pushing the boundaries of climate economics critical issues to consider in climate policy analysis abstract climate policy choices are influenced by the economics literature which analyses the costs and benefits of alternative strategies for climate action this literature in turn rests on a series of choices about the values and assumptions underlying the economic analysis the methodologies for treating dynamics technological change risk and uncertainty and the assumed interactions between economic systems society and the environment including institutional constraints on climate policy we identify and discuss such critical issues pushing at the boundaries of current climate economics research new thinking in this area is gathering pace in response to the limitations of traditional economic approaches and their assumptions on economic behaviour ecological properties and socio technical responses we place a particular emphasis on the role of induced technological change and institutional setups in shaping cost effective climate action that also promotes economic development and the alleviation of poverty

meta paradigm change and the theory of the firm many seemingly unrelated debates on the theory of the firm are in fact part of a single deeper transformation of the social sciences as the foundational assumptions of 20th century social science have slowly been shown by science to be false new sub paradigms have emerged which cumulatively drop i theoretical assumptions about markets to explain firms ii epistemological assumptions about knowledge to explain diversity and iii metaphysical assumptions about causality to explain technical change debates occur across each of these levels

pigou coase common law and environmental policy implications of the calculation debate the implications of the calculation debate are explored for pigouvian coasean and common law liability approaches to externality problems there is no escaping hayekian misean information problems but the institutional setting within which environmental policies are resolved affects the domain of third party calculation the calculation required is likely to be significantly less under common law arrangements than under administrative processes the primary implication for environmental policy is that increased reliance on competitive market processes and the common law in copying with externality problems may be more effective than attempts to improve current administrative approaches

transaction costs and the robustness of the coase theorem this paper explores the extent to which the presence of ex ante transaction costs may lead to failures of the coase theorem in particular we identify and investigate the basic hold up problem which arises whenever the parties to a coasian negotiation have to pay some ex ante costs for the negotiation to take place we then show that a coasian solution to this hold up problem is not available this is because a coasian solution to the hold up problem typically entails a negotiation about the payment of the costs associated with the future negotiation which in turn is associated with a fresh set of ex ante costs and hence with a new hold up problem

measuring the value of life saving from consumer reactions to new information abstract past studies have relied on cross section patterns of risky behavior to generate estimates of the value of life saving this approach is colored by several problems that affect the reliability of the results in potentially serious ways it is difficult to separate the risk components from the dis utility attributes of work or consumption to avoid selectivity biases and to disentangle user costs e g wearing a face mask from the risk premium paid for accepting risk to circumvent some of these difficulties this paper uses a different approach one which exploits the information about the value of risk reduction that is provided by changing consumption patterns over time brought about by changes in available information about risks this approach makes it possible to more reliably estimate the pure effects of risks on behavior and to generate unbiased distributions of the value of life saving the case of cigarette consumption over time provides an ideal setting to illustrate this methodology

the role of the state in evolutionary economics from an evolutionary perspective the role of public policy extends far beyond the mere correction of market failures emphasised by neoclassical economics public policy may facilitate the market process it may also guide the market process in the case of multiple equilibria the state can finally play a more creative role by allowing private agents to satisfy individually or collectively certain goals unattainable through market forces alone however this paper shows that although the scope of useful public policies is broader in an evolutionary approach than in neoclassical economics the government s ability to direct the evolution of the economic system is highly limited this paper also tries to formulate certain normative criteria which could act as public policy guidelines in an evolutionary perspective copyright 2004 oxford university press

financial contracting under extreme uncertainty an analysis of brazilian corporate debentures abstract economic volatility high transaction costs and fragile institutions hinder financial contracting in emerging markets these conditions characterize the economy of brazil yet a nascent corporate bond market thrives i analyze 50 brazilian indenture agreements and find that sample debentures are characterized by i features that mitigate inflation risk for investors ii contingent maturity mechanisms that provide periodic opportunities for exit or renegotiation iii a paucity of covenants that restrict the debtor s investment financing and dividend decisions and iv self enforcement mechanisms that avoid reliance on inefficient institutions analysis of these features enhances our understanding of contracting in emerging economies

the family and the state the immaturity of children sometimes precludes efficient arrangements between children and parents or others responsible for child care the difficulty in establishing efficient relations within families provides the point of departure for our interpretation of the heavy state involvement in the family the authors believe that a surprising number of state interventions mimic the agreements that would occur if children were capable of arranging for their care many regulations of the family improve the efficiency of family activities these interventions include subsidies to education and training social security and other old age support subsidies to births laws that limit access to divorce and the sale of children and laws that require parents permission for early marriage and other choices of children families that leave bequests can force children to repay parents for investments in human capital by reducing bequests therefore these families do not underinvest in childrens human capital by contrast families that do not leave bequests often poorer families do underinvest in children the state may subsidize schools and other training facilities to raise investments in children by poorer families to efficient levels authors modified

three problems of social organisation institutional law and economics meets habermasian law and democracy this paper attempts to identify certain implications of habermasian ethics for the economic analysis of law it does so by demonstrating a complementarity between the habermas of between facts and norms and the veblen ayres commons tradition s of economic analysis three unresolved problems of social organisation raised by the institutionalists are addressed the legitimacy of the status quo ante buchanan schmid the legitimacy of society s transaction structure klevorick and the problem of social order hobbes platteau discourse ethics demonstrates how these problems may be resolved the model of human agency adopted in institutional law and economics permits an easier fit with discourse ethics than would be possible with the neoclassical traditions

information health risk beliefs and the demand for fats and oils mean and variance measures of health information about cholesterol and saturated fat are included in a demand system for fats and oils a bayesian model of health risk belief and consumer awareness surveys are the basis for computing these measures the empirical demand model shows that health information has resulted in significant increases in consumption for corn cottonseed and soybean oils and decreased consumption for butter and lard the predicted demand effects based on the bayesian information model are more reasonable than predictions from using either a time trend or a simple cumulative cholesterol information index copyright 1995 by mit press

the uncommon insight of elinor ostrom author s bergstrom ted abstract this article was written in celebration of eleanor ostrom s nobel prize standard economic approaches to the problem of overuse of common property resources have emphasized two competing remedies the pigovian approach of corrective taxation and the property rights approach of internalizing externalities by means of assigning marketable property rights to individual owners with exclusive claim on the entire commons elinor ostrom pursues a third approach which is based on case studies of existing communities that have established successful and durable systems of managing common property resources this paper discusses her work and suggests that economists with an interest in public policy have much to gain from becoming familiar with the work of ostrom and her co authors

