Institutional Economic Theory Research Articles

APPLYING NORTH'S LAWS OF MOTION TO THE EDGE OF THE WEST

This paper uses Douglass North's theories of institutional economics to explain progress in Muslim Spain. It argues that it was efficient economic institutions in the guise of a free‐market economy where the property rights of different strata of society were well protected, which ensured lasting prosperity. This paper postulates that while a population explosion could have been responsible for the initial growth in Spain, it was an efficient formal–informal institutional matrix that ensured a high level of long‐term growth.

Business Improvement Districts and the Discourse of Contractualism

Business improvement districts (BIDs) are increasingly being advanced in a range of national contexts as a new delivery mechanism for securing improvement, regeneration and enhanced service delivery in specifically delineated districts. This paper considers BIDs as an example of a modern institutional design that is reconfiguring existing economic and legal regimes within town centres. Drawing on the theories of new institutional economics and transaction costs, the paper discusses how the contractual turn in urban governance advances our conceptual understanding of the rationale, scope and significance of partnership working. The discussion brings together emerging literatures around new ways of understanding partnership working in government thinking. It contrasts the advocacy and use of BIDs with the (previously established) practices of town centre management. It asserts that BIDs represent a new form of formalized and contractualized partnership working in sub-municipal governance, which has particular spatio-temporal implications for state–market–civil relations.

Toward a New Institutional Economics Theory of Regulation

Toward a New Institutional Economics Theory of Regulation

Institutional Economics and Human Resource Development

The problem and the solution. Institutional economics has long been associated with economic and training behaviors in organizations since the 1950s. Human resource development (HRD) scholars have not been adequately exposed to the relevant theories for its foundational role and direct applicability to HRD research and practice. In an effort to properly understand economics as a foundation of HRD, this article presents institutional economic theories and models pertinent to HRD research and practices. By examining institutional school of contemporary economics, especially the internal labor market theory, it is shown that economic theories not only provide a foundation but also have important implications to research and analytical approaches to the field of HRD.

From Taylorism to Kaizen: Taking Accounting from Management by Exception to Continuous Improvement

Abstract Despite the well documented advantages of continuous improvement (CI) management, implementation failures are discouragingly high (Jazayeri and Hopper, 1999). In the quality literature the most significant reason for this reported failure is cultural resistance (Irani et al., 2003) due in part to insufficient trust (Chenhall and Langfield-Smith 2003) and learning anxiety (Busco et al.,2006). In the early 1900s Taylor decoupled planning from execution. Continuous improvement recouples these management actions. Consequently, this research suggests that recoupling of planning and execution by CI management creates the need for new accounting systems. Seizing a serendipitous opportunity to develop such a model, the researchers use a constructivist research approach to design and implement a CI control and management system in an American company. Consistent with a position taken by Covaleski et al. (2003) and using constructivist research (Kasanen et al., 1993),(Lukka, 2000), multiple theoretic models were applied as no single theory adequately addressed the critical implementation issues. Consequently, this application uses theoretical elements from Old Institutional Economics (OIE), Agency, and Constructivist Learning theories to develop the application demonstrated in this paper. This is not to deny that different theories may explain the same phenomena (Tolbert and Zucker, 1996). But, while there was some overlap, none of the theoretical models conflicted. However, agency theory developed within a scientific management strategy was found to be deficient in explanatory power and required learning considerations to inform CI strategies. Finally, this work is only a pilot study with all the difficulties and ambiguities of such. Its acceptance and use within the company represents a weak validation (Labro and Tuomela, 2003) of the CI model. It's value will be truly determined by future expansion and application of its insights.

Institutional Evolution of Post-Soviet Institutionalism

The author considers Post-Soviet institutionalism as a special social institution of scientific knowledge production. Quantitative parameters and institutional logic of evolution of this scientific current in Russia since 1992 and up to the present are analyzed. It is shown that the "boom" of institutional research has led to the crisis of overproduction of scientific papers and is now gradually turning into stabilization. The necessity of modernization of theoretical and methodological base of institutional economic theory is proved, perspective directions of its development in our country are determined.

