
The North–South theory of product life cycles
23 Mar 2015 Leave a comment
in comparative institutional analysis, entrepreneurship, industrial organisation, law and economics, managerial economics, organisational economics, property rights, survivor principle, theory of the firm Tags: entrepreneurial alertness, foreign direct investment, incomplete contracts, incomplete property rights, North-South product life cycle, product life cycles
Forecasts of the offshoring of service jobs, as an example, can be constituted into a theory of North-South product cycles. The North-South theory of the life cycle of products starts with their research and development and refinement by entrepreneurs in the advanced countries (the North) with some exporting (Grossman and Helpmann 1991a, 1991b). These innovations require resources to be invested with uncertain prospects of success. Entrepreneurs in the North compete to discover new technology-intensive products using the ample supply of R&D workers and human capital-rich workers in the industrialised countries (Grossman and Helpmann 1991a, 1991b).

As a new product matures and its production becomes more standardised, the bulk of its production can migrate to the less developed countries (the South) to take advantage of lower production costs, and these countries will become net exporters. In the South, entrepreneurs focus more on imitation. They invest resources in importing and learning the production processes developed and proven to be a success in the North (Grossman and Helpmann 1991a, 1991b).
The shifting of production of standardised products to lower-wage foreign locations will frequently be within the originating company via a foreign affiliate, because of uncertainties about property rights and contract enforcement institutions in the host countries, and only later to independent foreign firms (Antràs 2005). Within corporate hierarchies, the high-skilled managers in the developed countries will specialise in problem-solving and non-routine tasks. They will interact with middle managers and production workers in developing countries who perform the routine tasks (Antràs et al. 2006, 2008).
Contracts are typically incomplete either because they are difficult to write and/or because the court cannot enforce them. The World Trade Organization (2005, 2008) concluded that, for example, the location of offshored services depends on:
- labour costs,
- trade costs,
- the quality of institutions, particularly the legal framework,
- the tax and investment regime,
- the quality of infrastructure, particularly telecommunications, and
- skills, particularly language and computer skills.
Risks in contract negotiation and enforcement will influence which types of production is outsourced. Roughly one-third of world trade is infra-firm, and this intra-firm trade is concentrated in the capital-intensive industries because of the costs and risks of investing in contracting with arm’s-length suppliers (Antràs 2003). Considerations about R&D incentives, the availability of human capital and the quality of contract enforcement institutions weigh heavily on the development of new products and their initial and later locations of different stages of production.
Products are initially developed in the highly industrialised countries because their sophisticated legal systems allow contracts to be enforced. Even then, in industrialised countries, the difficulties of writing and enforcing complicated contracts over the quality of new products early in the product life cycle encourages firms to make those products internally within the firm. Early in the product life cycle, if sub-contractors were used for key imports, there would have to be continual renegotiation of contracts contracts to incorporate new innovations and learning by doing. As Antras says:
Global production networks necessarily entail intensive contracting between parties located in different countries and thus subject to distinct legal systems0
As the new product standardises, and product quality in consequence becomes easier to measure and contract over, initially the innovating firm will sub-contract within the industrialised country but in time will import from developing countries. In the first instance, these imports may be from affiliates established in the developing country to ensure greater control of product quality through direct ownership of the factory. As Antras says:
Firms contemplating doing business in a country with weak contracting institutions might decide to do so within firm boundaries to have more control.
The size and shape of the firm is a direct response to mitigate the costs of contracting over quality that is hard to measure and which is constantly changing early in the product cycle. By assigning ownership rights to the party undertaking the more important investment in quality early in the product life cycle, entrepreneurs and innovators can minimise the losses caused by lack of enforceable contracts over quality when quality is changing rapidly as the firm moves through the product life cycle.
Boeing blamed the delays on the delivery of the Dreamliner on an unwillingness of sub-contractors to stand by their contractual obligations. In response, Boeing acquired some of the key sub-contractors to ensure that they delivered as promised. This is a classic operation of the theory of the firm where the entrepreneur brings within the firm what is too expensive to transact on the market because of difficulties in measuring quality and defining and enforcing property rights over what has been contracted.
What if you could replace performance evaluations with four simple questions?
20 Mar 2015 Leave a comment
in industrial organisation, managerial economics, organisational economics, personnel economics, survivor principle Tags: Dilbert, performance reviews
at the end of every project, or once a quarter if employees have long-term assignments, managers would answer four simple questions — and only four. The first two are answered on a five-point scale, from "strongly agree" to "strongly disagree;" the second two have yes or no options:
1. Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus.
2. Given what I know of this person’s performance, I would always want him or her on my team.
3. This person is at risk for low performance.
4. This person is ready for promotion today.
via What if you could replace performance evaluations with four simple questions? – The Washington Post.
What are the biggest workplace time wasters?
16 Mar 2015 Leave a comment
in industrial organisation, labour economics, labour supply, managerial economics, occupational choice, organisational economics, personnel economics, survivor principle Tags: cyber loafing
The Dunning Kruger effect versus non-directional coaching
12 Mar 2015 3 Comments
in economics of education, human capital, managerial economics, organisational economics, personnel economics Tags: coaching, cognitive psychology, Dunning-Kruger effect, John Cleese, psychology of learning, Socratic questions
This seems to be a tension between the Dunning-Kruger effect on the principles of coaching as encompassed by its modern manifestation, non-directional coaching.
Under the modern fad of non-directional coaching, the coach asks open-ended questions which will elicit from the coached his or her own breakthroughs. Questions like what happened, what did you do then, is there another way will lead the student of the coach to reveal their knowledge within?