the law and economics movement in the last thirty years the scope of economics has expanded dramatically beyond its traditional domain of explicit market transactions today there is an economic theory of property rights of corporate and other organizations of government and politics of education of the family of crime and punishment of anthropology of history of information of racial and sexual discrimination of privacy even of the behavior of animals and overlapping all these but the last of law 2 some economists oppose this expansion in whole or more commonly in part 3 there are a number of bad reasons all i think closely related for such opposition and one slightly better one 1 one bad reason is the idea that economics means the study of markets so that nonmarket behavior is simply outside its scope this type of argument owes nothing really to economics but instead reflects a common misconception about language more specifically a failure to distinguish among three different types of word or concept the first type illustrated by the term marginal cost is purely conceptual the term is rigorously and unambiguously defined by reference to other concepts just as numbers are but again like numbers there is no observable object in the real world that it names try finding a firm s marginal costs on its books of account the second type of word illustrated by rabbit refers to a set of real world objects few such words are purely referential one can speak of a pink rabbit or a rabbit the size of a man without misusing the word even though one is no longer using it to describe anything that exists nevertheless the referential function dominates finally there are words like law religion literature and economics which are neither conceptual nor referential such words resist all efforts at definition they have in fact no fixed meaning and their dictionary definitions are circular they can be used but not defined 4 one cannot say that economics is what economists do because many noneconomists do economics one cannot call economics the science of rational choice either the word rational lacks a clear definition and passing that difficulty there can be noneconomic theories of rational choice in which few predictions of ordinary economics may hold for example because the theory assumes that people s preferences are unstable there can also be nonrational economic theories an example is the type of survival theory in industrial organization in which firms that randomly hit on methods of lowering their costs expand vis a vis their rivals another example is marxism one cannot call economics the study of markets either not only because that characterization resolves the question of the domain of eco judge u s court of appeals for the seventh circuit senior lecturer university of chicago law school 1111 e 60th st chicago il 60637 i thank gary becker frank easterbrook william landes geoffrey miller richard porter george stigler geoffrey stone and alan sykes for comments on a previous draft and nir yarden for research assistance see for example gary becker 1976 jack hirshleifer 1985 p 53 george stigler 1984 gerard radnitzky and peter bernholz 1986 2 for a recent conspectus of economic analysis of law see my book 1986 3see for example ronald coase 1978 coase is of course a leading figure in the economics of property rights so his opposition is far from total 4for an excellent discussion see john ellis 1974 ch 2

the role of public policy in emerging green power markets an analysis of marketer preferences abstract green power marketing has been heralded by some as a means to create a private market for renewable energy that is driven by customer demand for green products this article challenges the premise sometimes proffered in debates over green markets that profitable sizable credible markets for green products will evolve naturally without supportive public policies relying primarily on surveys and interviews of us green power marketers the article examines the role of specific regulatory and legislative policies in enabling the green market and searches for those policies that are believed by marketers to be the most conducive or detrimental to the expansion of the green market we find that marketers 1 believe that profitable green power markets will only develop if a solid foundation of supportive policies exists 2 believe that establishing overall price competition and encouraging customer switching are the top priorities 3 are somewhat leery of government sponsored or mandated public information programs and 4 oppose three specific renewable energy policies that are frequently advocated by renewable energy enthusiasts but that may have negative impacts on the green marketers profitability the stated preferences of green marketers shed light on ways to foster renewables by means of the green market because the interests of marketers do not coincide perfectly with those of society however this study also recognizes other normative perspectives and highlights policy tensions at the heart of current debates related to green markets by examining these conflicts we identify three key policy questions that should direct future research to what extent should price competition and customer switching be encouraged at the expense of cost shifting what requirements should be imposed to ensure credibility in green products and marketing how should the green power market and broader renewable energy policies interact

the social cost of uniform regulatory standards in a hierarchical government abstract regulatory agencies charged with public health and safety typically promulgate uniform regulatory standards which suggests the agencies are concerned mainly to reduce harmful externalities with little concern for firms costs a focus on benefits to the exclusion of costs in standard setting and enforcement leads to inefficiencies we show that even when the legislature cannot peg the budget to a specific enforcement policy it can reduce the distortions by limiting the enforcement agency s budget and by permitting the agency to partially self finance from rebates of noncompliance fines

sharing the shared value a transaction cost perspective on strategic csr policies in global value chains this paper explores the conditions favouring or inhibiting the implementation of strategic corporate social responsibility csr policies in the context of global value chains gvcs using transaction cost theory tct we specify the economic and behavioural issues raised by strategic csr policies we show that the existence of market rewards for such policies does not constitute a solution per se but tends to increase the difficulties that value chain members face bringing tct into the analysis of the diffusion of strategic csr policies in gvcs helps us to make different contributions we first theoretically identify some limiting conditions of strategic csr policies in gvcs we also contribute to developing a more robust theoretical perspective for csr in gvc research which remains underdeveloped and mostly driven by empirical case studies finally we shed light on new research questions and topics that could guide major theoretical and empirical investigations in the capacity of gvcs members to bypass the numerous difficulties involved in the implementation of strategic csr policies

transaction cost economics the natural progression abstract this manuscript provides the nobel laureate s reflections on transaction cost economics the overview section frames governance as the overarching concept and transaction cost economics as the means by which to breathe operational content into governance and organization the vertical integration section identifies efficiency factors associated with determining when a firm produces a good or service to its own needs rather than outsource a discussion of the rudiments of transaction cost analysis is subsequently provided puzzles and challenges that require pushing the logic of efficient governance to completion are examined and followed by concluding remarks

the underdetermined knowledge based theory of the mnc in this note we revisit two core propositions of the knowledge based view of the firm found in the seminal work of kogut and zander 1 that multinational corporations mncs exist because transfers and re combinations of knowledge occur more efficiently inside mncs than between mncs and third parties and 2 that the threat of opportunism is not necessary although it may be sufficient to explain the existence of the mnc their knowledge based view shifted the conceptualization of the firm from an institution arising from market failure and transaction costs economizing to a progeny of superior knowledge governance we question these conclusions arguing that firms are but one of the many types of epistemic communities possessing and nurturing procedural norms identity and the cognitive linguistic and reflexive attributes conducive to efficient exchange and re combination of knowledge among their members important insights may be gained by applying the concept of epistemic communities implicit in the knowledge based perspective beyond firm level hierarchies journal of international business studies 2011 42 427 435

