Summary Class notes - Institutional economics and economic organizations

- Institutional economics and economic organizations
- 2020 - 2021
- Wageningen University (Wageningen University, Wageningen)
- International Development studies
184 Flashcards & Notes
1 Students
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Summary - Class notes - Institutional economics and economic organizations

  • 1584399600 Theme 1: introduction

  • What are institutions according to Douglas North?
    Institutions are the rules of the game. Institutions are the humanly devised constraints that shape human interaction. They are made up of formal constraints (such as rules, laws, constitutions) and informal constraints (such as norms of behaviour, conventions, self-imposed codes of conduct)
  • What are two types of institutions and what do they consist?
    1. Formal institutions (legally enforced): public; laws and constitutions and private; contractual rules 
    2. Informal institutions (socially enforced); consists out of traditions, customs, norms and codes of conduct 
  • Give two examples of institutions.
    1. Marriage; formal and informal institutions, there is a contract but there is also a lot of symbolism and traditions that are related to marriage 
    2. Shaking to an agreement and signing a contract is informal and formal 
  • What are institutions according to Groenewegen?
    Institutions are rules that facilitate transactions
  • What are three types of transactions?
    1. Market transaction; between buyers and sellers 
    2. managerial transaction ; between a legal superior and a legal inferior in an organization 
    3. Political transaction ; involving decision-makers that have the legal authority to determine how the wealth in a society is distributed 
  • Transactions are organised in governance structures
  • What are the three theoretical lenses in the field of Institutional economics and Economic organization theory?
    1. Transaction cost economics 
    2. Agency theory
    3. Property rights theory 
  • The field of institutional economics and economic organizational theory
  • What are ceremonial values? Name three characteristics
    1. Traditions, rituals and myths. 
    2. For instance, sexist beliefs can be traced back to the bible (Eve was created from Adam's rib / a woman has to take care of her husband) 
    3. The power/societal position of royals   
  • What are instrumental values? Name two characteristics
    1. Functional, to solve problems, new realities create the need for new skills and knowledge 
    2. For instance, the industrial revolution made that women started working in factories 
  • What is opportunistic behaviour?
    ''Self-interest seeking with guile'', trying to gain economic benefits by using deceit, or by withholding information, or by making use of loopholes in a deal or contract
  • What are three examples of opportunistic behaviour?
    1. Shirking on the job = not putting in all the effort that you can because you know that the boss is not watching 
    2. Making a deal to produce table tops for a business partner but using inferior quality wood because the quality of the wood was not specified in the contract
    3. Selling boxes of apples but putting the best looking apples on top and the bruised apples on the bottom to deceive buyers. 
  • What is asset specificity?
    Asset specificity refers to durable investments that are undertaken in support of a particular transaction. The specificity of an seet is measured as the percentage of investment value that is lost when the asset is used outside the specific relationship.
  • What are the six types of asset specificity?
    1. Site specificity 
    2. physical asset specificity 
    3. human asset specificity 
    4. dedicated assets 
    5. brand name asset specificity 
    6. temporal asset specificity 
  • What is site specificity?
    Chickens cannot be transported over long distances so chicken farms will be located nearby slaughterhouses
  • What is temporal asset specificity?
    As soon as chickens are born (eggs hatch), the slaughter date is more or less fixed (x weeks after hatching) because if chickens get too old, then the quality of the meat deteriorates.
  • What is physical asset specificity?
    Inalfa produced sun roofs for a specific model of General Motors, the GMC Envoy. Inalfa had invested 8.5 million in setting up a specific production line for these sun roofs.
  • What are human asset specificity?
    In Inalfa personnel had to follow specific training to be able to produce the sunroofs for the GM cars.
  • What are dedicated assets?
    Assets in support of other (physical asset) investments. For example, extra storage buildings for storing the GM sunroofs at Inalfa.

  • Explain brandname asset specificity

    “All three movies in the Lord of the Rings series
    were made before the first one was released.
    Can you explain why the producer used this
    strategy instead of making the second movie
    after the first one had proven to be

    Transaction = actors selling their service to the
    movie producer

    After the first movie, the value of the actors
    has increased, their faces are connected to the
    characters in the film (brandname). Hence, the
    producer would have to pay much higher
    wages to keep the same actors in the film. 
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