Alternative Institutional Arrangements Research Articles

Captured institutions and permeated business – the longevity of Hungarian autocracy

ABSTRACT The aim of the article is to show how modern autocracies can distort traditional institutions’ principles of functioning and form state–business relations for their own benefit. Our case study is Hungary, an autocratic system within a democratic union, where the economic conditions have worsened in the past couple of years. Based on documentary evidence, data and interviews, we demonstrate how the regime’s longevity depends on three main factors: alternative institutional arrangements, perceived individual economic welfare and support of business actors. The tools to handle foreign investors and control domestic business are different but creative and effective and can result in a long-term conciliation of different players and the stabilisation of the ruling power even in case of economic difficulties.

The policy mix in a monetary union: Who bears the burden of asymmetric shocks' stabilisation?

AbstractWe utilise a standard reduced‐form neo‐Keynesian model in a monetary union, in which the monetary authority and the fiscal authorities strategically interact, to explore who, under alternative institutional arrangements (strategic and fiscal regimes) and shocks' configurations, bears the burden of asymmetric shocks' stabilisation. We show that in the core/periphery fiscal regime, described by an asymmetry in the sequence of moves between the core and the peripheral member‐states, asymmetric shocks pass through at the union level to the inflation rate and the output gap when there are strategically significant spill‐over effects and the monetary policy's and fiscal policies' instruments are not perfect substitutes in the stabilisation process. The monetary authority reacts to asymmetric shocks, but does not succeed in fully offsetting them. The first best implies the coordination of fiscal policies. A second best embraces the fiscal leadership strategic regime (as a form of implicit coordination), when there are strong interconnections in the union, or the use of policy instruments by the fiscal authorities that directly decrease inflation when fiscal policy is expansionary, such as taxes, production subsidies or public investment, when there is a strong cost channel of monetary policy.

A behavioral approach to the rational choice analysis of the limits of state action

ABSTRACT Some economists argue that ignorance, real-world complexities and market failures undermine the ability of self-regulating markets to operate in a way that approximates an efficient process. In more recent discussions, cognitive processes, in the form of various biases, have become the primary focus of analytical attention. This paper counters these claims. Instead of responding with a doubling down on the commitment to rational choice models, we argue that the individuals that populate our model are highly imperfect, as is the world in which they live. Economic agents are human actors, not computers. They possess beliefs and expectations, hopes and fears and formulate their purposes and plans accordingly. They strive to achieve their desired ends and do the best they can give the constraints they face. In the process of striving, people rely on institutions to cope with their ignorance, to manage uncertainty and risk and to figure out response strategies to achieve their goals. Our analysis emphasizes the filtering processes of alternative institutional arrangements that allow imperfect people to navigate the world.

EXTENDING EMPLOYMENT INJURY AND DISEASE PROTECTION TO NON-TRADITIONAL AND INFORMAL ECONOMY WORKERS: THE QUEST FOR A PRINCIPLED FRAMEWORK AND INNOVATIVE APPROACHES

Non-traditional and informal economy workers often work outside the sphere of a formal employment relationship and are therefore by and large excluded from occupational injuries and disease protection. It is argued that innovative approaches, set within a principled and policy framework, need to be considered from a comparative perspective in order to extend this protection to these workers. These approaches refer to an appropriate definitional or conceptual widening of coverage; relevant human rights, international standards and standard-setting considerations; alternative institutional arrangements and appropriate regulatory responses; an increased role for governments and innovative funding options; and alternative prevention, rehabilitation/re-integration and compensation modalities. It is further argued that the South African occupational health and safety and workers compensation regimes could benefit richly from the comparative experiences and perspectives in this regard.

The European Semester: An Ordoliberal Construct?

AbstractThe outbreak of the COVID‐19 pandemic appears to have inflicted a decisive blow to ordoliberalism's influence on the economic governance of the Eurozone. This contribution shows that the decline of the ordoliberal ideas precedes the pandemic and can be traced in the management of the financial crisis of 2007–2009. Drawing on the theoretical approach of sociological institutionalism and using insights from 18 interviews with participants in the Economic and Financial Committee and the ECOFIN, this article analyses the evolution of policy‐makers' economic policy beliefs and their impact on the fiscal reform of 2010–2013. It is argued that the establishment of the European Semester was the institutional reflection of an intellectual shift from rules‐based to institutions‐based discipline. I find that the latter conflicts with core ordoliberal principles of the Freiburg economic school, opening the way for alternative institutional arrangements, such as the Recovery and Resilience Facility.