incomplete enforcement with endogenous regulatory choice abstract this paper extends the economic literature on the incomplete enforcement of social regulation by incorporating regulatory choice in an institutional environment of limited regulatory resources and powers we show how regulatory decisions determine the structure of incentives faced by regulated firms our results indicate that the expense of monitoring relative to the regulator s power to levy penalties helps to explain the differences between compliance and deterrence enforcement styles we find that in most circumstances firms with higher abatement costs will receive a larger share of regulatory resources and thus face higher penalties than firms with lower costs

measurement error and state dependent pollution control enforcement abstract a two group model of state dependent enforcement is applied to identical firms which minimize the expected present value of costs and fines measurement error affects the probabilities of transitions between groups and the receipt of fines it is shown that state dependent enforcement can reduce social cost below the level attainable with static enforcement and that differentiation in both monitoring probabilities and standards may be optimal however setting fines for both groups at the maximum is likely to be optimal comparisons between models and alternative model interpretations are offered

a policy agenda for pro poor agricultural growth abstract sub saharan africa and parts of south asia are likely to hold large numbers of very poor rural people into the foreseeable future although both history and theory suggest a pre eminent role for agricultural growth in poverty reduction in poor agrarian economies such growth today faces new difficulties many of these difficulties are endogenous to today s poor rural areas others result from broader processes of global change but some are due to changes in the dominant policy environment emphasizing liberalization and state withdrawal examination of 20th century green revolutions suggests that active state interventions were important in supporting critical stages of agricultural market development unfortunately such interventions benefits in institutional development are easily overlooked whereas their high costs are much more visible policy implications are discussed

thorstein veblen and post darwinian economics thorstein veblen is noted for his view that economics should be an evolutionary science however although the term evolutionary has been adopted in general terms by subsequent institutional economists there has been remarkably little detailed exploration informed by biology of what veblen meant by an evolutionary science and the character of the post darwinian economics that he attempted to build this essay explores the reasons for veblen s attachment to darwinism informed by developments in biology itself and identifies some distinctive and enduring features of veblen s evolutionary theory copyright 1992 by oxford university press

a reconsideration of enforcement leverage when penalties are restricted abstract harrington s 1988 model of state dependent enforcement of pollution standards indicates the potential for significant reductions in monitoring cost however this approach results in firms with identical pollution cost functions polluting at different levels and thereby failing to minimize control cost for a given total pollution reduction derivations indicate that a state independent approach with a modified standard will often yield a lower sum of pollution control and monitoring cost for a given level of pollution control

breaking the mould an institutionalist political economy alternative to the neo liberal theory of the market and the state the paper criticises the currently dominant neo liberal discourse on the role of the state and proposes an alternative approach that will allow us to overcome its shortcomings especially its inadequate analyses of the role of institutions and politics it argues that the central problem with the neo liberal framework lies not in its excessively anti interventionist policy conclusions as some of its critics believe but in the very ways it envisages the modus operandi of the market the state institutions and their interrelationships the paper then discusses how we may construct the alternative approach of institutionalist political economy

business incentives for sustainability a property rights approach abstract public and private demands for sustainable development put pressure on firms to develop strategies that include environmental concerns environmental effects from products often appear as externalities outside the legal boundary of the producing company these companies often possess the best competence to optimise the total life cycle environmental performance of its products they are however neither obliged nor stimulated enough by policy incentives to do so from a sustainable development perspective the policy instruments used today are mostly of a control and demand type i e they do not create sufficient incentives to go further than hedging over set requirements environmental concerns and tightened environmental policy parameters have mostly been associated with the notion of additional costs and thus a restriction on economic performance however since the mid 1990s several papers have called for corporate win win situations as well as instruments giving up stream incentives for change but not enough abatement of environmental impacts has emerged in reality perhaps this is due to the lack of proper connection between economic theory on the one hand and incentive advocating articles and instruments on the other we propose a concept for trading of product life cycle plc emission rights based on property rights and transaction cost theories considering the problem with asymmetric information over the value chain the initial financial impacts from such plc instruments are shown to be significant for the system provider since emissions and resource use become production costs this provides economic incentives to take an increased responsibility for information flow as well as initiatives for product innovations

a pedagogical treatment of bilateral monopoly most economists are familiar with the concept of bilateral monopoly an upstream monopolist sells its output to a single downstream buyer that may also be a monopolist in its output market the theory of bilateral monopoly has a rich history that can be traced to the writings of cournot 10 and menger 31 over the 150 or so years that the problem has been under consideration however economists have offered a variety of solutions ranging from a completely determinate intermediate good price and output to a completely indeterminate solution within a specified range interestingly this historical divergence of opinion concerning the correct outcome under bilateral monopoly still persists a clear consensus has not yet emerged surprisingly this lack of unanimity exists despite the fact that bowley 5 provided the theoretically correct solution in 1928 2 even more surprising however is the apparent popularity of the incorrect solution a recent survey of the population of intermediate microeconomic texts on the authors bookshelves revealed that over 80 percent of the current treatments of this topic are in error 3 table i presents the results of that survey those authors who present a correct analysis of bilateral monopoly recognize that optimality requires joint profit maximization this leads them to the correct conclusion regarding the determinate quantity of the intermediate product exchanged of the five treatments we have classified

markets as institutions versus organizations as markets disentangling some fundamental concepts abstract this paper argues that ambiguities in concepts as important as institutions markets and organizations undermine progress of research programs intending to take these components seriously into account after a short review of some current confusions section i section ii discusses recent literature to arrive at definitions that encapsulate fundamental characteristics into pure categories in section iii exceptions and qualifications are introduced so as to operationalize the concepts in the real world 1 i organizations and markets are embedded in an institutional framework and 2 ii they overlap giving birth to hybrid forms however the conclusion contends that it is essential to maintain distinct concepts in order to understand these complex arrangements

