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Article
Publication date: 1 January 1992

Christos Pitelis

Aims to explore the possibility of developing a neoclassical theoryof institutional failure, based on “transaction costs”.Critically assesses the role of institutions in…

Abstract

Aims to explore the possibility of developing a neoclassical theory of institutional failure, based on “transaction costs”. Critically assesses the role of institutions in General Equilibrium theory and concludes that, with the exception of the market (price mechanism), this is institution‐free. This is unsatisfactory, given the importance of the firm and the state, in particular, which have received wide attention recently in the theory of transaction costs. It is claimed that General Equilibrium theory can be given microfoundations based on transaction costs. This provides the possibility of a neo‐classical theory of institutional failure. It also has important implications on the nature and scope of economic theory in general and the plan versus markets debate in particular.

Details

Journal of Economic Studies, vol. 19 no. 1
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 9 January 2009

Vladislav Valentinov

Managerial nonpecuniary preferences have been emphasised by the behavioural theories of nonprofit organisation but only weakly related to this organisation's market failure

970

Abstract

Purpose

Managerial nonpecuniary preferences have been emphasised by the behavioural theories of nonprofit organisation but only weakly related to this organisation's market failure theories. The present paper aims to fill this gap by examining the ways in which the market failure‐addressing capacity of nonprofit firms requires recourse to managerial nonpecuniary preferences.

Design/methodology/approach

The paper proceeds by examining the ways in which the market failure theories of nonprofit organisation conceptualise this organisation's market failure‐addressing mechanism.

Findings

It is shown that the market failure theories of nonprofit organisation can be logically complete only if they include an explanation of managerial motivation consisting in the gratification of nonpecuniary preferences.

Practical/implications

Nonprofit firms are thereby shown to address market failures in a way different from that of for‐profit firms. Specifically, whereas for‐profit firms address market failures based on their advantages over market organisation in processing information and aligning incentives, nonprofit firms make the production of goods and services that are undersupplied due to market failures the object of nonprofit managers' nonpecuniary preferences.

Originality/value

The economic theory of nonprofit organisation has been traditionally marked by a dichotomy of the market failure theories and behavioural theories, only the latter of which recognised the role of managerial nonpecuniary preferences. By demonstrating that these preferences are crucial to the former theories as well, this paper integrates these two theorising strands and thus deepens the theoretical understanding of the nonprofit sector.

Details

International Journal of Social Economics, vol. 36 no. 1/2
Type: Research Article
ISSN: 0306-8293

Keywords

Book part
Publication date: 3 December 2018

Predrag Rajsic and Glenn Fox

Several governments in Canada have made commitments to adopting evidence-based policy development. Several obstacles to the adoption of this approach have been identified…

Abstract

Several governments in Canada have made commitments to adopting evidence-based policy development. Several obstacles to the adoption of this approach have been identified in the policy literature. However, this literature has lacked an economic perspective. This is unfortunate, since economics has produced the most fully developed normative theory of government policy in the social sciences and humanities. The main elements of this theory are the theory of market failure and the theory of non-market failure, and the integration of those two elements in what Charles Wolf called implementation analysis. The Austrian economics tradition also offers the implications of what is often called Hayek’s knowledge problem and the lessons learned from the economic calculation debate as contributions to the understanding of the challenges facing the application of evidence-based policy. The authors propose adding four economic elements to the current model of evidence-based policy development: (1) providing sufficient and convincing evidence that a market failure has occurred; (2) providing sufficient and convincing evidence that a non-market failure is unlikely to occur or if it does occur the damages from the non-market failure will be less serious than the harm resulting from the market failure; (3) an appreciation of the distributed and conflicted character of social knowledge; and (4) the technical challenges involved in constructing a social preference order. The authors illustrate the application of the economic approach to evidence-based policy with an example from rural land use policy in Ontario.

Article
Publication date: 7 August 2018

Md. Sariful Islam and Mohammed Ziaul Haider

The purpose of this paper is to investigate the relationship between poverty and technical efficiency (TE) of paddy farmers in presence of their heterogeneous selling…

Abstract

Purpose

The purpose of this paper is to investigate the relationship between poverty and technical efficiency (TE) of paddy farmers in presence of their heterogeneous selling behaviours. This paper explains how such behavioural heterogeneity affects this relationship in south-western Bangladesh.

