regulatory reform in britain regulatory reform in britain john kay and john vickers major sectors of the british economy are currently undergoing far reaching regulatory reform deregulation removal of barriers to competition and the introduction of new methods of regulation are occurring notably in financial services some of the professions and in utility industries such as telecommunications gas and electricity this paper gives an economic assessment of these developments the authors examine the root causes of market failure that call for regulation externalities monopoly and information problems and the pros and cons of various regulatory responses a broad distinction is drawn between structural regulation the determination of which firms or types of firms can engage in which activities and conduct regulation the control of how firms behave in their chosen activities recent examples of deregulation plus re regulation in britain are seen in part as a shift from structural to conduct regulation the relative merits of the two modes of regulation are complex to assess but it is argued that some recent regulatory reforms are placing undue reliance on conduct regulation as well as assessing individual industries the authors draw general conclusions about the desirability of regulatory solutions that make full use of market forces

competition and social influence the diffusion of the sixth generation processor in the global computer industry1 when is a social actor most strongly influenced by its peers this article addresses this question by clarifying when computer firms were most strongly affected by the choices of their structurally equivalent rivals to adopt a well known technology intel s sixth generation processor the core hypothesis is that the effect of adoptions by structurally equivalent firms increases with the competitive pressure that a focal firm faces in its market position the results show that a chosen firm is most strongly influenced by comparable others when it faces scale based competition and is diversified the implications of this study are twofold a social actor s sensitivity to the conduct of others may depend not only on its place in a hierarchy but also on the nature of its ties to an external audience and a contingent theory of social influence may be necessary to characterize diffusion processes correctly particularly when external and time varying nonnetwork factors have significant effects

retrospectives friedrich hayek and the market algorithm friedrich a hayek 1899 1992 is known for his vision of the market economy as an information processing system characterized by spontaneous order the emergence of coherence through the independent actions of large numbers of individuals each with limited and local knowledge coordinated by prices that arise from decentralized processes of competition hayek is also known for his advocacy of a broad range of free market policies and indeed considered the substantially unregulated market system to be superior to competing alternatives precisely because it made the best use of dispersed knowledge our purpose in writing this paper is twofold first we believe that hayek s economic vision and critique of equilibrium theory not only remain relevant but apply with greater force as information has become ever more central to economic activity and the complexity of the information aggregation process has become increasingly apparent second we wish to call into question hayek s belief that his advocacy of free market policies follows as a matter of logic from his economic vision the very usefulness of prices and other economic variables as informative messages which is the centerpiece of hayek s economics creates incentives to extract information from signals in ways that can be destabilizing markets can promote prosperity but can also generate crises we will argue accordingly that a hayekian understanding of the economy as an information processing system does not support the type of policy positions that he favored thus we find considerable lasting value in hayek s economic analysis while nonetheless questioning the connection of this analysis to his political philosophy

attack defence and contagion in networks sanjeev goyal acknowledges support from a keynes fellowship cambridge inet institute and european research area complexity net resilience and interaction of networks in ecology and economics adrien vigier acknowledges support from a gates cambridge fellowship as well as a core fellowship from universite catholique de louvain

evolving market structure an ace model of price dispersion and loyalty we present an agent based computational economics ace model of the wholesale sh market in marseille two of the stylized facts of that market are high loyalty of buyers to sellers and persistent price dispersion although it is every day the same population of sellers and buyers that meets in the same market hall in our ace model sellers decide on quantities to supply prices to ask and how to treat loyal customers while buyers decide which sellers to visit and which prices to accept learning takes place through reinforcement the model explains both stylized facts price dispersion and high loyalty in a coevolutionary process buyers learn to become loyal as sellers learn to o er higher utility to loyal buyers while these sellers in turn learn to o er higher utility to loyal buyers as they happen to realize higher gross revenues from loyal buyers the model also explains the e ect of heterogeneity of the buyers we analyze how this leads to subtle di erences in the shopping patterns of the di erent types of buyers and how this is