Promoting entrepreneurial mindsets at universities: a case study in the South of Spain

This study analyses an entrepreneurial learning initiative developed in the south of Spain through a partnership approach between a high-level educational institution - the University of Huelva, located in a rural area of the south of Spain - and the business community. Using a case-study approach and taking the institutional economic theory as a theoretical framework, the influence of the initiative on stimulating the students' entrepreneurial mindsets is examined. The main findings reveal that, in areas with low levels of entrepreneurial activity such as some rural areas of the south of Spain, additional actions to promote entrepreneurship would be necessary. This research also has several practical implications for policy makers in terms of designing governmental initiatives to promote entrepreneurship education and, consequently, entrepreneurial mindsets.

L. B. Krasin and Siemens: German-Soviet Economic Relations in the Neo-Institutional Economic Paradigm

L.B. Krasin, previously an engineer at Siemens, was one of the leading figures in the Bolshevik revolution. As head of the people’s commissariat of foreign trade, he was responsible for the reconstruction of economic ties with the West. These ties were crucial for the industrial development of Soviet Russia. Krasin was a strong supporter of Lenin’s electrification policy and believed that electricity would make an important contribution to the development of the socialist state. However, the ambitious plan to electrify Soviet Russia could not be achieved without substantial foreign assistance. Therefore Siemens, as one of the world’s largest electro-technical companies, had the potential to play an important role in supplying the equipment and knowledge required for Soviet electrification. In this article, the relationship between Krasin and Siemens will be analysed using the neo-institutional economic assumptions. The New Institutional Economics theory (NIE) argues that economic performance is linked to the underlying institutional framework of a society. Institutions are the ‘rules of the game’, which define markets and shape economic interaction. Scholars of NIE stress the importance of informal institutions, such as ideology and trust, as a main influence on individual behaviour. It will be argued that the trust between Krasin and Siemens played a crucial role in the way in which the company perceived the business opportunities offered by Soviet electrification. Even so, the relationship between Krasin and Siemens officials could not overcome the company’s distrust of Soviet economic ideology.

The Analysis of Brazilian Natural Gas Market under the New Institutional Economics Approach

The purpose of this work is to identify and explain the institutional restraints, which are present in the Brazilian natural gas market, that are mainly responsible for the supply crisis of natural gas in 2006, affecting economic considerations in the industrial and electric energy generation sectors. The analysis, based on the New Institutional Economics theory, will depict the key institutional aspects of the Brazilian natural gas industry and also introduce a discussion regarding the potential impacts of the proposal for changes in the Brazilian gas regulation, under analysis in the Senate. The main conclusions are: 1) Given the present energy policy and faced with the institutional restraints, it is expected that natural gas will play only a marginal role in the Brazilian energy mix; 2) The Brazilian gas policy should promote new gas‐fired industrial processes and technologies; 3) Both the current business strategies from the main gas players and the national energy policy do not reflect such reality;...

Acknowledging the informal institutional setting of natural resource management

The analysis of natural resource management (NRM) institutions is drawn from two predominant theoretical schools – New Institutional Economics (NIE) and Common Property Resource (CPR) theory. There remains a need to transfer usable messages from the theory to those closely engaged with NRM in the development context. The paper brings together the recent theoretical reappraisal of the ‘institution’ in NRM with research findings from Bangladesh to argue the importance of re-emphasizing a simple distinction between formal and informal institutions. Acknowledging the importance of the informal institutional environment is crucial for improved management and evaluation of NRM initiatives.

Agricultural Cooperatives I: History, Theory and Problems

This paper presents the principles of cooperation and briefly describes the history and development of agricultural cooperatives in developed and less-developed countries, with particular emphasis on South Africa. A new Cooperatives Act, based on international principles of cooperation, was promulgated in South Africa in August 2005. The theory of cooperatives, and new institutional economics theory (NIE) (including transaction cost economics, agency theory and property rights theory) and its applicability to the cooperative organizational form, are also presented, as are the inherent problems of conventional cooperatives, namely free-rider, horizon, portfolio, control and influence cost problems caused by vaguely defined property rights. An analysis of the future of cooperatives in general, based on a NIE approach, suggests a life cycle for cooperatives (formation, growth, reorganization or exit) as they adapt to a changing economic environment characterized by technological change, industrialization of agriculture and growing individualism.