enforcement leverage when penalties are restricted in the united states empirical studies of the enforcement of continuous compliance with environmental regulations especially air and water pollution regulations have repeatedly demonstrated the following i for most sources the frequency of surveillance is quite low ii even when violations are discovered fines or other penalties are rarely assessed in most states iii sources are nonetheless thought to be in compliance a large part of the time the evidence for the apparently low level of enforcement activity is found in a number of case studies of state and local enforcement of air and water quality regulations conducted jointly by the environmental protection agency epa and council on environmental quality ceg together with periodic surveys of implementation of air and water quality legislation conducted by the general accounting office gao these surveys show

is there a bias toward excess in u s government budgets or deficits do the political institutions of a majoritarian representative democracy and in particular those of the united states systematically produce either levels of public spending or budget deficits that are excessive should u s political institutions be altered by constitutional amendment to deal with these problems i will start by examining the issue of public spending and then turn to the question of budget deficits

plea bargaining and prosecutorial discretion a model of plea bargaining with asymmetric information is presented the prosecutor s private information consists of the strength of the case while the defendant s private information consists of h is guilt or innocence in equilibrium a fraction of cases are dismis sed because they are too likely to involve an innocent defendant in the remaining cases the prosecutor s offer of a sentence in exchange for a plea of guilty reveals the strength of the case it is shown t hat unlimited prosecutorial discretion may be socially disadvantageou s since it carries with it the requirement of sequential rationality copyright 1988 by american economic association

the economics and politics of regulation this article provides a critical survey of the literature on the economics and politics of regulation after some conceptual clarifications the article surveys the evolution of perspectives on regulation during the post second world war period emphasizing especially the interactions between intellectual changes and real world economic and political developments it then looks at some themes that are neglected in the current literature the inevitability of regulation the need to create and not simply regulate markets distributional issues dynamic considerations and the politics of regulation and suggests that incorporating these themes more closely into the discussion will improve our understanding in this area copyright 1997 by oxford university press

assessing the relative merits of development charges and transferable development rights in an uncertain world traditionally regulatory instruments have been used to achieve planning objectives however emerging market based policy instruments such as transferable development rights a quantity based app

veblen s evolutionary programme a promise unfulfilled this article examines in detail the way in which veblen attempted to give theoretical expression to the programme for an evolutionary economics that he outlined in methodological terms in his 1898 essay why is economics not an evolutionary science veblen s conception of darwinian methodological principles led him to attempt to develop a theory of institutional evolution that was purely causal in nature this theory was never satisfactorily developed by veblen at base his theory was one of new technology changing economic conditions and new economic conditions leading to new ways of thinking and to new institutions through a non intentional process of habituation those who attempted to follow veblen such as hoxie and mitchell found difficulties with the key aspects of this theory and both men came to abandon it institutionalism in the interwar period is devoid of attempts to develop veblen s theory and veblen s programme remained a promise unfulfilled

regulatory objectives and enforcement behavior economic models of enforcing environmental law have incorporated varying assumptions about regulatory objectives this paper examines the consequences of different attitudes toward the benefits and costs of pollution control on the part of regulators who have limited powers and resources we find that greater weight given to compliance costs relative to the social damages of the polluting activity will bring outcomes closer to the optimum when the regulator is strong but may move outcome further from the social optimum when regulatory powers are weak when negotiated noncompliance is an option greater consideration of compliance costs will tend to produce better results

hierarchies markets and power in the economy an economic perspective this paper adopts the transaction cost economics perspective for purposes of examining hierarchies markets and power in the economy transaction cost economics works out of an economizing perspective in which markets and hierarchies are alternative modes of governance and the object is to ascertain which transactions go where and why the role of power in this setup is strictly limited partly because power tends to be myopic transactions are not examined in their entirety and partly because it is tautological power needs to be operationalized whereupon the refutable implications that accrue to this perspective can be derived copyright 1995 by oxford university press

the source of optimality in action it is well known that the nature of the information set and the axioms of rational choice are critical in determining the type of ranking on which agents are held to act in economic theory this paper argues that the concept of the optimising agent is also sensitive to the conception of the relation between a ranking of options facing an agent and concrete action what is termed the realisation process three conceptions of the realisation process are examined which are seen to lead to three quite distinct views on the role of agency the enabling conditions under which the concept of the optimising agent may be legitimately applied and the resulting domain of application of optimisation

taxes institutions and innovation theory and international evidence we develop an international model of the design of institutions for regulating innovative activities of private corporations informational limitations faced by the social planner preclude complete contracting with private firms corporate innovation creates positive and negative externalities the social planner in each country takes into account the legal system in place and designs an umbrella of institutions that include a menu of organizational forms liability structures corporate taxes and subsidies we show that limited liability may be accompanied by excessive innovation however when the nonmonetized benefits are very high private firms may be too conservative in innovation policies firms choose their organizational form and level of innovation consistent with private optimality with the optimal institutional design for each country we demonstrate that private innovation choices are aligned with social optimality in particular we show that the optimally designed corporate tax rate in each country is a decreasing function of its legal effectiveness using data from 63 countries over 2003 2018 we document supporting evidence mncs can take advantage of differential liability and corporate tax structures across national boundaries to circumvent institutional design constraints however when mncs generate positive externalities to host countries their governments may provide subsidies and incentives

avoidance screening and optimum enforcement a standard assumption in the economic literature on crime and punishment is that fines are costless transfers given this assumption several economists have argued that it is optimal to set the fine for engaging in a proscribed activity as high as possible the argument is a simple one raising the probability of a fine is costly since it requires devoting more resources to monitoring and apprehending individuals in contrast raising the magnitude of a fine is costless therefore the least costly way to achieve a given expected fine is to set the fine as high as possible presumably equal to the offender s wealth and adjust its probability so that the desired expected fine is obtained

internalization and the mne a note on the spread of ideas this paper examines the reasons for the impact of buckley and casson s the future of the multinational enterprise 1976 on research in international business ib earlier work concentrated on ownership specific advantages or locational determinants rather than the central concept of internalization the few exceptions were incomplete or not well known internalization as applied to the mne spread rapidly because of the appeal to ib researchers of an analytically powerful idea that was based on institutional economics and involved an accessible methodology the spread was also helped by the parallel growth of transaction costs in the domestic theory of the firm and the publication activity of the authors and their associates