learning from the experience of others an experiment on information contagion advances in stochastic system analysis have opened the way to a reconsideration of the processes through which behaviors spread in a population of individuals or organizations one peculiar phenomenon affecting diffusion is information contagion arthur and lane 1994 when agents have to choose on the basis of other people s experience rather than relying on their own direct observations information externalities arise that drive towards the emergence of the arbitrary stable dominance of one product over the competing one we reproduced in controlled laboratory conditions the process of information contagion the experiments show that when agents can only resort to the observation of other people s experience in choosing between competing alternatives the choice process generates some peculiar features information contagion among subjects generates self reinforcing dynamics amplifying initial asymmetries of products market shares this in turn produces path dependent trajectories highly dependent on early events in the choice sequence arbitrary asymmetric market shares tend to be stable in the long run exhibiting lock in phenomena agents choice criteria are heterogenous giving rise to a mix of positive and negative feedback in the choice process with the mix and the timing of such criteria affecting the final outcome

rational behavior and economic theory abstract nowadays it seems almost universally presumed that the fundamental characteristic of homo oeconomicus is his rationality we analyze the role played by the concept of rationality in economic theory and demonstrate that it is necessarily constrained to be an essentially contentless notion we show that the main body of economic theory is firmly grounded and that some contrasting approaches to rationality although leading to heated debates and vivid confusion have no fundamental significance for economics with a refereshed view on the essence of economics we argue that the principles of economic theory form an essential methodological guide for the emergent line of research based on the use of so called evolutive models

grabber holder dynamics and network effects in technology innovation abstract economists and marketing researchers have examined how network effects can have an impact on the adoption of technology and products and how an intrinsic inferior product or technology may dominate the market however their studies have not explained how a producer could create network effect for a new product and how after successfully creating the network effect for this product the producer could lose it in a short period of time while these studies provide insight into technology innovation after it happened they fail to shed light on understanding many of the surprises that we experience in the process the objective of this paper is to present a fundamental framework that helps us understand most of the surprising outcomes that we have seen in technology innovation processes especially the winners and losers in an innovation process the framework is built on a grabber holder dynamic model that captures how all the intelligent agents involved in an innovation shape the forces that either induce a strong network effect or destroy a network effect that is already in place the model can be used to explain many surprising events that have happened in technology innovation in this paper i apply the model to the personal computer innovation

diffusion of a new product under network effects the us dvd market we formulate a model that captures the inter dependence between hardware demand and software supply indirect network effect in the dvd industry the identification of the network effect comes from the difference in software availability across two different formats vhs and dvd we find that a 1 increase in the number of dvd titles raises the demand for dvd players by 0 87 simultaneously a 1 increase in video player ownership leads to a 0 14 increase in the variety of video titles our simulations show that hardware manufacturers might be able to internalize the network externality to increase total industry revenues

can neoclassical economics handle complexity the fallacy of the oil spot dynamic abstract this paper is essentially a rebuttal of the view that neoclassical economics can handle complexity i have coined the locution oil spot dynamic to denote the neoclassical ability to subsume each and every new perspective the main part of the paper is devoted to showing why the oil spot dynamic cannot work with the complexity approach which is seen as a coherent stand alone research program that stems from the sfi economics program and manifests itself with different nuances the fallacy of the oil spot dynamic is relevant in this period in which economists are beginning to realize that the neoclassical samuelsonian paradigm no longer represents the common language of their profession the spread of the complexity approach and the dissolving notion of mainstream are here interpreted as indicative of a changing economics a short foray into the features of the process of change completes my arguments by showing that the shift from one paradigm to another has many interrelated dimensions and that there may be rigidities internalizing changes

