Club Theory Research Articles

Baumol’s productive and unproductive entrepreneurship after 25 years

Purpose– The purpose of this paper is to consider the impact of Baumol’s work on entrepreneurship has had on framing the economic development puzzle.Design/methodology/approach– In many ways, the intuition behind the paper is straightforward. Entrepreneurs allocate their time and attention based on the relative payoffs they face in any given social setting. If the institutional environment rewards productive entrepreneurship, then the time and attention of entrepreneurial actors in the economy will be directed toward realizing the gains from trade and the gains from innovation. If, on the other hand, there are greater returns from the allocation of that time and attention toward rent-seeking and even criminal activity, alert individuals will respond to those incentives accordingly. The simplicity of the point being made is part of the brilliance in Baumol’s article. As with other classics in economics, once stated the proposition seems to be so basic it is amazing that others did not put it that way beforehand.Findings– It has been 25 years since Baumol published his paper in theJournal of Political Economy, and as pointed out, it has had a significant scientific impact. But to put things in perspective, James Buchanan’s “An economic theory of clubs” published in 1965 has accumulated roughly 3,500 citations, F.A. Hayek’s “The use of knowledge in society,” published in 1945 has over 12,000, and Ronald Coase’s “The problem of social cost” published in 1960 has over 28,000 citations. So Baumol’s paper would put him in rather elite company. The great strength of the paper is to focus the attention on the relative payoffs of productive, unproductive and destructive entrepreneurial activity. But one of the most significant disappointments of the subsequent history of this paper is a methodological one. The comparative case study approach that Baumol employed did not result in a renewed appreciation for narrative forms of empirical research in political economy. It could legitimately be argued that the sort of questions about the fundamental institutional causes of economic growth and development can only be captured with these more historical methods. Attempts to force fit this analysis into a set of methodological tools which have already revealed themselves to be inadequate to do justice of the role of institutions and disregard the underlying cultural norms and beliefs that characterize human sociability.Originality/value– In this paper, the authors will focus on the contribution made by Baumol’s 1990 paper on the field of comparative political economy, and in particular on the literature on transitional political economy. Section 2 places Baumol’s argument in the context of the failure of neoclassical growth theory. Section 3, the authors argue that although the Baumol framing was an improvement over the old comparative economic systems literature, contemporary transitional political economists have failed to fully realize the implications of the institutional revolution. They have therefore been unable to understand the causes of the heterogeneity of outcomes among those countries that transitioned from communism to the market economy in the 1990s. In Section 4, the authors argue that the political economy of transition will gain from a more sophisticated view of the economic process of the market economy, an appreciation of the entrepreneurial function, and a deeper understanding of the role of formal and informal institutions and their effect on entrepreneurship. The authors will illustrate the point with some examples from the recent history of the Russian political and economic transition. Credible commitment problems and the deficiencies of the institutional reforms of the early 1990s were responsible for the failure of reallocating the entrepreneurial talent that existed in the Soviet economy to productive economic activities. The framework can therefore be used to solve the puzzle of why the announced liberalization of Russian markets and privatization of previously state-owned resources led to economic stagnation, the growth of black markets, and the rise of organized crime, instead of economic development through the operations of smoothly operating markets. Section 5 briefly concludes.

The Distance between Buchanan's 'An Economic Theory of Clubs' and Tiebout's 'A Pure Theory of Local Public Expenditures'. New Insights Based on an Unpublished Manuscript

This article introduces Buchanan's comment on Tiebout's A Pure Theory of Local Public Expenditures. It helps us to understand the nature of the relationship between Buchanan and Tiebout. Usually, it is claimed that Buchanan modeled Tiebout's insights, that there exists a Buchanan-Tiebout hypothesis, and that Buchanan in 1965 complemented what Tiebout had written in 1956. We show that Buchanan could not have written An Economic Theory of Clubs as a complement of A Pure Theory of Local Public Expenditures. He disagreed with Tiebout's ideas on mobility because he saw mobility as a cause of inefficiencies and not a cause of homogeneity in groups. This is what we show by putting Buchanan's comment on Tiebout into historical perspective. It appears that Buchanan interpreted Tiebout (1956) from the perspective of his works on fiscal federalism from the early 1950s. We show that there is a continuity between Buchanan (1950) and his works in the early 1970s; and Buchanan's way of reading Tiebout is part of it. Hence, when he wrote An Economic Theory of Clubs, Buchanan was convinced that Tiebout was wrong and that he was offering an alternative framework for public economics.

