathryn Ibata-Arens, who has excelled in her work on the development of technology in Japan, has here extended her research to consider the development of techno-nationalism in other Asian countries as well: China, Singapore, Japan, and India. She finds that these countries now pursue techno-nationalism by linking up with international developments to keep up with the latest technology in the United States and elsewhere. The book is a creative and original analysis of the changing nature of techno-nationalism.”
—Ezra F. Vogel, Harvard University
“Ibata-Arens examines how tacit knowledge enables technology development and how business, academic, and kinship networks foster knowledge creation and transfer. The empirically rich cases treat “networked technonationalist” biotech strategies with Japanese, Chinese, Indian, and Singaporean characteristics. Essential reading for industry analysts of global bio-pharma and political economists seeking an alternative to tropes of economic liberalism and statist mercantilism.”
—Kenneth A. Oye, Professor of Political Science and Data, Systems, and Society, Massachusetts Institute of Technology
“In Beyond Technonationalism, Ibata-Arens encourages us to look beyond the Asian developmental state model, noting how the model is increasingly unsuited for first-order innovation in the biomedical sector. She situates state policies and strategies in the technonationalist framework and argues that while all economies are technonationalist to some degree, in China, India, Singapore and Japan, the processes by which the innovation-driven state has emerged differ in important ways. Beyond Technonationalism is comparative analysis at its best. That it examines some of the world’s most important economies makes it a timely and important read.”
—Joseph Wong, Ralph and Roz Halbert Professor of Innovation Munk School of Global Affairs, University of Toronto
Kathryn Ibata-Arens masterfully weaves a comparative story of how ambitious states in Asia are promoting their bio-tech industry by cleverly linking domestic efforts with global forces. Empirically rich and analytically insightful, she reveals by creatively eschewing liberalism and selectively using nationalism, states are both promoting entrepreneurship and innovation in their bio-medical industry and meeting social, health, and economic challenges as well.”
—Anthony P. D’Costa, Eminent Scholar in Global Studies and Professor of Economics, University of Alabama, Huntsville
For book excerpts, download a PDF here.  Follow the author’s twitter feed here.

guest post by michael bishop on sociology and public impact

This guest post is written by long time reader Mike Bishop, a researcher whose current projects include contributing to the largest ever study of research rigor and replication in the social sciences.

I think it is a mistake to try to evaluate whether sociologists care more or less than economists about having a public impact, but I think it is a good idea to discuss *how* social scientists might have a public impact, and to describe the approaches that are being taken by sociologists, economists and others. Fabio offered a couple hypotheses that I’d love to see studied.

Fabio claims there is a dearth of sociology blogs (relative to economics). Some people seemed to disagree, but we still haven’t specified a falsifiable claim. One approach would be to measure the percent of sociology/economics faculty that published more than, e.g. 1,000 words on a blog in the last year. Or the percent whose blog posts had more than 1,000 page views. I’d love for someone to go collect some data!

Another idea is to study the content of publications in top sociology and economics journals… how many words in each article are devoted to discussing implications for policy makers (or activists, or any audience other than fellow academics.) Note, while I generally think discussing policy implications is a good thing, the intellectual standards for such discussion should be high including explicit discussion of possible tradeoffs or empirical uncertainties. Reviewers and editors should not tolerate authors making big leaps with weak arguments (e.g. “This study demonstrated that workers with higher incomes are happier, therefore if the minimum wage were raised to $20/hr everyone would be happier.”)

Of course, blogging, or research with strong policy implications, are just two approaches to having a public impact as Fabio and some of his interlocuters on Twitter mention in follow up conversation. Sociologists (and economists) may also: engage in issue advocacy directed at politicians or philanthropists, document social problems, electoral politics, influencing public opinion through books, news media, etc. contributing to political/social movements, (like “Open Borders.”) If we must return to the sociology vs. economics angle, much will depend on how you weigh the effectiveness of these approaches.

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Written by fabiorojas

April 11, 2019 at 4:57 am

Posted in uncategorized

balkin critiques mclean

Andrew Koppleman, professor of law at Northwestern, offers a strong critique of Nancy McLean’s Democracy in Chains. The book argues that the economist James M. Buchanan was an enemy of the Brown decision and took Koch funding in an attempt to develop the intellectual tools to fight Brown. The book was discussed briefly on this blog.

On the “Balkinization” blog, Koppelman takes McLean to task, arguing that the book simply got the story completely wrong. He is not alone. There are numerous critics, ranging from personal friends of Buchanan to independent historians, who have argued that the major claims of the book are simply wrong. For example, GMU’s Phil Magness has reported on his blog that, among other things, there is ample documentary evidence that Buchanan and his colleagues did not support segregation.

Koppleman steps back and takes a look at the big picture. The problem isn’t that you can’t criticize economists or libertarian intellectuals with respect to their racial positions. Indeed, as a person who thinks that markets are very important, I think we need to be very critical of libertarians who have openly associated with racists, like Rand Paul, or Murray Rothbard, who actively relied on the political ideas of Southern politicians. However, as far as I can tell, James Buchanan was not like that. To quote Koppelman,

Democracy in Chains has been testing the proposition that there is no such thing as bad publicity.  There has been an explosion of documentation that MacLean gets facts wrong, misunderstands her sources, and invents quotations or pulls them out of context to mean the opposite of what they said.  You can find all this easily if you just google the book’s title.

Koppelman then puts his finger on the real issue: People have dropped their standards because the author has the right politics. You are definitely allowed to criticize Buchanan, the Kochs or anyone else – but you aren’t entitled to twisting the facts:

MacLean states a valid and important complaint against the Kochs. They threaten to impose a new quasi-feudal hierarchy in the guise of liberty.  But a work of history is supposed to be more than a denunciation of bad political actors.

Koppelman then reviews the piles of errors and odd inferences in the book. How can people openly support a book so rife with error? Koppelman again:

The nomination bespeaks a new low in polarization: if you write a readable book denouncing the Kochs, we love you, and we don’t care whether anything you say is true.  The prize is being used to make a political statement, like Obama’s 2009 Nobel Peace Prize, awarded less than nine months after he took office.  Even he found that embarrassing.  Party solidarity now overrides all other considerations.  This is, of course, the kind of thinking that led otherwise thoughtful Republicans to vote for Trump.

Critique is good and I support it. But we should also demand quality.

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Written by fabiorojas

October 30, 2017 at 4:02 am

Posted in books, fabio, uncategorized

why antitrust now?

Antitrust is having a moment. A couple of years ago, with the possible exception of complaining about never-ending airline mergers, no one paid attention to antitrust debates. Today, it’s all over the place. A few months ago, it was the Economist proclaiming “America Needs a Giant Dose of Competition.” Last month it was Amazon and Whole Foods. And now antitrust has become a key plank of the new Democratic platform.

I’ve been thinking about this for a while, but this antitrust explainer written by Matt Yglesias yesterday (which is generally quite good) motivated me to put fingers to keyboard. So I’m going to break this reflection up into three parts: Why antitrust now? What does the new antitrust debate mean? And what would it take for it to succeed? Today, I’ll tackle the first.

At one level, the rise of antitrust interest is just a perfect convening of streams, in the Kingdon sense. A problem (or loose collection of problems) rises to public attention, people are already out there advocating a solution, even if so far unsuccessfully, and—the moment we’re in now—politicians have the motivation to grab that solution and turn it into policy, or at least a platform. It’s just about timing, and it’s not predictable.

At the same time, I think we can unpack a couple of different factors that help us think about “why now”. Some of this is covered in the Yglesias piece. But there are a few things I’d add, and some different angles I’d highlight. So without further ado, here are four reasons antitrust is suddenly getting attention.

1. It’s a reaction to a change in objective conditions.

There is a degree of consensus that market concentration is increasing across the economy. Even if you don’t think concentration is a problem, it wouldn’t be surprising that an increase would lead some people to challenge it, and make media more open to hearing that claim. This is probably a contributing factor. But market concentration has been increasing for a long time, and the link between concentration and exercise of power, whether market power or political power, is at best complicated. I don’t think the rise in concentration explains much of the antitrust attention.

Other phenomena are emerging that are objectively new, and raise new questions about how to govern them. Amazon now controls 43% of internet retail sales in the U.S. That’s astonishing, and at least a little alarming. But we’ve now seen several generations of various platforms (operating systems, browsers, social networks) rise to dominance and sometimes fall, mostly without a lot of antitrust attention—Microsoft, at the turn of the millennium, being the significant exception. These objective changes are a necessary but definitely not sufficient for public attention to rise.

