This paper is based on the premise that at any point in time, macroeconomic performance is best understood in terms of certain ‘fundamental’ features of the income-generating process that are embedded in a relatively enduring institutional framework, that both affects and is affected by macroeconomic outcomes themselves. This results in the evolution of capitalist economies through a succession of discrete, medium-term episodes of macroeconomic performance. The purpose of the paper is to apply this vision to the explanation of inflation and the functional distribution of income in the post-war US economy. A conflicting claims model of inflation is developed, in which inflation is the result of conflict over the functional distribution of income. It is then shown how an account of the different, relatively enduring institutions within which this ‘fundamental’ macroeconomic process has been embedded over the past 50 years can be used to calibrate the analytical model, giving rise to an explanation of inflation and the functional distribution of income in the US as having evolved through three discrete episodes. Moreover, once the institutional context of macroeconomic performance is properly recognized in this manner, inflation and the functional distribution of income in the US over the past 50 years are seen to be explained by the rise, decline, and rise of successive incomes policies.

This article briefly describes some of the intellectual challenges during the last half-century to the traditional fields of economics and political science: the public choice approach, the tragedy of the commons debate, the ‘new’ institutional economics, and behavioral game theory. Then, the components of a basic institutional analysis framework are presented that provide a general method for analyzing public economies and diverse forms of collective action. Empirical research related to metropolitan public economies, common-pool resources, and behavioral game theory is summarized that has contributed to the field of institutional analysis. The last section concludes that the macro foundations of institutional analysis appear firmer than the micro foundations related to the model of the individual to be used and discusses this puzzle.

This paper proposes an analytical-cum-conceptual framework for understanding the nature of institutions as well as their changes. First, it proposes a new definition of institution based on the notion of common knowledge regarding self-sustaining features of social interactions with a hope to integrate various disciplinary approaches to institutions and their changes. Second, it specifies some generic mechanisms of institutional coherence and change – overlapping social embeddedness, Schumpeterian innovation in bundling games, and dynamic institutional complementarities – useful for understanding the dynamic interactions of economic, political, social, organizational, and cognitive factors.

Lawmakers can choose to craft laws with different levels of detail to guide judges in their decision-making process, incorporating rules or standards into the laws they write. The optimal degree of specificity of legal rules under different environmental conditions and the functionality of these rules or standards are the subjects of the present study. A basic model of optimal specificity of laws is presented, clarifying the relevance of legal obsolescence and volume of litigation in the optimal choice. We then consider the important influence of codification style, judges’ specialization, and complexity of reality on the optimal choice of legislative instrument. The implications of our results are then reexamined in light of the more complex institutional reality that characterizes contemporary legislative processes in various areas of the law.

Does limited social knowledge inhibit government intervention or, conversely, demand it? This article confronts these two positions, as they are respectively advocated by Hayek and Popper, and sets out to substantiate the belief that Popper's view is the more coherent one.

Institutions affect economic outcomes, but variation in them cannot be directly linked to environmental factors such as geography, climate, or technological availabilities. Game theoretic approaches, based as they typically are on foraging only assumptions, do not provide an adequate foundation for understanding the intervening role of politics and ideology; nor does the view that culture and institutions are entirely socially constructed. Understanding what institutions are and how they influence behavior requires an approach that is in part biological, focusing on cognitive and behavioral adaptations for social interaction favored in the past by group selection. These adaptations, along with their effects on canalizing social learning, help to explain uniformities in political and social order, and are the bedrock upon which we build cultural and institutional variability.

This paper addresses a specific institution, the Protected Designation of Origin (PDO) in wine markets. To understand the present strategic choices in the context of the globalization of wine markets, the paper seeks to explain the economic logic of this specific institution, its genesis and its evolution. Using an evolutionary games approach, we build an evolutionary model of the strategic determination of quality. Four configurations emerge. The PDO can be related to signals and policies of quality in strategic situations. This study also yields general results for use in the evolutionary analysis of other institutions.