Representing Botnet-Enabled Cyber-Attacks and Botnet Takedowns Using Club Theory

The literature on botnet-enabled cyber-attacks and the literature on botnet takedowns have progressed independently from each other. In this research, these two literature streams are brought together. Botnet-enabled cyber-attacks and botnet takedowns are conceptualized as collective actions carried out by individuals, groups, and organizations that are linked by the Internet and club theory is used to examine the inner workings of these collective actions. This research examines five scenarios of botnet-enabled cyber-attacks and five scenarios of botnet takedowns to develop a representation of cyber-attacks and infer capabilities of four club types: Attacker, Defender, Botnet beheader, and Botnet operator. The representation developed identifies the dimensions of the three constructs of club theory: club membership size; size of the facility that club members share; and arrangements to operate, purchase/rent and grow the shared facility. Club capabilities were organized into five types: relationships, attack infrastructure, skills, learning, and others.

Transnational Private Regulation: Evidence from the Coffee Industry

Aims: The purpose of this paper is to analyse the self - coordination of private regulation and self regulation schemes in food industry to promote sustainability. Study Design: This study uses sustainable development to achieve a common goal for the business and public sectors. Different steering mechanisms and diversification emerge even though there is a need to achieve cohesion among them. Methodology: The study uses different theoretical viewpoints of regulatory governance, club theory and positioning following the methodology of theory triangulation. These theories and cohesion mechanisms will be discussed when the sustainability standards are analysed. The analysis is based on the evaluation of the emergence, implementation and enforcement of the best known certification schemes in the coffee industry. Place and Duration of Study: The empirical data of this study was collected in the international research project, ‘ Transnational private regulation and system level innovations in global food value chains’ at the Turku University of Applied Sciences from 2011 to 2014. Results: Positioning among customers is a very important marketing approach when there are several co mpeting certification schemes. The national aspects of consumer behaviour should be

Actor and Institutional Dynamics in the Development of Multi-stakeholder Initiatives

As forms of private self-regulation, multi-stakeholder initiatives (MSIs) have emerged as an important empirical phenomenon in global governance processes. At the same time, MSIs are also theoretically intriguing because of their inherent double nature. On the one hand, MSIs spell out CSR standards that define norms for corporate behavior. On the other hand, MSIs are also the result of corporate and stakeholder behavior. We combine the perspectives of institutional theory and club theory to conceptualize this double nature of MSIs. Based on a stage model that looks at the interplay of actor and institutional dynamics, we generate insights into why actors join a voluntary MSI, how the various motivations and intentions of the actors influence the standard development, and how these as well as the MSI design are subsequently influenced by both external (institutional) and internal (club) dynamics.

Does Club Size Matter: An Examination of Economies of Scale, Economies of Scope, and Organizational Problems

Size is a central characteristic of organizations. While previous studies point to size differences among nonprofit sport clubs, size effects have not yet been investigated systematically. The concepts of economies of scale and economies of scope are used to explain size advantages. Yet, club theory stresses that benefits from sharing production costs only exist until some point and decrease afterward. The purpose of this study is to examine size effects in sport clubs using data from two nationwide online surveys in Germany (n = 19,345) and Switzerland (n = 6,098). The results support the existence of economies of scope, since costs decrease with increasing number of different sports (not codes) offered in the same club. Yet, clubs only benefit from reduced costs until some point supporting club theory. Organizational size has a significant effect on various organizational problems. The findings have implications for the management of sport clubs and for policy makers.

Strategic marketing planning for football clubs: a value-based analysis

The research presents an alternative, value–based approach to conventional strategic marketing; facilitating football club theory and practice evolution and adaptation to contemporary competitive conditions. Methodologically, the paper is conceptual and based on extensive secondary data and a multi–perspective theoretical research and analysis. It initially builds a football–focused contextual strategic marketing theoretical foundation. Subsequently, an alternative, consumer–focused perspective to conventional strategic marketing is presented; followed by a value–based analysis of the theories and conditions pertaining football as an industry, and clubs as individual organisations. The paper finally provides theoretical directions towards further research as well as explicit advice to executives towards practical utilisation. The findings show that football clubs need to carefully re–examine and re–develop the nature and range of their value propositions. Additionally, they need to perform an analysis of their potential value stakeholders; to identify their 'true' competitors; and to draw strength from club strategic collaboration.

Buchanan clubs

This article evaluates the contribution of James M. Buchanan’s theory of clubs. At the outset, the article distinguishes club goods from pure public goods. Next, the article distills the basic mathematical structure of Buchanan’s treatment of clubs. This is followed by some key variants of Buchanan clubs. More general formulations of club theory are also addressed. To demonstrate the wide-ranging importance of Buchanan clubs, the article indicates varied applications of club theory. The article’s message is that club theory remains highly relevant today.

