Fundamental Proposition Research Articles

The “Invisible Hand”: Neoclassical Economics and the Ordering of Society1

The dominant economic discourse of the industrialized world — in political, academic, and popular terms — is neoclassical economics. A founding proposition is that an “invisible hand” aggregates individual decisions driven by rational self-interest into socially optimal outcomes. We draw upon economics as well as the sociology and philosophy of science to question this fundamental proposition and investigate neoclassical economic theory's dominant position in shaping social and political organization. We document the historical and contingent processes by which the neoclassical narrative has come to dominate the discursive space of capitalist societies. We argue that, contrary to claims of value neutrality, neoclassical economics functions as a master social narrative, or a technology of power, that concentrates power by transferring socio-economic decision-making from multiple sites to the centralized nodes of global economic and political institutions. This transfer occurs through the domination of the discursive space. The “invisible hand” is power.

Distinguishing costs of cooperation and control in alliances

Firms simultaneously face the need to cooperate with and control an alliance partner. To complement the transaction cost perspective's emphasis on the need to control and limit opportunistic behavior, we examine the sources and impact of the cooperation costs incurred in order to work with a partner. We propose that these costs increase with greater joint task complexity and interpartner diversity, and perceptions of equitable behavior affect the perceptions of these costs. Hypotheses derived from the framework are tested in a sample of 231 contractual alliances between architects and general contractors in the Hong Kong construction industry. We find that both cooperation costs and transaction costs affect the level of time and effort a manager expends on an alliance, supporting our fundamental proposition that the costs of cooperation and control are conceptually and empirically distinct. We argue that cooperation costs should be incorporated into studies that compare the choice of alternative partners and alliance structures, as well as among the broader categories of market, hierarchy, and hybrid governance forms. Copyright © 2005 John Wiley & Sons, Ltd.

Managing Contractual Risk Through Organization: Strategic Vs. Consensual Networks

This paper presents a study of the economic organization of systems of financial cooperatives (FC). The first part is a theoretical framework rooted in principles of transaction cost economics that seeks to explain empirical regularities observable in systems of FC worldwide. The second part is an empirical analysis that compares the Quebec Desjardins Movement (DM) and the Ontario Credit Union (OCU) system that are both organized as networks with different degree of development. The fundamental proposition is that networks, particularly strategic networks, are a superior form of governance mechanism for relatively wide ranges of contractual hazard and size of institutions. Strategic networks provide a substitute control mechanism when the size of the institution dilutes internal governance mechanisms. It thus discourages subgoal pursuits and expense preferences, and possibly economizes on bounded rationality both occurring in large FC. The theory allows us to generate a set of testable hypotheses of which three are tested in the paper, namely: i). Over a range of small FC, differences in efficiency will be relatively small, if any. ii). Large independent institutions should display systematically lower efficiency than similar sized FC members of strategic networks. iii). FC in strategic networks should display lower variance in size as well as in performance indicators. Our empirical results are consistent with these theoretical propositions. Opponents to networks often argued that the benefits associated to the vast array of financial services offered to large sectors of the population, and in particular to rural communities, come at a heavy price of running an expensive bureaucracy. Our data suggest that the success of the DM in servicing its vast and rural clientele effectively comes at a price. But, even paying this price, the DM outperforms the OCU system.

Bad Apples or Bad Bushel?

Popular interpretation of the recent financial scandals describes the individuals and firms charged with wrongdoing as ‘bad apples’ while retaining a sanguine view of the capital markets overall. The system-wide reach of the revealed malfeasance, however, suggests that the root cause of the scandals resides instead in the capital markets’ institutional norms. Specifically, we argue that norms have developed that promulgate the selfenrichment of the intermediaries who facilitate capital transactions at the expense of the principal parties to the transactions. This not only represents an ethical breakdown of the system, but also implies a simultaneous loss of efficiency, since professional integrity is the fundamental value proposition of financial intermediaries. To set the stage, we establish the holistic and systematic interdependence of the capital markets and clarify the broad roles they require. As increasing numbers of business scandals are brought to light, it becomes ever clearer that the ‘problem’ facing the capital markets is pervasive throughout financial intermediaries, shifting the relevant questions from ones of how to deal with the few ‘bad apples’ to questions about the ‘bushel’ that contains them. The widespread and systematically interconnected nature of these ethical lapses threatens the markets in a fundamental way.

