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Complexity and Innovation. Why Beneficial Effects of Innovation Highly Depend

Complexity and Innovation. Why Beneficial Effects of Innovation Highly Depend

Journal of Institutional Studies, , Vol. 10 (no. 4),

Mainstream economics and everyday consciousness tend to declare any change an “innovation”. Innovation thus appears as a black box. It seems to lack a criterion to distinguish a counterproductive change – e.g., a dynamic perceived by agents as over-turbulence, or some flawed, misled, and futile “change” under fundamental uncertainty and opacity – from welfare-enhancing innovation proper. Also (Neo-) Schumpeterians, although having pushed complexity economics, appear to always (tacitly at least) consider “creative destruction” to have an excess of “creation” over “destruction” by definition. But insights from complexity sciences and complex adaptive economic systems suggest that “innovation” may be anything between flexible, smooth, improving change and highly idiosyncratic and turbulent motions perceived as over-complex, triggering conservative (“anti-innovative”) Polanyian countermotions by agents (humans and organizations), who are cognitively overburdened. Innovation proper is considered in the present paper a new technique and related behavior solving a defined common or collective problem. We apply the Veblenian or philosophically “pragmatist” criterion of “instrumental” vs. “ceremonial” behavior to provide such a criterion for defined problem constellations. We use a simple game-theoretic formalism in the framework of the “evolution-of-cooperation” approach to clarify and illustrate an instrumental, i.e., collectively problem-solving, innovative behavior overcoming a culture of myopic, hyper-rational individualistic maximization. We explain agency requirements for innovation proper, including cognitive conditions of a corresponding instrumental evolution of institutionalized cooperation in ubiquitous social dilemmas. We then focus on the conditions of the size of the relevant interaction arena and of the co-evolving institutional platform (and its carrier group), and of the network structure.

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Causality, Modelling, Social Norms: Among the Theoretical Cores of ‘Heterodox’ Economics?

Causality, Modelling, Social Norms: Among the Theoretical Cores of ‘Heterodox’ Economics?

Journal of Institutional Studies, , Vol. 10 (no. 4),

The definitions and theoretical cores of ‘heterodox’ economics remain subject to debate, as do those of ‘mainstream’ economics. The theoretical elements that could unambiguously differentiate both perspectives are therefore debated. Common features are difficult to highlight within ‘heterodox’ economics. Symmetrically, ‘mainstream’ economics is uneasy to describe via necessary and sufficient features, as numerous authors within its field claim to have enriched neoclassical economics, and to use concepts from other social sciences. On the other hand, ‘heterodox’ policies and their differences with mainstream ones (e.g., ‘austerity’) appear to be more identifiable. Despite these uncertainties, the paper shows that some core concepts and theoretical assumptions may represent a distinction between heterodox and mainstream economics. The contribution of the paper is to argue that many conventional distinctions may in fact not be unambiguous criteria of distinguishing the two epistemic frameworks (e.g., self-interested agents, the methodology of modelling, use of concepts of social sciences), and to suggest a few theoretical issues that could constitute lines of difference – notably related to the concepts of causality, time and society.

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State Paternalism and Paternalist Fialure in the Theory of Patronised Goods

State Paternalism and Paternalist Fialure in the Theory of Patronised Goods

Journal of Institutional Studies, , Vol. 10 (no. 4),

The authors propose their view of the economic theory of modern state, being an important component of the theory of patronized goods and the general theory of mixed economy failures. Such an approach is based on the authors’ original understanding of irrationality, according to which individual behavior is considered irrational from the outside observer’s point of view, with his own preferences. The theoretical basis for this assumption is a known understanding of the social interest per se, without reducing it to the preferences of economic agents. This understanding provides more general definition to paternalism and find out the risks of its negative consequences. Analysis of state paternalism evolution, presented in the article, is important in the present research as it is reflected in the institute of state. Distinguished are several historic phases of change in its contents and trends of development. Presented the economic analysis of state-regulating models, models of social state, developing-state and «play-maker state», providing the institutions to create paternalist settings of the government, declaring its preferences as normative social interests. Alongside with the other failures of mixed economy the authors describe their special case – «paternalism failure», combining the failures of social choice and that of irrational bureaucratic activities. There are five types of government officers’ irrationality: Vjazemsky law, dilettantism, «teller effect», Parkinson law, and self-interest of bureaucrats generating «managerial failures». It is demonstrated that unlike the market failures and associated failures of government activities, the risks of paternalism failure of the government may be reduced by the institutes of the civic society and citizens’ self-organization due to their influence on creating the normative assumptions and limits to the bureaucratic tyranny.

