climbing the hierarchical ladders of rules a life cycle theory of institutional evolution this paper proposes an analysis of the emergence and evolution of institutional frameworks it explains the causes process and outcome of institutional evolution we first describe the institutional framework as a multilevel system at the bottom of which several local and flexible institutions apply to subsets of the society while at the top a single generic and rigid institution applies to all dissatisfied with generic order promoters of local orders try to design collective governance solutions that are better suited to their needs if agents are heterogeneous as we assume then coordination needs differ and a competitive process begins among sponsors of alternative orders to benefit from efficiency gains promoters of local orders encourage adherence to their preferred system of rules the resulting competition for adherents explains why local and voluntary institutions might progressively turn into generic and mandatory ones we thus establish a logical continuum between contractual governance mechanisms and institutions we then analyze the strategic interplay among sponsors of alternative institutional orders by considering not only the horizontal competition among institutions emerging in the same time but also the vertical competition between promoters of new rules and sponsors of the established more generic rules

complementarity of socio economic and emergy evaluation of agricultural production systems the case of slovenian dairy sector agriculture is a complex system in which the economic principles of production are directly intertwined with its biological and ecological characteristics the paper investigates synergetic potentials of multiple criteria and multiple perspective evaluation of agricultural activity through a study of the dairy sector in slovenia socio economic and emergy evaluation was performed on nine farm types formulated to represent the diversity of the country s dairy sector the results indicate larger discrepancies in the performance of the farm types when defined by socio economic or emergy based indicators standard socio economic evaluation favours larger conventional systems that are cost efficient and financially independent emergy analysis however favours less productive organic farms which show greater ability to exploit free local resources and produce less stress on the local environment socio economic and emergy indicators show that small conventional farm types are the poorest performers overall analysis of emergy flows reveals for all farm types a high dependency on the wider socio economic system suggesting that within the current economic system agriculture itself has little ability to affect its sustainability the paper suggests a complementarity in the evaluation approaches their joint application can improve the quality of the decision making process in various stages of planning in agriculture and land use

pure strategy nash equilibrium in a group formation game with positive externalities abstract this paper identifies a domain of payoff functions in no spillover noncooperative games with positive externality which admit a pure strategy nash equilibrium since in general a nash equilibrium may fail to exist in order to guarantee the existence of an equilibrium we impose two additional assumptions anonymity and order preservation the proof of our main result is carried out by constructing for a given game g a potential function over the set of strategy profiles in such a way that the maximum of yields a nash equilibrium in pure strategies of g journal of economics literature classification numbers c72 d62 h73

modularity in technology and organization this paper is an attempt to raid both the literature on modular design and the literature on property rights to create the outlines of a modularity theory of the firm such a theory will look at firms and other organizations in terms of the partitioning of rights understood as protected spheres of authority among cooperating parties and it will assert that organizations reflect nonmodular structures that is structures in which decision rights rights of alienation and residual claims to income do not all reside in the same hands 2002 elsevier science b v all rights reserved

second order sustainability conditions for the development of sustainable innovations in a dynamic environment abstract in particular radical innovations can be important means to achieving improved sustainability due to the existence of path dependency and lock in however the transition from one technological trajectory to another more sustainable one is often impeded by significant barriers fortunately these barriers are by their nature subject to substantial changes in time so it makes sense to carefully distinguish between periods of stability showing high barriers in which the given trajectory can hardly be left and periods of instability characterized by low barriers where a new trajectory can be reached more easily the latter distinction matters since sustainable innovations often rely on governmental regulation and the economic burden arising from this regulation will be much lower in periods of instability moreover due to the complexity and dynamics of change in their respective environments innovations are generally associated with fundamental uncertainty such that it becomes impossible to predict the degree of sustainability yielded by specific innovations in the longer run under these circumstances it is essential to facilitate the change between trajectories and to allow for the possibility to select between a variety of alternative trajectories within a process of trial and error sustainability as viewed from this evolutionary perspective is therefore better understood as the general capability to adapt that is to readily change from less to more sustainable technological trajectories since the latter kind of sustainability determines the conditions under which the former kind i e sustainability related to a specific technology can be achieved the two kinds are respectively called second order and first order sustainability finally a series of determinants and corresponding indicators from the techno economic political and socio cultural sphere is identified which after proper measurement and weighting allow for making an assessment whether and when the incumbent industry is sufficiently destabilized and the political system rendered sufficiently favorable to the new more sustainable technology such that a transition to the preferred trajectory is possible without too much effort

network effects software provision and standardization in this paper we examine the software provision decision of software firms the provision decision by software firms determines the value and hence the market share of competing hardware technologies we show how the provision decision by software firms determines whether multiple hardware technologies are supported in equilibrium or whether there is de facto standardization with only one hardware technology supplied with software in equilibrium we show that when consumers place a high value on software variety there is a suboptimal amount of standardization by the market