Schumpeter, product innovation and public policy: the case of cigarettes

Perhaps the most fundamental proposition advanced by Joseph Schumpeter is that competition drives innovation and innovation drives progress. Strangely, although “competition” was a key ingredient to the processes of his capitalistic world, Schumpeter was not concerned about private monopolies and evidently had little stomach for the antitrust policy practiced over the past 50 years in the United States, or for the rather aggressive policy that is emerging currently in the European Common Market.1 At the same time, a careful reading of his writings discloses that Schumpeter’s benign view of monopolies and restraints of trade was limited to product markets; he expressed a definite concern about monopoly and restraints of trade in R & D-innovation markets. Schumpeter also displayed a very prophetic insight about R & D/innovation and public policy, observing: “... Surely nothing can be more plain or even more trite common sense than the proposition that innovation ... is at the center of practically all the phenomena, difficulties, and problems of economic life in capitalist society.”2 As keen a vision as Schumpeter displayed about economic processes and public policy, he could not have imagined that his theories of innovation and “creative destruction” would become a centerpiece during the 1990s for the widespread antitrust prosecutions by several states against U.S. tobacco companies alleging a conspiracy in restraint of trade and other types of unlawful conduct, and for recovery

Theory and Test on the Corporate Governance of Financial Cooperative Systems: Merger vs. Networks

This paper presents a study of the economic organization of systems of financial cooperatives (FC). The first part presents a theoretical framework rooted in principles of transaction cost economics (TCE) that seeks to explain empirical regularities observable in systems of FC worldwide. The second part is an empirical study that compares X-efficiency between members of the Quebec Desjardins movement (DM) and the United States Credit Union system (USCU), the first organized as a tight network of institutions and the second composed largely by independent institutions with few ties. The fundamental proposition is that networks are a superior form of governance mechanism (over markets and mergers) for relatively wide and relevant ranges of contractual hazard and size of the institutions. Further, that networks provide substitute, hierarchy based, control mechanisms when size of the institution dilutes internal governance mechanisms, discouraging subgoal pursuits and expense preferences by agents, both occurring in large FC. The theory allows us to generate a set of testable hypothesis of which we highlight three: i) For small FC, differences in efficiency will be relatively small, if any. ii) Large institutions should display systematically lower efficiency than similar sized FC members of strategic networks. iii) Networks should display lower variance in the size as well as in performance indicators. Throughout, empirical results are consistent with our central theoretical proposition.

A Sociological Approach to Revolutionary Violence in Colombia

Pizarro's main purpose in Insurgencia sin revolucion is to analyze the causes of the success and failure of revolutions. Systematically theorizing about violence and describing several armed conflicts, especially in Latin American countries, he offers a useful typology for understanding the process. With regard to Colombia's recent history, he argues that because of the social-political and institutional context, guerrilla warfare has become not a real alternative source of power but a phenomenon of chronic insurgency. His fundamental proposition is that the subordination of political aims to military action by the armed leftist groups leads to distortions in social life and the political system. Pizarro tends to be pessimistic about Colombia's fragile process of democratization. The persistence of state and civil society weakness, authoritarian practices within political parties, and armed violence by guerrillas and paramilitaries threatens the nation. The emergence of drug trafficking has deepened the crisis, with negative consequences for progress toward a democratic regime. The negotiation of a peace agreement in a context means addressing the problem of transforming an armed political actor into a civilian political actor. Will the ruling class accept profit sharing and power sharing for the sake of political stability? How should the paramilitaries be handled? What is the role of the international community? Who is to finance the peace process in a situation of economic crisis? In the first chapter, is defined as a complex process of sudden political and socioeconomic change due to a violent confrontation between insurgent groups and state power. All actors are of equal importance in determining the unpredictable final result. For Pizarro, revolution is not a universal concept as in Marxist theory but historically limited as Tilley proposes. He points to the different strategies for recent Latin American struggles: the revolutionary focos of 1959 (the Cuban Revolution) to 1967 (Guevara's death) and the prolonged popular war beginning in 1979 (the Nicaraguan Revolution). Reviewing the literature on Cuba and Nicaragua's successful revolutions, he notes that both were small countries with mainly

