Pieter H. M. Ruys

Imperfections and Behavior in Economic Organizations

Preface. 1. Inherent Imperfection of Economic Organizations R.P. Gilles, P.H.M. Ruys. 2. The Kinked Demand Curve, facilitating Practices, and Oligopolistic Coordination E. Kalai, M.A. Satterthwaite. 3. A Revelation Principle for (Boundedly) Bayesian Rationalizable Strategies P.J. Hammond. 4. Widespread Externalities and Perfectly Competititve Markets: Examples M. Kaneko, M. Wooders. 5. Modelling of Economies with Relational Constraints on Coalition Formation R.P. Gilles, H.H. Haller, P.H.M. Ruys. 6. Topologies as Trade Infrastructures H.H. Haller. 7. Demand in a Duopoly with Horizontal Product Differentiation D. Furth. 8. Implementing Strong and Lower Strong Positive Association Social Choice Rules by Social Procedures J. Greenberg. 9. Cooperation and Communication Restrictions: a Survey P. Borm, A. van den Nouweland, S. Tijs. 10. Outline of the Implications of the Cooperative Nature of the Firm T. Ichiisi. 11. Intersection Theorems on the Unit Simplex and the Simplotope D. Talman. 12. A Social Power Index for Hierarchically Structured Populations of Economic Agents R. van den Brink, R.P. Gilles.

Values and Governance Systems

Cooperative behavior as well as other cultural rules and values are made explicit in organizational units that procure and provide a common service. The common service is procured by a club, which consists of a user-value function, a representation governance, and a budget-allocation function. The common service is provided by a firm, which consists of a value-production function, an implementation governance, and a remuneration function. They extend the concepts of the consumer and the producer in neoclassical theory. The functions mentioned are determined by cooperative games. A governance is represented by a structure of principal-agent relations. The representation governance is a bottom-up hierarchy, empowered by the members of the club. The implementation governance is a top-down hierarchy, empowered by the governor of the firm. The optimal size of the club organization and the firm organization in a competitive environment is determined under certain conditions. This description of a club and a firm allows characterization of some cultural dimensions in the society. For one such cultural dimension, viz. the degree of collectivism in society, the impact on the optimal organization is shown.

Modelling of Economies with Relational Constraints on Coalition Formation

This paper presents an overview of different mathematical techniques to model constraints on coalition formation in the context of a pure exchange economy. We discuss three such models. The first one is a measure theoretic model, in which the Edgeworthian recontracting processes are carried out by a sparse collection of well specified primitive coalitions rather than on the assumption that in principle every group of economic agents is formable as a trade coalition. Here we assume that the collection of primitive coalitions is a semi-ring. The existence of plausible measures expressing size in this setting is investigated. Second, we discuss a relational model of coalition formation. In this model we investigate the underlying economic principles that link social trade relations between economic agents and the individual attributes of these agents. We show that in a relational model there emerge certain classes of economic agents, named macro-types, that are linked with each other and have natural properties that can be expected from economic classes. Third, we study an enhancement of the relational model in which a particular group of economic agents form a trade network in the economy. Such a network performs as a natural market auctioneer, although we limit our discussion to coalition formation in the context of these trade networks.

Stability, Specialization and Social Recognition

Yangs theory of economic specialization under increasing returns to scale (Yang 2001) is a formal development of the fundamental Smith-Young theorem on the extent of the market and the social division of labor. In this theory specialization and, thus, the social division of labor is firmly embedded within a system of perfectly competitive markets. This leaves unresolved whether and how such development processes are possible in economies based on more primitive, nonmarket organizations. In this paper we introduce a general relational model of economic interaction. Within this non-market environment we discuss the emergence of economic specialization and ultimately of economic trade and a social division of labor. We base our approach on three stages in organizational development: the presence of a stable relational structure; the presence of relational trust and subjective specialization; and, finally, the emergence of objective specialization through the social recognition of subjectively defined economic roles.

Modes of Governance in the Dutch Social Housing Sector

Abstract: We describe and analyze five consecutive modes of governance in the Dutch social housing sector. We compare these institutional forms with the five policy values that the sector was assumed to realize. For that purpose we propose and use a new, analytical framework based on a separation principle that is applied to the coercion domain (the governance of transactions) as well as to the interaction domain (the welfare values). The consecutive modes of governance were introduced to cope with the changing welfare policies, but with varying results. In this paper we show that the implemented modes of governance in the Dutch social housing sector did not always realize the values that the sector was supposed to deliver. The framework we propose also facilitates the discussion about the concept of a social enterprise and the embedding of a service of general interest in the European Union.

Industries with private and public enterprises

In this paper attention will be focussed on an industry consisting of public enterprises and institutions, rather than on a public enterprise itself. Public enterprises can be used by the government as an instrument to implement an industrial policy. Since there exist a variety of instruments and objectives, we firstly categorize industries as well as market structures (section 2). Next, we mention some recent results (section 3). In the last section a general equilibrium model is introduced that offers a framework to policy makers when designing an efficient organization of an industry with external effects.

The Governance of Services

The problem of assessing a system of governance for composite services in the social economy is approached by means of original methods.The main innovation is that the welfare structure of a society is separated from the legal transaction- or institutional structure.As both the various types of services and the various modes of management are defined in terms of relations between sets of persons, these structures can be compared and the performance of a managementsystem can be assessed.The dynamics of a wide range of hybrid forms of organization - between market and hierarchy - is analyzed in this framework. The approach elaborates on the new institutional economics, and the social theory of micromotives and macrobehavior in exchange and transactions.

A General Equilibrium of Managed Services

A service is a value-creating interaction between individuals, each in the role of either a performer or a receiver. A service is represented by a network on the set of individuals. There are many service networks possible, which all belong to the service network possibility set. The service structure consists of this set and a value function on the service networks. Specialization of individuals leads to separating the performer interaction from the receiver interaction in the service structure. The service concept is thus extended to a stratified service with interactive groups on each level, represented by two hierarchical graphs. The main idea behind this paper is that services cannot be rendered unless they are managed. So a governance structure is introduced with agents who obey specific rules of management. There are two types of agents, managers - both for a performers organization and for a receivers organization - and consumers. An equilibrium for an economy with managed stratified services is defined and shown to exist for a market economy with rather strong conditions on both the service structure and the governance structure. It is shown to be a generalization of a neoclassical general equilibrium.

Positional Wages, Market Wages and Firm Size

We model a firm in an institutional market setting, consisting of a production technology and its governance. The governance consists of a hierarchical firm structure, a cost efficiency parameter,and an internal pay system. The depth of the firm is determined by profit maximization under the participation restriction that lowest wages meet reservation wages. Reservation wages are endogenously determined in the institutional market economy. We give conditions guaranteeing a finite optimal firm size. Using CES-production technologies we illustrate how firm size depends on labor substitutability, and show that a linear technology yields the deepest structure and a complementary the flattest structure.

Compensating Losses and Sharing Surpluses in Project-Allocation Situations

By introducing the notions of projects and shares, this paper studies a class of economic environments, the so-called project-allocation situations, in which society may profit from cooperation, i.e., by reallocating the initial shares of projects among agents.This paper mainly focuses on the associated issues of compensation of losses and surplus sharing arising from the reallocation of projects.For this purpose, we construct and analyze an associated project-allocation game and a related system of games that explicitly models the underlying cooperative process.Speciffic solution concepts are proposed.