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

commensuration and theories of value in ecological economics abstract without a theory of value price in ecological economics the valuation of ecosystem and economic resources cannot be rigorously defended at the crux of the matter is the valuation or mixed units problem of commensurating biophysical inputs outputs which are different this paper critically reviews candidate theories of value which have emerged in the ecological economics literature for dealing with this problem first of all the neo ricardian approach using sraffa type systems is discussed in particular judson s assertion that the sraffa system is suitable for ecological economics is questioned as it is based on circular flow generation of a surplus and exchange values none of these ideas are consistent with a biophysical characterisation of an economic system which is paramount in ecological economics a more fruitful avenue for establishing a biophysical theory of value based on ecological and thermodynamic principles is to extend patterson s quality equivalent methodology qem to explicitly include mass flows in addition to energy at this point a model close to costanza and hannon s biosphere model of price determination emerges the extended qem model however has a number of important advantages over the costanza hannon model because it has a more generalised formulation and is not reliant on necessarily using solar energy as the numeraire the paper concludes with a discussion of some outstanding issues that need to be resolved before a biophysical theory of value can be properly established in ecological economics

discourse based valuation of ecosystem services establishing fair outcomes through group deliberation discourse based methods involving small groups of citizens have yet to be thoroughly engaged in the practice of ecosystem valuation this remains true despite the fact that many ecosystem goods and services such as clean air biodiversity and unpolluted lakes and rivers are considered to be public goods the conventional application of ecosystem valuation relies heavily on methodologies such as contingent valuation in which individuals are asked to express the value they attach to ecosystem goods and services in social isolation the difference between the public nature of ecosystem services and their valuation through individual expression has thus recently led to calls for more deliberative forms of environmental valuation because the allocation of ecosystem services directly affects many people and raises normative questions about social equity it is argued that carefully designed discursive methods will help ensure the achievement of social equity goals in this paper we examine the theoretical and normative assumptions that rest beneath the proposed turn towards discourse based methods and identify procedures for testing their application in the field 2002 elsevier science b v all rights reserved

cheap talk and bogus network externalities in the emerging technology market many emerging technologies exhibit path dependent demands driven by positive network feedback such network effects profoundly impact marketing strategists thinking in today s network economy however the significant network externalities expected by many people often fail to materialize in the emerging technology market we analyze this phenomenon in the context of a technology distribution channel by studying cheap talk strategies under information asymmetry we show that incentive compatible contracts are essential for achieving credible information transmission in our model the better informed technology vendor has an incentive to inflate the retailer s ex ante belief of network externalities when a wholesale price contract is adopted when properly termed revenue sharing contracts are implemented there are information efficient cheap talk equilibria where truthful information transmission is mutually beneficial when the vendor s information is imperfect even revenue sharing contracts cannot guarantee credible information transmission if there is significant prior belief disparity between the vendor and the retailer this study demonstrates how information inefficient equilibria e g information blockage arise because of the conflict of interest or the conflict of opinion among channel members it also explores the role of cheap talk in facilitating channel coordination

when do markets tip a cognitive hierarchy approach the market structure of platform competition is critically important to managers and policy makers network effects in these markets predict concentrated industry structures whereas competitive effects and differentiation suggest the opposite standard theory offers little guidance full rationality models have multiple equilibria with wildly varying market concentration we relax full rationality in favor of a boundedly rational cognitive hierarchy model even small departures from full rationality allow sharp predictions there is a unique equilibrium in every case when participants single home and platforms are vertically differentiated a single dominant platform emerges multihoming can give rise to a strong weak market structure one platform is accessed by all and the other is used as a backup by some agents horizontal differentiation in contrast leads to fragmentation differentiation rather than competitive effects mainly determines market structure

social multi criteria evaluation methodological foundations and operational consequences in order to address contemporary issues economics and decision sciences need to expand their empirical relevance by introducing more and more realistic thus more complex assumptions in their models one of the most interesting research directions in the field of public economics is the attempt to introduce political constraints interest groups and collusion effects explicitly j j laffont incentives and political economy 2000 the main argument developed here is the proposal of the concept of social multi criteria evaluation smce as a possible useful framework for the application of social choice to the difficult policy problems of our millennium where as stated by funtowicz and ravetz facts are uncertain values in dispute stakes high and decisions urgent this paper starts from the following main questions 1 why social multi criteria evaluation 2 how should such an approach be developed the foundations of smce are set up by referring to concepts from complex system theory and philosophy such as reflexive complexity post normal science and incommensurability to give some operational guidelines on the application of smce basic questions to be answered are 1 how is it possible to deal with technical incommensurability 2 how can we deal with the issue of social incommensurability to answer these questions using theoretical considerations and lessons learned from real world case studies is the main objective of the present article