who learns from what in policy diffusion processes the idea that policy makers in different states or countries may learn from one another has fascinated scholars for a long time but little systematic evidence has been produced so far this article improves our understanding of this elusive argument by distinguishing between the policy and political consequences of reforms and by emphasizing the conditional nature of learning processes using a directed dyadic approach and multilevel methods the analysis of unemployment benefits retrenchment in oecd countries demonstrates that policy makers learn selectively from the experience of others right governments tend to be more sensitive to information on the electoral consequences of reforms while left governments are more likely to be influenced by their policy effects

williamson s the economic institutions of capitalism there can be no doubt this book is a major contribution perhaps the volume is best characterized as a systematic theoretical examination of those portions of society s economic activities that the market mechanism does not automatically run to perfection but here such activities are not simply listed as market failures and forgotten rather they are treated appropriately as normal and widespread economic phenomena whose anatomy urgently requires examination and understanding vertical integration is an archtypical example if the unaided market mechanism did everything perfectly firms would rarely be able to enhance efficiency by integrating vertically it would usually be optimal for intermediate goods to be bought from independent suppliers on the free market i have more than once enjoyed teasing businesspersons bent on defending the vertical integration of their firms by suggesting that they are soviet central planners at heart and that when push comes to shove they have little use for the market mechanism in practice of course the truth generally lies somewhat in between for any given firm there is presumably an optimal degree of vertical integration determined by the requirements of economy in production and economy in the governance process or as williamson puts it of economizing in transactions costs the point is that a variety of institutions and behavior patterns really make sense primarily in terms of their relative efficacy in dealing with transactions costs that renders each in turn best in different circumstances decentralized and hierarchical organization of firms the vast variety of contractual forms franchising tie ins and many others these are the sorts of institutions to which williamson s analysis is devoted it should be said at once that i can find no major point of disagreement with his analysis on the contrary i enthusiastically accept the substance of all his central conclusions this extends also to williamson s characterization of the contestability literature and its relation to his own analysis which i believe he has done completely correctly as will be spelled out presently i have only two substantive reservations about the book the first is a slight tendency by the author to overstatement of claims for the new analysis a manifestation of enthusiasm which is no doubt commendable in a pioneer and in any event i know i am hardly in a

competing technologies the learning curve and rational expectations abstract the problem of choice between several variants of a technology subject to dynamic learning economies is examined in a rational expectations model with overlapping adopters it is shown that even with rational expectations the long term market outcome depends sensitively on the pattern of early chance events and that only one variant of the technology will come to dominate the market in the long run this variant need not be the one which is socially optimal or most promising technically

rules of thumb for social learning this paper studies agents who consider the experiences of their neighbors in deciding which of two technologies to use we analyze two learning environments one in which the same technology is optimal for all players and another in which each technology is better for some of them in both environments players use exogenously specified rules of thumb that ignore historical data but may incorporate a tendency to use the more popular technology in some cases these naive rules can lead to fairly efficient decisions in the long run but adjustment can be slow when a superior technology is first introduced

the political determinants of international trade the major powers 1907 1990 we test three arguments about the effect of international politics on trade flows the first argument states that trade flows are greater between states with similar interests than those with dissimilar interests the second that trade flows are greater in democratic dyads than nondemocratic dyads and the third that trade flows are greater between allies we examine trade flows between the major powers from 1907 to 1990 this period provides variation on all three independent variables of interest and allows us to separate the three arguments empirically we estimate a gravity model of trade with the above political variables added our results demonstrate that joint democracy and common interests increase trade in a dyad but alliances generally do not even when controlling for polarity of the system

speeding up the internet regulation and investment in european fiber optic infrastructure in this paper we study how the coexistence of access regulations for legacy copper and fiber networks shapes the incentives to invest in network infrastructure to this end we develop a theoretical model explaining investment incentives by incumbent telecom operators and heterogeneous entrants and test its main predictions using panel data from 27 eu member states over the last decade our theoretical model extends the existing literature by among other things allowing for heterogeneous entrants in internet access markets as we consider both other telecom and cable tv operators as entrants in the empirical part we use a novel data set including information on physical fiber network investments legacy network access regulation and recently imposed fiber access regulations our main finding is that more stringent access regulations for both the legacy and the fiber networks harm investments by incumbent telecom operators but in line with our theoretical model do not affect cable tv operators

