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Beer and survival

… that is, survival of breweries during Prohibition. This is the topic of a “job paper” (what an economics PhD job candidate sends out with their application) from UCLA, “Product Switching, Adaptation and Firm Survival in the Brewing Industry during Prohibition” by Carlos Eduardo Hernández. Here is an abbreviated version of his abstract:

… states and counties chose to prohibit the sale and production of alcohol in the years leading up to the 1919 federal prohibition. Because of high transportation costs, local prohibition in nearby markets [thus] reduced the demand for beer production for some breweries more than others. Using novel micro-data at the brewery level, I show that breweries adapted to this first shock … produce[d] alternative products like soft drinks. … [such] breweries … were 12 percent more likely to survive the entire prohibition period (local + federal) …

Organizational theory encompasses two “pure” models. The first is that, once founded, organizations don’t change. This underlies the population ecology approach of Carroll and Hannan. The other is that firms continuously adapt to their environment, resource dependency which I associate with Scott, Powell, Pfeffer and others. So Hernández’ dissertation framework appears to me to be close to that of Carroll and Hannan, that organizations don’t readily change. Hence those that had a head start in developing non-beer products did better.

Oddly, there’s no reference to this literature in the job paper. I ought not be surprised: I wrote a paper years ago that played with these ideas, albeit in a different context (can firms – in my case Japanese firms – “borrow” technology). I found that while sociologists referenced the economics literature, economists didn’t read sociologists. (Carroll and Hannan are an exception.) Examples include:

  • Dimaggio, Paul J., and Walter W. Powell. 1991. “Introduction.” In The New Institutionalism in Organizational Analysis, edited by Walter W. Powell and Paul J Dimaggio, 1–38. Chicago: University of Chicago Press.

  • Pfeffer, Jeffrey. 1982. Organizations and Organization Theory. Boston: Pitman Publishing.

  • Powell, Walter W. 1990. “The Transformation of Organizational Forms: How Useful Is Organization Theory in Accounting for Social Change?” In Beyond the Marketplace: Rethinking Economy and Society, edited by Roger Friedland and Alexander Robertson. New York: Aldine de Gruyter.

  • Scott, W. Richard. 1987. “The Adolescence of Institutional Theory.” Administrative Science Quarterly, no. Dec.: 493–511.

  • Scott, W. Richard. 1995. Institutions and Organizations. Thousand Oaks, CA: Sage Publications.

  • Swaminathan, Anand, and Glenn R. Carroll. 1995. “Beer Brewers.” In Organizations in Industry: Strategy, Structure and Selection, edited by Glenn R. Carroll and Michael T. Hannan, 223–43. New York: Oxford University Press.