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Institutions are often modeled as Nash equilibria. The puzzle is how an institution can change endogenously, given that all players choose mutually best responses. To address this issue, the present paper proposes a framework that explicitly models players’ goals. It argues that the probabilities of attainment of players’ goals affect the stability of Nash equilibrium. If players fail to attain their goals in a Nash equilibrium, then this equilibrium is goal-unstable, as players are motivated to displace it. This goal-instability represents a push factor of institutional change. Since the goal-instability does not need to presuppose players’ knowledge of the desired outcome, the approach is consistent with the notion of entrepreneurial institutional innovation. It is shown that the proposed framework can provide micro-foundations for existing theories and extends the analysis to include open-endedness and the creative aspects of institutional change. This framework is applied to account for a change from coins to banknotes as a medium of exchange.

Since the 1980s, many governments in the Western world have implemented radical income tax cuts which have become associated with soaring levels of inequality. The literature has focused on institu...

This paper explores the transformation of the German employment and industrial relations model from a political economy approach. Using the IAB Establishment Panel, the evolution of atypical employment and the coverage of the dual system of industrial relations is analysed in different groups of firms. Additionally, using a shift-share technique, we estimate the impact of the change in the employment structure on this process. The results reveal that once institutional constraints were relaxed, firms across the whole economy increased their use of flexible work and individualized the wage bargaining. Moreover, our findings suggest that structural change played a minor role in the process.

First published online: 13 April 2021 This article conceptualizes the evolution of the German political economy as the codevelopment of technological and institutional change. The notion of skill-biased liberalization is introduced to capture this process and contrasted with the two dominant theoretical frameworks employed in contemporary comparative political economy scholarship—dualization and liberalization. Integrating theories from labor economics, the article argues that the increasing centrality of high skills complementary in production to information and communications technology has weakened the traditional complementarity among specific skills, regulated industrial relations, and generous social protection in core sectors. The liberalization of industrial relations and social protection is shown in fact to be instrumental for high-end exporting firms to concentrate wages and benefits on increasingly important high-skilled workers. Strong evidence based on descriptive statistics, union and industry documents, and twenty-one elite interviews is found in support of the article’s alternative perspective.

The spatial heterogeneity of the influences of various driving factors on the digital economy restricts the further development of regional coordination. This paper constructs an index system for measuring the development level of the digital economy from the three dimensions of infrastructure construction, digital application and digital industry development. Using the entropy method to measure the development level of the digital economy in each region in 2018 and based on the theory of economic growth and new economic geography, a theoretical model of the influences of input factors, technological progress and institutional changes on China’s digital economy is established. Combined with Exploratory Spatial Data Analysis (ESDA) and Geographically Weighted Regression (GWR) model analysis, the spatial distribution pattern of China’s digital economy and its influencing factors are discussed. The results show that there is a large gap in the development level of the digital economy in the eight comprehensive economic regions, and the development level of the digital economy presents a significant spatial correlation in space. The driving patterns of input factors, technological progress and institutional changes to the spatial distribution of the digital economy show obvious spatial differentiation. This study provides important referential value for promoting the coordinated development of the regional digital economy.

This paper analyzes how institutional change affects wage inequality. Institutional change is regarded as the reduction of contractual incompleteness. When institutions become better, contracts are less incomplete. Our main finding is that institutional change will narrow down (resp. widen) wage inequality if the share of the surplus in the skilled sector is sufficiently low (resp. high). When introducing incomplete contracts into the framework of skilled-unskilled wage inequality, we can obtain some different insights.

Due to the severity of the Asian Financial Crisis 1997–1998, South Korea, Indonesia, and Thailand resorted to an International Monetary Fund (IMF) bailout. In exchange, the IMF demanded a series of reforms intended to promote rule-based institutions generally found in advanced Western economies, such as the rule of law. Using panel data analysis from 1982 to 2007, we test empirically whether judicial independence, one of the more fundamental rule-based institutions, can positively explain the growth of these countries after the crisis, and find the impact of reforms to be limited. To understand why, we use South Korea as an example to show that top-down reforms by the government prevented a shift towards a rule-based economy. Due to the government selectively bailing out big businesses, big businesses that survived the crisis captured market shares once owned by the dissolved big businesses, becoming too powerful for the government to regulate. This research uses Soifer’s theoretical framework on critical junctures.