agent based modeling public choice and the legacy of gordon tullock the future of modeling in public choice may be glimpsed by examining its evolution in economics for problems that are influenced by heterogeneity of actors social networks or emergence the arising of a complex system from simple phenomena such as adam smith s invisible hand economists increasingly are turning to agent based modeling agent based modeling is a form of computational analysis that focuses on agents rather than on aggregates in his long career as a founding scholar of public choice gordon tullock repeatedly followed the agent oriented approach of methodological individualism many of tullock s models are thus highly amenable to further exploration using that method as agent based modeling becomes more and more popular the importance of tullock s work will continue to grow

emergence and complexity in austrian economics abstract emergence is often argued to be a deep property of complex systems with such systems exhibiting wholes that are in some way greater than the sum of their parts these ideas have played an important part in discussions of spontaneous order within austrian economics particularly by hayek drawing on arguments dating from mill and menger although with other traditions such as that of bohm bawerk not relying on such ideas philosophical discussions of these terms are considered that raise questions about the relationship between the emergent whole and the lower level parts that comprise it a major issue is the role of these ideas and processes within evolution with hayek in particular moving strongly towards identifying their linkage something advocated by many non austrian economists and non economists as well

comparative democracy the economic development thesis in comparative politics an established finding that economic development fosters democratic performance has recently come under challenge we counter this challenge with a dynamic pooled time series analysis of a major but neglected data set from 131 nations the final generalized least squares autoregressive moving averages estimates n 2 096 appear robust and indicate strong economic development effects dependent in part on the nation s position in the world system for the first time rather hard evidence is offered on the causal relationship between economics and democracy according to granger tests economic development causes democracy but democracy does not cause economic development overall the various tests would seem to advance sharply the modeling of democratic performance

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

coordinating adoption decisions under externalities and incomplete information abstract a monopolist sells a good whose value depends on the number of buyers who adopt it as well as on their private types the seller coordinates the buyers adoption decisions based on their reported types and charges them the price based on the number of adoptions we study ex post implementable sales schemes that are collusion proof and show that under the revenue maximizing scheme more buyer types are willing to adopt when there are more adoptions and the number of adoptions is maximized subject to the participation constraints

rational incompatibility with international product standards abstract international product standardization enables traditional price based competition but the existence of redesign costs or network effects creates market frictions that diminish the incentive to standardize if there already exists a different technology in an established market this leads to multi attribute competition between products and will generally reduce trade flows not only do incumbent firms using a different technology have an incentive to deviate from an international standard but a host country government concerned for its consumers welfare has no incentive to enforce the international standard and may even value deviation from the international standard through technical barriers to trade

was hayek an ace in order to address the question whether hayek might have been an agent based computational economist ace avant la lettre we consider an ace model concerning the phenomenon of information contagion alongside increasing returns network externalities and information cascades information contagion has been presented in the literature as an explanation for particular patterns of macrobehavior that may seem at odds with the underlying micromotives but whereas these other explanations have been shown to have a proper microfoundation information contagion has remained a phenomenon that seemed to occur only when certain ad hoc rules of thumb for individual behavior are assumed we show how information contagious behavior can emerge in a coevolutionary process of interacting adaptive agents how this is related to various hayekian themes and how ace research in general is an application of hayek s methodological insights

the evolution of hayek s thought on gold and monetary standards early in his career hayek viewed attempts to stabilize exchange rates by facilitating cooperation between central banks with respect to their demand for gold to be at odds with the fundamental mechanisms of the gold standard he opposed proposals by irving fisher gustav cassel and ralph hawtrey that promoted stabilization of demand for gold and price levels as a next best option hayek viewed the nations that refused to devalue their currency after monetary expansion during wartime as complicit in degrading the international gold standard in 1935 hayek s emphasis began to change his position sounding much like the arguments of cassel and hawtrey though he eventually gave up hope that the international gold standard would be reestablished his later work on money provides theoretical underpinnings for systems that would promote the same sort of stability and predictability that the classical gold standard had provided

