Institutional Design, Uncertainty, and Path Dependency during Transitions: Cases from Russia

During transitional moments, new leaders must design political institutions. Some of these designs succeed in establishing lasting rules of the game. Others do not. This paper analyzes those factors which either facilitate or undermine institutional persistence during transitions, focusing particularly on the role that uncertainty and path dependency play in these processes. The empirical section of the paper examines three cases of institutional design in the Soviet/Russian transition—the creation of the Russian presidency, the emergence of electoral law for Russia's lower house of parliament, the State Duma, and the evolution of institutional design regarding the formation of Russia's upper house, the Federal Council. This comparison shows why the first two cases of institutional design created lasting institutions—even though these new rules did not reflect precisely the interests of their creators—while the third case of institutional design did not.     

Do firms plan?

The late F. A. Hayek is remembered for the argument that the decentralized price system has enormous advantages over planned systems in the critical areas of information transmission and the use of knowledge. In many minds, the recent fall of the Soviet-style economies in Eastern Europe has decisively made that case. But not all are persuaded. The model of central planning that originally impressed Lenin—the modern business corporation—remains in many minds a formidable piece of empirical evidence in favor of the possibility and desirability of centralized administrative control. This paper argues that Hayek's theory of spontaneous order can in fact include the case of such apparently purposive and extramarket forms as the business firm. It picks up a number of suggestions in Hayek's evolutionary theory of social institutions and uses them to draw a picture of the firm that is somewhat different from what one finds on the easel of neoclassical transaction-cost analysis. In the Hayekian picture, firms and markets are both systems of rules of conduct. And both are systems for economizing on knowledge in the face of economic change, albeit quite different kinds of knowledge and change. In the end, the firm is not a model for political planning for one very simple reason: the firm does not plan.When uncertainty is present and the task of deciding what to do and how to do it takes the ascendancy over that of execution, the internal organization of the productive group is no longer a matter of indifference or a mechanical detail. Centralization of this deciding and controlling function is imperative, a process of cephalization, such as has taken place in the evolution of organic life, is inevitable, and for the same reasons as in the case of biological evolution.There is no reason why a polycentric order in which each element is guided only by rules and receives no orders from a centre should not be capable of bringing about as complex and apparently as purposive an adaptation to circumstances as could be produced in a system where a part is set aside to preform such an order on an analogue or model before it is put into execution by the larger structure. In so far as the self-organizing forces of a structure as a whole lead at once to the right kind of action (or to tentative actions which can be retracted before too much harm is done) such a single-state order need not be inferior to a hierarchic one in which the whole merely carries out what has first been tried out in a part. Such a non-hierarchic order dispenses with the necessity of first communicating all the information on which its several elements act to a common centre and conceivably may make the use of more information possible than could be transmitted to, and digested by, a centre.     

Capacity constraints, asymmetries, and the business cycle

We study how an occasionally binding capacity constraint affects the properties of business cycles. A real business cycle model is constructed where production takes place at individual plants and the number of plants operated varies over the cycle. The capacity constraint binds in states where all plants are operated. We derive the aggregate production function for this economy, which turns out to differ from the standard Cobb–Douglas function while retaining its desirable properties. The business cycle features of this one-sector growth model are similar to those of a standard real business cycle model in most respects. Our model does, however, display some properties of actual economies that standard models do not. In particular, business cycles in our model are asymmetric—troughs are deeper on average than peaks are tall. Also, labor's share of income is counter-cyclical, as it is in US data.     

Asymmetric evolutionary games with non-linear pure strategy payoffs

In this paper, I extend the analytical framework of evolutionary game theory to games with two distinct types of players where the type-specific payoff functions are nonlinear on the right—bi-player-type nonlinear (BNL) evolutionary games. That is, asymmetric games where the payoffs for pairwise interactions are influenced by the ambient frequencies of the pertinent strategies of both types of players.While this paper is motivated by my interest in inter- and intra-gender conflicts of interest in sexual reproduction, BNL games also arise just as naturally in most two-species interactions. Thus, the methodology may provide a novel approach to investigating such classical ecological phenomena as prey–predator/host–parasite interactions and interspecies competition for resources.Finally, given the growing tendency to utilize evolutionary games in economic modeling, a case can be made for the current paper being of interest to traditional game-theoretic modelers in connection with situations such as buyer/seller or employer/employee interaction.     

Keeping abreast of technology-driven business model evolution: a dynamic patent analysis approach

All firms that depend on technology for their competitive positions recognise that keeping abreast of technology-driven business model evolution is of vital importance. However, previous studies cannot offer a concrete way of profiling trends owing to the lack of quantitative data and systematic processes. We propose a dynamic patent analysis that can identify complex relationships among business method patents and visualise trends in technology-driven business model evolution. At the heart of the suggested approach is morphological analysis (MA) for structuring different types of business models at a technological attribute level and modified formal concept analysis (FCA) for investigating technological changes in business models over time. A case study of business method patents concerning electronic shopping is presented to show the feasibility of the proposed approach. We believe our method can promote consensus-building on up-to-date trends in technology-driven business model evolution, serving as a starting point for a more general model.     

Gender Equality and Long-Run Growth

This research suggests that long-run economic and demographic development in Europe can be better understood when related to long-term trends in gender equality, dating back to the spread of Christianity. We set up a growth model where gaps in female-to-male human capital arise at equilibrium through a coordination process. An economy which over a long stretch of time re-coordinates on continuously more equal equilibria—as one could argue happened in Europe—exhibits growth patterns qualitatively similar to that of Europe.     

Bioeconomics as economics from a Darwinian perspective

Bioeconomics—the merging of views from biology and economics—on the one hand invites the 'export' of situational logic and sophisticated optimization developed in economics into biology. On the other hand, human economic activity and its evolution, not least over the past few centuries, may be considered an instance for fruitfully applying ideas from evolutionary biology and Darwinian theory. The latter perspective is taken in the present paper. Three different aspects are discussed in detail. First, the Darwinian revolution provides an example of a paradigm shift which contrasts most significantly with the 'subjectivist revolution' that took place at about the same time in economics. Since many of the features of the paradigmatic change that were introduced into the sciences by Darwinism may be desirable for economics as well, the question is explored whether the Darwinian revolution can be a model for introducing a new paradigm in economic theory. Second, the success of Darwinism and its view of evolution have induced economists who are interested in an evolutionary approach in economics to borrow, more or less extensively, concepts and tools from Darwinian theory. Particularly prominent are constructions based on analogies to the theory of natural selection. Because several objections to such analogy constructions can be raised, generalization rather than analogy is advocated here as a research strategy. This means to search for abstract features which all evolutionary theories have in common. Third, the question of what a Darwinian world view might mean for assessing long term economic evolution is discussed. Such a view, it is argued, can provide a point of departure for reinterpreting the hedonistic approach to economic change and development. On the basis of such an interpretation bioeconomics may not only go beyond the optimization-cum-equilibrium paradigm currently prevailing in economics. It may also mean adding substantial qualifications to the subjectivism the neoclassical economists, at the turn of the century, were proud to establish in the course of their scientific revolution.     

Strategic Role of Technological Self-Reliance in Development Management

Thanks to technological advancements, every society — throughout the world — is now better off than before. Although this is true for all societies considered in an aggregate manner, within each society and between different societies, the relative gaps in prosperity are increasing. Reversing these gaps is the most important challenge for human development in the twenty-first century. A thorough scrutiny of the causes for the observed negative trends would indicate that technological gap is at the root of all. Success stories clearly tell us that technological capacity building is the best foundation for any meaningful economic growth that leads to a higher standard of living and greater prosperity for the citizens of a country. Moreover, technology-based creative problem solving and the ability to manage technological innovation are essential prerequisites for the success of contemporary business executives operating in the competitive globalized market environment. Paying attention to these lessons is the call of the day for any developing country government as well as for the business executives of that country. This article discusses the strategic role of technological self-reliance in development management, in terms of what we have learned so far and where we should be going, so as to reverse the widening technological capacity gap between the developed and developing countries.     

A strategic performance measurement system for firms across supply and demand chains on the analogy of ecological succession

To answer the call for a new business that integrates economic, biological and human systems, this paper develops a strategic performance measurement system (SPMS) for firms across supply and demand chains (SDC) by analogy with ecological succession. Based on the explanation that SDC can be viewed as community, it develops SDC (monetary value) structure by analogy with community (trophic) structure. As energy flow in ecology follows the first and second laws of thermodynamics, monetary value flow in business follows two laws that are similar to the laws of thermodynamics. Based on these laws, as well as throughput accounting and traditional cost accounting, it puts forward a general monetary value flow model in SDC (i.e. in demand chain and in supply chain respectively). Based on the value flow model in SDC, it conceives an SDC evolution model with a case study on the maturity of Toyota Motor Corporation. Based on these two models, it develops an SPMS for firms across SDC with procedural and structural frameworks. The discussion about monetary value flows in business from nature to the final consumers or converse gives a chance to coordinate business with nature. The SPMS that rationally integrates effective evaluation of tiers in SDC and practical product development plans in firm will help firms create a sustainable commerce (e.g. product–service system).     