Intrinsic Earthliness: Science, Materialism, and the Fleshly School of Poetry

DURING THE ARDUOUS PERIOD IN WHICH HE WAS WRITING HIS HIGHLY WROUGHT historical novel Marius Epicurean, Walter Pater published only one minor unsigned review. In March 1883, however, he agreed, albeit rather hesitantly, to request from his friend Thomas Humphry Ward that he contribute brief introductory essay on Dante Gabriel Rossetti to revised second edition of The English Poets which Ward was then compiling. (1) Pater had already followed same format three years earlier, when he had written short essay on poetry of Samuel Taylor Coleridge for first edition of Ward's exhaustive four-volume anthology. While Coleridge had been dead for almost half century and was widely revered as one of principal progenitors of English Romanticism, Rossetti had died--a prerequisite for inclusion anthology--in only previous April, and his sensuously erotic verse was still subject of considerable controversy. Pater nevertheless resolved to put aside for time his nascent novel of Antonine Rome and instead attempt to restore reputation of literary associate he had admired so greatly and whose work was closely connected with development of aesthetic movement (Letters, p. 44). Although it appeared as part of monumental publishing project that aimed at selecting best from... vast and varied field of English poetry ... pronouncing its judgements with some degree of authority and which begins with grandiloquent general introduction by Matthew Arnold, brief essay which prefaces Pater's selection of Rossetti's verse does not aspire to such exalted critical disinterestedness. (2) Rather, it is decisive intervention fervid and protracted dispute over Rossetti's poetry which had begun at opening of previous decade, and had recently been re-ignited by his chloral-induced death. One of principal accusations made against literary value of Rossetti's contentious verse was that its flagrant advocacy of sensual animalism and apparent rejection of ethical precepts enjoined by Christianity it advanced philosophy that was distinctly materialistic. By this, Rossetti's critics meant not merely an artistic concern with material aspects of objects, but deliberate prioritization of physical body over spiritual soul, which could lead only to an atheistic unbelief. Materialism is not coherent doctrine; its most fundamental proposition is simply that nothing exists independently of matter, with even human consciousness being at some level correlate of mechanical activities of nervous system. During nineteenth century, moreover, acceptance of such thoroughgoing materialism was confined almost exclusively to German scientists and philosophers, for whom it formed part of wider miscellany of atheistic and anticlerical convictions. (3) The term was nevertheless deployed frequently Victorian Britain as pejorative label that could be used to tarnish reputation of those who challenged old tradition of natural theology and instead insisted on naturalistic -- though not materialistic --understanding of universe. With bloody horrors of French Revolution widely blamed on godless philosophy of Enlightenment Encyclopedists such as Baron d'Holbach, materialism carried dangerous connotations of unBritish foreign heterodoxy as well as home-grown atheistic working-class radicalism. (4) These associations were particularly perturbing to scientific members of intellectual elite like Thomas Henry Huxley and John Tyndall. In books, public lectures, and periodical articles, both men scrupulously endeavored to dissociate their scientific positions from any hint of materialism, but they still found themselves labelled indiscriminately with precisely that offensive designation. According to Edinburgh Review, Huxley's naturalistic account of human descent Man's Place Nature (1863) was merely a revival, under more ingenious form of extravagant views of the French Encyclopedistes and doctrines of [d'Holbach's] 'System de la Nature,' which deserved to be called harsh names because it was in distinguishable from . …

Income inequality and social institutions: beyond the Kuznets curve and economic determinism

The paper outlines and examines a social‐institutional conception of income inequality or economic distribution. The fundamental proposition of this conception is that income inequality/distribution is far from being the outcome of the operation of strictly market laws or economic forces but rather one of institutional arrangements or social structures. Of the latter particularly important have shown to be the institutional structure of the economy, particularly labour markets, as well as the degree of democracy of political systems. The results suggest transcending single‐factor economic explanations and predictions of income inequality, as implied in the Kuznets curve and its ramifications, in favour of an alternative multilevel sociological approach.

