Hiring and Firing

by Henry Farrell on July 20, 2005

“Jonathan Cohn”:http://www.tpmcafe.com/story/2005/7/18/114013/338 asks whether there’s any good reason to believe that nice guys do indeed finish first in the business world.

bq. I’d love nothing more to believe that treating employees well is actually better business than treating them shabbily. But at the moment, anyway, count me as skeptical.

As I think I’ve mentioned before, Gary Miller has used economic theory to make exactly this argument, in a series of publications over the last fifteen years (this “piece”:http://www.isnie.org/ISNIE99/Papers/millerg.pdf co-written with Dino Falaschetti, gives a good flavour of his work). Miller uses social choice theory and game theory to argue that managers, if they are to get workers to deliver their full effort, need to be able to make credible commitments to them that their efforts will be rewarded over the longer term. It’s thus a good idea to keep a strict separation between management and owners. Efforts to make the interests of stockholders and managers coincide with each other are going to weaken management’s ability to credibly commit to workers that they will continue to be employed, as managers become more interested in chasing short term stock market gains than in ensuring the long term health of the company. Long term success, for Miller, is produced through “gift exchange” in which managers credibly commit to insulate workers from the pressure for short term profits, and workers reciprocate by giving additional effort. One of Miller’s examples of a firm that used to do this very well is rather timely. From Miller’s 1992 book, “Managerial Dilemmas”:http://www.powells.com/search/DTSearch/search?partner_id=%2029956&cgi=search/search/&searchtype=kw&searchfor=gary%20miller%20managerial%20dilemmas :

bq. Another condition for the achievement of cooperative equilibria in a repeated game is the mutual expectation that the relationship will go on long enough to justify the investment in cooperation. This was achieved at Hewlett-Packard by an early decision by the two founders not to be a “hire and fire company,” but one in which employees would have the security of employment commitment. In the 1980 recession, this policy was tested severely, but everyone in the organization took a 10 percent cut in pay and worked 10% fewer hours so that no one would be fired (Peters and Waterman 1982: 44). This confirmed everyone’s subjective belief that the relationship was long-lasting and that employee efforts were not going to be exploited for short-term gain by Hewlett-Packard.

How “things have changed”:http://www.washingtonmonthly.com/archives/individual/2005_07/006756.php.

Opportunity costs redux

by John Q on July 20, 2005

Harry’s post on consequentialism and opportunity costs, as applied to the Iraq war, raises a couple of important points about consequentialism, and also leads me to suggest a specific correction to my post on this topic.

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Which Opportunity Costs?

by Harry on July 20, 2005

This is a quibble with something in John’s long discourse on the war. It’s more of a question, than a quibble, really. John rightly points out that, in assessing the true consequences of some policy or action, we have to take into account the opportunity costs:

A second common feature of pro-war analysis is a failure to take account of the opportunity cost of the resources used in war. The $300 billion used in the Iraq war would have been enough to finance several years of the Millennium Development project aimed at ending extreme poverty in the world, and could have saved millions of lives. But even assuming this is politically unrealistic, the money could surely have been spent on improved health care, road safety and so on in the US itself. At a typical marginal cost of $5 million per live saved, 60 000 American lives could have been saved. This is morally relevant, but is commonly ignored.

Please don’t think about the war, or John’s more general argument about it, for the moment. Assume that all we are doing is trying to figure out the consequences for the purpose of moral evaluation (whatever weight you think the consequences should have — for me, its less than for John, but more than for some). What are the real opportunity costs that we should figure in?

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The Magic of Markets

by Henry Farrell on July 20, 2005

Over at the Volokhs, Jim Lindgren gets “upset”:http://www.volokh.com/archives/archive_2005_07_17-2005_07_23.shtml#1121820182 “twice”:http://www.volokh.com/archives/archive_2005_07_17-2005_07_23.shtml#1121843543 at co-blogger Orin Kerr for “claiming”:http://www.volokh.com/archives/archive_2005_07_17-2005_07_23.shtml#1121819891 and “repeating the claim”:http://www.volokh.com/archives/archive_2005_07_17-2005_07_23.shtml#1121843543 that prediction markets did a bad job of prediction the Roberts nomination. For Jim, the issue is whether markets are in general better than experts at aggregating publicly available information; he believes that “markets (however “good” or bad they are in absolute terms) should be better than experts on balance, or at least better than experts who lack actual first-hand knowledge of the forthcoming decision.” For Orin, Tradesports seems to be no more than a “way of monitoring what a few newspapers and blogs are saying,” and, on the whole, it “seems easier to just scan the headlines at How Appealing.”There’s an obvious alternative hypothesis which neither considers. Roberts futures shot up in value from 1% to near-certainty in the few hours before the decision was “officially” leaked. One highly plausible interpretation of this is that word had already leaked to a privileged few with good contacts in the Administration. Then, some of those people with insider knowledge took advantage of their privileged position by betting Roberts and fleecing the rubes. As Steve Bainbridge has “noted”:http://www.professorbainbridge.com/2005/07/inside_informat.html, Tradesports doesn’t seem to have any rules against insider trading. On this interpretation, Lindgren is right in saying that markets like Tradesports can provide more information on executive decisions than scanning the blogs – but only because they’re being used by those who have insider information to take advantage of the less-informed (who naively assume that they’re playing a fair game). In other words, there’s strong reason to suspect that this case doesn’t support Lindgren’s more general claims about the superiority of prediction markets vis-a-vis experts; in this case the markets are arguably being manipulated by people with insider knowledge that isn’t available to the experts. The reason that markets are doing better than experts “without first-hand knowledge” is most likely that they’re being used by experts _with_ first hand knowledge to make money from those who don’t have such knowledge. This is a very bad case to test the efficacy (or lack of same) of prediction markets in aggregating dispersed public knowledge into a usable metric; it seems to me rather unlikely that this sort of aggregation is what is in fact happening here.

Update: Orin Kerr says in comments. “You claim in your post that “Roberts futures shot up in value from 1% to near-certainty in the few hours before the decision was “officially” leaked.” That is incorrect. As best I can tell, Roberts futures shot up to near certainty only after every news website started posting that Bush had picked Roberts.” In which case, it seems to me that Kerr is right on this, and Lindgren and I are wrong, for different reasons.

Update 2: “Brayden King”:http://pubsociology.typepad.com/pub/2005/07/bad_versus_good.html has a very good post on the topic.

Google Moon

by Eszter Hargittai on July 20, 2005

In honor of the first manned Moon landing, which took place on July 20, 1969, we’ve added some NASA imagery to the Google Maps interface to help you pay your own visit to our celestial neighbor. Happy lunar surfing.

Be sure to zoom in all the way.


The Creative Commons as a default rule

by John Q on July 20, 2005

Reader Ben Lancini points me to this piece by John Dvorak, attacking [or rather, confessing to not seeing the point of] the Creative Commons License. This has prompted me to write a post I promised ages ago, in response to Kim Weatherall and Nicholas Gruen. I won’t recapitulate the debate, but just state my own position.
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