2. New actors are organizing around this issue.

A lot of the noise around antitrust is coming from a relative handful of people. Until the Democrats came on board, it was Elizabeth Warren on the political side, and before that Zephyr Teachout, the Fordham law professor who gave Andrew Cuomo a run for his money in 2014.

On the think tank side, as Yglesias notes, it’s the Open Markets Program at New America. Fellow Lina Khan, once of the Teachout campaign, landed an NYT op-ed on Amazon and Whole Foods. Fellow Matt Stoller’s Atlantic article on antitrust, “How Democrats Killed Their Populist Soul,” got a lot of attention when it came out last fall. Barry Lynn, who runs the program, has been working on this issue for a decade.

The Roosevelt Institute is the other significant player in this space. (Here’s a good, if now difficult to read, piece from last summer explaining the history of Roosevelt.) Marshall Steinbaum and others have made the case for a range of antitrust issues on a variety of grounds, and the influence of both these organizations on the new Democratic congressional platform is clearly visible.

There’s no question that this kind of policy advocacy—talking to policymakers, writing articles and op-eds—is making a difference. But its impact has been facilitated by two other things.

3. The space of expertise is changing in unexpected ways.

Antitrust policy is a space heavily dominated by experts. Congress rarely touches antitrust issues. The public rarely pays attention. Presidents generally talk a good antitrust game, and may care more or less about appointing antitrust officials who will pursue a particular policy line. But for the most part, antitrust is dominated by the lawyers and economists who serve in the Antitrust Division and FTC, consult on antitrust cases, write academic articles, and a handful of whom become judges.

And there is bipartisan consensus among these experts that concentration isn’t generally a problem. Markets are contestable. Predatory pricing is irrational, because firms know that if they drive out competitors then jack up prices, they’ll just attract some new entrant into the market. There’s really no point. Yes, there may be a little more antitrust enforcement among Democrats than Republicans. But it’s a game played “between the 45 yard lines.” As Richard Posner said recently, “Antitrust is dead, isn’t it?”

But this space is changing in interesting ways. The change doesn’t seem to be coming from the antitrust community itself, exactly. But it’s coming from people with the academic clout to be taken seriously.

From one direction, you have people like Jason Furman and Joseph Stiglitz making arguments about labor market monopsony contributing to lower wages and arguing that economic changes require new kinds of antitrust solutions. From another, you have Luigi Zingales overseeing an effort (at the University of Chicago’s Stigler Center, no less) to advocate for stronger antitrust, calling his position “pro-market” rather than “pro-business”. Zingales’ efforts are also notable for bringing in historians, political scientists and other experts usually not privy to the antitrust policy conversation.

None of these people work primarily on antitrust issues or even industrial organization, but they have the status to be taken seriously even if they are not among the usual suspects of antitrust. Their novel arguments have the capacity to shift the expert consensus about antitrust—either mildly, as in Furman’s arguments about the importance of labor monopsony (which don’t require a radical rethinking of the current approach), or more radically, as in Zingales’s advocacy of an antitrust that takes political power seriously.

I’ll discuss these changes more in the next couple of posts, but in terms of explaining “why antitrust now,” the point is that these insider/outsider dissenters are amplifying new voices and new issues, and thus contributing to the current wave of attention.

4. The cultural moment is right for other reasons.

If there’s one belief that seems to unite Americans across the political spectrum these days, it’s that the game is rigged against the ordinary person. For the many Americans who think big business is doing at least some of the rigging, this produces a new openness to arguments about concentration and corporate control. As much as anything else, I think this explains the current interest in antitrust. People are receptive to arguments that purport to explain why they’re being screwed.

Antitrust is a protean issue. It can channel many different types of fears and at least theoretically respond to many different kinds of problems. Whether it can do so effectively, and whether antitrust is the right tool for the job, is a different question. In my next post I’ll try to unpack some of those different problems, why they’re now being linked together under the umbrella of “antitrust,” and draw on some antitrust history to think about what current efforts mean.

Written by epopp

August 1, 2017 at 1:51 pm

the antitrust equilibrium and three pathways to policy change

Antitrust is one of the classic topics in economic sociology. Fligstein’s The Transformation of Corporate Control and Dobbin’s Forging Industrial Policy both dealt with how the rules that govern economic life are created. But with some exceptions, it hasn’t received a lot of attention in the last decade in econ soc.

In fact, antitrust hasn’t been on the public radar that much at all. After the Microsoft case was settled in 2001, antitrust policy just hasn’t thrown up a lot of issues that have gotten wide public attention, beyond maybe griping about airline mergers.

But in the last year or so, it seems like popular interest in antitrust is starting to bubble up again.

Just in the last few months, there have been several widely circulated pieces on antitrust policy. Washington Monthly, the Atlantic, ProPublica (twice), the American Prospect—all these have criticized existing antitrust policy and argued for strengthening it.

This is timely for me, because I’ve also been studying antitrust. As a policy domain that is both heavily technocratic and heavily influenced by economists, it’s a great place to think about the role of economics in public policy.

Yesterday I put a draft paper up on SocArXiv on the changing role of economics in antitrust policy. The 1970s saw a big reversal in antitrust, when we went from a regime that was highly skeptical of mergers and all sorts of restraints on trade to one that saw them as generally efficiency-promoting and beneficial for consumers. At the same time, the influence of economics in antitrust policy increased dramatically.

But while these two development are definitely related—there was a close affinity between the Chicago School and the relaxed antitrust policy of the Reagan administration, for example—there’s no simple relationship here: economists’ influence began to increase at a time when they were more favorable to antitrust intervention, and after the 1980s most economists rejected the strongest Chicago arguments.

I might write about the sociology part of the paper later, but in this post I just want to touch on the question of what this history implies about the present moment and the possibility of change in antitrust policy.

Read the rest of this entry »

Written by epopp

January 9, 2017 at 6:51 pm

statistics vs. econometrics – heckman’s approach

Over at Econ Talk, Russ Roberts interviews James Heckman about censored data and other statistical issues. At one point, Roberts asks Heckman what he thinks of the current identification fad in economics (my phrasing). Heckman has a few insightful responses. One is that a lot of the “new methods” – experiments, instrumental variables, etc. are not new at all. Also, experiments need to be done with care and the results need to be properly contextualized. A lot of economists and identification obsessed folks think that “the facts speak for themselves.” Not true. Supposedly clean experiments can be understand in the wrong way.

For me, the most interesting section of the interview is when Heckman makes a distinction between statistics and econometrics. Here’s his example:

  • Identification – statistics, not economics. The point of identification is to ensure that your correlation is not attributable to an unobserved variable. This is either a mathematical point (IV) or a feature of research design (RCT). There is nothing economic about identification in the sense that you need to understand human decision making in order to carry out identification.

In contrast, he thought that “real” econometrics was about using economics to guide statistical modelling or using statistical modelling to plausibly tell us how economic principles play out in real world situations. This, I think, is the spirit of structural econometrics, which demands the researcher define the economic relation between variables and use that as a constraint in statistical estimation. Heckman and Roberts discuss minimum wage studies, where the statistical point is clear (raising wages do not always decrease unemployment) but the economic point still needs to be teased out (moderate wage increases can be offset by firms in others ways) using theory and knowledge of labor markets.

The deeper point I took away from the exchange is that long term progress in knowledge  is not generated by a single method, but rather through careful data collection and knowledge of social context. The academic profession may reward clever identification strategies and they are useful, but that can lead to bizarre papers when the authors shift from economic thinking to an obsession with unobserved variables.

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Written by fabiorojas

March 24, 2016 at 12:01 am

some thoughts on institutional logics, in three parts

Last week I was finishing up a volume introduction and it prompted me to catch up on the last couple of years of the institutional logics literature. This gave me some thoughts, and now I can’t sleep, so I’m putting them out there. This is long so it’s broken into three parts. The first two reflect my personal saga with institutional logics. They set up the rest, but you can also skip to the third and final section for the punchline.