The economy doesn’t need a reset, and neither does management theory

Policymakers, commentators, and academics have called for a Great Reset, a deep-seated overhaul of the organization of the global economy. Some suggest that management theory needs a reset of its own. We argue that Great Reset proponents fail to appreciate the power of markets to bring about desirable social outcomes and are overly sanguine about what governments can do to alleviate alleged market failures. These views also drive the increasing enthusiasm for stakeholder governance, an increased government role in innovation, and the call for new metrics for assessing outcomes, all part of the Great Reset narrative. And yet, concentrating more decision power in the hands of governments, implementing diffuse metrics, and diluting effective ownership can hamper the functioning of markets, encourage crony capitalism, and reduce the resources that are available for dealing with grand challenges. Existing management theory provides powerful tools for understanding the benefits and costs of alternative institutional arrangements; abandoning these tools will push management theory to the sideline in policy debates.

Bernard Maris and Institutional Economics: An Interlocution on Regional Transformation

An admirer of John Maynard Keynes and an advocate of a historically grounded economic theory, the French economist, Bernard Maris, investigated the possible emergence of alternative monetary, productive, and distributive institutional arrangements for a more just society. Based on a dialogue between institutional economics and Bernard Maris, the present paper aims at proposing general guidelines for the construction of a plan for subnational development towards a more equitable and inclusive society on the regional, individual, and geo-economic levels. With a special focus on the region of Occitanie—Maris’s native region, located in the Southwest of France—the study borrows Karl Polanyi’s lens, in his The Great Transformation, to envision a possible reduction of dependency in each one of those three levels through the process of decommodification of money, labor, and land, respectively. Because of its ability to take into consideration specificities (being them departmental, territorial, and/or social), institutional economic theory seems adequate to support subnational development, especially in a region with great diversity and a high level of socio-economic and geographic disparity like Occitanie.

Global Public Goods: A Survey

This survey investigates the increasing importance of global public goods (GPGs) in today’s interdependent world, driven by ever-growing, cross-border externalities and public good spillovers. Novel technologies, enhanced globalization, and population increases are among the main drivers of the rise of GPGs. Key GPGs include curbing climate change, instituting universal regulatory practices, eradicating infectious diseases, preserving world peace, discovering scientific breakthroughs, and limiting financial crises. The survey presents a compact theoretical foundation for GPGs, grounded in the provision of public goods. Because countries may be contributors or noncontributors to a particular GPG, coalition formation and behavior play a role, as do strategic interactions between a contributor coalition and other countries. In the survey, recurrent themes include strategic considerations, alternative institutional arrangements, GPGs’ defining properties, new actors’ roles, and collective action concerns. The four properties of GPGs—benefit non-rivalry, benefit non-excludability, aggregator technology, and spillover range—influence the GPGs’ supply prognoses and the need for and form of provision intervention, which may affect the requisite institutional changes. Three representative case studies illustrate how theoretical insights inform policy and empirical tests. Regional public goods are shown to involve a question of subsidiarity and different actors compared to GPGs. (JEL C71, C72, D62, D70, H41, Q54)

The common sense of economics and divergent approaches in economic thought: a view from Risk, Uncertainty, and Profit

AbstractThis paper evaluates the contribution of Risk, Uncertainty, and Profit to the development of economic theory in the 20th century. Our argument in this paper is twofold. First, we contend that this book embodied what had been the common knowledge of early neoclassical economics prior to World War II (WWII). Second, we also argue that embryonic to Knight's account of economics were two divergent approaches to economic thought that emerged after WWII. The first approach, what has come to be known as microeconomics, is characterized by utility maximization under fixed price, income, and institutional parameters that approximate equilibrium. This first approach is distinct from a second approach, referred to as price theory, in which prices are not sufficient statistics, as in microeconomics, but operate as guides to consumption and production decisions under alternative institutional arrangements. This second approach not only represented the continuation of the mainline1 of economic thought from its classical and early neoclassical roots. It also embodies the basis for Knight's understanding of uncertainty, profit and entrepreneurship, as well as its implications for economic organization and social progress.