quota prices as indicators of comparative advantage in supply managed industries the canadian farm products agencies act 2012 requires that comparative advantage be used to guide the allocation of new quota under supply management this requirement however has not been met in practice agricultural economists have proposed several ways of making this legal requirement operational we review and evaluate these proposed approaches and find that quota prices are the only direct measure of comparative advantage in supply managed industries we develop an agent based general equilibrium model of quota exchange to illustrate the use of quota prices as indicators of comparative advantage our approach complements the proposal by meilke 2009 to use quota prices as indicators of comparative advantage in supply managed industries and also addresses the concerns of larue and gervais 2008 that quota prices may not be theoretically consistent with comparative advantage we also discuss potential practical challenges of using quota prices as indicators of comparative advantage in the canadian supply managed industries finally we provide an example of calculating provincial shares of new quota using recent quota price data according to two prototype decision rules this abstract was borrowed from another version of this item

addressing global environmental externalities transaction costs considerations is there a way to understand why some global environmental externalities are addressed effectively whereas others are not the transaction costs of defining the property rights to mitigation benefits and costs is a useful framework for such analysis this approach views international cooperation as a contractual process among country leaders to assign those property rights leaders cooperate when it serves domestic interests to do so the demand for property rights comes from those who value and stand to gain from multilateral action property rights are supplied by international agreements that specify resource access and use assign costs and benefits including outlining the size and duration of compensating transfer payments and determining who will pay and who will receive them four factors raise the transaction costs of assigning property rights i scientific uncertainty regarding mitigation benefits and costs ii varying preferences and perceptions across heterogeneous populations iii asymmetric information and iv the extent of compliance and new entry these factors are used to examine the role of transaction costs in the establishment and allocation of property rights to provide globally valued national parks implement the convention on the international trade in endangered species of wild fauna and flora execute the montreal protocol to manage emissions that damage the stratospheric ozone layer set limits on harvest of highly migratory ocean fish stocks and control greenhouse gas emissions jel d23 p14 q22 q51 q54 q58

labor markets and institutions in economic development new developments in development in the 1980 s contravened several widely held tenets about how labor markets and other institutional arrangements affect the performance of low income countries if you believe that massive urban rural earnings differentials due to urban bias plague developia new evidence will ease your concerns urban workers suffered mightily in the lost growth decade in many countries if you fear that government or union interventions in labor markets impede stabilization or structural adjustment think again countries with diverse interventions reduced real wages under the gun of economic crisis if you believe that clear property rules and privatization are necessary for rational economic behavior and transition to a market economy the decade s growth success china should challenge your priors if you fear that industrial policy is the road to disaster state interventions in taiwan korea and singapore tell a different story finally if you think that military dictatorships that suppress labor necessarily produce high income inequality the income distributions of korea and taiwan should give you pause these emerging patterns and facts run so counter to conventional views on development as to raise major doubts about the depth of our knowledge and the extent to which narrow perfect competition or political economy perspectives illuminate the growth process

revisiting legal realism the law economics and organization perspective the contrast between american legal realism which ran itself into the sand schlegel 1979 p 459 and the law and economics movement which is perhaps the most important development in legal thought in the last quarter century posner 1986 p xix is dramatic that the one foundered while the other flourished is explained in large measure by the absence of an intellectual framework for legal realism and the use by law and economics of the powerful framework of neoclassical economics

pigou and coase a mathematical reconciliation abstract this paper provides a rigorous statement of the coase theorem and establishes a formal equivalence between abstract allocative mechanisms attributed to coase and pigou the model proceeds from output functions that reduce to production functions in special cases thereby capturing effects that are obscured by conventional production and cost functions the model also emphasizes fundamental differences in the characteristics of inputs particularly land that are implied in the construction of externality stories finally the model embodies a clear distinction between local e g nuisance and global e g pollution externalities the coase theorem as stated is valid only in the former case

shadows of the past the effect of communist heritage on employee consultation following research on transition economies in central and eastern europe cee and having been motivated by arguments pertaining to the business systems approach the authors propose that the existence of a communist heritage decreases the likelihood that employees will be consulted during organizational change processes results based on 23 876 firms across 27 of the european union eu 27 countries support this proposition moreover the likelihood of direct consultation decreases with the existence of formal employee representation and an increasing share of foreign ownership in firms located in cee countries the authors discuss these findings in the context of organizational democracy research and the recent literature on transition economies and contribute to a more comprehensive understanding of participative decision making processes in organizations

information and the life cycle consumption of hazardous goods safety is a major area of public concern the fact that people take risky occupations smoke or fail to use seat belts often provokes a regulatory response designed to either protect people from the risks directly or to provide them with more information on the hazards involved such policy is often based on the view that risk taking behavior is irrational or ill advised this paper develops life cycle models of the decision to consume hazardous goods a particular focus of the analysis is to consider the rational response to information about hazards rational consumption of a hazardous good is shown to depend on such factors as the nature of the hazard age life expectancy age at which information on the hazard was received and of course the underlying value of the good itself

a review of the recent literature on the institutional economics analysis of the long run performance of nations this paper reviews the recent post 2000 literature which assesses the importance of institutions as a factor determining cross country differences in growth rates or in the contemporary level of prosperity it first sketches how institutional economics has evolved it then examines critically the methods of analysis employed in the recent literature the paper finds that this literature has made a major contribution to the analysis of the causes of economic growth but the relative importance of institutions as a determinant of long run growth and prosperity is still a wide open question

theories of institutions and economic reform in africa abstract the paper presents and critically examines the theories of institutions that can be used as a guide to economic reform in africa three approaches to institutions are initially discussed the model of structural adjustment new institutional economics and the old institutionalist tradition five institutions related to the development of markets in africa are examined from the three perspectives the institutions include property rights including their role in agriculture money and financial institutions prices and markets firms and industrial organization and markets and states the main conclusion of the paper is that structural adjustment due to its neoclassical roots is basically ainstitutional and therefore ill equipped to promote the development of markets in africa while new institutionalism provides interesting insights it is also limited by its neoclassical economic foundations thus if african governments desire to promote market reform they would be best advised to consult the old institutionalist literature particularly the very interesting recent work of proponents of this tradition