Read the rest of this entry »

Written by epopp

October 8, 2015 at 10:59 am

the bio-complexity challenge to economics

Economics is fun to criticize, but hard to replace. Everybody thinks they can do better. How many times have you read an article lampooning the rational actor model or slamming the efficient markets hypothesis? Well, another research group has appeared that tries to offer a replacement. From New Scientist:

Earlier this year, several dozen quiet radicals met in a boxy red building on the outskirts of Frankfurt, Germany, to plot just that. The stated aim of this Ernst Strüngmann Forum at the Frankfurt Institute for Advanced Studies was to create “a new synthesis for economics”. But the most zealous of the participants – an unlikely alliance of economists, anthropologists, ecologists and evolutionary biologists – really do want to overthrow the old regime. They hope their ideas will mark the beginning of a new movement to rework economics using tools from more successful scientific disciplines.

Drill down, and it’s not difficult to see where mainstream “neoclassical” economics has gone wrong. Since the 19th century, economies have essentially been described with mathematical formulae. This elevated economics above most social sciences and allowed forecasting. But it comes at the price of ignoring the complexities of human beings and their interactions – the things that actually make economic systems tick.

 The problems start with Homo economicus, a species of fantasy beings who stand at the centre of orthodox economics. All members of H. economicus think rationally and act in their own self-interest at all times, never learning from or considering others.

The article then goes on to describe how they are building new set of models that have social rather than selfish actors. They are going to use models from biological theory to model large groups of economic agents.

More power to them, but here’s the deal with economics – it survives because it has a number of very strong features:

  • A basic micro-economics that makes sense (e.g., supply and demand curves, marginal utility etc)
  • Rational actor models are just short hand for “has goals, which can be selfish or altruistic.” My friend, rational does not mean what you think it means.
  • A good grasp of various statistical methods.
  • A good recipe for normal science (define utility functions, apply Langrangian, etc)

For an alternative economics to win, it needs to be so incredibly awesome that it overwhelms these very important features of existing economics. That is why various challengers, such as feminist economics or modern Austrian economics, are limited. They sometimes have valid criticisms, but they simply don’t do well when it comes to offering a real alternative. So, good luck, my biological friends, but don’t get lost in the weeds.

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Written by fabiorojas

July 30, 2015 at 12:01 am

Posted in biology, economics, fabio

left versus right in economics

I swear I was already thinking about this before Fabio posted last night about the politics of academia. Noah Smith (of the blog Noahpinion and more recently Bloomberg) wrote an interesting piece yesterday titled “Economics Stars Swing Left.”

In it, Smith notes that, contra Fabio’s statement below, economics is pretty left-leaning these days. Among economists there was widespread, though not universal, approval for government stimulus after the recession; inequality has been the cause célèbre ever since Piketty (and, really, before; see Dan Hirschman’s excellent paper on how economics rediscovered income inequality). Development economics, with its focus on interventions that help the poor, has been a hot field for well over a decade. Tyler Cowen calls Piketty, Krugman, Stiglitz, Sachs, and Sen the five most influential economists today — hardly a bunch of free-marketeers.

This runs counter to the way many sociologists think about economics. Some sociologists (#notallsociologists) think that economics is dominated by members of the Chicago School who believe that actors are always rational, free markets always work, and if we just privatized everything the world would be a better place. That’s simply not the case.

But I would like to offer an amendment to Smith’s assertion about economics being totally left-leaning these days. I agree in a way. But what this misses is that the “left” that economists tend to be is a very particular kind of left.

In fact, this is a core argument of the book I’m writing — that as economics became more influential in U.S. policy, it changed what it means to be “left.” It’s also a prominent theme in Stephanie Mudge’s forthcoming book, which follows the development of market-friendly “third way” parties in Europe.

So what’s different about the kind of left that economists tend to be? As always, there are exceptions here — I’m painting with a broad brush. But to make some generalizations:

  • It’s a kind of left that does believe in the power of markets, while acknowledging that markets frequently fail or at least work imperfectly.
  • It is a technocratic sort of left, that sees market failure as a problem to be solved, and government as a way to solve that problem.
  • It tends to prioritize political goals that make sense through the lens of economics: promoting growth, increasing efficiency, increasing income; these days, reducing inequality.
  • It has a harder time engaging with goals that can’t really be understood using economics: individual autonomy, civic engagement, political empowerment.
  • It’s a bit skeptical of the value of democratic politics. In fact, it kind of thinks that the world would be better if people would just shut up already and do what the experts are telling them. (This last part goes for many sociologists, too.)
  • It tends to undervalue what can’t be measured: a sacred piece of land, the value of dignity in one’s work, the inherent worth of increasing knowledge. Or perhaps a better term than “undervalue” is “view as impractical to consider.”

In other words, it’s a type of “left” that looks very familiar in American politics today.

The central political position in economics, then, may be seriously concerned with inequality. It may care deeply about poverty and about development. And it may be solidly in favor of government intervention to solve these problems.

But even so, it is only one type of left. And while there are big chunks of it I agree with, I think we lose when this is the only left that is legitimate.

Written by epopp

January 9, 2015 at 2:37 pm

Posted in academia, economics

the fda, calorie counts, and the lost pleasure of junk food

Tyler Cowen has his markets in everything. Some days I feel like we need another tagline: the commensuration of everything.

Cost-benefit analysis is ubiquitous in government. But the question of what counts as a cost and a benefit, and how to measure them, has been up for debate pretty much since people started tallying them up.

The FDA has, somewhat controversially, been calculating “lost pleasure” as one impact of its regulations. This came up most recently around requirements that restaurants post calorie counts of their menu items. Headlines crowed that consumers might lose some $5.27 billion in pleasure from giving up their high-calorie junk foods, although the value of the health benefits still, according to the FDA, justified displaying calorie counts.

The FDA analysis was based on economics — a working paper by Yale economist Jason Abaluck plus calculations by internal staff, according to Reuters — but a lot of economists disagree that it makes sense to think about it this way. Calorie counts are just providing information. So if you order differently upon being presented with this information — you give up your Gordita for the bean burrito — you’re basically by definition making a choice you prefer, and thus can’t be losing from the decision.

This was a second round in this battle for the FDA, the first having been over the monetary costs of the lost pleasure of smoking. Earlier this year, the FDA, in an analysis of the costs and benefits of graphic warning labels on cigarettes, similarly gave considerable weight to the lost pleasure of smoking — to the extent that the avoidance of death and disease caused by quitting smoking would have to be discounted by 70% to account for the loss in pleasure.

This did not go over well with many economists. In fact, an all-star team wrote a response paper detailing their disagreement with the analysis. What I found interesting was that here they made a slightly different argument than for calorie counts. It’s harder to argue that graphic warning labels just provide information. And if they’re not just providing information, perhaps smokers—rationally choosing to smoke but deterred by gross-out pictures of rotting lungs—are really losing consumer surplus.

smokers

So the critics bring addiction into it. Smoking is addictive and therefore not rational. Moreover, people often become addicted before they are adults. Perhaps some people have rationally chosen to smoke, but surely not those who were daily smokers by the age of 18. Since 70% of American smokers started smoking before they turned 17, at least that fraction of any lost consumer surplus should be ignored.

For those who started smoking as legal adults, the authors turn to behavioral economics. Addiction causes us to discount the future too heavily, rendering decisions irrational. Thus even the smokers who started later in life aren’t really losing consumer surplus, either.

I don’t follow current cost-benefit politics closely, but I’ve spent a fair amount of time reading about cost-benefit politics of the 1950s, 60s, and 70s. And what strikes me about this debate that is so similar to conversations that people were having about building dams or calculating the benefits of education or the polio vaccine is how fundamentally political they are.

There’s no avoiding it. In many cases, there’s simply no absolute way to determine that one method of calculating costs and benefits is better than another, and so people make methodological choices based on other factors. Sometimes those may be overtly political, as in, “I think the FDA should do everything it can to deter smoking and I’m going to come up with reasons that make sense for it to do that.” Sometimes they may be based on disciplinary politics, as in “This is my intellectual team, and I’m going to defend our position here, wherever that takes me.” And of course they can be less purposeful, too, and well-intentioned, but such decisions are still judgment calls.

Eventually, practitioners may reach consensus over which choices are the right ones, and then people don’t have to argue anymore over whether to value life based on people’s expected future earnings or on their willingness to pay to avoid risks (as they did some decades back). But just because the choices are settled doesn’t make them any less normative.

In the end, I tend to think these debates are more than a little insane, because they lend false precision to decisions that involve judgment call upon judgment call, and questionable assumption upon questionable assumption. But they matter. Cost-benefit calculations aren’t determinative, but they make a real difference in what decisions are seen as no-brainers, and which find their way into the dustbin. And powerful interest groups — hello, tobacco and junk food lobbies — have stakes in which methods get chosen, not just economists.