Design/methodology/approach

Translog production frontier model was used to estimate TE since it fitted the data set better. On the other hand, poverty indices were constructed by using P-α method. Then, multinomial logit models examined the existence of heterogeneous selling behaviours. It revealed adequate evidences in favour of behavioural heterogeneity. Finally, the authors employed a series of two stage instrumental variable regression models to relate poverty and TE with and without considering the behavioural heterogeneity.

Findings

The study finds that around 18, 39 and 44 per cent of households exhibit autarkic, non-wholesaling and wholesaling behaviour, respectively. Market failure due to transaction cost and credit constraints leads to emergence of such heterogeneity. Across these heterogeneous behaviours, impact of improving TE on poverty status significantly differs. Without controlling behavioural heterogeneity, TE significantly improves the poverty status of the rural farm households. However, scenario is changed after controlling this heterogeneity. After behavioural segregations, TE improves poverty status only for wholesalers. In contrary to prior expectation, it worsens the poverty situation for both autarkic and non-wholesaling households. Simultaneous failure in both credit and product market for these households might be the plausible reason behind this heterodox finding. Credit market failure compels these households to borrow from local money lenders with costlier terms. This effort might improve their TE. But, product market failure makes their additional production due to improved TE unsold. Thus, repayment of credit directly reduces their consumption expenditure. Therefore, an effort to improve TE might increase prevalence and depth of poverty when market failure exists. Henceforth, the improvement of TE appears as an effective policy instrument only when households exhibit wholesaling behaviour.

Originality/value

The earlier studies show the relationship between TE and poverty status but did not account behavioural heterogeneity. The authors attempt to overcome this shortcoming and show how market failure induced behavioural heterogeneity affects the effectiveness of TE on improving poverty status of farm households.

Details

International Journal of Social Economics, vol. 45 no. 11
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 1 January 2006

Richard Gray, Stavroula Malla and Peter W.B. Phillips

The paper aims to examine how the theory of institutional economics is used to analyze and explain how the canola industry has developed and changed over the past 30…

1657

Abstract

Purpose

The paper aims to examine how the theory of institutional economics is used to analyze and explain how the canola industry has developed and changed over the past 30 years, in order to highlight the important role of extra‐market institutions in innovation processes.

Design/methodology/approach

The theory of transactions and institutions is examined, specifically the concepts of rivalry, excludability and voice, in order to identify optimal institutions to address potential market failures in new product development.

Findings

In the pre‐biotechnology period, missing links in the supply chain and the absence of private property rights contributed to public good market failures; the resulting market failures and inadequate investment incentives were overcome by development of public research programs and new participatory institutions that managed research coordination, extension and market development. In the biotechnology‐phase, private property rights, vertical integration and contracting resolved many of the earlier market failures but failures in research coordination, enforcement of property rights and marketing have required new institutions.

Practical implications

The development of the highly innovative Canadian canola supply chain over the past 50 years – encompassing a period of public‐sector‐based, conventional plant breeding and, more recently, a privately‐directed biotechnology‐based phase – highlights the role that different institutional structures can play in product innovation.

Originality/value

This study of the canola chain offers insights into how different types of market failures arise at various stages of development, requiring new institutions to address these failures, and provides lessons on how to foster the development of other innovative agri‐food supply chains around the world.

Details

Supply Chain Management: An International Journal, vol. 11 no. 1
Type: Research Article
ISSN: 1359-8546

Keywords

Article
Publication date: 1 October 1994

Christos Pitelis

Aims to examine the issue of industrial strategy (IS), paying particularattention to the case of Britain. Sets out to assess the possibility andnature of an industrial…

2367

Abstract

Aims to examine the issue of industrial strategy (IS), paying particular attention to the case of Britain. Sets out to assess the possibility and nature of an industrial strategy for Britain, in Europe, and within the global scene, taking into account the world we live in as we see it. Accordingly, the perspective is driven and shaped by a quest for a realistic, feasible and sustainable industrial strategy. In order to achieve these objectives, first examines the theoretical arguments behind much of British, and more generally, Western industrial policies. Following this, outlines and assesses British industrial policy post‐Second World War then compares and contrasts British industrial policy with that of Europe, the USA, Japan and the newly industrialized countries. Then examines recent developments in economics and management which may explain the “Far Eastern” miracle, and points to the possibility of a successful, narrowly self‐interested, IS for Europe and Britain, based on the lessons from (new) theory and international experience. To assess what is possible, develops a theoretical framework linking firms in their roles as consumers and/or electors. This hints at the possibilities and limits of feasible policies. All these ignore desirability which, in the author′s view, should be seen in terms of distributional considerations, themselves contributors to sustainability. Accordingly, discusses a desirable industrial strategy for Britain in Europe which accounts for distributional considerations, and goes on to examine its implications for the issue of North‐South convergence. Concludes by pointing to the limitations of the analysis and to directions for developments.