Market‐oriented value creation in service firms

A fundamental proposition in marketing strategy is that a market orientation is positively related to firm performance. However, the mechanisms of this relationship have yet to be explored in detail, especially in service industries where intangible assets are relatively more important. This paper addresses this issue by proposing a model that identifies important intermediate variables between a market orientation and increased firm value. The model posits that a market orientation guides investment in market‐based assets and other asset types, that these assets may be levered to create a competitive advantage and value for customers, and that this results in loyalty and easier customer attraction. Quicker and more extensive market penetration, shorter sales cycles, and decreased marketing and sales costs enhance the cash flow of a market‐oriented firm. This may be recognised in higher valuations, which ultimately translate into higher share prices and wealth creation for the owners of the firm.

A Proposal for a Comprehensive Response-Rate Measure (CRRM) for Survey Research

Respondents must co-operate with researchers. This truism is a fundamental proposition for almost all research into consumer and buyer behaviour where people are asked for information. Respondents or more correctly their response are the life-blood of social and marketing research whether that be conducted by the academic or the business community. However, it is a resource that appears to be showing some signs of depletion if not downright exhaustion. This paper conceptualises the activities of Interview Response Management (IRM) as a key role for project and field managers. The former trying to improve representativeness and the latter trying to manage the controllable interviewing factors that influence the level of response. Interest in the area arose from our investigation of trends in the levels of response and co-operation that the public were giving to market research surveys. It was immediately evident that reports of response rates in published survey data and even that collected directly from commercial market research organizations demonstrated a lack of consistency. There was no standard approach for defining response rate. Consequently we devised a new typology of response rate measures under the acronym CRRM – Comprehensive Response Rate Measure. This definition incorporated the key concept of respondent eligibility along with methods to estimate eligibility when the actual status of a particular survey contact was unknown. The approach focuses on the results of an initiated interview attempt and the variety of outcomes that may occur. In addition the CRRM was designed as an input to the process of IRM by providing performance indices that would be useful to fieldwork managers. It therefore examines 'surrogate refusal', call-back outcomes, nominal co-operation and survey participation rate. The derivation of this suite of measures is discussed in the paper along with the recommendation for its reporting in all published surveys. The authors contend that a standardised method of recording and calculating response rate will lead to a better understanding of the trends in survey co-operation as well as a more accurate comparison between initiatives for improving response.

Categorization bases and their influence on product category knowledge structures

AbstractThis study examines the relationship between categorization bases and the persistent use of specific categories in the motorcycle industry. Categorization bases are distinguished from one another and classified based on their distance from embodied experience. The relationship between the different classes that emerge and the number of years that specific category labels remain part of the market conversation is subsequently explored. The fundamental proposition is that categorization bases that are close to embodied experience, such as perceptible properties and affordances, will give rise to shorter‐lived categories relative to categorization bases that are further removed from embodied experience, such as historical criteria and scientific authority. Market stories from published sources are content analyzed and coded, and used as sources of industry categories. Analysis reveals that four categorization bases—usage scripts, scientific authority, experiential wholes, and affordances—are associated with greater category persistence in the motorcycle market when used as the primary basis for categorization, whereas perceptible properties, metaphorical creations, and historical criteria were associated with lower‐persistence categories. The results were not perfectly aligned with a strict distance‐from‐embodied‐experience argument, and their implications for future research and theory are discussed. © 2002 Wiley Periodicals, Inc.

