Innovations in institutions
The primary aim: increase the understanding of
institutional change in industrial policy
• Institutional innovations in the political process
and all institutions that have an impact on
innovative behavior by all types of firm.
The new institutional economics
Organizational development (transactions inside firms or
through markets) is optimized:
Minimize (production + transaction costs)
subject to
- Incomplete contracts
- Opportunistic behavior (self-interest, incorrect
information)
- Preferences are given
Institutions (property rights) are “exogenous rules of
the game”.
Institutions as Nash-equilibrium of a game
No player is motivated to change his or her strategy
as long as other players remain committed to their
current strategies
•
Strategy: action plan the players choose to maximise their
satisfaction on the basis of expectations regarding other’s
possible choices and their consequences.
•
Institution a self-enforced rule of the game only if it is takenfor-granted by the players (constitutes part of the player’s
mind-set)
Innovations in institutions
New combinations of games, which are linked in
new ways to create economic value through
externalities
Initiated and established or institutions in one game make
choices viable and established in another game.
One of the agents in one game breaks the routine and
makes experimental choices
Mechanisms promoting institutional change:
• Bundling of multiple economic-exchange domains
by a single player
• Bundling of multiple domains by a third strategic
party
• The social exchange-domain embeds (multiple)
economic-, political- and organisational exchange
domains
• Institutional complementarities
Qustions for discussions:
1) The EU Commission seems to believe that the creation of a
European Research Area (investments in R&D, creation of
centres of excellence) is a major instrument for economic
growth. Are there any difficulties involved in making this
instrument a pillar of the Lisbon strategy?
2) A small Swedish municipality - Gnosjö (close to Älmhult,
where IKEA was born) – is known for excellent
entrepreneurial activities. The region is also famous for an
extremely high rate of membership in free church
parishes. Are there any connections between these two
characteristics? If the answer is yes; can we learn anything
from this for a theory of institutional innovation?