the market value of rarity abstract most theories of demand assume that consumers value the characteristics of products but are unconcerned with how many other consumers also consume the product however several theories of demand argue that consumers can value the exclusivity of possessing a rare object we test this implication on a particular collectible rare coins our paper examines the case of coins of a given type and identical quality that have mintages in different quantities this allows us to exclude the common case in which rarity or price itself is an indicator of quality for our sample rarer coins command higher prices rarity in the form of original mintage more strongly influences the market price than does collectibility as represented by the rarest coins of each mint mark or year we also point out that here may be other goods such as automobiles for which rarity may influence market demand

local network externalities and market segmentation this paper models interaction between groups of agents by means of a graph where each node represents a group of agents and an arc represents bilateral interaction it departs from the standard katz shapiro framework by assuming that network benefits are restricted only amongst groups of linked agents it shows that even if rival firms engage in bertrand competition this form of network externalities permits strong market segmentation in which firms divide up the market and earn positive profits the analysis also shows that some graphs or network structures do not permit such segmentation while for others there are easy to interpret conditions under which market segmentation obtains in equilibrium c 2009 elsevier b v all rights reserved

collateral damage trade disruption and the economic impact of war abstract conventional wisdom in economic history suggests that conflict between countries can be enormously disruptive of economic activity especially international trade we study the effects of war on bilateral trade with available data extending back to 1870 using the gravity model we estimate the contemporaneous and lagged effects of wars on the trade of belligerent nations and neutrals controlling for other determinants of trade as well as the possible effects of reverse causality we find large and persistent impacts of wars on trade national income and global economic welfare we also conduct a general equilibrium comparative statics exercise that indicates costs associated with lost trade might be at least as large as the conventionally measured direct costs of war such as lost human capital as illustrated by case studies of world wars i and ii

theorizing path dependence a review of positive feedback mechanisms in technology markets regional clusters and organizations the concept of path dependence has often been criticized as vague and only narrowly applicable although we can find some very refined definitions of the concept we also find a wide range of empirical phenomena being described as path dependent we argue that more detailed accounts of the positive feedback mechanisms that form paths can take path dependence beyond this state of being overdetermined but under specified reviewing three well described cases of path dependent dynamics in technology markets regional clustering and organizations we define a core set of positive feedback mechanisms that constitute path dependence at different analysis levels and clarify the relationship between positive feedback and increasing returns we show that path dependent processes that is processes driven by positive feedback that veer toward rigidity or lock in can be but do not have to be found under many labels including structural inertia coevolution or institutional persistence we conclude that a precise definition of path dependence does not need to be at odds with the concept s widespread use in understanding organizational and industrial development processes copyright 2013 the author 2012 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

the kantian peace the pacific benefits of democracy interdependence and international organizations 1885 1992 the authors test kantian and realist theories of interstate conflict using data extending over more than a century treating those theories as complementary rather than competing as the classical liberals believed democracy economic interdependence and international organizations have strong and statistically significant effects on reducing the probability that states will be involved in militarized disputes moreover the benefits are not limited to the cold war era some realist influences notably distance and power predominance also reduce the likelihood of interstate conflict the character of the international system too affects the probability of dyadic disputes the consequences of having a strong hegemonic power vary but high levels of democracy and interdependence in the international system reduce the probability of conflict for all dyads not just for those that are democratic or dependent on trade

varieties of agents in agent based computational economics a historical and an interdisciplinary perspective in this paper we trace four origins of agent based computational economics ace namely the markets origin the cellular automata origin the tournaments origin and the experiments origin along with this trace we examine how these origins have motivated different concepts and designs of agents in ace which starts from the early work on simple programmed agents randomly behaving agents zero intelligence agents human written programmed agents autonomous agents and empirically calibrated agents and extends to the newly developing cognitive agents psychological agents and culturally sensitive agents the review also shows that the intellectual ideas underlying these varieties of agents cross several disciplines which may be considered as a part of a general attempt to study humans and their behavior with an integrated interdisciplinary foundation