2 the institutional structure of production 1 prize lecture to the memory of alfred nobel december 9 1991 this abstract was borrowed from another version of this item

contracting for environmental property rights the case of vittel based on a real case of contracting for environmental property rights we explore several implications of coase s insights the case study adds empirical content to basic transaction costs concepts by analysing the design and implementation of a contractual arrangement between a pollutee a bottler of mineral water and several polluting farmers we analyse the bargaining between the two parties to determine how transaction cost issues valuation disputes bilateral monopoly conditions and third party effects were overcome and how they succeeded in contracting for environmental property rights we compare the vittel case with other similar cases to draw lessons for environmental rights negotiations

appropriation violent enforcement and transaction costs a critical survey this paper focuses on the extension of transaction costs to appropriative activity and coercive power in the property rights approach it has been argued that including the costs of appropriation and violent enforcement in transaction costs is based on the assumption that coaseian bargaining can be extended to any institutional scenario i e voluntary as well as coercive exchange however voluntary transactions cannot capture the logic of coercive power this means that the assumption of an efficient political market is not valid and that the political coase theorem lacks the logical consistency to provide a cornerstone for political theory

exchange rate uncertainty and us bilateral fresh fruit and fresh vegetable trade an application of the gravity model in order to analyse the effect of exchange rate uncertainty we apply an empirical gravity equation to two sets of us bilateral trade data fresh fruit over the period 1976 1999 for a panel of 26 countries and fresh vegetables over the period 1976 2006 for a panel of nine countries based on panel estimation methods and using both a moving sd measure and the peree and steinherr 1989 measure of exchange rate uncertainty the results show that us bilateral fresh fruit trade has been negatively affected by exchange rate uncertainty we also find some evidence that the exchange rate between the us dollar and the currencies of latin american trading partners accounts for most of the negative impact of exchange rate uncertainty on bilateral trade flows in fresh fruit in contrast when using panel estimation methods and both measures of exchange rate uncertainty we find no statistically significant evidence for any negative effect of exchange rate uncertainty on us bilateral fresh vegetable trade however

a model of focusing in economic choice we present a generally applicable theory of focusing based on the hypothesis that a person focuses more on and hence overweights attributes in which her options dier more our model predicts that the decisionmaker is too prone to choose options with concentrated advantages relative to alternatives but maximizes utility when the advantages and disadvantages of alternatives are equally concentrated in intertemporal choice because the relative concentrations of an option s costs and benets can be dierent from the perspective of a single period and the perspective of the entire choice problem the decisionmaker often exhibits a form of time inconsistency she is present biased when the costs of current misbehavior are distributed over many future dates such as in harmful consumption but future biased when the benet of many

libertad para competir en el mercado recursos procesos y resultados freedom to compete in the market resources processes and resultsherein we analyze three concepts of market competition although the different aspects of freedom can be appreciated in each one of them they make an especial contribution to some of them we propose that the neoclassical general equilibrium chiefly contributes to the discussion of the outcomes of an economic activity the barriers to entry approach calls for a study of the resources necessary to compete and the competition as a process approach emphasizes the competitive activity itself moreover as we move from the first onwards enriching the meaning of competition the possibility of losing opportunities to participate in the market becomes more evident entry and exit are part of the competitive process each concept of competition responds to theories that specify or allude to certain types and distribution of economic agents freedoms to manoeuvre throughout this study we often quote amartya sen with the purpose of buildingbridges between the study of competition and the approach of development as freedom

the effects of political connections and state ownership on corporate litigation in china abstractwe examine the effects of corporate lawsuits in china and find that litigation announcements depress the stock prices of both defendant and plaintiff firms financially distressed defendants suffer lower stock returns we find that politically connected defendants are favored in the judicial process they have higher stock returns and are more likely to appeal against adverse outcomes and to obtain a favorable appeal result state controlled defendants fare better than privately controlled defendants when it comes to appeals but do not have higher stock returns the evidence suggests that there is bias in the judicial process

religious freedom and the unintended consequences of state religion 1 introduction a union of government and religion tends to destroy government and degrade religion so wrote justice hugo black in the majority opinion in engel v vitale 1 a 1962 school prayer case decided by the united states supreme court today church state issues continue to rise to the forefront of american politics in recent years alone disputes have arisen over public school vouchers and prayers the phrase under god in the pledge of allegiance the display of the ten commandments in public meeting halls and courthouses and the proper scope of president bush s recent faith based and community initiative across the atlantic william carey the recently retired archbishop of canterbury argued in april 2002 that establishment strengthens the church of england by allowing it to build a comprehensive network of parishes throughout the entire country and he denied that establishment has constrained the prophetic voice of the church 2 in contrast carey s successor rowan williams who became archbishop of canterbury in july 2002 has in the past advocated the disestablishment of the church of england 3 in sweden where the church of sweden had been the state church since 1593 the parliament passed a statute providing for the formal disestablishment of the church on january 1 2000 4in the united states the strongest advocates for giving religion a more prominent role in governmental settings have often been religious conservatives whereas the strongest opponents are often political liberals for example in the recently decided cleveland school voucher case 5 christian organizations like focus on the family the christian legal society the ethics and religious liberty commission of the southern baptist convention the national association of evangelicals and the united states conference of catholic bishops filed briefs in support of the program which allowed public funds to pay tuition in private schools including religious schools among the organizations filing briefs in opposition to the program were the naacp and various public education lobbies whereas the american civil liberties union people for the american way and americans united for separation of church and state provided legal representation for some of the plaintiffs challenging the voucher program interestingly however several religious organizations also filed briefs in opposition to the voucher program including the american jewish committee the jewish council for public affairs the baptist joint committee on public affairs the national council of churches of christ in the usa ncc and two regional seventh day adventist organizations except for the ncc these organizations represent the interests of religious groups that are or in the case of the baptists once were distinctly in the religious minority a growing body of research suggests that any positive benefits to the church with direct support from the state are outweighed by indirect effects that undermine the church s autonomy and its authority with the general populace for an excellent introduction to this research see stark and finke 2000 chapter 9 if such research is correct then the advocates of governmental endorsement of religion may be undermining the very institutions they seek to support in this article we use cross country survey responses to assess the impact of religious freedom and the separation of church and state on the health of religion throughout the world using survey responses on the frequency of attendance at religious services we find that government establishment of state religion reduces religious attendance whereas enduring constitutional protection of religion increases religious attendance adam smith recognized that establishment could ultimately undermine the state religion in the wealth of nations smith discussed the impact of establishing a religion on the fervor and effectiveness of the clergy in that religion the teachers of religion in the same manner as other teachers may either depend altogether for their subsistence upon the voluntary contributions of their hearers or they may derive it from some other fund to which the law of their country may entitle them such as a landed estate a tythe or land tax an established salary or stipend