This paper devises a simulation model that combines insights from the evolutionary perspective on the division of labor with ideas from the labor process literature. It characterizes technical change and the development of a near-decomposable production process as the outcome of technological search and of organizational problem solving, where the conflict between workers and firms over the organization of work plays a central role. It is argued that a near-decomposable organization of the production process also allows management to tighten its control over workers. Consequently, more extensive divisions of labor within a firm develop where the power of workers to oppose decisions by the management is low. In these scenarios the performance of firms is also highest. The model is used to interpret historical evidence about different development paths in technical change in the UK and the US at the beginning of the twentieth century.

This paper develops an organizational economics explanation for agricultural cooperatives by building upon the transaction cost theory of family farms. According to this theory, the importance of family farms in Western agriculture is a result of the low feasibility of hierarchical organization in agricultural production due to supervision and monitoring difficulties. This paper argues that the transaction cost-economizing effect of family farms has a price in the form of their limited ability to realize economies of scale and to develop market power comparable to that of their up- and downstream trading partners. The role of agricultural cooperatives is shown to help overcome these limitations in order to take advantage of the transaction-cost economizing properties of family farms. This explanation of agricultural cooperatives is sector-specific in the sense that it traces the benefits of cooperative organization back to the organizational attributes of agricultural production.

This essay presents a cross-sectoral analysis of innovation in some types of services, namely air traffic control, retail banking, and health care. The provision of such services is organized in network structures whose development relies on competences and activities that cut across traditional sectoral and industrial boundaries. The conceptual background provided by the recent synthesis approach explains these features by elaborating a new concept of system of innovation. In so doing, this approach paves the way for new understanding of innovation in services as the endogenous outcome of knowledge growth within and across technologies, organizations, and institutions.

Public entrepreneurship is commonly understood as the outcome of the activities of a Schumpeterian political innovator. However, empirical research suggests that changes to a more efficient economic policy, even if it is known and technically easy to implement, are usually delayed. This is difficult to reconcile with Schumpeterian notions of public entrepreneurship. In this paper, it is argued that the attempt to transfer a Schumpeterian approach to the public sector is fundamentally flawed. Institutional checks and balances that characterize most modern liberal democracies make the strategy of bold leadership an unlikely choice for an incumbent. If change occurs, it occurs normally as a response to the fact that the status quo has become untenable. From a normative point of view, it is argued that if public entrepreneurship nevertheless occurs, it will often be associated with unwanted consequences. A dismantling of formal institutional checks and balances is therefore not reasonable.

Institutions influence and shape behaviour. This paper suggests one way in which they do so that has been largely overlooked in institutional analysis and design. When faced with a decision or problem, people have more than one mechanism at their disposition for addressing it. The human mind offers multiple tools, ranging from conscious deliberation to spontaneous, affective reactions. Relying on technology or experts, decision-makers can also muster additional resources. Often, the meta-choice of which decision-making or problem-solving mode is used has an impact on the output. Some normative goals are more likely met if the decision-maker uses a specific problem-solving mode. We argue that the meta-choice of which problem-solving mode to use for a given decision can be influenced by institutions. In the interest of defining access points for institutions, we develop a conceptual framework for the selection and implementation of decision-making and problem-solving modes.

We illustrate mechanisms that can give rise to path dependence in legislation. Specifically, we show how debtor-friendly bankruptcy law arose in the United States as a result of a path dependent process. The 1898 Bankruptcy Act was not regarded as debtor-friendly at the time of its enactment, but the enactment of the law gave rise to changes in interest groups, changes in beliefs about the purpose of bankruptcy law, and changes in the Democratic Party's position on bankruptcy that set the United States on a path to debtor-friendly bankruptcy law. An analysis of the path dependence of bankruptcy law produces an interpretation that is more consistent with the evidence than the conventional interpretation that debtor-friendliness in bankruptcy law began with political compromises to obtain the 1898 Bankruptcy Act.

Economic sociology was a core concern of early political economists like Smith, Marx, