Institutionalism and Econometrics: Toward a Meaningful Synthesis

For the last twenty years, the world economy has evolved at a great speed. Every good, capital asset, and knowledge is mobile and induces more competition. Innovation in commodities is a complex process that requires more cooperation. To innovate in the knowledge economy, firms nowadays must establish “win-win situations” for individuals in creating networks. These networks are useful for firms in order to come up with innovative strategies. The building of networks enables the interactions between agents, the environment, and institutions. The interdependence of agents and institutions is not new to evolutionary theory (Commons 1931 Commons, John R. “Institutional Economics.” American Economic Review 21, 4 (1931): 648–657. [Google Scholar]; Veblen 1898 Veblen, Thorstein. “Why Is Economics Not an Evolutionary Sciences?” Quarterly Journal of Economics 12, 2 (1898): 373–397.[Crossref] , [Google Scholar]). However, I argue that institutions must be more flexible than ever before in order to help agents adapt to the modern knowledge economy. On the basis of the role of meso-networks, I propose new long-run specialization and short-run competitiveness that will promote greater efficiency and equality around the world in relation to firms and countries exporting industrial goods into world markets. Within the innovative networks, I analyze the role of two different actors: (i) the “economic leader” who has a long-run strategy and (ii) the “go-between leader” who knows how to diffuse “useful information” to actors to help them innovate in new products, services, or processes.     

Infinitesimal Firms and Increasing Cost Industries

This article presents a rigorous version of the basic model of an increasing-cost competitive industry found in many textbooks. In the model, firms are infinitesimal, which justifies price-taking behavior and a continuous industry supply curve. The industry supply curve slopes upward because of dispersion in the efficiency of firms. In this framework, the authors emphasize the role of the marginal firm. This role is not clearly emphasized in many textbook presentations of the increasing cost industry.     

A Framework for Reconsidering the Lake Wobegon Effect

The Lake Wobegon Effect (LWE) describes the potential measurement-error bias introduced into survey-based analyses of education issues. Although this effect potentially applies to any student-report variable, the systematic overreporting of academic achievements such as grade point average is often of preeminent concern. This concern can be easily circumvented if official records data are available; however, many researchers can only access student-reported data. In this article, the authors examine whether using student-survey data in place of official records data meaningfully biases regression estimates. They motivate their contribution by noting a useful statistical feature of overreporting on bounded variables such as grade point average. Specifically, the misreports will be negatively correlated with the true grade point average, yielding a form of nonclassical measurement error that actually counteracts the bias. The authors connect this observation to reliability ratios used in labor economics, which are simple ways to adjust for attenuation bias, when needed. In two applications, we find that it is unnecessary to correct for the LWE bias because it is so small.