Sunday, July 22, 2007

The Gettysburg Powerpoint Presentation

Powerpoint is everywhere and indispensable, huh? We couldn't live without it, could we? Let me draw your attention to President Lincoln's Powerpoint address at Gettysburg.

The Nature of Nonprofit Firms

Organizational economists are learning more about family firms and cooperatives but still know relatively little about nonprofits. What is their objective function? How are they organized, managed, and governed?

Jill Horwitz and Austin Nichols's NBER paper, "What Do Nonprofits Maximize? Nonprofit Hospital Service Provision and Market Ownership Mix" looks at the behavior of nonprofit, government, and for-profit hospitals to address these questions. Their key finding is that nonprofit and government- owned hospitals respond to competiton; the more local-market competition they face from for-profit hospitals, the more likely they will offer profitable services and the less likely they will offer unprofitable services. For- profit hospitals, however, tend to offer the same mix of services regardless of what competing for-profit hospitals are offering.

Overall, Horwitz and Nichols find the Newhouse (1970) model, in which nonprofits maximize their own output, more plausible than the Hirth (1999) model in which nonprofits are "for-profits in disguise."

Originally posted by Peter Klein of Organizations and Markets

Saturday, July 21, 2007

The Tragedy of the Commons: Revisited

In one of our PhD seminars, we are asked to re-read the classical paper by Garrett Hardin, The Tragedy of the Commons, published in Science in 1968. Here is my short summary.

The basic logic underlying the so called the tragedy of the commons is trivial. The marginal benefit from an individual's rational decision outweighs her marginal cost, but the society as a whole, was becoming worse-off due to overuse of the commons. So, totally different from Adam Smith's utopia of "invisible hand", the society in this situation has confronted a social dilemma, in which self-interests cannot result in social optimal outcome.

The author focused on the conundrum of overpopulation and its natural consequence of the overuse of resources and other kinds of social problems. How to solve this diemma? Can we realize Jeremy Benthem's goal of "the greatest good for the greatest number" at the same time through ingenious technique solutions? The answer was no and the reasons sprang from mathematical proof and biological facts.

Then what about property rights? Economists, like Ronald Coase had argued that property rights matter. Yes, they did matter. But according to the author, the power of property rights was limited because of pervasive existence of public goods problems and economic externalities. And furthermore, the efficacy of property right approach was also constrained by legal sanctions and enforcement of law.

Therefore, can we push this idea one more step so that we may simply rely exclusively on the legal system in our society? Indeed, we can control birth or overuse of the resources through legislation. But how can we legislate our temperence? By conscience? Can we rely on that? Again no. Conscience is self-eliminating and also can generate mental disorder and pathogenic effects.

At last, Dr. Hardin called upon some kind of social responsibility, say, mutual coercion to resolve this dilemma, "the only kind of coercion I recommend is mutual coercion, mutually agreed upon by the majority of the people affected." By common definition, this kind of mutual coercion can be regarded as social norms. It's simple, isn't it? However, further questions arised, where do social norms come from? Can norms stem from rationality assumptions? Can norms be designed? If so, through what way and what's the driving force?

Sunday, July 15, 2007

Management Journal Impact Factors 2006

The new journal impact factors for 2006 are now available from the ISI Web of Knowledge. Consider the journal list within "management" or "business". Here are some quick observations (excluding marketing and information systems):
  • AMR and AMJ are still top 1 and 2. The difference between their respective impact factors is, at 4.515 and 3.353, is pronounced.
  • Organization Science has made it to No. 3! It is fair to say that Organization Science is one of the true success stories among management journals!
  • Strategic Management Journal is No. 4. A lot of people whine about SMJ, particularly its allegedly very lengthy review processes and random decisions.
  • Administrative Science Quarterly, once generally regarded as the top management journal, is now down to No. 5. A consequence of focusing too much on sectarian sociology and behavioralist stuff?
  • Journal of International Business Studies is now up at No. 6. This is JIBS's highest ranking ever. It's clearly extremely good news for the international business (IB) community which has had to deal with a reputation of doing less than rigorous research.
  • Journal of Management Studies continues to climb the reputational hierarchy and is now No. 8. This corresponds to my personal casual empiricism that the reputation of the JMS among particularly US management academics has been very strongly increasing over the last couple of years.