Optimal Taxation of Capital in the Presence of Declining Labor Share

We analyze the implications of the decline in labor’s share in national income for optimal Ramsey taxation. It is optimal to accompany the decline in labor share by raising capital taxes only if the labor share is falling because of a decline in competition or other mechanisms that raise the share of pure profits. This result holds under various alternative institutional arrangements that are relevant for optimal taxation of capital income. A quantitative application to the U.S. economy shows that soaring profit shares since the 1980's can justify a significantly increasing path of capital income taxes.

Technology Mergers and the Market for Corporate Control

A growing number of policymakers and scholars are calling for tougher rules to curb corporate acquisitions. But these appeals are premature. There is currently little evidence to suggest that mergers systematically harm consumer welfare. More importantly, scholars fail to identify alternative institutional arrangements that would capture the anticompetitive mergers that evade prosecution without disproportionate false positives and administrative costs. Their proposals thus fail to meet the requirements of the error-cost framework. Several high-profile academic articles and reports claim to have identified important gaps in current merger enforcement rules, particularly with respect to tech and pharma acquisitions involving nascent and potential competitors—so-called “killer acquisitions” and “kill zones.” As a result of these perceived deficiencies, scholars and enforcers have called for tougher rules, including the introduction of lower merger filing thresholds and substantive changes, such as the inversion of the burden of proof when authorities review mergers and acquisitions in the digital platform industry. Meanwhile, and seemingly in response to the increased political and advocacy pressures around the issue, U.S. antitrust enforcers have recently undertaken several enforcement actions directly targeting such acquisitions. As this paper discusses, however, these proposals tend to overlook the important tradeoffs that would ensue from attempts to decrease the number of false positives under existing merger rules and thresholds. While merger enforcement ought to be mindful of these possible theories of harm, the theories and evidence are not nearly as robust as many proponents suggest. Most importantly, there is insufficient basis to conclude that the costs of permitting the behavior they identify is greater than the costs would be of increasing enforcement to prohibit it. Our work draws from two key strands of economic literature that are routinely overlooked (or summarily dismissed) by critics of the status quo. For a start, as Frank Easterbrook argued in his pioneering work on The Limits of Antitrust, antitrust enforcement is anything but costless. In the case of merger enforcement, not only is it expensive for agencies to detect anticompetitive deals, but overbearing rules may deter beneficial merger activity that creates value for consumers. Indeed, not only are most mergers welfare-enhancing, but barriers to merger activity have been shown to significantly, and negatively, affect early company investment. Second, critics mistake the nature of causality. Scholars routinely surmise that incumbents use mergers to shield themselves from competition. Acquisitions are thus seen as a means of eliminating competition. But this overlooks an important alternative: It is at least plausible that incumbents’ superior managerial or other capabilities make them the ideal purchasers for entrepreneurs and startup investors who are looking to sell. This dynamic is likely to be amplified where the acquirer and acquiree operate in overlapping lines of business. In other words, competitive advantage, and the ability to profitably acquire other firms, might be caused by business acumen rather than anticompetitive behavior. Thus, significant and high-profile M&A activity involving would-be competitors may be the procompetitive byproduct of a well-managed business, rather than anticompetitive efforts to stifle competition. Critics systematically overlook this possibility. Indeed, Henry Manne’s seminal work on Mergers and Market for Corporate Control—the first to argue that mergers are a means of applying superior management practices to new assets—is almost never cited by contemporary researchers in this space. Our paper attempts to set the record straight.

Pathways for Sustainable Urban Waste Management and Reduced Environmental Health Risks in India: Winners, Losers, and Alternatives to Waste to Energy in Delhi