Účetnictví pohledem institucionální ekonomie

V souvislosti s účetními skandály firem obchodovaných na amerických burzách cenných papírů nastala renesance zájmu o funkci účetnictví nazývanou skládání účtů. Článek se zabývá ekonomickou podstatou účetnictví pohledem institucionální větvě ekonomické teorie. Dále je analyzován vztah vlastník-manažer prizmatem modelu principál-agent. Výchozí model teorie zastoupení pomáhá mj. odhalit příčiny, které vedly k selhání auditorské profese na počátku tohoto tisíciletí. V reakci na tyto skandály přijal americký Kongres tzv. Sarbanes- Oxley Act, ve kterém jsou zavedena nová pravidla regulace účetnictví a auditu s cílem chránit investory před nelegálními praktikami.

Support systems for new enterprise formation in Catalonia: an institutional approach

This paper presents some of the results of an empirical research that analyses the formal institutional framework related to new enterprise systems in urban and rural areas of Catalonia. The research focuses on the supply side (institutions and support programmes) and on the demand side (new entrepreneurs). Institutional economic theory is adopted as the theoretical framework of this research. For the supply of support programmes, personal interviews were carried out with the officials responsible for business support institutions in the urban county of Valles Occidental and in the rural county of Garrotxa. For the demand side, 92 and 58 telephone interviews were conducted with new entrepreneurs from the previously mentioned counties.

Actitudes hacia la creación de empresas: Un estudio comparativo entre Catalunya y Puerto Rico

En este trabajo se analizan las actitudes hacia la creación de empresas de dos muestras de estudiantes universitarios de Catalunya y Puerto Rico, respectivamente. Se estudian las percepciones de deseabilidad, viabilidad e intencionalidad de crear empresas propias. El marco teórico de referencia utilizado es la Teoría Económica Institucional, dada su adecuación para el estudio de los factores que condicionan la actividad empresarial. Excepto diferencias poco relevantes, los resultados obtenidos en cuanto a las actitudes hacia la creación de empresas son muy similares para las dos muestras consideradas.

A multicriteria approach for corporate decisions in sustainable planning policy

AbstractUnder the current conditions of urban and regional renewal, it is a challenge and opportunity to find such decisions in planning policy supporting sustainable development. Redevelopment of former open‐cast mines and shrinking processes in cities are typical examples. Decision making in such a planning context considers complex tasks and involves preferential selection among different, usually competing alternatives. They result from demands of different spatial functions and the necessity to conserve the natural environment and landscape. The modeling of a planning process requires an adequate definition of the problem, identification of the main decision criteria and possible courses of action. Following environmental and institutional economic theory we use the idea of involving stakeholders. Determining and understanding the demands of stakeholders may lead to a successful management of environmental, social, human, and economic tasks. We propose a multicriteria approach to formulate a planning problem as a multiobjective optimization problem.

The institutional economics of John R. Commons: complement and substitute for neoclassical economic theory

In this paper I outline the theory of institutional economics developed by John R. Commons and contrast it with neoclassical economic theory. Key concepts in Commons' theory are bounded rationality, property rights, working rules, institutions, transactions and incomplete contracts. Although Commons' writings tend toward the obscure and descriptive, I demonstrate that on a deeper level of analysis his ideas and concepts provide the basis for an alternative body of economic theory. In certain respects, this body of theory complements neoclassical theory by fleshing-out the institutional infrastructure that governs and regulates market exchange. In other respects, however, Commons' theory of institutional economics is a heterodox substitute for neoclassical theory because it is built using a different methodology, replaces or modifies central theoretical pillars of neoclassical theory, and denies the validity of the 'Invisible Hand' theorem and other core neoclassical propositions. Commons' institutional economics also provides a theoretical framework for an integration of the economic and social dimensions of human behaviour.

