Geoffrey M. Hodgson

Competence and contract in the theory of the firm

Abstract The Coase–Williamson response to the question “why do firms exist?” is based on the idea that transaction costs in viable firms are lower than they would be if production was coordinated through the market. The explanatory focus of this argument is on the diminution of costs related to transactions between given individuals. However, this ignores the possibility of activities which are in principle non-contractible, including aspects of the process of production. Further, the reliance on comparative statics in transaction cost theory downplays the distinctive kind and rate of human learning that takes place within firms. This paper argues that work on organizational learning and cultural transmission reinforces a competence-based explanation of the existence and relative efficiencies of firms, and this approach can also provide answers to the original question posed by Coase. Accordingly, the development of a research program involving a conjoint evaluation of both competence-based and transaction cost approaches is proposed.

Meanings of methodological individualism

Advocacy of ‘methodological individualism’ is widespread, especially among economists. However, the term is rarely defined with adequate precision and some crucial ambiguities are explored in this article. Among these is the commonplace ambivalence over whether explanations should be in terms of individuals alone, or in terms of individuals plus relations between them. It is shown that a great deal hinges on this subtle and often overlooked distinction in explanantia. In particular, explanations in terms of individuals alone have never, as yet, been achieved. Furthermore, the more feasible version of explanations in terms of individuals plus relations between them amounts to the introduction of social structure alongside individuals in the explanantia. Serious questions remain whether this version warrants the one‐sided emphasis on individuals in the term ‘methodological individualism’. JEL Classifications: B20, B40, B41

The Elgar companion to institutional and evolutionary economics

This reference work is a comprehensive introduction to the expanding field of institutional and evolutionary economics. It includes work by a number of leading international authors who synthesize perspectives from Veblenian, Schumpeterian and new institutionalist theoretical traditions. Including biographical and subject enteries, this book brings together widely-dispersed but theoretically congruent ideas.

Institutions and Individuals: Interaction and Evolution

The conceptualization of the relation between individual and structure is central to social science. After making some key definitions, this paper overviews some recent developments in the social theory of structure and agency, and makes a novel addition, based on a concept of habit derived from pragmatism and Veblenian institutional economics. Processes of habituation provide a mechanism of ‘reconstitutive downward causation’ where institutional circumstances may affect individual preferences. Finally, special characteristics of organizations are discussed, endorsing an evolutionary analytical approach that combines insights from both evolutionary economics and organization science.

The Editors and Authors of Economics Journals: a Case of Institutional Oligopoly?

This paper examines data on the institutional backgrounds of editors and authors of the top thirty economics journals, identified by their 1995 citation impact. It is revealed, for example, that 70.8 percent of the journal editors were located in the United States and twelve U.S. universities accounted for the location of more than 38.9 percent. Concerning journal article authors, 65.7 percent were located in U.S. institutions and twelve U.S. universities accounted for 21.8 percent. Arguably, the degree of institutional and geographical concentration of editors and authors may be unhealthy for innovative research in economics.

Evolutionary and competence‐based theories of the firm

This essay explores evolutionary and competence‐based theories of the firm. Evolutionary theories can be regarded as a subset of a wider class of theories, variously described as “capabilities”, “resource‐based”, or “competence‐based” theories of the firm. These contrast with a different set of contractarian theories, emanating largely from the work of Coase. It is argued that the contractarian theories of the firm misleadingly assume given individuals thus neglecting processes of individual learning and transformation. Similarly underestimated is importance of technology and the persistence of variety in firm structure and performance. The genesis of the alternative, competence‐based approach is outlined, including the important subset of “evolutionary” approaches of the Nelson‐Winter type. The paper concludes with a discussion of the relevance of the competence‐based approach to strategic management.

Institutional economic theory: the old versus the new

The object of this paper is to make some limited comparisons between the ‘new’ institutionalism of Williamson, Schotter, Hayek and others and the ‘old’ institutionalism, particularly of Veblen. It is argued that a fundamental feature of the ‘new’ institutionalism in which it contrasts with the ‘old’ is its close attachment to the idea of the abstract individual of classic liberal ideology. This attachment is found even in those minority subsets of ‘new’ institutionalists who are hostile to promarket policies, or non-neoclassical in matters of theory. Consequently, ‘old’ institutionalist warnings against proceeding on such individualistic assumptions should not be ignored, despite the value of much ‘new’ institutionalist analysis.

The Evolution of Institutions: An Agenda for Future Theoretical Research

This article reviews some theoretical questions concerning the processes of institutional evolution. The necessity of assuming the prior existence of some other institutions, such as language, is underlined. Arguably, the emergence and stability of some institutions may be enhanced by processes of ‘downward causation’ through which institutional constraints lead to the formation of concordant habits of thought and behaviour. Having pointed to the importance of pre-existing, as well as emerging, institutions, this article reconsiders the possible role of the state in the emergence and maintenance of some institutions, in particular money and property. An agenda for future research is outlined.

Is Social Evolution Lamarckian or Darwinian

Darwinism and Evolutionary Economics brings together contributions from eminent authors who, building on Darwin’s own insights and on developments in evolutionary theory, offer challenging views on how economics can use evolutionary ideas effectively.

Orders and Organizations: Toward an Austrian Theory of Social Institutions

That the Austrian school of economics is and has been fundamentally concerned with the theory of social institutions is a proposition gaining wide acceptance today by critics of this school as well as by its adherents. This is a rather striking development. Not too many years ago, the prevailing wisdom was that the American Institutionalist school (of Thorstein Veblen, John R. Commons, and Wesley C. Mitchell) was the sole repository of thinking about social institutions and that, moreover, Institutionalist approaches and beliefs were strongly at odds with everything Austrian. 1 But a recent spate of articles, including a couple of symposia in the journals, has highlighted the Austrian approach to institutions and brought it into contact albeit sometimes violent contact with the Institutionalist school (Boettke, 1989;Hodgson, 1989;Langlois, 1989;Perlman, 1986;Rutherford, 1989a;Rutherford, 1989b;Samuels, 1989;Vanberg, 1989).