This paper examines the shift towards centralized waste-to-energy (WTE) as a singular solution to Delhi’s solid waste crisis and describes a transdisciplinary research process that sought to understand how and why this dominant waste management pathway emerged. It also sought to engage with and facilitate debate on the potential for alternative waste management pathways, which may better address combined environmental and social justice concerns. We explain the emergence of a transforming narrative that reframed waste from a risk to a resource, reflecting and reinforcing the dominant trajectory of socio-technical-ecological change in urban development, and reconfiguring waste related infrastructure to involve public private participation and WTE technology. Drawing on empirical studies, involving local residents, wastepickers associations, NGOs, and government officials, we discuss implications of WTE projects in Delhi. We argue that the current WTE focused approach, without modification, may simply displace health hazards across time, space and social groups and exacerbate social justice concerns. The dominant narrative on waste management priorities appear to make certain health risks protected and recognized whilst others are made invisible. We make the case for possible alternative waste management scenarios, institutional and regulatory arrangements that may better address environmental health and social justice concerns. These are summarized under eight principles for reframing urban waste management policy challenges in the context of sustainable urban development. These principles include a reframing of waste management through a sustainability lens that links currently divergent initiatives on environmental health and social justice. It involves an appreciation of complex socio-material flows of waste, the need to move beyond perspectives of waste management as an environmental policy issue alone, appreciation in policy development that the informal sector will remain a key player despite attempts to formalize waste management and the need to provide incentives for diverse waste management strategies that move beyond the private.

The Common Sense of Economics and Divergent Approaches in Economic Thought

This paper contextualizes the contribution of Risk, Uncertainty, and Profit to the development of economic theory in the 20th century. Our argument in this paper is twofold. First, we contend that this book embodied what had been the common knowledge of early neoclassical economics prior to WWII. Secondly, we also argue that embroynic to Knight’s account of economics were two divergent approaches to economic thought that emerged in the post WWII. The first approach is what has come to be known as microeconomics, characterized by utility maximization under fixed price, income, and institutional parameters that approximate equilibrium. This first approach is distinct from a second approach, referred to as price theory, in which prices are not sufficient statistics, as in microeconomics, but operate as guides to consumption and production decisions under alternative institutional arrangements. This second approach represented the continuation of the mainline of economic thought from its classical and early neoclassical roots.

Happiness and public policy: a procedural perspective

AbstractThis article comments on the role of empirical subjective wellbeing research in public policy within a constitutional, procedural perspective of government and state. It rejects the idea that, based on the promises of the measurement, we should adopt a new policy perspective that is oriented toward a decision rule maximizing some aggregate measure of subjective wellbeing. This social engineering perspective, implicit in much reasoning about wellbeing policy, neglects: (1) important motivation problems on the part of government actors, such as incentives to manipulate indicators, but also on the part of citizens to truthfully report their wellbeing; and (2) procedural utility as a source of wellbeing. Instead, wellbeing research should be oriented toward gaining insights that improve the diagnoses of societal problems and help us to evaluate alternative institutional arrangements in order to address them, both as inputs into the democratic process.

MNEs and human rights: from responsibilities to rights to governance

PurposeThis paper aims to explore the links between multinational enterprises (MNEs) and human rights abuses and review the development of international business (IB) and human rights initiatives. Arguing that the focus of the business and human rights debate has shifted from responsibility to rights, and subsequently to governance, it proposes a framework for analysing IB and human rights governance issues in the context of social value creation.Design/methodology/approachThe paper develops a framework for analysing business and human rights governance with respect to the business and human rights field and four business and human rights subfields (labour, consumption, community and environment).FindingsThe analytical framework is organised around the relationships between human rights duty-bearers (companies) and human rights-holders (e.g., employees, consumers). It emphasises the role of actors and their interests, the relationships between actors, the objectives of these relationships and the role of governance mechanisms and structures, which, for a particular human rights subfield, define the IB and human rights governance system.Originality/valueThe analytical framework can be used by IB researchers, practitioners and public policymakers to describe, analyse, discuss and address business and human rights issues and challenges. It can be used for comparing and evaluating characteristics and properties of alternative institutional arrangements in the field of business and human rights. Furthermore, it can be used to support the design corporate non-market strategies as well as public policies.

The Morality of the Market Process and the Normative Implications of Catallactic Competition

Do markets make the conditions for moral action possible? To answer to this question, I will develop the normative implications of competition in the market process. As a value-free science, positive economics illustrates the economic consequences of different forms of competitive behavior for resource allocation and income distribution. In this paper, I explore the normative implications of competition under alternative institutional arrangements. I distinguish between catallactic competition, based upon an individual’s willingness and ability to pay for resources generated through trade and productive specialization, and non-catallactic competition, based upon legal status and privilege generated through political exchange. I argue that the normative implications of substituting market, or catallactic, competition for non-market, or non-catallactic, competition is to provide the conditions for human flourishing. Whereas catallactic competition tends to liberate the individual from arbitrary assignments of resources and income based on creed, gender, race, or legal status, non-cattalactic competition tends to confine an individual’s potential for self-actualization to such arbitrary assignments.

