Business

Commons and Coase

It annoys me when intelligent people don’t do their research. In his recent letter to investors, Jeremy Grantham says:

Damage to the “commons,” known as “externalities” has been discussed for decades, although the most threatening one – loss of our collective ability to feed ourselves, through erosion and fertilizer depletion – has received little or no attention. There have been no useful tricks proposed, however, for how we will collectively impose sensible, survivable, long-term policies over problems of the “commons.”

This is total bunk. This ‘useful trick’ has been around for at least 50 years.

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Business

Greece today

A quarter of all Greek companies have gone out of business since 2009, and half of all small businesses in the country say they are unable to meet payroll. The suicide rate increased by 40 percent in the first half of 2011…. Nearly half the population under 25 is unemployed…. Greek bankers told me that people had taken about one-third of their money out of their accounts; many, it seems, were keeping what savings they had under their beds or buried in their backyards.

From The New York Times.

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Business, Politics

Incentives matter

Is there a clearer demonstration that incentives matter? Tabarok and Cowen look at the secret privatisation agreements that Chinese farmers signed, taking charge of their own destinies from the oppression and hopelessness of Communism.

(This article also made me notice See the Invisible Hand Resource Bank, which I hadn’t previously come across, since I haven’t bought the Modern Principles book.)

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Business

Why do value and momentum strategies work?

I’ve just read a really interesting pre-publication paper from Dimitri Vayanos and Paul Woolley called “New Light on Choice of Investment Strategy”. It’s available online. It aims to explain the ability for momentum and value investment strategies to generate returns, while retaining the assumption of rationality. It does this largely by discussing intermediation. It seems a smart addition to the debate in this area, and a useful input to the work I’m doing in support of the Kay Review.

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Business

Why hire consultants?

Knowing that I used to be a strategy consultant, a colleague forwarded me a link to a post on the industry from Overcoming Bias. Robin Hanson’s blog is in my newsfeed, but I’d missed this post, which is a suggestion that firms hire consultants purely to break internal coalitions blocking change. My colleague comments that he wouldn’t be so dismissive of the ‘best practice’ explanation, with which I agree. Both explanations seem right to me. There may be other explanations too: for example, the need for instant-on brains without the hassle of a recruitment round and short-term employment contracts. (It’s at this point that I should mention that anyone with a background in consulting will probably enjoy this site – although it’s not one to read in public.)

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