Myself, I’d vote for just listing multiple types of costs and benefits and quantifying them by order of magnitude, rather than pretending to an unachievable precision. That’s not likely to happen. If we’re stuck with trying to commensurate the incommensurable, though, at the very least we need to keep making explicit the choices that go into such calculations. That means laying out the assumptions — both normative and methodological — that lay behind them.

 

 

Written by epopp

December 30, 2014 at 2:15 pm

Gary S. Becker, RIP

Gary Becker passed away this weekend at the age of 83. Becker was among the most influential economists in sociology. He was one of the first economists to use economic theories to explain social phenomena, leading the way for contemporary scholars like Steven Levitt.  Interestingly, I think Becker was less influential in organizational theory, despite doing important work on human capital. Over on the evil twin blog, Peter Klein pays a nice tribute to Becker, mentioning his relationship to organizational economics.

Sociologist are fond of citing Becker for saying that he thought about transferring to sociology in grad school but that he found the subject “too difficult.”  One thing that made Becker stand out from sociologists was that could simplify very complex problems/social phenomena – like discrimination – using a equilibrium model. This is not the sort of thing sociologists would do, and I suspect that most sociologists found the language he used to describe preference maximization offensive, but in a world of formal modeling and rational choice theory, Becker’s perspective was elegant. He helped create a tenuous bridge, along with Jim Coleman, between mathematical sociology and economics.

Reading his Nobel speech this afternoon, I was struck by this insight about the impossibility of Utopian dreams.  Becker reminds us just how precious and valuable our time is, especially in a society where so many of our other wants and needs are satisfied.

Different constraints are decisive for different situations, but the most fundamental constraint is limited time. Economic and medical progress have greatly increased length of life, but not the physical flow of time itself, which always restricts everyone to twenty-four hours per day. So while goods and services have expended enormously in rich countries, the total time available to consume has not. Thus, wants remain unsatisfied in rich countries as well as in poor ones. For while the growing abundance of goods may reduce the value of additional goods, time becomes more valuable as goods become more abundant. Utility maximization is of no relevance in a Utopia where everyone’s needs are fully satisfied, but the constant flow of time makes such a Utopia impossible.

Written by brayden king

May 4, 2014 at 8:30 pm

we need standardized dissertations

One of the problems of graduate education in many fields is that the requirements for the dissertation are vague. Another issue is that the dissertation is a book length treatment, even in fields where articles are standard. This leads students spend years writing overly long documents that have little value. For that reason, I encourage all my students to use the “three essays” format as the default. It’s simple, it works, and they’ll get done. If they have a good reason for deviating, then we can talk about it. But most folks should really stick to “three essays.”

There is now more systematic research showing that this advice is correct. A recent AER paper authored by Wendy Stock and John Siegfried shows that economists who use the “three essays” format do better in terms of academic job placement and subsequent publication. The abstract says it all:

Dissertations in economics have changed dramatically over the past forty years, from primarily treatise-length books to sets of essays on related topics. We document trends in essay-style dissertations across several metrics, using data on dissertation format, PhD program characteristics, demographics, job market outcomes, and early career research productivity for two large samples of US PhDs graduating in 1996-1997 or 2001-2002. Students at higher ranked PhD programs, citizens outside the United States, and microeconomics students have been at the forefront of this trend. Economics PhD graduates who take jobs as academics are more likely to have written essay-style dissertations, while those who take government jobs are more likely to have written a treatise. Finally, most of the evidence suggests that essay-style dissertations enhance economists’ early career research productivity.

My take home message? We should drop the pretense of the sprawling dissertation. All departments should require or strongly encourage the three essay format as the default. If the student wants something else, they need to make the argument.

Hat tip to our evil twin, Organizations and Markets.

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Written by fabiorojas

May 29, 2013 at 3:35 am

inequality and the sociological narrative

This is the fourth and final post in a blog forum about inequality and organizational theory (see parts 1, 2, and 3). Michael Piore of MIT’s Sloan School of Management and the Department of Economics wrote the post, and Brayden King provided a rather long-winded commentary.

Michael Piore

I share the concerns which a number of commentators have expressed here about the increasing inequality of income in the United States, but I see the income distribution as a symptom of a far more fundamental problem, the way in which we in the United States think about the economy and the capacity to manage and direct it through public policy.      Two basic ideas now dominate our thinking: The notion of human behavior as motivated by individual self-interest (usually the maximization of monetary rewards) and the competitive market as a template for organizing all social activity.  These are the starting point of standard economics, the foundations of a program of scientific research.  But in the United States they have become the foundations of a political program as well.  In  most of the rest of the world, that political program is called neo-liberalism, but the tenets upon which it rests are so buried in contemporary American consciousness that we don’t even have a particular word for this way of thinking.  They are widely accepted on the left and on the right of the political spectrum.  If there is a difference, it is that the left is willing to revisit and revise the distribution of income through taxes and transfers once the market has played itself out, although it has had only limited success in doing so.

It is not that the insights of economics, even as refracted through the neoliberal lens, are wrong; it is that they are so limited (and in those limits so constraining).  Sociology starts from a different set of insights about individual motivation and about social organization, and thus promises to open to the way toward a different set of visions about how we might structure the world in which we live, without sacrificing economic prosperity.  And for me at least, the main reason for drawing sociologists into economic debates is to expand those limits.

As an economist, it perhaps ill-behooves me to say exactly what the alternative sociological perspective is.  Indeed, there are probably several different perspectives that emerge out of the sociological vision.  But the version which appeals to me is that the behavior of individual actors in a social system is directed by the actors’ conceptions of their personal identities; that those identities are, in turn, embedded in a set of narratives which link the stories that individuals tell themselves about their own personal  lives to the identities (and historical narratives) of the organizations in which they live and work; and that these organizational narratives are ultimately linked to each other through a set of narratives about the larger society.  It is the attempt to be the persons that these narratives identify, to act out the roles which they define, that motivates the actors in the economy.  And it is these interlocking narratives—in addition to or possibly in place of, the market—which give the economy cohesion and direction.  This “sociological understanding” suggests that what holds together and permits the current income distribution is the narrative of neoliberalism.  What we need to create a more equitable and humane distribution is first the conviction that an alternative set of narratives is possible, and second to identify what such an alternative might be.

I worry that sociology is doing neither, that it has become distracted by a debate with economists about what determines individual incomes and is engaged in a project of showing that the market does not explain individual outcomes and that something else is at stake here (e.g., discrimination, social capital, even institutional isomorphism).  I worry that in the absence of a broader perspective—about how sociology explains individual behavior and social coherence—and an alternative narrative, the answer to the critique will simply be policies to increase the pressures of the competitive market until outcomes which conform to it are achieved.

Read the rest of this entry »

Written by orgtheoryguest

December 2, 2012 at 11:05 pm

graber book forum part 2: the attack on neo-classical economics

Part 1.

I.

I often teach the graduate course that introduces students to major themes of macro-sociology. I start off with rational choice theory, which, as you can imagine, triggers teeth grinding rage. I then ask students: “If people aren’t following their preferences, then what are they doing?” Answer: silence.

Of course, there are good answers to this question. Most economists, especially behavioral economists, would probably argue for a model that is close to rational choice, but includes biases. Sociologists often take this a step further and argue that people respond to social conventions, follow norms, heuristics, or employ cultural tool kits. The difference between the textbook rational choice model and what many sociologists believe lies not in the maximizing part of the model but in how individuals construct the options and judge alternatives.

I bring up this pedagogical example because contemporary economics is built on a number of simple assumptions that appear obvious and incontrovertible but can actually be successfully critiqued. The surface plausibility of standard economics is hard to argue with by novices, which is why first year graduate students often get stumped by the question I asked.

One important difference between economists and other social scientists lies in their willingness to entertain serious alternatives to the rational choice model. Psychologists are  so used to thinking about different models of decision making that they find the insistence on the rational choice model a bit puzzling.

The problem, however, is that for many routine social science questions, it is hard to articulate a simple alternative model that is easy to understand and can easily be the foundation for normal science. The rational choice model has handful of simple axioms, it’s easy to formalize, and easy to tweak.

II.

So what does this have to do with David Graber’s book on this history of debt? Aside from being a radical criticism of debt, Graeber offers one of the few successful attacks on academic economic theory. He doesn’t attack the rational choice model directly. Rather, he, in my view, attacks one of the core ideas of economics that is tied to the rational choice model.

