Thrainn Eggertsson

Empirical studies in institutional change

Introduction A note on theory Thrainn Eggertsson Empirical work in institutional economics Lee J. Alston 1. Towards an understanding of property rights Gary D. Libecap 2. Impediments to institutional change in the Soviet system Jan Winiecki 3. Transaction costs and economic development Andrew Stone, Brian Levy and Ricardo Paredes 4. The evolution of the modern institutions of growth Douglass C. North and Barry R. Weingast 5. Regulation in a dynamic setting Anne O. Krueger 6. Price controls, property rights and institutional change Steven N. S. Cheung 7. Regulating natural resources: the evolution of perverse property rights Robert Higgs 8. The politics of institutional change in a representative democracy William H. Riker and Itai Sened 9. The economics and politics of institutional change Lee J. Alston and Joseph P. Ferrie Epilogue: Economic performance through time Douglass C. North.

The old theory of economic policy and the new institutionalism

Abstract In economics, recent emphasis on institutions suggests new policy dimensions for the traditional theory of economic policy which originated with Tinbergen and others at the time of the Keynesian revolution. The paper presents elements of the traditional view—instruments, targets, and policy models—and then considers new aspects of policy, especially policy for structural change. The discussion emphasizes the implications for institutional design of incomplete knowledge, and endogenous politics. Both public and private actors rely on incomplete policy models, and the models themselves can become (intermediate) targets of policy.

Limits to Institutional Reforms

This essay draws on the theory of (macro)economic policy, as it has evolved, to discuss implicit policy determinism in the new economics of institutions. The extension of rational-choice methods to new levels of analysis, such as micropolitics, macropolitics, political macroeconomics, and microfoundations of cooperation, has apparently reduced the policy choice set and diminished the role of experts. All outcomes reflect constrained maximization by rational agents. The essay argues, however, that scarcity of knowledge leads to incomplete and variable policy models and that competition among policy models creates a role for experts in social change. Copyright 1998 by The editors of the Scandinavian Journal of Economics.

Knowledge and the theory of institutional change

Modern theory identifies several sources of economic growth, such as capital accumulation, new techniques, secure property rights and contracts, and absence of rent seeking. This paper introduces new social technologies as yet another source of growth and emphasizes our incomplete knowledge of social systems. I introduce a framework for analyzing institutional policy and use the case of modern biotechnology to explain how uncertainty about social technologies, persuasion, and competing beliefs influence the evolution of property rights.

The Economics of Institutions: Avoiding the Open-Field Syndrome and the Perils of Path Dependence

In this article, recent research on the economics of institutions is summarized and assessed The economics of institutions is an attempt to integrate recent research in various sub-fields of economics and the other social sciences in order to present a coherent research program for exploring the link between institutions and wealth Although the core of the framework is a modified version of neo-classical economics, it is argued that the optimal deviation from the neo-classical model vanes with the level of analysis and the types of variables that we seek to endogenize. The unifying theme of the analysis is the introduction of transaction costs and the related concept of property rights, which give organizations and institutions a central role in economic life. The paper provides a summary view of the economics of institutions, and discusses in some detail two common lines of criticism. that the approach ignores power relationships in economic affairs, and that its use of the rational choice model is inappropriate The need for augmenting the economics of institution with an operational theory of mental models and learning is recognized.

Inflation Expectations and the Demand for Money in Iceland

Inflation and the demand for money in Iceland are reported on in this paper. Various specifications of the money demand relationship are estimated for the period 1952-1979. The estimates indicate that the income elasticity of money demand (M3) is in the neighborhood of 0.5. Measured income rather than permanent income appears to be the appropriate scale variable. The opportunity cost of holding money, represented by expected inflation, has a significant negative impact on the demand for real money balances. I. Introduction For two decades, economists have undertaken to estimate the parameters and test the stability of various formulations of demand for money equations in a large number of empirical studies. The existence of stable demand for money functions has been ascertained for a number of countries, revealing broad similarity in parameter estimates. Yet, with a few notable exceptions, the research has been limited to highly industrialized economies in the post-World War II period.2 The empirical support for the modern theory of money demand in Iceland is examined in this paper. Evidence for a stable demand for money function in this micro economy, which contains a rare blend of highly developed and underdeveloped institutions, should elucidate the general validity of current monetary theory. With a population of about a quarter million (229000), the countrys financial and money markets are at the embryonic stage. Interest rates are pegged, international capital movements strictly regulated, and the Central Bank does not engage in open market operations. There is heavy dependence on foreign trade, and due to its primary reliance

Comment on Hansjörg Siegenthaler

The facts on which we base our utility maximizing calculations are not just a given reality, but the result of human interaction. Nobody can privately create this reality. Reality, to use the words of Berger and Luckmann (1960), is a social construction. For Hansjorg Siegenthaler it is the result of shared cognitive rules for selection, classification and interpretation of information.20 Using such rules society creates a stock of common knowledge”institutionalized experience”, on which individuals can base their attempts to maximize utility.

Demand for Wealth-Reducing Institutional Change: The Role of Ideas and Interests

Rodrik (Journal of Economic Perspectives 28(1):189–208, Winter 2014), in a recent paper, calls on economists to recognize the role of ideas in institutional change. This chapter takes up the challenge by considering ideas about how the world works and ideas about the legitimacy of social arrangements, distinguishing between instrumental models (the relations between instruments and outcomes) and moral models (issues of legitimacy). I then explore an empirical case, the efforts by the government of Iceland 2009–2013 to dismantle the country’s regulatory system of ocean fisheries, which is based on individual transferable quotas and widely seen as the most efficient system of its kind in Europe. The exports of fish products have for more than a century been Iceland’s engine of growth. The attempts at introducing inefficient institutions came in the wake of, and even as a response to the country’s dramatic 2008 financial collapse. I identify seven instrumental and moral theories that were crucial for the reform process. The decision makers’ varying understanding and acceptance of these ideas gave substance to the traditional variables of power and interests and influenced how the agents responded to individual transferable quotas.

Economic Behavior and Institutions

An important research programme has developed in economics that extends neo-classical economic theory in order to examine the effects of institutions on economic behaviour. The body of work emerging from this line of inquiry includes contributions from various branches of economic theory, such as the economics of property rights, the theory of the firm, cliometrics and law and economics. This book is a comprehensive survey of this research programme which the author terms neoinstitutional economics. The author proposes a unified approach to this research, integrating the work of various contributors and emphasising the common principles of inquiry that tie the work together. The theoretical discussion is accompanied by empirical studies dealing with a range of institutions and economic systems. This book will serve as the primary resource for economists and students who want to learn about this important branch of economic theory.

Determinants of Icelandic Foreign Relations

It is the thesis of this paper that the major determinants of Icelandic foreign relations can be classified under three headings: population, economic geography, and geographic location. The thesis is spelled out in some detail, and the fundamental goals of Ice lands foreign policy are presented as an interplay of these determinants. Finally, the countrys foreign policy in three major areas - national security, European integration and the fishery zone question - is analysed in these terms.