frank knight on risk uncertainty and the firm a new interpretation we attempt to interpret frank knight by taking him on his own terms among our conclusions are the following 1 knight s distinction between risk and uncertainty is not solely a distinction between insurable and uninsurable risk 2 knight s explanation for the existence of firms does not reduce to a moral hazard theory except perhaps in the broadest and least interesting sense and 3 knight s treatment of the problem of the separation of ownership from control is not as obviously wrong as commentators have made it out to be

the theory of the firm as governance structure from choice to contract the propositions that organization matters and that it is susceptible to analysis were long greeted by skepticism by economists one reason why this message took a long time to register is that it is much easier to say that organization matters than it is to show how and why the prevalence of the science of choice approach to economics has also been an obstacle as developed herein the lessons of organization theory for economics are both different and more consequential when examined through the lens of contract this paper examines economic organization from a science of contract perspective with special emphasis on the theory of the firm

optimal pollution standards and non compliance in a dynamic framework in this paper we present a stackelberg differential game to study the dynamic interaction between a polluting firm and a regulator who sets pollution limits overtime at each time the firm settles emissions taking into account the fine for non compliance with the pollution limit and balances current costs of investments in a capital stock which allows for future emission reductions we derive two main results first we show that the optimal pollution limit decreases as the capital stock increases while both emissions and the level of non compliance decrease second we find that offering fine discounts in exchange for firm s capital investment is socially desirable we numerically obtain the optimal value of such discount which crucially depends on the severity of the fine in the limiting scenario with a very large severity of the fine the optimal discount implies that no penalties are levied since the firm shows adequate adaptation progress through capital investment

information and the coase theorem abstract some economists think the coase theorem implies a lot about the proper scope of government intervention in the economy and about the welfare consequences of laissez faire others see it as a mere tautology that if people negotiate efficiently then every outcome will be efficient the coase theorem is important only if we believe that efficient negotiation is likely of course we can attribute inefficiencies to bargaining imperfection but it may not be useful to do so such attitudes sometimes seem to depend more on ideology than on reason this article gives one economist s reasoned view it discusses the coase theorem as a decentralization result and why decentralization results are interesting it considers mechanism design for revealing private information and describes the problems of centralization should the coase theorem should be viewed as a second best result property rights are more efficient than some reasonable alternative does the coase theorem recommend an institution or make

a naturalistic approach to the theory of the firm the role of cooperation and cultural evolution one reason why firms exist this paper argues is because they are suitable organizations within which cooperative production systems based on human social predispositions can evolve in addition we show how an entrepreneur given these predispositions can shape human behavior within a firm to illustrate these processes we will present a model that depicts how the biased transmission of cultural contents via social learning processes within the firm influence employees behavior and the performance of the firm these biases can be traced back to evolved social predispositions humans lived in tribal scale social systems based on significant amounts of intra and even intergroup cooperation for tens if not a few hundred thousand years before the first complex societies arose firms rest upon the social psychology originally evolved for tribal life we also relate our conclusions to empirical evidence on the performance and size of different kinds of organizations modern organizations have functions rather different from ancient tribes leading to friction between our social predispositions and organization goals firms that manage to reduce this friction will tend to function better

the competence based approach veblenian ideas in the modern theory of the firm the author argues that a contemporary stronghold of a number of thorstein veblen s crucial ideas can be found in the emerging competence based approach to the firm e g penrose chandler winter for example the emphasis in this literature on firms as path dependent entities characterized by their heterogenous and group based knowledge bases can be linked with key themes in veblen s work thus the paper presents the competence based approach as a modern veblenian approach moreover the veblenian aspects of the competence based approach are also those aspects that most differentiate it from the other dominant economic approach to the firm the contractual approach e g alchian and demsetz williamson grossman and hart the aim of the paper is both to make this historical point and to present a contemporary body of theory that may with some justice be called veblenian copyright 1998 by oxford university press

allocation and pricing at the water district level efficient water pricing schemes are introduced for nonprofit water agencies where members have property rights based upon historical usage the existing average cost rate design is compared with the proposed designs active trading and passive trading both schemes lead to efficiency but passive trading has operational advantages since it generates less transaction costs than active trading block rate pricing is shown to be suboptimal and inferior to passive trading an example from the israeli water economy is used as an empirical illustration

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

comparing environmental policy instruments in the presence of imperfect compliance a case study in this paper we aim to include rule making implementation monitoring and enforcement costs into the cost comparison of policy instruments we use a simple partial equilibrium model and apply it to the textile industry the model includes discrete abatement functions and costly monitoring and enforcement the case study uses individual firm data to simulate the differences in abatement costs and compliance decisions between firms we compare combinations of regulatory instruments emission taxes emission standards and technology standards and enforcement instruments criminal fines civil fines and transaction offers we show that the inclusion of information monitoring and enforcement costs indeed alters the relative cost efficiency of the different instruments

on the evolution of thorstein veblen s evolutionary economics this article addresses the origins of thorstein veblen s evolutionary economics as announced in his 1898 essay why is economics not an evolutionary science before 1897 and partly under the influence of c lloyd morgan veblen rejected biological reductionism veblen s 1897 endorsement of a critique of marxism by max lorenz shows that he found karl marx s account of human action too limiting by this time veblen had also rejected the idea of either the individual or society as exclusive foundations for social science instead he embraced an evolutionary framework of explanation along darwinian lines involving multiple levels of explanation and emergent properties copyright 1998 by oxford university press

local governments as industrial firms an organizational analysis of china s transitional economy despite widespread skepticism about government ownership in transitional economies china s rapid industrial growth has been led by public enterprises kornai s theory of soft budbet constraints born of the failure of earlier hungarian reforms fosters such skepticism but it assumes as fixed organizational characteristics that in fact vary widely across government jurisdictions local governments with smaller industrial bases have clearer financial incentives and constraints fewer nonfinancial interests in enterprises and a greater capacity to monitor them in china s vast public sector the fastest growth in output and productivity has occurred where government ownership rights are clearest and most easily enforced which enables officials to manage public industry as a diversified market oriented firm

lottery versus all pay auction models of lobbying i first provide a complete characterization of the unique equilibrium of the lottery game by n lobbyists with asymmetric valuations and then compare the lottery and the all pay auction models of lobbying i show that the exclusion principle discovered by baye kovenock and de vries 1993 for all pay auction does not apply to lottery i also show that the perverse effect that an exogenous cap may increase the total lobbying expenditure in a two bidder all pay auction discovered by che and gale 1998 does not apply to lottery