Micro Social Orders

Micro Social Orders

The Effect of Institutional Culture on Change Strategies in Higher Education: Universal Principles or Culturally Responsive Concepts?

The array of challenges that higher education faces today is virtually unparalleled when compared to any other point in U.S. history. The litany of changes is familiar to those in the field of higher education: financial pressure, growth in technology, changing faculty roles, public scrutiny, changing demographics, competing values, and the rapid rate of change in the world both within and beyond our national boarders. The changes many institutions face have accelerated beyond tinkering; more campuses each year attempt to create comprehensive (or transformational) change. Yet, change strategies have not been exceedingly helpful in their capacity to guide institutions, and we know even less about how to facilitate major, institutionwide change. The current change literature in higher education provides mostly generalized strategies about what is effective: a willing president or strong leadership, a collaborative process, or providing rewards (Roberts, Wren, & Adam, 1993; Taylor & Koch, 1996). This broad writing may mask information helpful to advance institutional change on a specific campus. Achieving buy-in or communicating effectively can seem very empty to institutional leaders and higher education scholars. Can this strategy be used at every institution and in the same way? The assumptions behind this approach are that each strategy is enacted similarly on each campus and that nuance and context do not much matter. Broad change strategies are presented as uniform, universal, and applicable. As an alternative, some scholars of organizations suggest that meaningful insight to understand the change process comes from context-based (micro-level) data (Bergquist, 1992). Context-based data help the change agent to understand why and under what circumstances strategies work at a particular institution at a particular time. The difficulty of working at the micro-level is becoming too specific and idiosyncratic to be of much help to others. As Hearn noted, the first and fundamental proposition we can stress about change is so simple as to seem banal or deflating, depends (Hearn, 1996). Idiosyncratic observations are often of little use to practitioners. The challenge is to chart a middle ground and identify findings informative at a level that can be used to guide change processes. This task is challenging, because markers that one might use to determine the level of detail or the appropriate level of abstraction are not readily apparent. One solution to charting meaningful middle ground is through a cultural perspective. Organizational research in the 1980s illustrated the impact of culture on many aspects of organizational life (Peterson & Spencer, 1991). Yet, there have been few empirical studies examining how institutional culture affects change processes and strategies. The assumption from the organizational literature is that culture will be related to the change process; specifically, change processes can be thwarted by violating cultural norms or enhanced by culturally sensitive strategies (Bergquist, 1992). This study attempts to fill the gap in the literature, moving beyond generalized principles of change, by adopting a two-tiered cultural framework to examine the effect of institutional culture on change strategies across six institutions. The two research questions addressed are: (1) is the institutional culture related to the change process, and how is it related? and (2) are change processes thwarted by violating cultural norms or enhanced by culturally sensitive strategies? The two theories adopted for exploring the relationship of culture and change are Bergquist's (1992) four academic cultures and Tierney's (1991) individual institutional culture framework. The dual level of analysis offers a multiple-lens perspective that is better suited to understand complex organizational phenomena (Birnbaum, 1988; Bolman & Deal, 1991). …

A critical assessment of the sensitivity concept in geomorphology

The landscape sensitivity concept concerns the likelihood that a given change in the controls of a system or the forces applied to the system will produce a sensible, recognisable, and persistent response. The idea is an essential element of the fundamental proposition of landscape stability. This is described as a function of the spatial and temporal distributions of the resisting and disturbing forces and is known as the factor of safety or the stability index. The resistance of a system is defined by the system specifications: its structure, strength properties, transmission linkages, coupling efficiency, shock absorption capacity, complexity and resilience. The disturbing forces include the steady application of energy from the specified tectonic, climatic, biotic, marine and human environmental controls. Change takes place through time and space as a normal process–response function to these specifications and involves material transport, morphological evolution and structural rearrangement. These, in turn, progressively change the system specifications, which alters the performance through time. To make progress with these issues, the nature of waves of aggression, temporal adjustments to disturbing forces, spatial interactions with structure, divergent pathways of change propagation, evolution of ‘barriers to change,’ effects of inheritance, decoupling, and the effects of change on system specifications all need to be understood at all temporal and spatial scales.