THE CHANGING GOVERNANCE OF KNOWLEDGE IN AVIONICS

Abstract

Taking in hand the two sides (i.e. cognitive and risk-bearing) of authority in design and production in complex tasks, this paper aims to give a first look at shifts in the locus of authority in the aviation electronics—or avionics—industry. Relying on patent and joint ventures data, we attempt to trace the evolution of problem-solving ‘authority’ over the evolution of the industry, using an empirical approach which can then be used to explore similar trends in other industries. We find that while it is still too early to say whether we are observing a wholesale shift of ‘authority’ from aircraft makers to avionics producers, it is clear that the leading avionics producers are challenging their clients in taking the role of systems integrators. We can speculate that we may be observing the beginning of a ‘market for technology’. At the very least, we are observing an increasing distribution of both problem-solving authority and risk in this industry.     

Government debt maturity and debt dynamics in euro area countries

This paper studies the impact of debt maturity on the dynamics of sovereign debt of Euro Area (EA) countries. Due to lack of data, this key issue had not been studied before. Thus, my first contribution is to build a new comprehensive database of sovereign debt stocks and yields, at all different maturities, for six EA countries in 1991–2013: Belgium, Finland, France, Germany, Italy and Spain. In general, since 1991, interests rates in the EA have fallen while Treasuries in the region extended debt maturity; thus, an increasing number of long-term bondholders experienced large capital gains. I show with counterfactual simulations the effect of a different maturity structure on the evolution of debt. My analysis suggests that extending debt maturity in 2013–2015 would result in lower debt ratios by 2022. I also estimate the impact on EA debt-to-GDP ratios induced by changes in current and future inflation. My estimates indicate that higher (lower) inflation in EA countries would lower (raise) their fiscal burden much more than in the US.     

J.A. Schumpeter and T.B. Veblen on economic evolution: the dichotomy between statics and dynamics

At present, the discussion on the dichotomy between statics and dynamics is resolved by concentrating on its mathematical meaning. Yet, a simple formalisation masks the underlying methodological discussion. Overcoming this limitation, the paper discusses Schumpeter's and Veblen's viewpoint on dynamic economic systems as systems generating change from within. It contributes to an understanding on their ideas of how economics could become an evolutionary science and on their contributions to elaborate an evolutionary economics. It confronts Schumpeter's with Veblen's perspective on evolutionary economics and provides insight into their evolutionary economic theorising by discussing their ideas on the evolution of capitalism.     

Complexity and the limits to learning

In this paper we look at the manner in which ideas coming from complexity science change our understanding of the cognitive powers of agents that is really necessary to explain the evolution of markets and of firms. The general ideas behind complex systems dynamics and evolution are presented and then two examples are treated in detail. The first in an evolutionary model of a market in which some new product is developed by competing firms and their “task” is to find a strategy in terms of quality and price that will be sustainable. This essentially requires agents/firms to discover mutually compatible strategies, and to create thereby sustainable market niches. The second example considers the internal structure of firms, in terms of their constituent working practices and skills. It demonstrates that it is precisely their ignorance of the consequences of adopting any particular practice that generates diversity in the emergent capabilities of firms, exploring the dimension of potential demand and therefore leading to a successful and sustainable business sector. The work supports the notion that the cognitive abilities that are involved are not about deduction and logic, as a traditional view of rationality might suggest, but are about the development and contraction of interpretive frameworks, which will be different for each player. The paper links these examples to a general recognition of the idea that complex, multi-agent systems evolve through successive “structural attractors”—multi-dimensional dynamical systems—with temporary structural stability. Because real systems contain both the structure and deviations from it, then there is a constant probing of structural stability and the possibility of qualitative change to a new structural attractor. This resembles the ideas in biological evolution related to “punctuated equilibria,” but it also links this to the idea of emergent and evolving networks of interaction, never of course near thermodynamic equilibrium.      

