Gift Exchange or Corruption

The essay is about using gifts in a business setting and when is it and when is it not an act of opportunism.  At the time it was written, I intended the audience to be learning technologists from around the country, but I think it is written in a sufficiently general way as to be relevant to other types of organizations as well.

More on Coordination/Thoughts on M&R Chapter 4

It is not unusual for one branch of economics to borrow from another.  When I was coming up with the ideas about service quality for the transfer pricing worksheet, I borrowed from ideas on the economics of regulation. And with that let me say that even if you learn only a little bit of economics in this class you will get a reference to a series of off-beat movies that somehow tie into the economics.  In the case it's The President's Analyst, a hilarious and very weird picture.  The tie in with the economics comes at the very end of the movie.  (You'll have to ask in class why.)  Also note that when I tie in to other economics I do a little test to see if it makes sense in my experience.  In this case I ask myself whether what the model predicts matches my experience when I was in CITES.  It does.  We'll talk about that a bit during our next class session.

M&R also borrow quite freely from many other areas in economics.  Much of the part of the book on compensation borrows from information economics and labor economics.  Chapter 4 borrows from a literature on economic planning a la the Soviet Union Agency Gosplan and mechanism design, which was a similar area for a theorist but applied to capitalist countries and was about the joint determination of how much public good is provided and how the tax burden for the public good is distributed.  That research was quite hot when I was in graduate school.  But now it's a little older and somewhat out of fashion.  So I want to give some context for why it existed and also say why we won't spend time on it in our course.  The PowerPoint I've prepared for next Wednesday is meant as an alternative.

Note that the Soviet Union came to an end right about the time most of you were born.  M&R came out about a year later.  So the existence of Soviet Union and the economic theory that developed around it had to matter a good deal in M&R's thinking, at least indirectly.  It is generally agreed that as economic systems go, Communism a la Gosplan setting prices and quotas for the economy was much worse than capitalism with market prices determined pretty much by supply and demand, with caveats we've already discussed in class.  Both system have warts - they are not perfect, but communism in this vein was much worse.  There were chronic shortages of many consumer goods, notably meat, and many produced good were of shoddy quality.  This in spite of a well educated populace.  Nobody disagrees about the comparison.  What's at issue for us is the explanation for why this is the case.

The planning and mechanism design literature focus on "informational efficiency" which means being able to communicate what is necessary with the least possible information possible - presumably because information is a scarce resource.  The price system in a market economy is informationally efficient.  But note that M&R were writing at the dawn of the computing and communications revolution and until that time information was a scarce resource.  Now we live in a world of information over abundance.  Walmart, for example, craves piles and piles of data about inventory and where it resides as well as about shopping patterns at its various stores so it can efficiently restock and warehouse its merchandise.  So informational efficiency seems less exciting nowadays as a reason to prefer one economic system over another.

Communism under the Soviet Union produced a massive amount of featherbedding and other forms of corruption and that sustained until the system as a whole collapsed.  Tying this to today's Powerpoint about Schumpeter - captialism is far better on the destruction part of creative destruction than communism is, where inefficient and old ways of doing things may have become entrenched.  Capitalism may also be better about the creative side, but I think its on the destruction side where communism failed.  Personally I think that would have happened even if somehow what Gosplan did was as informationally efficient as capitalistic price system.  There were so many other problems with the Soviet Union, pinning them all on informational inefficiency just doesn't seem right.

In what we will do next week my preferred way of thinking about this is to emphasize the role of the "honest broker" in coordination.  In stead of worrying whether a mechanized scheme like the intern matching program provides incentive to tell the trust, as whether people feel they are dealing with somebody they can trust and who listens to what they say.  That is how to achieve high productivity and upbeat spirit about the work, in my view.

What's good for the goose is good for the gander

Since I'm asking you to blog on a weekly basis, I will try to do that too, though nobody is giving me a grade for it and my compensation for the course doesn't depend on it.  I believe that a good part of teaching is modeling, so my aim in these posts will be to model - style-wise mostly, perhaps content-wise too.  Then it is also true that the previous label, about extending the class session, doesn't help much if we haven't yet discussed the issue at all face to face, so I need a label to make posts that are new to our discussion.

In this first post about the course I want to do a few things:  (1) talk a little about my philosophy in regard to what economics to learn, (2) pose an issue about what to do when the class seems divided, and (3) give a little direction about the next two weeks so you can better focus your efforts.