When you read the nitty gritty of economics, you often see the following jump. You start with a description of the rational choice axioms: people have options, rank them, and act upon them in a consistent way. The jump is this: money is the natural way that you should figure out what people prefer. Money is the natural expression of needs and the money economy is the natural resolution of the economic problem of distributing goods. Without money, you’d need to barter to pursue your own personal goals and that’s very inefficient.

The first chunk of Graeber’s book is a anthropological account of barter. Where does it exist?   Is it actually true that the money economy represents a solution to the problem of barter? Graeber claims that barter is actually exceedingly rare. According to him, barter makes little sense at all. Why pile up on specialized goods and wait for other people to pile up on what you want and then trade? That’s bizarre.

Instead, what happens in most non-monetized cultures is that people engage in generalized exchange. If you need X, Fred will give you X, but you (or someone else in the group) has to help Fred sometime later. Thus, most groups engage in a debt economy, not a direct trade (barter) economy. Of course, there are some exceptions, such as trade between hostile groups or prisoners from Western societies. But overall, Graeber claims that the overwhelming theme in economic ethnography is that barter simply doesn’t exist.

The conclusion? Adam Smith was wrong to say that people have a natural tendency to “truck and barter.” Why? It’s a strange, unintuitive form of economic exchange. Therefore, money is not the natural solution to barter, since barter, for the most part, does not exist.

III.

According to Graeber, the anthropology literature, composed of observations of dozens and dozens of societies, undermines the link between self-interest and modern capitalist institutions. Classical economists, as well as their contemporaries, have made a deep error in assuming that a Western economic practice is the natural functional solution to economic issues that arise in all societies. I myself have even promoted this argument in my undergraduate class on economic sociology.

We’ll discuss the next step in Graber’s argument next week, but for now, I’ll conclude on the implications of Graeber’s attack on the barter-money link. If direct exchange of goods (barter) is not the embodiment of rational action, then what is? The answer, I think, is generlized exchange. A true believer in economics text books would correctly point out that generalized exchange can be described in terms of utility functions. Fair enough, but that’s not the point.

The real deep point is that monetary exchange, credit markets, and a whole host of other modern financial institutions are in no way natural. Furthermore, there’s actually an alternative to price theory, which uses money as it’s main variable (e.g., “clearing price”). The anthropologist’s version economics would start with indirect exchange as the main variable, which has a better claim to universality than prices, and then describe all institutions as recorders and shufflers of debt.

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Written by fabiorojas

December 15, 2011 at 7:08 pm

Posted in books, culture, economics, fabio

grad skool rulz #25.3: getting non-academic jobs

Previous grad skool rulz

Get the entire book – Grad Skool Rulz: Everything You Need to Know about Academia from Admissions to Tenure – for only $2. You can read it on personal computers, Nooks, Kindles, iPads, and smart phones.

I’ve been asked by multiple people about getting jobs outside the academy. How does one go about it? What do you tell your adviser? When do you tell them? I’ve done a little private consulting work, but most of my adult employment has been in education. So I tread lightly here. If you feel I’ve missed something important, please tell me.

First, most professors are programmed to believe that non-academic jobs are a sign of failure. This belief is mistaken and very misguided. There are many great ways to spend one’s life and academia is just one of them. Still, you have to be careful when raising the issue of non-academic jobs. Some professors will be very sympathetic, while others will immediately start ignoring students who aren’t on the academic career track.

Second, you have to be fairly clear about your long term goals. Some students will temporarily go into other areas and come back. For example, economists might work in the policy world before returning to the academy. Engineers might go to Silicon Valley for a while. In other cases, it’s clear the person has no interest in ever working in the academy. If you are in the first group, you will choose jobs that will maintain ties to the academic world.  If you are in the second group, you don’t need to do that. If you can’t tell what jobs generate ties to the academy, look at the CV’s of your professors (if any) who have managed careers combining academic and non-academic work.

A few words about job searching. In most areas, employers do not seek out Ph.D. students. They are simply off the radar. However, employers often come to big research universities to scout talent from the undergraduate college and the professional programs. If you are interested in consulting, for example, it’s not too hard to go the meetings held for the MBA’s. Many universities are located in metropolitan areas, so you can also access labor markets with relative ease.

Professional conferences are a good way to make contacts as well. Most of the big annual social science conferences have employers around. The ASA, for example, usually has a booth from the Census Bureau and there are usually other state and policy groups around.

Then there is the issue of timing. There is no set rule here. Sometimes, a student knows early on that they won’t go into the academic track. My advice: the sooner the better. If you still wish to complete your degree, wrap up your work and just give your completed PhD/MA thesis to your adviser. Many folks will be reasonable. If you have a complete work that’s in decent shape, many advisers will sign off on it.

Other students don’t know if the academic market will work for them. So they are judging multiple options. If you still have a desire to go into the academy, my advice would be to “wait and see.” If you have your heart set on the academy, give it your best shot. For many people, this may mean multiple years on the job market. I’ve seen people get outstanding offers after one or two job market cycles. Take the extra year to get more published and increase your chances. Most PhD programs will let you stay an extra year or so if the market doesn’t work out. If you still can’t get a job after a few job market cycles, at least you can tell yourself that you did your best, and that’s respectable.

If you are at the point where you’ve decide to work the non-academic job market, tread carefully. At some point, hopefully after you’ve investigated your options well, you’ll gently tell your adviser that you want non-academic employment. Assuming you have a civil relationship with your adviser, make it clear that you’ve enjoyed your time and that you’ve learned a lot, but that you’d prefer a different career path. You harbor no ill will. I think that if you’ve given it your best effort, most professors will respond well. And who knows? Maybe they can help you find that first job outside the academy.

Written by fabiorojas

December 2, 2010 at 2:58 pm

Posted in academia, fabio

performance

Economic sociology these days seems preoccupied with “performativity.”  That attention is well-deserved because the notion that the use of a model can improve its predictive fit is a powerful idea.  (For a graphic representation of the concept, see the excerpt by Brooke Harrington.)  But perhaps it’s time for a corrective look.

Graduate seminars are a useful barometer of when a concept starts to run past its purposes.  Some decades ago it was “socially constructed,” next “embeddedness” took its turn, and then for a brief while “boundary object.”  (I can’t begin to list all the things that students told me were boundary objects.)  Today it’s “performativity.”  The problem was not just that the terms were used, but that instead of being asked as a question (“how is it socially constructed and why does that matter?”) reference to the concept becomes the quick answer to almost any kind of question regardless of how far away from the original idea.  People who have experience leading graduate seminars will recognize what I’m talking about.  There’s a pretty good discussion going on, and just when things are getting perplexing and difficult (i.e. good, as in potentially productive), someone voices the solution (“It’s a clear case of performativity, right?) and it suddenly seems to close the conversation.

With all the talk about economists performing the economy and models performing markets, perhaps we are losing site of skilled performance.  Charlie Smith addresses such skilled performances in a recent paper, “Coping with Contingencies in Equity Option Markets” (forthcoming in The Worth of Goods:Valuation and Pricing in the Economy, edited by Patrik Aspers and Jens Beckert, Oxford University Press).  Smith distinguishes among three strategies for confronting uncertainties.  The first, “Making Sense” entails imposing some kind of narrative account on events initially experienced as chaotic.  “Routines,” the second strategy imposes some sort of behavioral order.  The third, “Acting Sensibly,” the least common but the most interesting, doesn’t seek to impose an overall order.  It is a method for handling the contingent and the disorderly.  In this rich study of option traders, Smith analyzes the practices of juggling multiple rules of thumb in managing option positions.

Daniel Beunza and I take a similar analytic approach when moving from how models make markets to understanding how traders actually use models.  We conduct an ethnographic account of merger arbitrage as a reflexively skilled performance, with reflexivity socially distributed inside and outside the trading room.  “Models, reflexivity, and systemic risk: a critique of behavioral finance,” available here, is a paper with a twist.  When the system lacks requisite diversity (or dissonance), the unintended outcome of the attempt to deal with the fallibility of financial models is systemic risk.

I’ve also been exploring these themes in a presentation called simply Performance.  It’s one of several ‘silent lectures’ — a genre I’ve been working on for my undergraduate teaching.  They’re intended to evoke the multiple, intertwined meanings of some basic concepts. As I’ve discovered in my teaching, sometimes silence on my part is the best way to stimulate students to become active in the process of making associations.  Each silent lecture is a PowerPoint slide show, typically with about 100 images and few words.  The presentations are self-timed.  Load the PowerPoint, click ‘view slide show,’ and it runs itself, usually under 10 minutes.