Anarchy, Philanthropy, and the Provision of Public Goods in a Free Society

The provision of public goods is often used to justify the state. Since many highly-valued goods such as education, national defense, roads, etc., possess some public characteristics (i.e. non-rivalry and non-excludability), standard theory predicts such goods will be underprovided by private markets. The state is typically seen as the remedy to this problem. In contrast to this typical view, this paper analyzes the private provision of public and quasi-public goods in a free society. In particular, we examine philanthropy as an avenue through which such goods are already produced and may be provided in a society without a central government. We use Buchanan’s (1965) theory of clubs and Leeson’s (2011) discussion of clubs and “constitutional effectiveness” as a springboard to analyze how philanthropic giving and the provision of goods with public qualities under anarchy might work.

Evolving patterns of internal security cooperation: lessons from the Schengen and Prüm laboratories

This article discusses evolving patterns of internal security cooperation that start in the realm of international public law and end up more or less entirely in the treaty framework of the European Union. By applying the theory of clubs (Buchanan) it shows the fertility as well as limitations of a public goods approach to analyse and explain such instances of differentiated integration and to assess their effectiveness. By way of the comparative analysis of the Schengen regime and the Prüm Treaty it analyses five main stages of an internal security club's life circle from the causing obstacle (blocking of a certain policy) to the final incorporation endgame. Both clubs under investigation produced so-called network goods with negative rivalry logic, i.e. the more members participate and ‘consume’ the good the higher the benefit for all. However, it is also shown that club formation and expansion could not only be understood as a strategically rational process, and that various contextual costs inhibited the formation and eventual expansion of the clubs. The article concludes that incorporation efforts necessarily lead to pick-and-choose situations that preclude full uniformity; consequently, outside treaty clubs tend to create á la carte fragmentation to a certain degree.

Experimental evidence on the theory of club goods

We provide experimental evidence on the theory of club goods. Subjects played what we call ‘the club game’ – that is, a two-stage game: at the first stage, each player announces her favourite club size. Depending on the profile of announced club sizes, each player either joins a club of her favourite size or stays alone. At the second stage, club members play some kind of non-linear public goods game exhibiting the property that certain club sizes favour cooperation, and hence the payoffs for the players. Among other hypotheses, the central idea of club theory can be tested this way: A population of actors should partition itself in clubs of optimal size. As it turns out, this hypothesis can be validated.

Spillover Effects of Voluntary Environmental Programs on Greenhouse Gas Emissions: Lessons from Mexico

AbstractWe compare the environmental performance of voluntary environmental programs (VEPs) with different attributes. Using club theory, we argue that the differential performance of VEPs is due in part to their specific design attributes that will either enhance or diminish their ability to improve both targeted and untargeted environmental impacts. We analyze two VEPs in Mexico, the global standard ISO 14001 and the local standard Clean Industry. These two VEPs differ in the stringency of the standards and in their ability to sanction noncompliant facilities. These differences ensure that firms adopting the local standard are less likely to shirk their responsibilities and enhance potential spillover effects on untargeted environmental emissions. Our empirical results support our hypotheses and show that the local Clean Industry program is more effective in improving both targeted (toxic emissions) and untargeted environmental impacts (greenhouse gas emissions).

A club theory approach to voluntary social programs: Multinational companies and the extractive industries transparency initiative

This study uses club theory to describe the incentives of extractive industry MNCs to support the Extractive Industries Transparency Initiative (EITI), a multi-stakeholder promoted voluntary social program (VSP) aimed at creating national legislation to make the royalty payments received by governments from mining and oil and gas companies more transparent to the public. We characterize the EITI as a VSP that lacks stringent standards and that has a moderate to high level of enforcement through the national governments that have adopted its principles. According to club theory, VSPs with these characteristics produce only a low to medium level of club benefits, in this case “social branding,” for member firms. Noting that over 60 MNCs have signed on to the EITI as of April 2012, we argue that VSPs offering low to medium club benefits should be most attractive to MNCs from countries with long arm disclosure laws, to MNCs lacking relationships with NGOs seeking inexpensive CSR, to MNCs relying upon financing from institutional and social investors, to MNCs attempting to differentiate themselves from competitors on social criteria, and to MNCs with broad stakeholder-focused top managers. We also describe the implications for MNCs if the EITI were to include a more stringent set of social requirements.

The Theory of Clubs and Competitive Coalitions

This review discusses research demonstrating that club economies and coalition economies with many participants and relatively small effective groups (clubs, jurisdictions, or coalitions) are competitive. Small groups are effective if all or almost all gains to collective activities can be realized by cooperation restricted to them. At this point, there are many papers in the literature demonstrating the competitiveness of club and coalition economies in a variety of contexts. To facilitate the exposition, I treat economies with quasi-linear utilities and games with side payments. The main concepts and results for this framework are discussed. Additionally, relationships are established with regard to broader models of club and coalition economies, including very recent contributions to the literature.