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Digital Transformation of Value Chains: «Smail Curve» Can Become «Scowling»

Digital Transformation of Value Chains: «Smail Curve» Can Become «Scowling»

Journal of Institutional Studies, , Vol. 10 (no. 4),

The paper describes value chains as new forms of economic interaction in-between the market and hierarchical structures. The main reasons for their emergence are discussed from managerial, neoclassical and institutional approaches. The patterns of value added distribution between members of value chains as well as factors influencing this distribution are analysed. Special emphasis is placed on changes in configuration of value chains brought about by digital technologies. The authors explain that reasons for creation of value chains (such as uncertainty reduction, transaction cost savings, protection of investments in specific assets as well as distribution of implicit knowledge) are similar to those for vertical integration within a company or a corporate group. That is to say, value chains can be regarded as sets of neoclassical and relational contracts. The analysis of real data leads to the conclusion that integrators and companies located on endpoints of value chains (the so-called smiling curve) do not always have an advantage in distribution of value added. Quite often the suppliers of key components are the ones who tend to have this advantage. The ways digital transformation influences membership of value chains as well as distribution of power and value added within them are revealed. The authors explain the increasing role of digital platforms as integrators of economic interaction as well as owners of information about suppliers and consumers of products. The transfer of power from producers of material goods to creators of digital prototypes of these goods is discussed.

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Making, Buying, and Choosing Partners: Training Strategies Among Russian Firms

Making, Buying, and Choosing Partners: Training Strategies Among Russian Firms

Journal of Institutional Studies, , Vol. 10 (no. 4),

How do firms decide between different strategies for acquiring highly skilled workers? Existing theory on firms’ training strategies is premised on the ability of firms to solve a fundamental commitment problem, which retards cooperation between firms and other actors. Only with a strong civil society – employers’ associations and labor unions –or free, transparent and efficient market mechanisms is cooperation possible. Contemporary Russia presents a puzzle to this work. On the one hand, firms increasingly make costly co-investments with state-run schools and outsource training to private third-parties. On the other hand, civil society and judicial institutions are weak in Russia, making it difficult for firms to punish counterparties, at the same time that its markets have failed to fully make the transition to free and transparent capitalism. This paper argues that absent strong civil society and free, transparent markets, firms can overcome commitment problems and work with third-parties so long as their regional governments have strong state capacity and are politically accountable. The former assures firms that central, regional authorities can monitor school officials and private-third parties to ensure agreements are honored, while the latter creates incentives for regional authorities to do so. These theories are tested on original survey data covering 690 firms in 12 Russian regions.

Views: 217

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The Concept of the Power Markets as a Methodology to Study Modern Russian Economy and Society Institutional Organization

The Concept of the Power Markets as a Methodology to Study Modern Russian Economy and Society Institutional Organization

Journal of Institutional Studies, , Vol. 10 (no. 4),

Characteristics of the post-Soviet institutional transformation of the economy and society in Russia based on using power market methodology are highlighted in the article. The methodology is a variant of the political-economic approach. The article substantiates its advantages in comparison with other political-economic approaches, such as North-Wallis- Weingast concept of social orders, and J. A. Robinson and D. Acemoglu model of inclusive and extractive political and economic institutions. Detailed characteristics of the conditions formation of hybrid political-administrative market in the post-Soviet Russia are given as well as its actors are highlighted and their motivation is analyzed. The specificity of the presented approach is the characteristic of institutional development in the conjunction with the historically formed resource and sectoral structure of the Russian economy. From our point of view, the historically formed character of these interconnections of the resource-sector and institutional organization of the Russian economy is the basis for the path dependence and lock-in effects. The fulfilled analysis showed that the path dependence effect was manifested in the fact that hybrid political-administrative market was formed instead of institutional system that built on the separation and interaction of economic and political markets in Russia, and hybrid political-administrative market has its centralized variant. The criterion for lock-in effect is that the projects of transition from enclave dual economy to integrated economy in Russia have actually failed.

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The Cooperative Specific Investments and the Evolution of the Law of Vertical Restraints

The Cooperative Specific Investments and the Evolution of the Law of Vertical Restraints

Journal of Institutional Studies, , Vol. 10 (no. 4),

Since mid-seventies, the underinvestment in specific assets and the «hold-up» problem have been remaining a critical issue in new institutional economics. Till the very end of the twentieth-century theoretical analysis of «hold-up» problem was dedicated to consideration only of so-called «selfish» relation-specific investments which created an ex-post surplus for the investor. That means a seller invests in reducing his costs and a buyer invests to increase his benefits from the procured good or service. Another type of relation-specific investments called «cooperative» investments (or cross investments) attracted nearly no attention in the theory even though such investments were widespread in practice. By definition introduced by Che and Hausch in 1999, a distinctive feature of cooperative relation-specific investments is that they have a positive impact on the outside option of a trading partner, i.e., the outcome of terminating the contract at the ex-ante stage). An alternative approach to the classification of relation-specific investments (Dzagourova and Agamirova, 2014) relies on the direction of these effects in the external trade (i.e., trade with alternative partners). There is a widespread belief that theoretical analysis played a crucial role in the evolution of vertical restraints (VRs) regulation. In order to check whether this statement is “history friendly” or not the article compares the dates of the key US antitrust cases concerning the VRs and the new economic theories through the lens of incentives for cooperative specific investments. It helps to show that the intention to maintain these incentives was the important factor caused the courts’ decisions, which in turn inspired the subsequent developments of economic theory. Considering the vertical restrictions as an instrument of risk sharing especially when the partners’ specific investments are cooperative may open the new possibilities for further improvement of the regulatory framework governing the vertical agreements. Therefore, according to (Menard, 2018, p. 4) this paper combines issues related to the micro-analytical level and macro-level at the same time.

