Institutions as knowledge capital: Ludwig M. Lachmann's interpretative institutionalism

This article revisits the socioeconomic theory of the AustrianSchool economist Ludwig M. Lachmann. By showing that the commonclaim that Lachmann's idiosyncratic (i.e., eclectic and multidisciplinary)approach to economics entails nihilism is unfounded, it reachesthe following conclusions. (1) Lachmann held a sophisticatedinstitutional position vis-à-vis economics that anticipateddevelopments in contemporary new institutional economics. (2)Lachmann's sociological and economic reading of institutionsoffers insights for the problem of coordination.     

Is the abandonment of traditional livestock farming systems the main driver of mountain landscape change in Alpine areas?

Agricultural land abandonment and the consequent natural forest regrowth in areas once cultivated has significantly transformed Alpine ecosystems and landscapes. In this paper, we estimated the loss of agricultural areas due to reafforestation in the Belluno Province (Eastern Italian Alps) and integrated socioeconomic indicators with topographical features to evaluate the drivers of this change. Land use mapping, obtained from photo-interpretation of aerial photographs and technical maps, was used to quantify changes in forest and agricultural areas (crops, meadows and pastures) during the period of 1980–2000. On average, the forest surface expanded by 21%, while the agricultural areas decreased by 40%. This loss increased in areas with steeper slope, which confirms that the areas that would be first abandoned are those that are less productive and more difficult to manage. The reafforestation rate was particularly strong in the north of the province, where the livestock sector experienced a dramatic decline. In light of this situation and using multiple regression models with a large set of socioeconomic and agricultural indicators, we found that the loss of agricultural areas in 69 municipalities was primarily counterbalanced by the maintenance of livestock farming. The loss of steeper agricultural areas was counteracted by traditional extensive systems; however, it was not counteracted by modern intensive systems, which has important implications because steeper areas have higher landscape and biodiversity values. In addition, tourism development had a positive, although smaller, effect on the maintenance of agricultural areas, while industry development had a negative effect. The results of this study suggest that efforts are needed to maintain a territorial network of traditional extensive farms to avoid further landscape deterioration in Alpine areas. Likewise, certain choices toward the economic development of local communities might have an impact on land conservation.     

Controlling risks to ensure financial stability and reducing volatility

The 11th International Risk Management Conference was held at the University of Paris‐Dauphine and the EM LYON Business School (Paris Campus) in June 2018. The conference theme “1968–2018: From Z‐Score to Contemporary Risk Management, 50 Years of Risk Measurement and Management” was selected as a means to showcase the many ways that financial risk measurement has evolved and impacted financial risk management in banks and corporations as well as the tools used by asset managers and market regulators. The four papers included in this special issue of the Journal of International Financial Management and Accounting focus on a wide range of issues: How small differences in credit ratings effect the speed of adjustment in corporate leverage, the impact of using soft variables to assess default probabilities in European corporations, a new approach to measuring a company's intrinsic risk, and the effectiveness of short sale circuit breaker rules to limit stock price volatility. Our Foreword highlights the main findings of these papers and offers our assessment of the lessons they provide for financial managers and policymakers.     

Output Growth Decomposition in the Presence of Input Quality Effects: A Stochastic Frontier Approach

How do physical capital accumulation and total factor productivity (TFP) individually add to economic growth? We approach this question from the perspective of the quality of physical capital and labor, namely the age of physical capital and human capital. We build a unique dataset by explicitly calculating the age of physical capital for each country and each year of our time frame and estimate a stochastic frontier production function incorporating input quality in five regions of countries (Africa, East Asia, Latin America, South Asia and West). Physical capital accumulation generally proves much more important than either the improved quality of factors or TFP growth in explaining output growth. The age of capital decreases growth in all regions except in Africa, while human capital increases growth in all regions except in East Asia.     

The Organizational Approach of Capability Theory

Abstract

Richard Langlois, Tony Yu & Paul Robertson (LYR) (2003) have assembled a collection of previously published papers that move beyond textbook production theory. This essay discusses work by Frank Knight and Hendrik Houthakker not reproduced in LYR in relation to the capability theory of economic organization. Knight identified the problem of organization as the search for and the coordination of different dispersed capabilities. Houthakker helps us to see more clearly that the benefits of specialization are not brought at zero cost; whatever is the governance structure employed, there will inevitably be coordination costs due to differences in capabilities.     

Asset correlations and bank capital adequacy

This paper addresses the estimation of confidence sets for asset correlations used in credit risk portfolio models. Research on the estimation of asset correlations using endogenous probabilities of default estimations has focused on the impact of concentration risk factors, such as firm size and industry. The empirical evidence from Italian small- and medium-size companies show that the assumptions underlying the Basel Committee regulatory capital risk weight function are not substantiated. The regulatory impact is that the capital adequacy is significantly compromised, driving an adverse selection, which favors the worst companies, and transferring the procyclical effects from firms to banks.     

Parchment,guns, and the problem of governance

The genuine problem of governance is one that pays equal attention to both incentive and knowledge issues in private and public contexts. This work brings together Austrian, Public Choice and theory of the firm insights to address such problem. By taking into account incentives and knowledge, it proposes a framework that accommodates comparisons not just of kind (firm or market), but also of degree (e.g., among different types of internal organization). Moreover, although the suggested framework derives from considerations about private governance, it equally accommodates public and private settings. (89 words.)     

Turning ideas into products: subjective well-being in co-creation

New services, like fabrication spaces, 3D printer rentals and virtual marketplaces, have made it easier for empowered consumers to co-create innovative products without almost any involvement of traditional companies. Adopting a consumer-grounded view, this work takes a step forward from the existing service literature by investigating the link between psychological motives and happiness in co-creation. Specifically, the study measures how community affiliation, personal growth and utilitarian motives are predictors of subjective well-being (SWB). The results illustrate that community affiliation and personal growth motives predict high scores of SWB, while utilitarian motives do not. In addition, empowered consumers who co-create with others are happier than consumers who create alone. This indicates that direct interactions are not only a powerful platform for service co-creation, but are also predictors of SWB. We discuss the implications for traditional companies and for decision makers regarding the benefits offered by digital fabrication services.