I’ve found silent lectures to be a very effective way to stimulate discussion, even in a relatively large lecture course with as many as 80 students. There’s clearly no “right answer” (a dagger that kills good discussion) and the students get that right away.  One can sense that there’s lots of energy in the room, people really want to talk, and so I just get out of the way and listen in amazement at the connections they’re making.

Silent lectures are available for download on my website here.  Please feel free to use them in your teaching.  I ask only that you credit the source and that you send me an email to let me know that you’ve used one.  Of course, I’d appreciate feedback:  I continue revising and tweaking them.  But I know that folks are busy.  It’s enough just to drop me a one line note (“used your slide show in my course”) so I can track usage.

Performance opens with musicians, dancers, and actors performing.  Then athletes.  Audiences applaud.  We see judges, report cards, stock tickers, measurements, Top Ten lists, and online ratings of restaurants, movies, politicians, and professors. Various performance venues, material and virtual — from stadiums and lecture halls to surgeries and Second Life.  Students get it that the images of the CEOs of the big automakers and investment banks testifying before Congress refer to a kind of performance about performance.

The slide show explores the interplay of the real-time skilled achievement of effective performance and the evaluative principles of measurement.  From the bedroom to the boardroom, pharmaceutical companies and management consultants promise enhanced performance.  We live in an age of performance anxiety.

Written by dstark

June 24, 2010 at 10:31 am

industrialization vs. impression management for development

In his famous book, The Wealth of Nations published in 1779, Smith railed against the protectionist mercantilist system prevalent in Europe at that time and argued that the principles of free trade, competition, and choice, are the conduits of economic development. Smith argued for the power of free-markets where individuals pursue their self-interest which ultimately makes everyone better off. As Smith wrote, the individual is “led by an invisible hand to promote an end which was no part of his intention… By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it” (Smith [1779] 1900: 345).

Following Smith, economist David Ricardo furthered the critique of mercantilism in his theory of “comparative advantage,” ([1817] 1996) arguing that economic development (although the term was not coined yet during Ricardo’s time) results from a country specializing in what it produces most efficiently and then trading these goods with other countries that specialize in other goods.

After the World War II, “development” became an explicit project of the international community, because the nations of Asia, Africa and Latin America lagged substantially behind (McMichael 2000). In these regions, politically embedded agrarian structures prevailed and the challenge was to achieve an industrial transformation. Many economists argued that this can be achieved by opening these states to foreign capital which would increase the overall stock of capital in a country and create positive development spillover effects for the domestic economy (Kindleberger 1970; Stopford and Wells 1972; Knickerbocker 1973; Hymer 1976), although this premise of positive effects of foreign investment was questioned by the dependency school (Cardoso and Faletto 1979; Gereffi 1978, 1983; Evans 1979). Rather, as Evans argued, economic development resulted from connecting state and civil society in the form of “embedded autonomy” (Evans 1995), which allowed for strategic economic management. On the other hand, the socialist states of Eastern Europe, China and Vietnam engaged in a centralized large-scale industrialization with a goal to catch up and surpass the advanced West (Kornai 1992).

Hence, most research on development has focused on the industrial manufacturing capacities of underdeveloped countries, and how the unleashing of these capacities, either through centralized command economy, foreign capital or embedded autonomy, can assure economic growth. Much less has been written on the role of cultural attributes of nations as vehicles to economic development promoted by the strategic impression management of a country. This is one of the points we want to develop in our Cultural Wealth of Nations project.

We want to argue that cultural (tangible and intangible) attributes of countries have to be managed to generate the kinds of favorable impression that might attract tourists as well as financial investments into the country and that might privilege goods and services being sourced therein.  To understand how state and non-state actors manage the favorable evaluation of the country’s attributes, we turn to the concept of impression management.  Erving Goffman initially articulated the concept as a strategy undertaken by individuals in interaction.  We extend Goffman’s framework to include organizations– teams of actors and directors.  The management of external impressions enables the conversion of symbolic capital into economic capital, with the country’s cultural heritage and its intangible characteristics being translated into significant contributions to GDP.

In Goffman’s framework, the actor “takes a line.” Each knows his or her role in the play and no one betrays the rest of the cast by deliberately enacting a foreign script.  The cast and its director discipline the actors (dramaturgical discipline) to make sure that they stick to the script.  And the team is circumspect (circumspection) in preparing for their performance so that they minimize the elements that might derail a believable performance.  So long as the audience thinks that the actors are acting in good faith, the audience forgives minor slip-ups by pretending that such slips did not occur or by following improvised lines meant to bring the play back on line (exercising tact).  The actors respond to the tact of the audience by themselves exercising tact (tact regarding tact).   It is this process of acting in good faith and engaging with the reactions of one’s audience that helps us better understand the dynamics of cultural markets.

Overall, the impression is socially constructed, which means that it does not have to be genuinely authentic, as long as both the performers and the audience understand it as such. The challenge then is for the image-makers to tap into globally available frames that would resonate as attractive by the global audience, while at the same time making sense for the performers. Moreover, unlike individual-level impression management, country-level impression management, because it involves multiple actors, is necessarily embedded in domestic cultural politics and shaped by the political history and encounters that the country’s official and unofficial representatives have had with other countries’ representatives higher in international status.

Written by fredthesociologist

March 21, 2010 at 4:10 pm

Posted in culture, economics, markets

economics and deconstruction

So, last week, I presented at the Oliver Williamson seminar on institutional analysis, based in the Haas School of Business at UC-Berkeley.  (This week, I presented for Labor Studies here at IU.  How’s that for variety?)  It was a great experience and a smart crowd–predominantly made up of economists, and playing by economists’ rules for talks.  I was glad to make it through the bulk of the material I wanted to share, and thankful that the intellectual sparring (which I even mildly enjoyed) wasn’t hostile.  I heard “we don’t usually get sociologists” several times.  I was actually surprised that the worlds of “business and public policy” (primarily economists) and “management of organizations” (more psychologists and sociologists) don’t overlap so much, at least in this particular setting.

One side reflection….

…Economists are pretty damn quick and agile when it comes to using notions about signaling and agency theory to undercut arguments about cultural categories in markets.

Here, that occurred when I talked about Love and Kraatz’s interesting finding that corporate downsizing in the 1980s had negative effects on firms’ reputations (relative to their competitors).  Love and Kraatz show that these effects are robust to controls for financial and market performance and argue that they represent an evaluation of firms’ “character” and trustworthiness.  It’s a nice paper and interesting argument, which differs from neo-institutionalist lines about conformity with the dominant institutional logic (in this case, of shareholder value).  The economist counter-argument was that downsizing is really a signal that the firm knows it will be in trouble in the future–and therefore provides valuable information about the firm’s market value.  This isn’t picked up in measures of market performance because it’s really a forecast of performance to come, not a reflection of curent performance. 

In a discussion a few years ago, something similar happened when I used Zuckerman’s “categorical imperative” findings to demonstrate the effects of legitimacy.  Then, the counter-argument, if I remember correctly, was that the real problem with firms that don’t fit the expected categories is that they are scattered in such a way that generates agency problems that ultimately devalue them.

My goal is not to argue about which interpretation is right.  In my view, these two papers are super-high quality and go to great lengths to establish their findings.  The point is that it’s amazing how quick one can be to undermine a rigorously developed argument with a wave of the hand.  From one perspective, this could be an indication of the power of a strong paradigm.  But I think it also reflects a tendency toward deconstruction in that paradigm…and I mean this in something not too terribly far from the Derrida/Foucault sense.  All that is solid melts into thin air.  Arguments become increasingly hard to operationalize, models become impossible to properly specify, and therefore more falls back on the paradigmatic assumptions.  My sense is that sociologists are more pragmatist in their orientation:  Build with what you have; talk, talk, talk  to sort it out.

Just a scattered thought, which maybe has implications for Mark’s earlier post about org theory and institutional economics.

Next step, coming soon…a more substantive post….no more mentions of Williamson, I promise.

Written by timbartley

February 26, 2010 at 12:18 am

apple’s ipad: one of these things …

Many of my economist friends wonder why org theorists make such big deal out of conformity and, to a lesser extent, categories.

Maybe it’s because they never watched Sesame Street, and we did. After all, with a simple song (One of these things is not like the other, one of these is not the same…), this seemingly wholesome bastion of public television edutainment taught a generation of kids to spot categories and reject misfits, and quickly! (Watch it on YouTube.)