The institutional change literature has predominantly focused on successful changes and sparsely on failed changes, but the idea of institutional fields reverting to their pre-change or near pre-change state, after change attempts, remains underexplored. Although recent studies have explored similar phenomenon from the perspective of actors resisting change and trying to restore status quo, a field-level understanding of the processes and the dynamics associated with it remains underexamined. The present study, using the case of reforms in the field of petroleum exploration and production in India, examines an institutional change where the institution, once modified, gradually reverted near to its prechange state. We suggest the concept of institutional elasticity to explain such reverting of institutions, and elaborate on three boundary conditions—scope of change, pace of change, and field-level actor constellations—which have implications for the relationship between institutional elasticity and reverting of institutions.

This paper examines the impact of New Zealand’s 1996 adoption of a mixed member proportional (MMP) voting scheme on representation in the legislature, voter turnout, vote volatility and the likelihood of an incumbent party winning re-election. I then consider whether MMP has had any negative consequences for the effectiveness of government policy in relation to fiscal accountability and countercyclical intervention. The data used in the analysis begins from the formation of the party system in New Zealand (in 1890) and extends through the adoption of MMP to the pre-pandemic present (2017). The data set covers 42 elections: 34 before 1996 and 8 after.

Governments deploy policies that strive to increase the participation rates of under-represented demographic groups (according to gender, ethnicity, sexuality and disability status) in innovative activities. A growing thrust of these policies focuses on accumulating non-financial resources, particularly social capital, as the strategy for improving inclusion. Such policies include mentoring and networking schemes, role model campaigns, competitions and prizes. In contrast to the policies' growing prevalence, only a handful of studies have empirically analysed them, and fewer still offered analytical conceptualizations. In this article, we contribute by applying insights from the extant scholarship on social capital, innovation and entrepreneurship to conceptualize the policies in bonding and bridging social capital terms. We find that bonding strategies foster in-group connections, with the primary aim of encouraging under-represented groups to want to participate, thus focusing on increasing the supply of labour. Bridging strategies, in contrast, strive to link under-represented groups with finance and other centres of power, and to update societal preferences, in order to increase the demand for labour from under-represented groups. Our novel conceptualization emphasizes that policies should be studied according to their bonding or bridging social capital aims, as even the same policy instrument (i.e., mentorship scheme or campaign) can differ significantly in how it is employed.

The durable structures of housing and housing institutions are often subject to long-term processes of incremental change. Nevertheless, housing studies have largely focused either on static snapshots of policies or, more recently, on the inertia of institutional path dependence, while processes of incremental change have been almost entirely neglected. Political scientists (Streeck/Thelen/Mahoney) have proposed a typology of patterns of incremental institutional change, and this paper explores the applicability of this typology to housing structures and housing institutions. We draw on empirical illustrations from the housing literature to show how five types of change – layering, conversion, displacement, drift, exhaustion – apply to housing structures and institutions. We conclude with some general observations on how the typology can be used in further studies of developments in national housing regimes.

Through a comprehensive review of the progressive institutional change (PIC) literature, I first discuss four possible trajectories of PIC by considering the forces of societal reaction that might ...

Economists are increasingly interested in subjective well‐being, but the economic literature on perceptions of income adequacy, which is one of the factors that shape subjective well‐being, is little. Our paper fills this lacuna. We utilize nationally representative data on perceptions of amounts considered as remunerative earnings from self‐employment in India and examine how these are earnings shaped by social identity, namely, caste. We also investigate if institutional change such as the introduction of an employment guarantee scheme alters these perceptions. Finally, we examine the relationship between caste identity and actual earnings. We find that caste identity does shape both perceptions of income adequacy and actual earnings: lower‐ranked groups perceive lower amounts as being remunerative and also earn lower amounts. Further, the employment guarantee scheme alters self‐perceptions differentially for different caste groups, but in more nuanced ways than our ex‐ante beliefs.

During a period of regional structural change, the socio-institutional structure and the techno-economic structure are temporarily decoupled due to the relative inertia of the former compared with the rapid changes in the latter. The lag in the coevolution of the socio-institutional and techno-economic structures generates inefficiencies and instabilities, causing transitional failure. In exploring the rationale for policy intervention, this paper examines the actors that aim to influence socio-institutional changes in Medellín, Colombia. It finds that the private sector, under the informal leadership of the Grupo Empresarial Antioqueño, has played the role of institutional entrepreneurs to influence socio-institutional changes. In regions located on the knowledge periphery, in which the socio-institutional structure has not yet fully coevolved with the novel techno-economic structure, policy-makers can induce socio-institutional changes by learning from regions that have already transitioned to the novel techno-economic paradigm.