The evolution of socio-economic modeling in Canada

For the past 15 years the authors have been associated with a research program concerned with the development of structural economic models that had their origins in the input-output models of Leontief. This program has produced a set of conceptual tools embracing a new approach to socio-economic modeling which we term the “design approach.” This approach draws on general systems theory and control theory in application to large social systems. Also emerging from this program as its test prototype is a particular set of models designed for society wide resource analysis and a set of software tools within which design approach models can be designed, implemented, and operated. The design approach provides a new method of assessing technologies in regard to their overall socio-economic resource impact. The objective of this paper is to describe the unique institutional setting and the particular issues which provided the setting and the motivation for embarking on a large scale modeling program. The paper is organized chronologically, describing first of all the evolution of the program approach, the software tools, the Socio-Economic Resource Framework (SERF), which is the prototype set of models that have been implemented, and some results obtained from it.     

Trade prices and supply in the UK economy

Current account imbalances are a major source of instability in the world monetary and trading system. Measures to correct these imbalances have largely involved adjustments to exchange rates. In the international trade literature, when the current account is in deficit, the Marshall-Lerner condition is sufficient for a successful devaluation. However, this partial equilibrium condition — apart from being based on the assumption that supply elasticities are infinite — abstracts from how the domestic economy responds to the change in relative prices. In this paper we develop a model of price and output determination in an open economy with imperpectly competitive markets, and draw a distinction between goods which are exported and those which are supplied to the domestic market. This means that we have to determine jointly both export prices and the domestic price of house sales. We show that as long as there is no money illusion in the labour market a fall in the nominal exchange rate raises domestic and export prices proportionally and leaves trade volumes unaffected. However, shifts in domestic absorption relative to overseas demand — by changing relative prices — cause shifts in the relative supply of exports and domestically sold goods and affect the trade balance. Thus fiscal and monetary measures directed towards reducing domestic absorption are more likely to be successful in correcting current account imbalances than exchange rate depreciation.     

Inventing or Spying? Implications for Growth

An engineer graduates if shederives the obvious implications of her instructor's hints. Butthe patent system rewards only the first to present nonobviousadvancements—ideas similarly skilled engineers are notexpected to invent. If a fraction of the newly invented hintsspill over before the technological advances they entail arecompleted and granted legal protection, the R&D workerswill find it convenient to spend some time searching for eachother's hints instead of creating their own. A simple modificationof the basic Schumpeterian model shows that the larger the skilledpopulation, the larger the relative incentive to spy.     

How do business schools compete in Latin America? Stability and best predictors of success for the AmericaEconomia MBA Ranking

ABSTRACT

The main aim of this paper is to present a longitudinal analysis of the AmericaEconomia MBA Ranking for the period 2005–2014. AmericaEconomia was the first international ranking specifically devoted to Latin American business schools, and with data gathered from this publication, we build a panel to study its stability and the main determinants of a school‘s position in such ranking. We examine the reliability of the ranking, that is whether changes in the relative positions are not just due to white noise, and compare its stability with those of the US and other global rankings. We also empirically determine which are the key quality variables this ranking is promoting for Latin America Business Schools and the evolution of these business schools during the period under study. Unlike previous literature that usually considers dynamic Tobit models for ranking analysis, we put forwards an alternative methodology based on a system GMM estimator with first-differenced instruments. We argue that dynamic Tobit models are appropriate only if you have truncated data about the ranking variable but full data on Business Schools variables.     

Depreciation and profitability under rate of return regulation

This paper examines the widely-held notion that the regulatory approach to setting earnings equalizes the accounting and internal rates of return, and that this condition holds for any depreciation profile. The evidence suggests that the practical usefulness of this proposition for policy-making may be quite limited.This paper also examines the underlying premise—that, because of its relative constancy over time, the regulated rate of return must equal the internal rate of return—and finds that contrary to earlier suggestions, this result does not always hold in the multi-asset case.     

What accounts for the Chilean saving 'miracle'?

This paper examines the recent saving performance of the Chileaneconomy in the light of its long-run (1940–96) trends.The first conclusion that can be derived from the data is thatmost of the increase in private saving since the mid-1980s isdue to business saving. Household saving turns out to be a stationaryvariable with zero mean. Since business saving has a unit root,households do not seem to take the saving of firms into accountwhen making their own saving decisions. Within the theoreticalframework of a model of business investment with liquidity constraints,we estimate a VAR for business saving, private investment, publicsaving and foreign saving (the current account deficit). Weare able to determine that business saving is unaffected bypublic saving, but that, in the long run, foreign saving andbusiness saving are perfect substitutes. Private investment,business saving and foreign saving are jointly determined. Thepolicy conclusions are that policies that stimulate investmentare likely to lead to an increase in private saving, that policiesaimed at raising household saving will be ineffective, and thatincreases in public saving are very powerful for increasingdomestic saving in the long run.