Lately, the Apple iPad has made me think about these issues and, of course (!), about org theory. It leads to some questions for org theory readers, which are stated at the end of this post.

Jumping into the org theory part takes me to Ezra Zuckerman’s (1999) “categorical imperative.” Roughly speaking, this is the idea that non-conformists pay a price for their deviance, which includes, but is not limited to, being overlooked, dismissed or discounted, especially by third-party evaluators that try to make a living as critics, analysts or experts. Similar findings have been shown in, to name just a few studies I like, actors (Zuckerman; Hsu), wine (Negro, Hannan and Rao), and markets for professional services (Leung). So, for everyone 10 tries at creating a new market category, we can all probably find 9 or so failures. Furthermore, for each success, I bet I can find a situation where a few deviants started to find each other and somehow find themselves part of what they had tried to leave behind–a crowd that gives them legitimacy, even as it also makes them compete. (I say something along these lines in articles in Poetics, ASR, and in a working paper probably getting brutalized by reviewers somewhere right now.)

Still, this isn’t the whole story, is it?

In the technology world, engineers and entrepreneurs have this crazy idea that it’s somehow a good thing to come up with new things that don’t fit existing categories. They’re so drunk with enthusiasm for this that they seem to want to do it all the time. Probably to make it sound like it isn’t just ill-advised gambling, they call it “innovation”, like giving it a name makes it more real, or something. (See Rosa et al., 1999.) Of course, they still mostly fail at it. I’m not sure, but I think this obsessive rush to deviate could be related to the history and lore of computers. It is replete with stories of misfits–computers that didn’t fit established categories of their day–that somehow caught on and siphoned demand away from dominant markets. Everybody seems to want to make that list as inventors of the “next big thing.” There is even a wacky museum dedicated to all this. I can’t say if the whole innovation thing will catch on, but it certainly makes for interesting studies.

Kidding aside, you can also see this in several things Ezra has written about how actors escape the pressures of conformity. There is the idea that what economists call “abnormal returns” tend to go to innovators, a la Schumpeter (see Zuckerman 1999: 1402-1403). Also, in his paper with Damon Philips, there is the point that high and low status actors feel greater pressures for conformity than middle-status actors. Even so, I’m definitely with Ezra on the conformity pressures that categories produce, but I’m also puzzled by the question of how new categories arise. As my wife and kids would testify, this puts me on the lookout for misfits or category-blenders or misfits that seem like they might make get recognized as belonging to new categories, even if they initially strike many as ungainly hybrids. You can hear nastily critical comments to that effect about the iPad, netbook computers, or before that, the smartphone. Even before that, the same goes for the minicomputer, the PC, the workstation, and so on. (Gordon Bell has a nice little paper on this that boils a lot of this history down into a single diagram–see Figure 1. For engineers: there really is a Figure 1 in Bell’s paper.)

In the technology context, it is clear that being the prototype for today’s established category may not translate into being the prototype for the next big thing. Since being a perfect fit for the slide rule category just isn’t worth what it used to be, it’s useful to think about the currency of a category, the topic of a paper I”m revising for RSO with student Jade Lo and Mike Lounsbury.) Because a picture’s worth a thousand words, here’s an admittedly non-artistic collage that combines some well-accepted categories with misfits aiming for currency of their own.

Fun with categories ... in high-tech gadgets

So here are some questions for you:

  1. In addition to the categorical imperative, what else affects the dynamics of market categories?
  2. Any predictions about whether the iPad will take off or fizzle out?
  3. Or, should org theorists leave all this super-macro “organizations and markets” stuff to other fields?

To start the discussion, here are few ideas about #1 that are already out there:

  • luck (path dependence),
  • product features (rational choice in marketing),
  • producers’ perceptions of threat and opportunity (I have a piece with Peer Fiss about this in AMJ),
  • audience judgments and critics’ opinions (as in the growing ecological literature on categories),
  • the social psychology of comparison processes and similarity judgments (in the spirit of Brayden’s recent post).

At least to me, what makes all this an interesting topic–and fair game for org theorists–is that it requires looking beyond the effects of institutionalized categories to the processes and institutions that contribute to institutionalizing them. Yuck, that’s a mouthful, I know. The point is that categories have histories in which organizations, entrepreneurs and innovators interact with critics, distributors, key customers and other arbiters of taste to try to influence their intended audience to see their misfit products as deserving categories of their own–and all the rights and privileges pertaining thereto, as the saying goes.

Written by mtkennedy

February 24, 2010 at 5:32 am

foss and lorenzen on cognitive coordination

It’s not often that I’m so genuinely surprised by a journal article that I jump out of my seat and nearly knock my computer screen over. Yet this is what happened to me yesterday morning. And what, you may ask, caused my outburst? Well, I noticed an article in the most recent issue of Organization Studies about the cognitive dimensions of organizational life that was written by Nicolai Foss and Mark Lorenzen. Yes, that Nicolai Foss – the guy who writes at our evil twin blog has published a paper about cognition. Don’t spill anything, it’s a very interesting article.

Foss and Lorenzen think about how coordination problems are resolved through the evolution of shared cognitive categories. One of the central problems underlying coordination, they argue, is that in any given situation people have heterogeneous beliefs regarding their potential interaction. These differences in beliefs inhibit meaningful debate and create friction when trying to align incentives. Thus, individuals with differing beliefs may never be able to agree about what’s important, what should be done, etc., which leads to a failure of collective action.

In a certain sense, the cognitive coordination problems caused by differing beliefs are more fundamental than the coordination problems related to incentive conflicts, because they need to be solved before the latter category of coordination problems can be addressed. Thus, understanding how situations become cognitively well defined — that is, the process of achieving cognitive coordination — should be a central analytical task for economists (1202).

In classic game theory, they maintain, theorists assume that people will reason away those differences; however, this reasoning process is not very well explained by the theory (perhaps because most game theorists choose to ignore cognition). Foss and Lorenzen tackle it head on. They argue that people reason with analogies, anchoring on past events or ways of doing things to guide future interaction. Rather than argue that there are a few simple analogies on which people converge in their interactions, their theory makes room for local specificity. In a real constructivist sense (or at least that’s how I’d label it), analogies emerge from interaction and become precedents for guiding future interaction. Empirically the paper focuses on a Danish furniture district and looks at the ways that producers resolve coordination problems among themselves, such as price-setting.

Once you get into the details of the paper, you realize that this is not at all an atypical Foss paper. It’s written with clarity, it seeks an elegant solution to a common empirical problem, and the paper is very interesting. While it was surprising to me to see that Nicolai is now writing about cognition, the link to his research agenda is pretty clear. Shared cognition enables tacit coordination over prices, reduces transaction costs, and facilitates ongoing market interaction. Prices, it could be argued, reflect not just preferences but also convey information about market players’ shared beliefs.  Imperfectly rational actors use analogies to help resolve tensions that inhibit coordination, but given their sticky nature, analogies may turn into institutions that provide long-term solutions to the coordination problem. By linking insights from psychology, organizational theory, and Hayekian economics, Foss and Lorenzen have written a nice bridging paper.

Written by brayden king

November 24, 2009 at 6:13 pm

of cows and collective action, ostrom wins a nobel

Elinor Ostrom has won the Nobel Prize in Economics.  Boo rah!

For a lot of orgTheory readers, Oliver Williamson’s win will be the more exciting and relevant of this year’s laureates.  Oliver Williamson is really one of us; many orgTheorists find his work compelling or at least a useful foil.  But I’ll let others comment on Williamson because, for my money, the questions and topics that Ostrom work on are as (if not more) relevant and compelling to my understanding of organizations and of organization theory.

Sometimes it is the quality of the questions one asks — more, perhaps, even than the answer one gives — that makes for a great thinker.  To some degree, I think this applies to Ostrom.  In the end, I find her answers somehow incomplete.  But, the questions she asks as she breaks down the larger puzzle are compelling.

CowsonthecommonsHer fundamental question is this: in a world of abundant but rapidly depletable resources, where individuals have incentives for survival that, if acted on, would undermine the long-term viability of the resources on which they depend, how does coordination and cooperation emerge? That is, she’s interested in the Tragedy of the Commons.  The term derives from the fact that farmers with access to the local grazing land (The Commons) have an incentive to feed their cattle as much as possible.  But if all farmers fed their cattle as much as possible it would rapidly deplete the grass leading all of their cattle to suffer.  There are two prevailing answers to that dillema: (1) may the best farmer win (which would mean the commons would no longer be a commons) or (2) institute some set of rules and enforcement mechanisms to govern the behavior of farmers.  Obviously, the second often wins out.  The question is how.