Psychologists David Dunning and Justin Kruger published a paper in which they described cognitive trait that quickly became known as the Dunning-Kruger effect. In a recent article, Dunning summarizes the effect as:
…incompetent people do not recognize—scratch that, cannot recognize—just how incompetent they are
He further explains:
What’s curious is that, in many cases, incompetence does not leave people disoriented, perplexed, or cautious.
Instead, the incompetent are often blessed with an inappropriate confidence, buoyed by something that feels to them like knowledge.

People who lack the skill to do something also lack the skill to recognise that they don’t know how to do it and to develop the skill how to do it. Dunning also points out:
An ignorant mind is precisely not a spotless, empty vessel, but one that’s filled with the clutter of irrelevant or misleading life experiences, theories, facts, intuitions, strategies, algorithms, heuristics, metaphors, and hunches that regrettably have the look and feel of useful and accurate knowledge.
I’m bad at spelling, grammar and proofreading my own work. To know how skilled or unskilled I am at using the rules of grammar, I must have a good working knowledge of those rules to start with the self-assessed myself as not been good at grammar. This is impossible for me to find out for myself because I don’t know the rules of grammar to tell me that I don’t know the rules of grammar and to what extent I don’t know the rules of grammar. I have succumbed to the Dunning-Kruger Effect
“The Dunning–Kruger effect is a cognitive bias in which unskilled people make poor decisions and reach erroneous conclusions, but their incompetence denies them the metacognitive ability to recognize their mistakes.
The unskilled therefore suffer from illusory superiority, rating their ability as above average, much higher than it actually is, while the highly skilled underrate their own abilities, suffering from illusory inferiority.
Actual competence may weaken self-confidence, as competent individuals may falsely assume that others have an equivalent understanding.
As Kruger and Dunning conclude, ‘the miscalibration of the incompetent stems from an error about the self, whereas the miscalibration of the highly competent stems from an error about others’. The effect is about paradoxical defects in cognitive ability, both in oneself and as one compares oneself to others.”
Poor performers fails to see the flaws in their thinking or the answers they lack. As Dunning explains:
A whole battery of studies conducted by myself and others have confirmed that people who don’t know much about a given set of cognitive, technical, or social skills tend to grossly overestimate their prowess and performance, whether it’s grammar, emotional intelligence, logical reasoning, firearm care and safety, debating, or financial knowledge.
College students who hand in exams that will earn them Ds and Fs tend to think their efforts will be worthy of far higher grades; low-performing chess players, bridge players, and medical students, and elderly people applying for a renewed driver’s license, similarly overestimate their competence by a long shot
Dunning and Kruger proposed that, for a given skill, incompetent people will:
- fail to recognize their own lack of skill;
- fail to recognize genuine skill in others;
- fail to recognize the extremity of their inadequacy; and
- recognize and acknowledge their own previous lack of skill, if they are exposed to training for that skill
Going back to my point about the modern trend in coaching of asking non-directive questions and open-ended questions and expecting the student to make their own breakthroughs, this contradicts the Dunning Kruger effect and the requirement that it be fixed through training. Coaching is not training; they are separate activities.
I was taught this non-directive coaching and went round the workplace asking questions of colleagues who are not economists using these open-ended questions of a coach. None of them made breakthroughs as a result of questions such as what happened, what happened then and other Socratic questions such as those below:
Conceptual clarification questions
Get them to think more about what exactly they are asking or thinking about. Prove the concepts behind their argument. Use basic ‘tell me more’ questions that get them to go deeper.
· Why are you saying that?
· What exactly does this mean?
· How does this relate to what we have been talking about?
· What is the nature of …?
· What do we already know about this?
· Can you give me an example?
· Are you saying … or … ?
· Can you rephrase that, please?
Probing their assumptions makes them think about the presuppositions and unquestioned beliefs on which they are founding their argument. This is shaking the bedrock and should get them really going!
· What else could we assume?
· You seem to be assuming … ?
· How did you choose those assumptions?
· Please explain why/how … ?
· How can you verify or disprove that assumption?
· What would happen if … ?
· Do you agree or disagree with … ?
Probing rationale, reasons and evidence
When they give a rationale for their arguments, dig into that reasoning rather than assuming it is a given. People often use un-thought-through or weakly-understood supports for their arguments.
· Why is that happening?
· How do you know this?
· Show me … ?
· Can you give me an example of that?
· What do you think causes … ?
· What is the nature of this?
· Are these reasons good enough?
· Would it stand up in court?
· How might it be refuted?
· How can I be sure of what you are saying?
· Why is … happening?
· Why? (keep asking it — you’ll never get past a few times)
· What evidence is there to support what you are saying?
· On what authority are you basing your argument?
Questioning viewpoints and perspectives
Most arguments are given from a particular position. So attack the position. Show that there are other, equally valid, viewpoints.
· Another way of looking at this is …, does this seem reasonable?
· What alternative ways of looking at this are there?
· Why it is … necessary?
· Who benefits from this?
· What is the difference between… and…?
· Why is it better than …?
· What are the strengths and weaknesses of…?
· How are … and … similar?
· What would … say about it?
· What if you compared … and … ?
· How could you look another way at this?
Probe implications and consequences
The argument that they give may have logical implications that can be forecast. Do these make sense? Are they desirable?
· Then what would happen?
· What are the consequences of that assumption?
· How could … be used to … ?
· What are the implications of … ?
· How does … affect … ?
· How does … fit with what we learned before?
· Why is … important?
· What is the best … ? Why?
And you can also get reflexive about the whole thing, turning the question in on itself. Use their attack against themselves. Bounce the ball back into their court, etc.
· What was the point of asking that question?
· Why do you think I asked this question?
· Am I making sense? Why not?
· What else might I ask?
· What does that mean?
Signs of poor management – Not listening and not making people feel valued
12 Mar 2015 Leave a comment