Geographical indications outside the European Regulation on PGIs, and the rule of the free movement of goods: lessons from cases judged by the Court of Justice of the European Communities

Several recent cases judged by the Court of Justice of the European Communities (the Court) have raised interesting issues related to the possibility for operators of food chains to use national quality signs to indicate territory of origin, which are different from the regulatory European ‘Protected Geographical Indications’. The various attempts by France (a list of quality signs), Germany (‘Markenqualitat aus deutschen Landen’ sign) and Belgium (‘Walloon’ sign) have all been condemned as protectionist policies contradicting the free movement of goods in the European Market. These national quality signs can be seen as attempt to defend the viability of specific kinds of activities (involving small enterprises) in specific places (rural areas). These cases are a good illustration of the difficulties that a Member State of the European Communities (Member State) faces in trying to protect its traditional activities and/or rural areas in a way that is compatible with free markets. The paper analyses the recent court decisions underlining economic aspects such as information delivery and the cost of alternative protection mechanisms for these activities. We highlight in particular the collective trademarks and the kind of intellectual property right they form by the economic theory of clubs, and make some comparisons with protected geographical indications.

Book Review: Voluntary programs: A club theory perspective

Book Review: Voluntary programs: A club theory perspective

An Economic Model of Collective Redress, Relevant to Joinder Proceedings, Group Litigation and Class Actions

In this paper I use club theory to model the formation of collectives in litigation proceedings in a market like setting, or based on contract, with free exit and entry of class participants. Much concern and attention in the literature focuses on free rider problems or principal agent problems that may plague collective redress, to the neglect of positive analysis of the underlying process of collective formation for litigation to exploit economies of scale in production or consumption. The use of club theory to explore the formation of collectives pursuing legal redress provides a basis for making predictions that can be tested through empirical work. It also challenges possibly artificial legal distinctions drawn between joinder proceedings, representative actions, and collective actions, and enables one to assess the likely effects of different legal rules on procedure.

Green clubs

This paper treats programs in which firms voluntarily agree to meet environmental standards as “green clubs”: clubs, because they provide non-rival but excludable reputation benefits to participating firms; green, because they also generate environmental public goods. The model illuminates a central tension between the congestion externality familiar from conventional club theory and the free-riding externality familiar from the theory on private provision of public goods. We compare three common program sponsors—governments, industry, and environmental groups. We find that if monitoring of the club standard is perfect, a government constrained from regulating club size may prefer to leave sponsorship to industry if public-good benefits are sufficiently low, or to environmentalists if public-good benefits are sufficiently high. If monitoring is imperfect, an important question is whether consumers can infer that a club is too large for its standard to be credible. If they can then the government may deliberately choose an imperfect monitoring mechanism as a way of regulating club size indirectly. If they cannot then this reinforces the government's preference for delegating sponsorship.

Religion, clubs, and emergent social divides

Arguments regarding the existence of an American cultural divide are frequently placed in a religious context. This paper seeks to establish that, all politics aside, the American religious divide is real, that religious polarization is not a uniquely American phenomenon, and that religious divides can be understood as naturally emergent within the club theory of religion. Analysis of the survey data reveals a bimodal distribution of religious commitment in the U.S. International data reveals evidence of bimodal distributions in all twenty-nine surveyed countries. The club theory of religion, applied in an agent-based computational model, generates bimodal distributions of member commitment.

A theory of liberal churches

There is a counterintuitive gap in the club theory of religion. While it elegantly accounts for the success of strict sectarian religious groups in recruiting members and maintaining commitment, it is less satisfactory when attempting to account for groups requiring neither extreme nor zero sacrifice. Moderate groups are always a suboptimal choice for rational, utility maximizing agents within the original representative agent model. The corner solutions of zero and absolute sacrifice, however, are rarely observed empirically compared to the moderate intermediate. In this paper, we extend the original model to operate within an agent-based computational context, with a distribution of heterogeneous agents occupying coordinates in a two dimensional lattice, making repeated decisions over time. Our model offers the possibility of successful moderate groups, including outcomes wherein the population is dominated by moderate groups. The viability of moderate groups is dependent on extending the model to accommodate agent heterogeneity, not just within the population of agents drawn from, but heterogeneity within groups. Moderate sacrifice rates mitigate member free riding and serve as a weak screening device that permits a range of agent types into the group. Within-group heterogeneity allows agents to benefit from the differing comparative advantages of their fellow members.