network externality an uncommon tragedy economists have defined network externality and have examined putative inframarginal market failures associated with it this paper distinguishes between network effects and network externalities where the latter are market failures the authors argue that while network effects are important network externalities are theoretically fragile and empirically undocumented some network externalities are merely pecuniary network ownership or transactions among network participants can internalize some network effects the type of market failure that has been associated with these externalities is a transition problem that has little to do with externality

three attempts at de wintelization japan s tron project the us government s suits against wintel and the entry of java and linux abstract the dominance over personal computing technology by the microsoft os and the intel mpu or wintel has been a long standing concern of the government and the marketplace in the past 15 years there have been at least three attempts to challenge the wintel monopoly in comparing these three attempts at de wintelization this paper raises interrelated issues about innovation 1 the path dependent nature of innovation especially that due to network externalities 2 the balance between property rights and antitrust laws and 3 the relevance of government intervention in these areas it also examines different types of r d organization

platform selection in the lab abstract emerging literature explores experimental platform selection games these games converge rapidly on the superior platform under a wide range of conditions we replicate the remarkable results of hossain and morgan 2009 in which such a game tips almost perfectly to the superior platform next we show that platform coordination fails when seemingly innocent increases in out of equilibrium payoffs are introduced the inflated payoffs keep the best reply structure unchanged and do not influence players security levels our design allows control for the explanatory force of risk dominance we find that equilibrium selection theory is unable to account for coordination failure while observed behavior is consistent with non rational learning furthermore and contrary to the literature we find that efficiency suffers when an inferior platform is granted initial monopoly

sand in the wheels or spanner in the works the tobin tax and global finance this paper presents a radical critique of the tobin tax a tax on currency transactions by undercutting certain assumptions about the size and character of the world s foreign exchange markets which furnish the tax with its basic rationale while it is acknowledged that only a fraction of the massive volumes of fx transactions relate directly to trade in goods and services or to cross border investments it is denied that all the residual transactions are motivated purely by exchange rate considerations speculative or hedging activities rather the argument is that a significant proportion of fx trades have money market characteristics and that these trades together with domestic money market transactions play an important role in the day to day operation of the global financial system this perspective is used to show that the imposition of a tobin tax would cause extensive material damage to the system with consequences that may run counter to the expectations of supporters of the tax

evolution and spontaneous uniformity evidence from the evolution of the limited liability company we examine whether the unguided state by state evolution of limited liability company statutes has led to efficient interstate uniformity our evidence suggests significant uniformity has been produced in cases where the net benefits of uniformity are positive and that such uniformity has not been produced by herd behavior our results are consistent with alchian s intuition about the role of market processes and suggests that the survival of efficient rules fostered by the rational behavior of decentralized economic actors are produced by forces beyond the control or foresight of individual lawmakers or legislatures

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

transformation of banking reconsidered how feasible is de financialisation a defining feature of financialisation has been the transformation of banking especially the expansion of investment banking this article argues that the financialisation literature has to date failed to adequately explain this transformation neither disintermediation processes on the one hand nor liberalisation of financial service activities on the other hand can explain the increase in scale and scope of the sector the growth in investment banking activities should instead be seen in terms of the overall expansion of financial markets in particular demographic pressures and neoliberal restructuring have led to the growth of capital markets and modern asset management the rise of capital markets and asset management and the associated growth of money and derivatives markets have in turn put pressures on the banking system for expanded investment services which it has met understanding financialisation as a structural change implies limits on how much economies can be de financialised

the fable of the bees an economic investigation ever since a c pigou wrote his books on welfare a divergence between private and social costs has provided the main argument for instituting government action to correct allegedly inefficient market activities the analysis in such cases has been designed less to aid our understanding of how the economic system operates than to find flaws in it to justify policy recommendations both to illustrate the argument and to demonstrate the nature of the actual situation the quest has been for real world examples of such defects

