Zingales: Orphan Ideas

Luigi Zingales on why some ideas get more attention than others:

Orphan Ideas, by Luigi Zingales, Commentary, Project Syndicate: Since the United States Supreme Court’s “Citizens United” decision,... concern about business interests’ influence over US elections has been growing. But political contributions are only one reason why business interests have so much power..., ideas play a big role, too. Unfortunately, rather than leveling the playing field, the battle of ideas may skew US politics even further in favor of big business. ...

Even if researchers themselves are motivated by only the noblest of goals, their need for funding forces them to take into account the demand for ideas. And, if funding is not a major issue, the mechanism of amplification of an idea (and thus its ultimate diffusion) nonetheless depends upon how appealing it is to some lobbying effort.

Consider a great researcher in my field, Michael Jensen. In 1990, he co-wrote a paper about executive pay, arguing that it was not sufficiently linked to performance. Although the authors used an untenable benchmark..., the article was published in a top economic journal, prominently discussed in the Harvard Business Review, and is one of the most cited papers in economics. Fifteen years later, Jensen wrote a paper about the costs of excessive sensitivity of pay to performance. The paper was published in a minor journal and is not very well cited. Why?

Business loved the first paper, because it ... ended up justifying an increase in pay. There was no similar love for the second paper, which languishes almost unknown, despite its important insights..., the two papers’ asymmetric citation payoff is a warning for young scholars: if they want to get ahead professionally, the position that they should take is clear. ...

Here is perhaps the biggest orphan idea: pro-market does not necessarily mean pro-business. A pro-business agenda aims at maximizing the profits of existing firms; a pro-market agenda, by contrast, seeks to encourage the best business conditions for everyone. Who benefits from evidence that an industry is too concentrated, its profit margins are too high, and consumers are being ripped off? ...

And, sure enough, in most of what we economists write – and, more important, in what we teach in business schools – it is hard to tell the difference between being pro-market and being pro-business. The battle against crony capitalism starts in the classroom, and we professors are inevitably implicated. If we are not part of the solution, we are part of the problem.