In investigating Keynes–Smith relationships, this paper discusses Smith and the parallels between the mature contributions of these two philosopher-economists. It begins by carefully examining Smith’s economic theory and policy, summarising his core argument in a clarifying syllogism, and exploring his invisible hand remarks. It then turns to the largely unexplored parallels between their major economic works. In theoretical terms, their core arguments have similar structures and analytical characteristics. In policy terms, both proposed new institution-based systems serving individual and social interests, considerable socio-economic restructuring and non-minimalist roles for the state. The paper concludes with a syllogism summarising Keynes’s parallel position, and comparative comments on some recent analyses of Smith’s thought.

The financial foundation of Germany’s manufacturing success, according to the comparative capitalism literature, is an ample supply of long-term capital, provided to firms by a three-pillar banking system and ‘patient’ domestic shareholders. This premise also informs the recent literature on growth models, which documents a shift towards a purely export-led growth model in Germany since the 1990s. We challenge this common assumption of continuity in the German financial system. Export-led growth, characterised by aggregate wage suppression and high corporate profits, has allowed non-financial corporations to increasingly finance investment out of retained earnings, thus lowering their dependence on external finance. This paper documents this trend and shows that business lending by banks has increasingly been constrained on the demand side, reducing the power – and relevance – of banks vis-à-vis German industry. The case study suggests a need for students of growth models to pay greater attention to the dynamic interaction between institutional sectors in general, and between the financial and the non-financial sectors in particular. Introduction Corporate finance and growth models: Demand for financing as a missing variable External finance in an export-led growth model: Weak domestic demand Bank lending to non-financial corporations: Shrinking slice of a shrinking pie In search of loan demand: Foreign and financial borrowers, and the declining interest margin Conclusion and outlook References

"This volume explores institutional change and performance in the resource-rich Andean countries during the last resource-boom and in the early post-boom years. The latest global commodity boom has profoundly marked the face of the resource-rich Andean region, significantly contributing to economic growth and notable reductions of poverty and income inequality. The boom also constituted a period of important institutional change with these new institutions sharing the potential of preventing or mitigating the maladies extractive economies tend to suffer from, generally denominated as the "resource curse". This volume explores these institutional changes in the Andean region to identify the factors that have shaped their emergence and to assess their performance. The interdisciplinary and comparative perspective of the chapters in this book provide fine-grained analyses of different new institutions introduced in the Andean countries and discusses their findings in the light of the resource curse approach. They argue that institutional change and performance depend upon a much larger set of factors than those generally identified by the resource curse literature. Different, domestic and external, economic, political and cultural factors such as ideological positions of decision-makers, international pressure or informal practices have shaped institutional dynamics in the region. Altogether, these findings emphasize the importance of nuanced and contextualized analysis to better understand institutional dynamics in the context of extractive economies. This book will be of great interest to students and scholars of the extractive industries, natural resource management, political economics, Latin American studies and sustainable development"

RESUMO Este estudo analisou os fatores políticos e econômicos que condicionaram a evolução recente do sistema público de emprego no Brasil, tendo como foco os mecanismos operacionais do Fundo de Amparo ao Trabalhador (FAT). Com base em informações contábeis dos exercícios anuais, constatou-se que tal arranjo de financiamento vem demonstrando sinais de fragilidade, com diminuição da capacidade de custear o conjunto de suas despesas correntes. Contudo, os desequilíbrios são explicados em grande parte por decisões de política econômica que provocaram vazamentos expressivos em suas receitas nos últimos anos, sobretudo via desvinculações orçamentárias e desonerações tributárias. ABSTRACT This study analyzed the political and economic factors that conditioned the recent evolution of the public employment system in Brazil, focusing on the operational mechanisms of the Workers’ Assistance Fund (FAT). Based on the accounting information of the annual periods, it was found that such financing arrangement has shown signs of fragility, with a reduction in the capacity to cover all of its current expenses. However, the imbalances are largely explained by economic policy decisions that have caused significant leaks in recent years, especially budget disengagement and tax relief.

Research Summary: Past research views institutions as stable and slow to change and uses institutional differences to explain cross-national variation in entrepreneurship. This article introduces a new perspective to institutional theory, that of short-term institutional change. Integrating insights from cognitive science allows us to theorize not just about the significance of short-term institutional change but also about why and how deterioration versus improvements in institutions have distinct effects. We test how short-term institutional change impacts entrepreneurship in a cross-country multilevel study. We find that short-term change in the rule of law affects entrepreneurial entry and that institutional deterioration weighs heavier than institutional improvement. We argue and find that changes in the rule of law are more consequential for entrepreneurship compared to changes in business regulations. Managerial Summary: It is known that the quality of institutions affects individuals' decisions to pursue entrepreneurship. Yet, we newly investigate effects of year-to-year changes in national institutions. Not only changes in business regulations matter, but also changes in more fundamental institutional aspects, especially in the rule of law. We find that institutional change has an impact because, on its basis, potential entrepreneurs form expectations about the future and therefore about the riskiness of their investment. Deteriorations compared to improvements in the rule of law are more consequential for entrepreneurship, consistent with the fact that losses loom larger than gains in human decisions.

Why do some societies fail to adopt more efficient institutions? And why do such failures often coincide with cultural movements that glorify the past? We propose a model highlighting the interplay—or lack thereof—between institutional change and cultural beliefs. The main insight is that institutional change by itself will not lead to a more efficient economy unless culture evolves in tandem. This is because institutional change can be countered by changes in cultural values complementary to a more "traditional" economy. In our model, forward-looking elites, who benefit from a traditional, inefficient economy, may over-provide public goods that are complementary to the production of traditional goods. This encourages individuals to transmit cultural beliefs complementary to the provision of traditional goods. A horse race results between institutions, which evolve towards a more efficient (less traditional) economy, and cultural norms, which are pulled towards "tradition" by the elites. When culture wins the horse race, institutions respond by giving more political power to traditional elites—even if in doing so more efficient institutions are left behind. We call the interaction between these cultural and institutional dynamics a cultural revival.

How do laws change? The paper argues that under certain historical conditions ‘Schumpeterian rule-breaking’ has played a crucial role for understanding such change. If legal change is welcomed by l...

A country's institutional structure is closely related to its economic performance. In this study, how economic growth in Turkey is being influenced by the institutional structure is tried to be explained, and especially after the 1980 period is discussed within the framework of New Institutional Economics. Accordingly, the positive steps in institutional change bring about an increase in investments and economic growth. However, since institutional reforms in Turkey do not have a continuity, the sustainability of economic growth is becoming problematic. The 1990s are ruled by incompatible coalitions and in the early 2000s Turkey suffered from painful crises. Increasing inclusive institutionalism after these years are also positively reflected in the economy, but this could not be sustained

This paper examines the impact of institutional change on market integration. We show that the French Revolution’s ideals of freedom and equality that swept through Germany following French rule around the year 1800 significantly reduced city-to-city price gaps in nineteenth century Germany because the ideas led to institutional upgrading in the German states. The economic impact of institutions reduced price gaps by about 25%. Examining a range of indicators of institutional quality, we find that relatively broad indicators affecting multiple elements of commercial activity are most powerful in explaining institutions’ effect on the integration between economies. The paper shows that institutional change does not only change a given, individual economy but its impact is multiplied because institutional change affects the relationship between multiple economies.

Motivation: Studies on nature and effects of uncertainty in a non-ergodic world became in Douglass Cecil North’s concept a starting point for explanation of economic changes mechanism. The origin of North’s studies on uncertainty is related to one of key research problems relevant to the emergence of New Institutional Economics (NIE) approach, that is answering the question why some countries are rich and others poor. This problem, according to NIE representatives, cannot be satisfactorily explained in the framework of neoclassical paradigm based on assumptions of perfect information, ideal rationality of market actors and zero transaction costs.Aim: The purpose of the article is to present D.C. North’s concept of uncertainty as a source of beliefs and creating institutions (‘rules of the game’) which place human environment in order.Results: North’s breakthrough legacy is in emphasizing the role of human intentionality, growth in the stock of knowledge, as a result of human learning, and common cultural heritage in determining the direction and dynamics of economic changes. Considerations included in the article will enable proving the significance given by North to institutions in reducing uncertainty resulting from the nature of non-ergodic world and thus creating basic incentives for growth and evolutionary economic changes. Finally, the analysis conducted for that purpose in this article will show the original contribution of D.C. North’s institutional-cognitive approach to the development of NIE (and economic theory in general) in explaining institutional conditions of development.

China’s response to the global financial crisis and its post-2008 stimulus package and credit surge marked a critical juncture for its state-directed banking system. One result was the subsequent growth of the shadow banking sector marked by incremental ‘informal institutional adaptation’ and a greater role for markets. We employ historical institutionalist (HI) theory to help explain these developments but critique its current approach to critical junctures which has a limited, temporarily specific and overly static account of institutional change; one which overlooks the importance of changes on either side of the critical junctures and which is unable to integrate its emphasis on critical junctures with alternative theories, such as incremental accounts of institutional change. Using the empirical case of the evolution in China’s post-GFC banking and finance, a revised institutional approach is developed which is able to bridge these theoretical divides.