The Institutional Theory of John R. Commons: Foundation for a Heterodox Labor Economics

Over the last three decades neoclassical economic theory has become the dominate approach for the study of labor, most clearly in North America but also increasingly in Europe and elsewhere. Rival heterodox approaches, on the other hand, are threatened with marginalization, partly due to the imperializing tendencies of neoclassical economics and partly due to the inability of heterodox economists to articulate an alternative unified theoretical framework. The purpose of this paper is to push forward the heterodox project by outlining a theoretical framework and set of core ideas that may provide the basis for an alterative paradigm. Toward this end, I re-examine the theoretical writings of institutional economist John R. Commons and describe and synthesize his theory of institutional economics. Although his theory is general, I focus on its application to the study of labor. Key concepts are bounded rationality, property rights, working rules, institutions, transactions, and incomplete contracts. I argue that these concepts not only form a coherent body of theory but also give rise to numerous insights and predictions about labor markets and the employment relationship, highlight crucial weaknesses and lacunas in the neoclassical approach, and provide a theoretical framework for an integration of the economic and social dimensions of human behavior.

Extension to the basic design of Transaction Cost Theory analysis

Transaction Cost Theory (TCT) has been acknowledged as a valid tool for dealing with institutionalist decisions. However, it should be pointed out that the basic analysis layout put forward by Oliver E. Williamson shows certain limitations in its explanations of dynamic situations in both time and space. This lack of dynamism may be overcome by including new explanatory factors (socio-political-cultural factors) or reconsidering the treatment of certain basic premises of the Theory (unit of analysis). In our bid to surmount the static nature of TCT, the paper proposes a reflection on this analytic tool in order to identify the gaps generated by these limitations, and thus enables us to propose the required extensions or corrections. These modifications are inspired by the suggestions put forward by other disciplines, such as the Relational Exchange Theory (RET), the Institutional Isomorphism Theory (IIT), the Institutional Economic Theory (IET) or evolutionist theories.

A processual view of institutional change of the budget process within an Australian government‐owned electricity corporation

PurposeAustralian public sector organisations are faced with their greatest challenge in decades, as public sector reforms essentially re‐examine the role of the State in the economy. These changes have led to a shift away from a traditional administrative approach of public sector organisations to one that fosters managerialism and economic rationalism, the underlying philosophies of new public management. Queensland, the Northeastern state of Australia, has experienced a period of government committed to change and reform specifically related to corporatisation and a national competition policy. Aims to address this issue.Design/methodology/approachTo understand the effect of changes in budgeting, the researcher explores the processes of change over a period of time as they occur, through the use of a case study approach. The processual approach adopted for the study is consistent with old institutional economic theory, which is used to inform the findings.FindingsIt was found that indiscriminate changes to the budgeting process, together with the introduction of a transfer pricing system, caused considerable resistance. Streamlining was introduced late in the study, which, for the most part, despite the embeddedness of the earlier system, overcame many of the obstacles identified with relation to the budgeting process, while the conflict as a result of the transfer pricing system remained an unresolved and thorny issue.Originality/valueThe implications for organisational change management suggest the consideration of embedded institutions within an organisation, while determining the processes and directions of change. The implications for reform setters and the Queensland electricity supply industry are such that the short‐term goal of cost‐efficiency may not necessarily be in the best interest of the overall long‐term benefits to the community.

The Development of a Destination Management System (DMS) in South Tyrol

ABSTRACT Recent changes in modern information and communication technologies have resulted in a big challenge to create new interfaces among service providers and tourism organizations like a Destination Management System (DMS). The information revolution has reduced the transaction costs of communication and further democratized access to information and knowledge. DMO management generally requires a certain amount of cooperation and networking among the actors involved, which is highly complex and often results in high transaction costs. These costs may be decreased by means of a well-structured DMS. In South Tyrol, the northern-most province of Italy, a project was carried out by the European Academy of Bozen-Bolzano (EURAC) from 2001 to 2004, to develop a DMS for the thirteen DMOs of the province. After the project was successfully piloted by the destination ‘Eisacktal valley’ in the year 2001, it was extended to all regional tourism organizations of South Tyrol with the Upper Pusteria Valley presented as a case study in the paper. The article draws insights from the transaction costs theory of the New Institutional Economics on the potential role of DMOs in inducing a technological and strategic tool for the tourism industry.