Daily Speculations

 

 

By Victor Niederhoffer (6/22/2003)

 

The Survival Method was developed by Stigler to determine the optimum size levels of firms vis-a-vis increasing returns to scale. The gist is that survivor companies in an industry are the best measure of where the most efficient levels are. The survival method has been adopted in many fields--for example, the legal field, where law's legitimacy arises from objective knowledge that a particular rule is better than any other means that could have been found in practice to order the specific transactions at issue. A factory flow chart, for example, reveals the knowledge that has been gleaned from years of experience in which alternative and less productive hierarchies have been tried and rejected or, if not rejected, have caused the companies that have continue to adhere to them to wither. Thus the flow chart exists because of the objective inferiority of alternatives. "If a superior ordering subsequently becomes known, then the present best [flow chart of relations], will cease to have legitimacy, regardless of how uninterrupted is the reign of authority of the previous." Tex Law Rev. (This legal view contrasts with the imperative view of law: order backed by threats.)

 

I pondered this methodology in conjunction with our study of conferences and meetings. Why do CEOs spend so much of their time on such pursuits? Are meetings truly superior to lobbying, playing golf, engaging in food fights or incentivizing the troops? Meetings arose from life and death struggles in the Middle Ages, so they must have some value. Are there other areas of investments where the survival method might be used? Perhaps looking at the winners, and whence they came , and what their characteristics are might be an interesting slice of the landscape to consider.