The impact factors are not objective criteria for evaluating journals in that one particularly popular article may be sufficient to make a journal jump considerably up within the hierarchy. So don't take this ranking too seriously...

Contents based on Organizations and Markets Blog

Mathematicians and Economics

The following quote is excerpted from Richard Feynman's comments on mathematicians. This Nobel laureate delineates the efforts of pure mathematicians doing physics, and this logic may also be applied to pure mathematicians doing economics (or finance). I paraphrase his quote a little bit by substituting all "physics" into "economics":

"...The equations are complicated, but after all they are only mathematical equations and if I understand them mathematically inside out, I will understand the economics inside out." ... Mathematicians who study economics with that point of view -- and there have been many of them -- usually make little contribution to economics and, in fact, little to mathematics. They fail because actual economic situations in the real world are so complicated that it is necessary to have a much broader understanding of the equations...

-- From The Feynman Lectures on Physics

Monday, July 9, 2007

Nobel Lectures Online

You can watch six past Nobel laureates' online lectures by following these links:

Dr. John Nash Jr.
The Agencies Method and Cooperative Games
Prof.Sir Clive W.J. Granger
Building Econometric Models to Consider Policy for Deforestation in the Amazon Rain Forest
Prof. Sir James Mirrlees
Optimal commodity taxation
Prof. Robert Engle
Global Financial Volatility
Prof. Douglass North
The Natural State or why effective economic reform is so difficult
Prof. Robert Mundell
China's Macroeconomic Strategy and its Currency Relations with Asia and the International Monetary System

The Bilateral Trade Deficit: Meaningless Statistic

The Irrelevance of Bilateral Trade Balances below comes directly from Greg Mankiw's intermediate macroeconomics textbook (6th edition):

The trade balance we have been discussing measures the difference between a nation's exports and its imports with the rest of the world. Sometimes you might hear in the media a report on a nation's trade balance with a specific other nation. This called a bilateral trade balance. For example, the U.S. bilateral trade balance with China equals exports that the United States sells to China minus imports that the United States buys from China.

The overall trade balance is, as we have seen, inextricably linked to a nation's saving and investment. That is not true of a bilateral trade balance. Indeed, a nation can have large trade deficits and surpluses with specific trading partners, while having balanced trade overall.

For example, suppose the world has three countries: the United States, China, and Australia. The United States sells $100 billion in machine tools to Australia, Australia sells $100 billion in wheat to China, and China sells $100 billion in toys to the United States. In this case, the United States has a bilateral trade deficit with China. But each of the three nations has balanced trade overall, exporting and importing $100 billion in goods.

Bilateral trade deficits receive more attention in the political arena than they deserve. Most economists, however, believe that bilateral trade balances are not very meaningful. From a macroeconomic standpoint, it is a nation's trade balance with all foreign nations put together that matters.

The same lesson applies to individuals as it does to nations. Economist Robert Solow once explained the irrelevance of bilateral trade balances as follows: "I have a chronic deficit with my barber, who doesn't buy a darned thing from me.” But that doesn't stop Mr. Solow from living within his means, or getting a haircut when he needs it.

Contents Based on Greg Mankiw's Blog.

Spousal Researchers

Who are the top husband-and-wife teams in economics, management, finance, and related fields? Perhaps some candidates:

Milton and Rose Friedman
George Akerlof and Janet Yellen
Birger Wernerfelt and Cynthia Montgomery
David and Christina Romer
Guido Imbens and Susan Athey
Scott Schaefer and Rachel Hayes

There must be many more.