clear and clean the fixed effects of the liberal peace in their article in this issue donald p green soo yeon kim and david h yoon claim contrary to liberal theory and extensive evidence that neither joint democracy nor economic interdependence significantly reduces the frequency of militarized interstate disputes in pooled time series analyses when dyadic fixed effects are taken into account similarly their fixed effects analyses contradict theory and previous evidence that democracies have higher levels of trade with one another than do other types of states our reexamination however refutes both claims and reinforces previous findings their fixed effects analyses of disputes produces distorted results because they consider a relatively short time period 1951 92 in which variation in the binary dependent variable and the key independent variables democracy and trade is limited when we analyze a longer period 1886 1992 the results confirm liberal theory the differences between our analyses of bilateral trade and those of green kim and yoon primarily arise from a seemingly minor methodological decision a more reasonable method confirms that democracies do have higher levels of trade than expected on purely economic grounds though we do not advocate a fixed effects model for analyzing these data and have serious reservations about its general usefulness our findings provide additional confirmation of liberal theories of international relations

allocative efficiency of markets with zero intelligence traders market as a partial substitute for individual rationality we report market experiments in which human traders are replaced by zero intelligence programs that submit random bids and offers imposing a budget constraint i e not permitting traders to sell below their costs or buy above their values is sufficient to raise the allocative efficiency of these auctions close to 100 percent allocative efficiency of a double auction derives largely from its structure independent of traders motivation intelligence or learning adam smith s invisible hand may be more powerful than some may have thought it can generate aggregate rationality not only from individual rationality but also from individual irrationality

transaction cost economics and the carnegie connection abstract this paper tracks my remarks at the september 1993 conference honoring richard m cyert it begins with some recollections of my years as a graduate student at gsia in the early 1960s i then shift to transaction cost economics and how this project relates to what i learned from dick cyert and others at carnegie

the impact of leadership turnover on trading relations between states we test how domestic political institutions moderate the effect of lead ership turnover on relations between states deriving hypotheses from recent theo retical work bueno de mesquita et al and mcgillivray and smith we examine how leader change affects trading relations between states using dyadic trade data con sistent with hypotheses we find that large winning coalition systems such as democ racies are relatively immune from the vagaries of leadership change in such systems trade remains relatively constant whether leader change occurs or not in contrast when winning coalition size is small as in autocratic states leadership change pro foundly alters relations causing a decline in trade finally we examine instances of poor relations measured by a significant decline in trade compared to historical lev els as predicted instances of poor relations are less common between pairs of democ racies than other dyadic pairings further leadership turnover in autocratic systems restores trading relations between states the effect of leadership change in democ racies is much less pronounced since first drafting this article the united states has invaded iraq and deposed its leader saddam hussein for more than a decade iraq experienced harsh economic sanctions with hussein s removal these sanctions have been lifted and iraq is in the processes of being reinstated into the international community although it was the iraqi people who bore the costs of the sanctions the sanctions were aimed at hussein s regime with hussein removed the prospects for improved relations between iraq and western states look strong while iraq offers an extreme example this article assesses how the turnover of leaders affects relations between states as measured by trade flows in partic ular drawing on recent theoretical developments we examine how domestic insti tutions and leadership turnover affect dyadic trade flows consistent with the theoretical arguments we find that trade flows between states depend on the inter action of institutions and leader turnover

a positive theory of flexibility in accounting standards abstract we develop a positive theory of accounting standards when standards generate network externalities and differ in the amount of reporting discretion or flexibility they provide firms we evaluate expected value maximizing firms preferences between two standards regimes rigid and flexible as the number of firms subject to each standard varies as the organization of the securities market varies and as the mapping from the underlying economics of the firms transactions to the accounting reports produced under the two standards vary we also compare firms preferences between the two regimes to the preferences of profit maximizing traders in the firms securities