Choosing between Big-Bang and Gradualist Reforms: An Option Price Approach

We derive the exact conditions for choosing between the big-bang strategy and a gradualist package following the model of Dewatripont and Roland (1995, Amer. Econ. Rev. 85, 5:1207–1223). We consider gradualism as an option of early bailout and derive its option price. We show how the option price can be used to select between gradualism and the big-bang strategy, between different gradualist packages, and between the best gradualist package and the big-bang strategy. Our results show that the fundamental proposition of Dewatripont and Roland is incorrect so that we conclude that their case against the big-bang strategy is overstated.J. Comp. Econom., March 2000, 28(1), pp. 95–107. Stern School of Business, New York University, 44 West 4th Street, New York, New York 10012.

Freedom to Copy

Ralph called it one of the noblest poems of this century,2 and his fondness for it is revealing. Ralph devoted much of his career to holding the center. He worried that intellectual property law had begun to lean too far toward private rights at the expense of the public interest in access and competition. Competition is copying,3 and laws that restrain copyingcopyright, patent, trademark, and corners of unfair competition lawrestrain competition. They exist as exceptions to a fundamental proposition, expressed by Justice Brandeis in language that Ralph enthusiastically repeated in at least three articles (and twice more in our casebook on copyright law):4 The general rule of law is, that the noblest of human

On Literature and the Occupation of France: Blanchot vs. Drieu

II and the Occupation in virtually opposite ways.' They have been pursued in the conviction that the most intriguing aspect of the period is the extent to which it and its writers furnish a matrix for developments that reached fruition much later-as though this were the moment in which the deck was reshuffled and a game begun that the French (and we) may still be caught up in. Sociologists of French elites, for example, have long traced certain features of French technocracy to the school initiated by Vichy at Uriage (see Bitoun). An eminent historian of French literature, Marc Fumaroli, has recently suggested that the somewhat stifling cultural aspirations of the French Republic at the end of the twentieth century have their roots in the Jeune France bureaucracy of Vichy (91). And what happens if one considers the Gallo-centric enterprise called literary in that perspective? Well, first one realizes that literary is a poor name for an endeavor whose fundamental proposition is the ultimate fictionality (or textuality) of philosophy or theory itself, and that if one had to characterize the domain better it might be as the vicissitudes of a series of French readings of German-language texts (Heidegger, Nietzsche, Freud). Whereupon one might then suspect that what the French made of a German milieu-our characterization of what

Choice of Law in Tort—Blending in with the Landscape of the Conflict of Laws?

The reformed choice of law in tort rules contained in the Private International Law (Miscellaneous Provisions) Act 1995 have proved a source of great controversy. This piece attempts to show that there are wider concerns fuelled by the Act. It seeks to demonstrate that one can not reform one area of the Conflict of Laws (such as choice of law in tort) in isolation from other areas (such as jurisdiction in tortious matters and choice of law in contract) and to illustrate the unsatisfactory state that the statutory reforms have had on these other areas. The analysis of the problems generated by the Act may be used as a model for a far more fundamental proposition: namely that the tendency to regard choice of law and jurisdiction as separate areas throughout the Conflict of Laws, rather than as combining to form a coherent law of international litigation, is a critical shortcoming of the study of the subject.

Cantillon on real wages and employment: a rational reconstruction of the significance of land utilization*

It is quite a fundamental proposition of Richard Cantillon's Essai sur la Nature du Commerce en General (1755) that employment and population bear a negative relation to the level of real subsistence wages - a form of wages (or subsistence) fund doctrine. This paper presents a 'rational reconstruction' of Cantillon's system and the relation between real wages and employment within it. It seeks thereby to clarify the difficulties in the way of this doctrine operating in a market economy constructed along Cantillonian lines - as opposed to a Cantillonian command economy. These results are contrasted with a model of Cantillon by Hans Brems.(This abstract was borrowed from another version of this item.)