Details

Journal of Economic Studies, vol. 21 no. 5
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 5 November 2018

David S. Lucas, Caleb S. Fuller, Ennio E. Piano and Christopher J. Coyne

The purpose of this paper is to present and compare alternative theoretical frameworks for understanding entrepreneurship policy: targeted interventions to increase…

Abstract

Purpose

The purpose of this paper is to present and compare alternative theoretical frameworks for understanding entrepreneurship policy: targeted interventions to increase venture creation and/or performance. The authors contrast the Standard view of the state as a coherent entity willing and able to rectify market failures with an Individualistic view that treats policymakers as self-interested individuals with limited knowledge.

Design/methodology/approach

The authors draw on the perspective of “politics as exchange” to provide a taxonomy of assumptions about knowledge and incentives of both entrepreneurship policymakers and market participants. The authors position extant literature in relation to this taxonomy, and assess the implications of alternative assumptions.

Findings

The rationale for entrepreneurship policy intervention is strong under the Standard view but becomes considerably more tenuous in the Individualistic view. The authors raise several conceptual challenges to the Standard view, highlighting inconsistencies between this view and the fundamental elements of the entrepreneurial market process such as uncertainty, dispersed knowledge and self-interest.

Research limitations/implications

Entrepreneurship policy research is often applied; hence, the theoretical rationale for intervention can be overlooked. The authors make the implicit assumptions of these rationales explicit, showing how the adoption of “realistic” assumptions offers a robust toolkit to evaluate entrepreneurship policy.

Practical implications

While the authors agree with entrepreneurship policy interventionists that an “entrepreneurial society” is conducive to economic development, this framework suggests that targeted efforts to promote entrepreneurship may be inconsistent with that goal.

Originality/value

The Individualistic view draws on the rich traditions of public choice and the entrepreneurial market process to highlight the intended and unintended consequences of entrepreneurship policy.

Details

Journal of Entrepreneurship and Public Policy, vol. 7 no. 4
Type: Research Article
ISSN: 2045-2101

Keywords

Abstract

Details

Handbook of Transport Strategy, Policy and Institutions
Type: Book
ISBN: 978-0-0804-4115-3

Article
Publication date: 1 June 2010

David G. Tarr

The purpose of this paper is to discuss the key regulatory, market, and political failures that led to the 2008‐2009 US financial crisis and to suggest appropriate…

1942

Abstract

Purpose

The purpose of this paper is to discuss the key regulatory, market, and political failures that led to the 2008‐2009 US financial crisis and to suggest appropriate recommendations for reform.

Design/methodology/approach

The approach is to examine the underlying incentives that led to the crisis and to provide supporting data to support the hypotheses.

Findings

While Congress was fixing the savings and loan crisis, it failed to give the regulator of Fannie Mae and Freddie Mac normal bank supervisory power. This was a political failure as Congress was using government sponsored enterprise (GSE) resources and the resources of narrow constituencies for their own advantage at the expense of the public interest. Second, in the mid‐1990s, to encourage home ownership, the Administration changed enforcement of the Community Reinvestment Act, effectively requiring banks to use flexible and innovative methods to lower bank mortgage standards to underserved areas. Crucially, this disarmed regulators and the risky mortgage standards then spread to other sectors of the market. Market failure problems ensued as banks, mortgage brokers, securitizers, credit rating agencies, and asset managers were all plagued by problems such as moral hazard or conflicts of interest.

Originality/value

The paper focuses on the political economy reasons for why Congress and US administrations provided these perverse incentives to the GSEs and banks to lower mortgage standards. It also proposes some innovative methods of improving bank regulation that address the regulatory capture problem.

Details

Journal of Financial Economic Policy, vol. 2 no. 2
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 1 March 1986

Johny K. Johansson

The paper discusses six Japanese marketing cases in depth. It is shown how the “success” interpretation which so often is promulgated by the firms and press alike in fact…

589

Abstract

The paper discusses six Japanese marketing cases in depth. It is shown how the “success” interpretation which so often is promulgated by the firms and press alike in fact hides serious mistakes and results which in other countries would be interpreted as “failures”.

Details

International Marketing Review, vol. 3 no. 3
Type: Research Article
ISSN: 0265-1335

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