What do industrial and organisational psychologists help employers do?
03 Mar 2015 Leave a comment
in managerial economics, organisational economics, personnel economics Tags: Dilbert, industrial psychology

HT: sageassessments
The Effect of Police Body-Worn Cameras on Use of Force and Citizens’ Complaints Against the Police
26 Feb 2015 Leave a comment
in economics of crime, law and economics, managerial economics, organisational economics, personnel economics Tags: camera surveillance, crime and punishment, moral hazard, police
The results are no surprise. There is a 50% drop in the use of force by police when they are required to wear body cameras.
We conducted a randomized controlled trial, where nearly 1,000 officer shifts were randomized over a 12-month period to treatment and control conditions.
During ‘‘treatment shifts’’ officers were required to wear and use body-worn-cameras when interacting with members of the public, while during ‘‘control shifts’’ officers were instructed not to carry or use the devices in any way.
We observed the number of complaints, incidents of use-of-force, and the number of contacts between police officers and the public, in the years and months preceding the trial (in order to establish a baseline) and during the 12 months of the
experiment.
Police use of force reports halved on shifts when police wore cameras. It is not known whether this reduction in the use of force is because members of the public were now aware that any misbehaviour by them to be caught on camera and used as evidence against them or police were aware that any excessive force by them would be caught on camera as well.
Morning People Are Less Ethical at Night – HBR
20 Feb 2015 Leave a comment
in economics of crime, law and economics, managerial economics, organisational economics, personnel economics Tags: economics of personality traits
Managerial Econ: Top 5 problem-solving mistakes by MBA’s
19 Feb 2015 Leave a comment
in entrepreneurship, industrial organisation, managerial economics, organisational economics, personnel economics, survivor principle Tags: entrepreneurial alertness, management, MBA

“Avoid jargon” because most people misuse it. Force yourself to spell out what you mean in simple plain English. It will help your thinking and communication.
“What about the organizational design?” Figure out what is causing the problem, and then think about how to avoid the problem. A lot of papers identified a bad decision, and then suggested reversing it. But they neglected to address the issue of why the bad decision was made, and how to make sure the same mistakes wouldn’t be made in the future.
“Don’t define the problem as the lack of your solution.” For example, if the problem is “the lack of centralized purchasing,” then you are locked into a solution of “centralized purchasing.” Instead, define the problem as “high acquisition cost” and then examine “centralized purchasing” vs. “decentralized purchasing” (or some other alternative) as two solutions to the problem.
“What is the trade-off?” Every solution has costs as well as benefits. If you list only the benefits, it makes your analysis seem like an ex post rationalization of a foregone decision, rather than a careful weighing of the benefits and costs. If you spent some time thinking through the tradeoffs, show it. If not, then you should.
“Which language is this?” I write this when I get gobbledygook written in the passive voice with big words that don’t mean anything. Instead write simple declarative sentences that clarify rather than obfuscate. Form is not a substitute for content.
via Managerial Econ: Top 5 problem-solving mistakes by MBA’s.




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