Economics/Philosophy

One possible approach to teaching an econ course is to take the point of view of true believer - I love economics so you should too.  Having co-taught some core courses, I know some of my colleagues would argue that you should teach as a true believer even if you aren't one in your inner being and if you have some serious criticisms of the profession as a whole.  The argument for this is that students are too immature to take a more nuanced view.  If instead of true believer one offers an approach with both affirmation of economics and criticism of it, the worry is that students will pounce on the criticism and use it as an excuse not to learn the affirmative parts of the subject.  To the extent that students are immature (and adults too are immature more frequently than they care to admit)  there is validity to this position.

Nonetheless, it is not the way I want to teach because it is not the way I think.  So I will offer both affirmation and criticism and quite frequently I won't feel it my job to resolve the muddle.  It is only my job to show you that there is more than one approach to think about an issue.

Here is a concrete example to illustrate.  The week after next we will talk about M&R chapter 2 and consider seriously their hypothesis (they didn't invent it, but do they do articulate it) that economic efficiency is an important goal of any organization.  We will spend some time on that and on the math of what economic efficiency means.  But then I'd like us to consider various critiques.  One quite practical and close to home criticism can be found in this essay by Michael Berube, written in the late 1990s, but quite relevant for now.   Berube is now a Professor at Penn State (unfortunately for him, he holds the Joe Paterno Chair in English, or something else with a similar name) but he was a faculty member on our campus when he wrote that piece.  Berube argues that Universities should not be efficient.  Is this just a language thing - with a reinterpretation of words  he would argue for efficiency?  Or is it more than that and if so does it suggest that other organizations also shouldn't be inefficient?  How would M&R respond to Berube?  How would I respond?

Readings other than the textbook

While from a pure ego point of view I want you to think of my course as quite signficant, truthfully I think it more important that you develop the habit of independent reading on your own, so my main goal of introducing pieces of that sort (the Berube piece is from the Chronicle of Higher Education - not some economics journal) is to encourage that sort of reading habit and to encourage the intellectual disposition that if you read something that disagrees with the position your hold, that disagreement offers an opportunity for learning.

In this particular case, at the time of the Berube piece I was leading an organization involved in Online Learning and we were engaged in Efficiency Projects, so Berube's critique had some personal aspects to it.   On the one hand I felt assaulted by the piece.  On the other hand, and you should judge yourself by how our course is conducted, I've embraced some of the ideas he advocates for in the piece, updated to our current circumstance.

I can't consistently pick outside readings that have such an intimate history with me, but I will try through the remainder of the semester to choose provocative pieces that I hope will engage you and encourage you to think harder about what we are studying.

Next Week (and beyond)

At this point the survey has 14 responses, and that doesn't include me testing it out.  Do note I take it seriously.  I believe in the student voice impacting what the class does.  However, knowing the evidence doesn't necessarily suggest a unique way to proceed.  Particularly on the question of doing economics only or a mixed approach, the results are:


Stick with economics approaches to organizations.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Stick with economics approaches to organizations.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Stick with economics approaches to organizations.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.

So at present the majority is for a mixture but there are a few who want to stick with the econ only approach.  In part, but not in full, this question was asked as an indirect way of getting at whether people know what they are voting for and why they do so.  I could have taken one extreme or the other.  On the one hand, economics is becoming more interdisciplinary, either as a a matter of survival or because other disciplines offer perspective economists are interested in.   So other approaches are interesting in the same way Berube's piece is interesting.  Can we reconcile that with what we are already talking about or not?  On the other had, economics is about taking a certain method.  Does the method get lost if we start to ask certain questions that the method is ill suited to answer, which is likely to happen if we bring in other disciplines?

The Bolman and Deal book, which I am requiring and unabashed about that, has reframing in the title.  Their approach suggests that as a manager or as a leader there is a loss of perspective by considering only one frame.  I think that remains true as an economics student - particularly when asking the question: why did the organization do x?  A lot of good economics is positive - it explains what happened.  But as a discipline economics doesn't have a monopoly on offering up explanations.  Things happen for non-economic reasons, on occasion, perhaps more frequently than that. My view is not to dismiss those alternative explanations, a priori.

For example, one of my big things is the issue of intrinsic motivation - which is mainly curiosity.  Can you discuss economic incentives without considering intrinsic motivation?  I don't think so.  Can you ignore economic incentives as long as intrinsic motivation is present?  I don't believe that either, at least not as a long run proposition.

Let me leave with one last point.  There is a tab on the Web site about comments.  Of course you are free to comment on anything on the site.  But I would especially appreciate comments about posts with this label, so I can learn whether what I've written resonates with you.