bringing economic opportunity into line with environmental influence a discussion on the coase theorem and the porter and van der linde hypothesis environmental concerns and tightened environmental policy parameters have been associated with the notion of additional costs of compliance rather than with innovation and sustainability the contrary has also been suggested claiming that strict environmental legislation merely serves as a catalyst for firms to retain obvious economic and environmental mutual gains so called win wins laying around waiting to be collected such implications can be seen from the porter and van der linde writings heavily criticised by palmer et al as being built on faulty examples this paper supports that conclusion and uses property rights and transactions costs theories to find private incentives to explore the win wins for those actors who have the largest potentials to diminish the pressure on our environment by applying the coase theorem emphasising transaction costs and property rights this paper argues that strong public support is needed to create private incentives for exploring economic and environmental win win innovations the public support suggested is to a extend producer responsibilities where the same costs which may be neglected by the end consumers will if transferred to the design owner be viewed as a production cost and to b enforce environmental public procurement both may be combined with a support to c actors such as non governmental organisations and consumer agencies positioning themselves as information bridges by informing the consumers the negative effects of asymmetric information among actors can thereby be diminished as well as the low interest to primarily care for the environment among common consumers

the consequences of voluntary traceability system for supply chain relationships an application of transaction cost economics this paper analyses the effects of voluntary traceability on vertical relationships within food supply chains using a transaction cost perspective the analysis makes reference to the italian situation where the national standard organization has introduced a private standard for traceability that provides a higher degree of information associated with the individual product than the european mandatory traceability system a survey was conducted by questionnaire to assess changes in transaction characteristics costs and governance after the introduction of voluntary traceability the sample represents all italian firms applying this standard factorial and cluster analyses were applied to find the different reorganizations of transactions the results highlight an increase in asset specificity and a decrease in the uncertainty level throughout the supply chains the introduction of voluntary traceability shows increased vertical coordination for firms that previously used oral agreements and variation in transactions conditions for firms using contracts instead vertically integrated firms do not reveal any variation in the governance of transactions as they are already internally safeguarded

the political economy of technological innovation and employment building on the varieties of capitalism thesis of comparative advantages in technological innovation the authors theorize the effect of sociopolitical coordination from a dynamic perspective and then apply the dynamic theories to the political economy of employment in comparison to the existing employment literature situated in a constant technology context based on cross sectional survey as well as pooled time series aggregate data the authors argue that new technologies not only increase productivity through process innovation but also generate rents through product innovation by preventing opportunistic behavior between firms sociopolitical coordination intensifies reciprocal sharing of innovation which increases productivity returns but dilutes rents leading to comparative advantage in process over product innovation because process innovation is labor saving but product innovation is employment friendly interfirm coordination further leads to comparative disadvantage in job creation from in

soft budget constraints and regional industrial policy reinterpreting the rise and fall of delorean the rise and fall of delorean motor cars limited has traditionally been interpreted as either the result either of john delorean s psychological flaws or as confirming the supposed limitations of activist industrial policy however when the episode is examined in greater historical detail neither of these interpretations is compelling the reinterpretation outlined here draws on institutional analysis as well as a range of archival sources much of it previously unreleased the inefficiencies within the original contractual agreement are highlighted the lack of credibility associated with this agreement was in turn traceable to the institutional environment with its associated risk reward implications under which industrial policy operated this environment had a political element it had been distorted by the troubles and the resulting fears policymakers had of a cumulative causation relationship between violence and unemployment officials in belfast against treasury opposition advocated state led entrepreneurship as a policy response

impact of domestic content requirement on the us tobacco and cigarette industries abstract using a log linear equilibrium displacement model we quantify the impact of the recent domestic tobacco content requirement on us cigarette manufacturing we investigate effects on us growers and manufacturers and competing tobacco imports the policy increased domestic use of us grown tobacco but induced a small negative output effect tobacco imports decreased substantially the paper also discusses the political economic incentives for us manufacturers to comply with such policies the political cooperation between us growers and manufacturers decreases the opposition of the latter to protectionist policies championed by the former

managerial incentives and environmental compliance abstract this paper uses a principal agent model to analyze the role of monetary incentives to implement corporate environmental policy the model assumes that the agent has to split a limited amount of effort between two tasks profit enhancement and environmental risk reduction we find that when the agent s effort constraint is not binding wages should increase with performance in each task moreover the sharpness of the optimal monetary incentives for a given task should depend positively on the principal s eagerness to influence performance on this task and on the accuracy of the monitoring technology when the agent s effort constraint is binding however the necessity for the principal to provide insurance to the agent may make it inefficient to link managerial effort expended on environmental risk reduction to the corporate compensation system

inside the coasean firm why variations in competence and taste matter abstractronald coase s signal achievement relates to the role of transactions costs in two contexts the formation and maintenance of the firm and the systematic analysis of social costs these transaction cost explanations however do not offer a complete explanation of the variations observed in the internal structures of firms which are elucidated by noting the irreducible role of variations in individual competence temperament and taste in explaining both why firms are formed and how they are structured thus some firms are organized as partnerships and others as straight employment arrangements with many permutations in between sometimes these differences are driven by tax and regulatory considerations that coase well understood but these differences remain prominent even in wholly unregulated markets understanding the internal construction helps explain the difficulties faced by regulation in areas as diverse as employment discrimination law capital markets and tort liability

interregional inventor networks as studied by patent coinventorships we study the structure of the interregional inventor networks in sweden by examining the residence of inventors and coinventors involved in swedish patent applications to the european patent office several factors are found to influence the spatial affinity of regions we find that spatial affinity extends beyond the region if it has less own rd if it is close to the other region and if it is relatively small the resources of that other region plays a positive role if in analogue fashion that region has more r d related resources

the new institutional economics and the theory of behaviour under uncertainty the new institutional economics nie is diverse in terms of the theory of behaviour under uncertainty some views are close to neoclassical economics but others are similar to those held by heterodox economists distinctions between procedural and substantive uncertainty weak and strong uncertainty and ambiguity and fundamental uncertainty help to identify different approaches to uncertainty in nie regarding the influence of institutions on economics behaviour not all nie focuses on institutions as constraints and takes individuals as given the dominant views of rationality in nie are standard neoclassical maximization and bounded rationality but alternative notions have also been defended