shared wealth or nobody s land the worth of natural capital and ecosystem services the prerequisite for a sustainable and equitable use of common resources the so called commons must be the proper evaluation of their role within the complex network of relationships that ensure ecosystems functioning resilience and evolutionary dynamics it is crucial to ascertain to what extent the common wealth is used for the common benefit money based schemes for valuing the commons such as the so called willingness to pay provide a user side evaluation perspective based on the idea that value only stems from utilization by humans as a complement to such a point of view we present and discuss in this paper a donor side evaluation method emergy synthesis based on the idea that a proper measure of value can be achieved by also accounting for the work done by the biosphere in generating services and resources it should not be disregarded that such resources and services also provide support to other species in the web of life emergy a scientific measure of such environmental support is suggested as a tool capable to assess quantity and quality of shared resources thus providing a basis for their environmentally sound management

can entrepreneurial firms benefit from product piracy abstract we examine the potential benefits of product piracy to entrepreneurial firms specifically we use a resource based perspective to show that a decrease in the inimitability of an entrepreneurial firm s intellectual property does not necessarily diminish performance when piracy increases the value of this resource and an information economics perspective to explain why and when imitation can increase the value of an intellectual property resource this explanation reconciles empirical studies that indicate mixed results it also expands the resource based view by suggesting that reducing the value of one resource can directly increase the value of another

capital market trading volume an overview and some preliminary conclusions this paper suggests an explanation for the heavy trading volume observed on the us capital markets the world s largest heterodox economic theory puts much of this volume down to speculation mainstream theory tends to support this thesis either directly or indirectly by giving space to the idea that trading activity is for the most part exogenous to the functioning of the capital markets the central hypothesis of this paper is that the trading volumes observed are an endogenous feature of the capital markets because they are to a great extent determined by the needs of the institutional investors who predominate on these markets this endogeneity of trading is posited in connection with the emergence of a new core satellite paradigm in institutional investment a development that essentially manifests the asset management industry s transformation from a small industry serving a few wealthy clients to a mass industry serving large sections of the population

network effects and environmental externalities do clean technologies suffer from excess inertia abstract we study the diffusion of a clean substitute to a dirty durable in a dynamic model consumer utility of both durables increases in their respective market shares due to network effects first we characterize the optimal dirty good tax the tax should achieve a long run optimal division of the market between the two goods along the transition path to this steady state the optimal tax depends on the current and future market shares of the clean durable thus even if the marginal environmental damage from an additional dirty durable is constant the optimal tax should not be constant second we study whether excess inertia can occur if the emission tax is not optimally set we then find that a constant tax that only accounts for the environmental damage caused by the dirty good may lead to excess inertia excess inertia could happen even if the clean technology is proprietary and the technology owner has incentives to sponsor the initial market diffusion of the technology

network effects market structure and industry performance abstract this paper analyzes oligopolistic markets with network externalities exploiting a minimal complementarity structure on the model primitives that allows for pure network goods we prove existence of non trivial fulfilled expectations equilibrium we formalize the concept of industry viability investigate its determinants and show that it improves with more firms in the market and or by technological progress these results enlighten some well known conclusions from case studies in the management strategy literature we also characterize the effects of market structure on industry performance which depart substantially from ordinary markets the approach relies on lattice theoretic methods supplemented with basic insights from nonsmooth analysis

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

hardware quality vs network size in the home video game industry abstract this paper analyzes competition between multiple proprietary and incompatible hardware systems when indirect network effects are present and software is provided competitively by third party developers a discrete choice demand structure is employed within a game theoretic setting to allow for a continuum of market share possibilities empirical evidence supports the claim that excess inertia is not a pervasive problem two data sets covering the life of the home video game industry yearly from 1976 to 2003 and monthly january 1995 to october 2007 yield three main results 1 market share is 11 4 times more sensitive to hardware quality than network size 2 the number of available games is 3 69 times more sensitive to hardware quality than network size and 3 hardware quality has a larger impact than network size on the probability of hardware success

path dependence and the korean keyboard abstract this paper recounts the evolution of the korean keyboard as a case in which the disadvantages of the inherited standard turn into a nonissue with the advancement of auxiliary technologies the persistence of an inherited standard when a superior alternative is available is usually regarded as market failure however if the transition costs to the new standard are such that the net gains from the transition are insufficient the situation is unfortunate but not market failure the situation may change over time if the net gain from the alternative standard increases or transition costs to new alternative decrease or both the situation turns into one in which entrepreneurs can profit by making the transition where appropriate an institutional reform may lower transition costs substantially this paper suggests an additional possibility of technological changes that make the transition unnecessary in the case of the korean keyboard changes in auxiliary technologies have rendered the disadvantages of the inherited standard innocuous the case provides a cautionary tale against the temptation to drastically alter a seemingly hopelessly inferior inherited standard the lesson of the korean keyboard applies to japanese and chinese keyboards with even greater force