Her conclusion: it’s complex.  There is no silver bullet (which makes it all the more surprising that the Nobel committee has decided to honor her work.  Economists, I’ve noticed, put a lot of value on “elegance”; Ostrom is a strong writer, but elegant… not so much).  There are a series of mechanisms that come into play to keep good order and that, if harnessed and understood, can lead to behavior that sustains survival. Read the rest of this entry »

Written by seansafford

October 12, 2009 at 1:23 pm

sorry, peter klein, social science is a fuzzy business

Evil twin conspirators Peter Klein and Nicolai Foss have been ragging on management scholars for using ill-defined concepts, like routines and leadership. When I read the post, I thought it was odd – aren’t all social science concepts a simplification of complex behaviors? What is democracy? What is a market? What is an organization? These are all broad, inherently fuzzy concepts, but it doesn’t mean it’s dumb to talk about them.

I was reminded of a valuable exercise that Don Levine once did in a graduate seminar. Thoroughly versed in the history of social thought, he could take nearly any concept offered by students and then give a long discussion of how many very smart people had argued over its definition, formalization, and operationalization. I even offered my own example: among mathematicians, it’s recognized that there are multiple and incompatible definitions of things like sets and numbers. True, it may not matter to a typical mathematician, but there’s a fundamental ambiguity about basic math that allows one to logically construct some pretty exotic version of the integers.

Back to social science, I’d argue that the underlying concepts of any social science are inherently vague. Formalizing them allows you to ignore the ill-defined nature of the process so you can make a clean academic model. It doesn’t address the underlying mess. Here’s an example to twink an economist like Peter Klein: price. If you define price as a real number (or function) then it’s pretty clear. Heck, economists even have the “law of one price,” which says if things are efficient, identical products cost the same.

But if you start with “what you have to give to get X,” then things get hairy pretty fast:

  • in a barter system, there is not a single number, but a list of exchange rates with different commodities.
  • in many tribal cultures, there are significant gift economies, where there is not an obvious, or stable, “price” or exchange ratio, just some generalized expectation of reciprocal obligation
  • Many markets have haggling, the “price” depends not on information about supply and demand or other economic information, but on personal ability to argue. In other words, sticker price, or a single price, is sort of meaningless, at best you have a range of prices depending on how hard people push various personal interactions.
  • Some markets are so differentiated that producers offers prices based on minute personal characteristics that leads to a vague price. Think car dealers – advertised price, dealer sticker price, haggled price, price conditional on subtle variations in the car, and price contingent on local markets conditions can be substantially different. In this case, price is a Jackson Pollock splatter, not a well defined number.
  • there seems to be price dispersion in some markets, and this is the subject of research by many economists

We can define away the ambiguity of the situation by saying “there is a single price – if there is no friction, everyone has identical information, if we stick to intra-temporal comparisons, and equivalent abilities of buyers and sellers to bargain in identical ways.” Well, of course, but you’ve just defined aways alot of interesting things about prices! So, Peter amd Nicolai, I’ll stick with my fuzzy management concepts.

Written by fabiorojas

May 13, 2009 at 3:27 am

thursday afternoon links: econ and education edition

1. Arrrrghhh!!! Pete Leeson, pirate economist, will be visiting at Chicago next academic year.  Watch out for ships sporting a game theory flag in Lake Michigan. Previous orgtheory posts on Leeson’s pirate research.

2. Remember my discussion of paying kids to learn? The early results of the Fryer experiment are in: increases in test taking, not scores. I don’t think this refutes the concept of incentives – there are lots of obvious cases of people studying hard for money (e.g., med school applicants). But the incentives have to be compatible with context. Will a few hundred bucks be enough to make kids overcome crummy schools, the lures of social life, and the otherwise bad post-graduation prospects? Probably not.

3. Over at Orgs and Markets,  two posts on university salaries. This one on public schools and this one on private schools.

Written by fabiorojas

March 5, 2009 at 4:50 pm

Posted in economics, education, fabio

realists, constructionists, and lemmings oh my! (part I)

Here is an exchange from Friday’s News Hour with Jim Lehrer :

David Brooks: People took out these loans. People assumed house prices were going up. It’s a contagion all across the world in highly regulated economies in Europe, less regulated economies here. And to me, it’s this social contagion that has sort of transcended all the other barriers.

Jim Lehrer: Well, as Alice Rivlin said on this program the other night, what nobody counted on was the possibility even that home prices wouldn’t always go up, they would eventually go down. Nobody considered that as a possibility.

Mark Shields: Twenty-six years we had — from 1982 forward, we had low unemployment, low inflation, and pretty good economic times. A lot of people were hurting, but, you know, so there was that reason, that expectation that things were going to get better.

Jim Lehrer: And home values were always going up.

Mark Shields: Yes.

 And here is what former Fed governor Rivlin had said:

We were victims, the whole country, of a collective delusion that housing prices would keep on going up. And I think we lost control of our common sense.

Many people who bought mortgage-backed securities, who bought other securities that were related to them, didn’t ask one simple question, which was, what happens to the value of these securities when housing prices go down, as they eventually would?

I find this kind of talk to be fascinating.  For at least two reasons.  First, these are smart people, but they are saying silly things.  Were you deluded into thinking that housing prices were always going to go up?  Did you lose control of your common sense?  Personally, I had long thought that it was moronic to believe  that housing prices were always going to go up, and I was convinced that they had become insanely overvalued.  And I’m positive that that is true for many of you.  I’m even reasonably sure that this is true for the talking heads quoted above.  At least, I’m sure they thought there was a significant possibility that we were in a housing bubble.  And I’m certain that they participated in numerous discussions since 2000 and even before about such a possibility.  Like many of us, I’m sure that they were aware of the work of Robert Shiller–and maybe even got sent this fun video [based on these data])  If you have any doubts that the idea that we were in a housing bubble of unprecedented proportions was widely discussed, here is the number of articles in U.S. publications mentioning the words “housing bubble” by year (courtesy of Factiva):

Year Mentions
1999 4
2000 1
2001 20
2002 827
2003 539
2004 641
2005 2973
2006 1921

So, while there certainly were many dissenters with the view that we were in a housing bubble (please don’t all raise your hands at once!), it is clearly wrong to say that we are were all deluded, jumping lemming-like (metaphorically, not literally– turns out lemmings were given a bad rap by our friends at Disney) to our financial ruin.  The possibility that we were in a bubble was widely discussed and believed by many.

The second reason I find this interesting is that it is a useful route in to a set of related questions concerning how we should think about market prices and how they relate to “fundamentals,” an issue I promised in my last post that I’d address, and this issue relates more broadly to the perennial divide between realism and constructionism, with implications far beyond financial markets and including, in particular, the truth-value of scientific theories.  (Sorry for that awful sentence) In my next post, I’ll try and stake out an intermediate position that both incorporates the wisdom in each perspective and tries to deal with their problems.  In this post, I’ll lay the groundwork, by showing how pure constructionism and pure realism ironically lead to roughly the same (uncomfortable) place.

Read the rest of this entry »

Written by EWZS

October 26, 2008 at 6:24 am

Posted in uncategorized

help me, obi-wan bernanke. you’re my only hope!

The depressing financial news to day is of a coordinated Fed/Bank of England/European Central Bank rate cut this morning, which occasioned a brief spike in stock prices, followed by a significant drop. Not so coincidentally, I read the following quote last night:

I am now somewhat sceptical of the success of a merely monetary policy directed toward the rate of interest.  I expect to see the State, which is in the position to calculate the marginal efficiency of capital-goods on long views and on the basis of the general social advantage, taking on ever greater responsibility for directly organising investment; since it seems likely that the fluctuations in the market estimation of the marginal efficiency of different types of capital, calculated on the principals I have described above, will be too great to be offset by any practicable changes in the rate of interest.

Any takers on guessing who wrote this? 

One irony in this quote is that in fact, this exercise in expanding the monetary supply actually comes after (or really, in the midst) of other measures that are closer to “taking over responsibility for organising investment.”  Essentially, Bernanke is trying any and all measures to restore stability.

Here is another irony, which is also not so encouraging: Read the rest of this entry »

Written by EWZS

October 8, 2008 at 4:54 pm

Posted in uncategorized