Happiness and Public Policy: A Procedural Perspective

This article comments on the role of empirical subjective well-being research in public policy within a constitutional, procedural perspective of government and state. It rejects the idea that, based on the promises of the measurement, we should adopt a new policy perspective that is oriented towards a decision rule maximizing some aggregate measure of subjective well-being. This social engineering perspective, implicit in much reasoning about well-being policy, neglects i) important motivation problems on the part of government actors, such as incentives to manipulate indicators, but also on the part of citizens to truthfully report their well-being, and ii) procedural utility as a source of well-being. Instead, well-being research should be oriented towards gaining insights that improve the diagnoses of societal problems and help to evaluate alternative institutional arrangements to address them, both as inputs into the democratic process.

Unpacking the Narrative Decontestation of CSR: Aspiration for Change or Defense of the Status Quo?

Corporate social responsibility (CSR) has repeatedly been described as an “essentially contested concept,” which means that its signification is subject to continuous struggle. We argue that the “CSR institution” (CSRI; i.e., the set of standards and rules regulating corporate conduct under the banner of CSR) is legitimized by narratives which “decontest” the underlying concept of CSR in a manner that safeguards the CSRI from calls for alternative institutional arrangements. Examining several such narratives from a structuralist perspective, we find them to be permeated with six recurrent ambiguities that we show to be reflective of three deep-set taboos: the taboo of the noncongruency between corporate profit objectives and societal needs, the taboo of multinational firms’ continued contribution to the emergence of global socioenvironmental issues, and the taboo of the CSRI’s moderate results in solving these problems. We contend that the perpetuation of these taboos contributes to inhibiting substantial change in the way of doing business, and we sketch out possibilities for initiating a “recontestation” of CSR’s meaning.

Cooperation vs. leadership in a core-periphery monetary union: Inter-country vs. inter-institutional policy coordination

This paper utilises a static representation of a reduced-form Dynamic Stochastic General Equilibrium (DSGE) model to deal with strategic fiscal/monetary policy interactions in a core-periphery monetary union, in which the periphery member's fiscal authority is always the follower (except in the EMU benchmark where all policymakers move simultaneously). In such a set-up, we examine the policy mix of the alternative institutional arrangements of (i) non-cooperation between the two leading authorities, the lead fiscal authority and the monetary authority; and (ii) in a regime of cooperation between the leaders; and (iii) in a regime of fiscal leadership in which the monetary authority moves between the two fiscal authorities. We explore the welfare implications of these alternative institutional arrangements for the monetary authority, the two fiscal authorities, the social planner, and provide a ranking. Our main results are: (i) the lead fiscal authority's ability to contribute less counter-cyclically increases with cooperation at the core, while it is unchanged for explicit or implicit cooperation system wide; (ii) monetary leadership provides no advantage over no cooperation in the core; (iii) the ranking for the core member's fiscal authority is shock independent and favours a cooperative strategic regime, and then fiscal leadership; (iv) the ranking for the other authorities and the social planner is shock dependent, and can either coincide with or be the exact opposite of the core member's ranking; (v) the ranking for the peripheral fiscal authority always coincides with the social planner's; and (vi) for common supply shocks, all the policy authorities and the social planner are in favour of the cooperative strategic regime.

The politics of curtailment: multi-level governance and solar photovoltaic power generation in China

ABSTRACTThe rise of China’s photovoltaic (PV) industry, and the concomitant curtailment problem, provides an opportunity to reconsider China’s industrial governance. It is argued here that the curtailment is intertwined with the multi-level character of China’s energy governance. Borrowing the insights of multi-level governance (MLG), we identify the relevant stakeholders situated at different levels and clarify their positions and considerations concerning the solar PV industry. MLG analysis reveals that curtailment in China’s solar PV industry was primarily the result of uncoordinated development at different levels – sub-provincial, provincial, national, and international. China’s response to the curtailment problem is then examined, considering whether such policy adjustments will contribute to greater societal participation, changes in development ideas, an improved coordination mechanism, or alternative institutional arrangements.