Views: 188

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Depopulation and External Migration as the Institutional Risks to Personnel Safety

Depopulation and External Migration as the Institutional Risks to Personnel Safety

Journal of Institutional Studies, , Vol. 10 (no. 4),

A key aspect in the study of institutional risks is the formation of mechanisms for their state regulation. But the formation of such mechanisms is impossible without the presence of political and economic instruments to influence the factors that cause them. In all the diversity of these factors, the most important are those that determine the social sustainability of society, that is, determine its ability to reproduce its livelihoods. Among such factors, a special role belongs to demographic factors, on which the dynamics of the population and its age and sex structure depend. They determine the nature of the process of formation of labor resources, the size of the economically active population, the need to export or import labor, and in general - the economic development of the country and the security of the state. In our study, we focused on the study of the most significant demographic factors that have the most significant impact on the formation of institutional risks. First, an analysis of depopulation showed that a reduction in the birth rate has a negative effect on the number of labor resources, leading to a reduction in labor supply in regions with negative population dynamics. This significantly affects the sustainable functioning of the labor market as an economic institution of society. Secondly, an analysis of external migration has revealed that the departure of highly skilled labor causes significant damage to the scientific and technical potential of many countries and is a consequence of the poor quality of the institutional environment in the field of science and education. The growth of labor immigration is accompanied by increased pressure on its social infrastructure, an increase in social tensions, and gives rise to migrant-phobia in the public consciousness. Thus, depopulation and external migration have a significant impact on the quantitative and qualitative components of the labor resources, thereby enhancing the formation of the institutional risks to its personnel security.

Views: 291

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Institutional Changes and Ditigalization of Business Operations in Financial Institutions

Institutional Changes and Ditigalization of Business Operations in Financial Institutions

Journal of Institutional Studies, , Vol. 10 (no. 4),

Nowadays, our society faces new profound institutional changes driven by digitalization and the transition from the post-industrial economy to the economy enhanced with artificial intelligence (AI). The economy based on the artificial intelligence will fundamentally change the channels and the control systems of production, services, and transactions. As a result, a more complicated forms of economy will likely to be formed. Market institutions, such as competition, innovation, marketability, will all be tested by the new changes. Revolutionary transformational changes signify a deep institutional shift in the structure of employment and the labour market as the new working class, the precariat, is being forged. Many traditional jobs in the economy will be lost and replaced by the machines. However, the new digital AI-driven economy will also create new jobs, albeit of a different type and nature, and almost surely based on the principles of the “gig economy” and “sharing economy”. Our paper focuses on these troubling institutional economic issues with regard to the digitalization and computerization of business operations in financial institutions such as banks or insurance companies. We discuss the recent trends and developments in digitalization of the financial sector and their impact of clients and other economic agents. Moreover, draw possible risks and implications for the financial institutions. Our results might be interesting and useful for researchers in the field of AI, institutional economists, as well as stakeholders and policy-makers dealing with economics, finance, and labour markets.

Views: 333

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Complementarities Between Institutional and Organizational Change in the Context of Academic Reorganization

Complementarities Between Institutional and Organizational Change in the Context of Academic Reorganization

Journal of Institutional Studies, , Vol. 10 (no. 4),

The declared objectives of the state education policy in Russia are education quality improvement and cost optimization. Higher education reform refers to a long-range effort, and it may take at least 10 years to reap the fruits. High-quality and affordable higher education is among the necessary factors which are responsible for regional economic development. Institutional complementarity refers to situations when existing institutions have a reinforcement effect on the ongoing institutional change, thereby generating coherent and stable structures. The Russian experience of transformation shows orientation toward the mergers of essentially identical higher educational institutions, which are state-owned organizations with vertical management structures. Institutional changes that occur in the reorganized university should correspond to the general agenda of the Russian higher education system development. In other words, their key points have to be complementary to each other. However, being implemented, higher education reforms often result in institutional and organizational change that do not comply with due understanding of reforms as a systematic process. This paper adopts a research framework of original institutional economics to identify relevant institutional changes which occur in the process of academic reorganization – i.e., establishment of the Federal Universities and «Flagship» Universities in the South Federal District, Russian Federation. In-depth interviews with the representatives of reorganized universities have been conducted to assess the degree of complementarity between the institutional change and management routines, from the one hand, and to discuss whether the implemented reforms are systemic as such, from the other hand. Research findings suggest that existing incentives and system of motivation are distorted; technological and relational routines are either destroyed, or increasingly complicated; ongoing centralization and bureaucratic sprawl within the universities result in increased transaction costs. Evolutionary changes in organizational routines may reduce transaction costs as such; however, prescriptive character of ongoing institutional reforms in the reorganized institutions of higher education destabilize informal group beneficial institutions, or even prevent their emergence.

Views: 210

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