realism and comprehension in economics a footnote to an exchange between oliver e williamson and herbert a simon abstract the correspondence between herbert simon and oliver williamson reveals a history of disagreement ultimately resolved by a reinstatement of mutual respect and agreement on the surface the disagreements concern questions about the appropriate trade offs between realism and comprehension in economic theory on the extent to which the theory should be based on realistic behavioral assumptions at another level however the disagreements expose a different issue whether the sacrifices of realism involved in seeking comprehensible theory are to be experienced as unfortunate but necessary costs or as agonizing falls from grace that may be forgiven but only if accompanied with pain and contrition

the economics of convention c onventions regulate much of economic and social life yet they have received surprisingly little attention from economists by a convention we mean a pattern of behavior that is customary expected and self enforcing everyone conforms everyone expects others to conform and everyone has good reason to conform because conforming is in each person s best interest when everyone else plans to conform lewis 1969 familiar examples include following rules of the road adhering to conventional codes of dress and using words with their conventional meanings conventions with direct economic implications include species of money and credit industrial and technological standards accounting rules and forms of economic contracts indeed it would scarcely be an exaggeration to say that almost all economic and social institutions are governed to some extent by convention the main feature of a convention is that out of a host of conceivable choices only one is actually used this fact also explains why conventions are needed they resolve problems of indeterminacy in interactions that have multiple equilibria indeed from a formal point of view we may define a convention as an equilibrium that everyone expects in interactions that have more than one equilibrium the economic significance of conventions is that they reduce transaction costs imagine the inconvenience if whenever two vehicles approached one another the important exceptions are sugden 1986 and ullman margalit 1977 the interested reader might also refer to the symposium on social norms that appeared in the fall 1989 issue of this journal with articles by sugden 1989 and elster 1989

the intergovernmental network of world trade igo connectedness governance and embeddedness membership in certain intergovernmental organizations igos such as the world trade organization has long been argued to stimulate trade yet evidence linking igos to trade is mixed the authors argue that identifying the influence of igos requires attention not only to the institutions igos enact but also to the network through which they enact them this approach allows them to demonstrate that trade between two countries increases by an average of 58 with every doubling of the strength of igo connection between the countries they also contribute to debates regarding the mechanisms through which structural relationships influence economic behavior by showing that substantial trade benefits occur not only through economic igos but also through igos that were formed for social and cultural purposes and that connections through igos that are organizationally strong have more impact than those through minimalist igos

systems competition and network effects this paper discusses firm behavior market performance and the public and private institutions that arise in systems markets i e markets where consumers use compatible components together to generate benefits in such markets which include communications networks and hardware software networks popular products are inherently more valuable these network effects can drive corporate strategies and are critical in understanding innovation in many high technology markets the discussion here emphasizes the dynamics of consumer adoption decisions in the presence of network effects competition between incompatible systems and how suppliers choose which components are compatible and which are not

free to trade democracies autocracies and international trade trade relations we address this issue by analyzing the relationship between regime type and trade policy in a formal model of commercial policy we establish that the ratification responsibility of the legislature in democratic states leads pairs of democracies to set trade barriers at a lower level than mixed country pairs composed of an autocracy and a democracy we test this hypothesis by analyzing the effects of regime type on trade during the period from 1960 to 1990 the results of this analysis accord with our argument democratic pairs have had much more open trade relations than mixed pairs t he effects of domestic political institutions on trade policy have long been a source of controversy among social scientists despite the widespread interest that this debate has prompted however remarkably few studies have addressed the links between political regime type and commercial policy 1 most work on the political economy of trade policy that examines institutional factors focuses only on variations in policy among democracies and avoids comparing democracies with other types of regimes moreover many analyses of trade barriers especially those by economists ignore the effects of domestic political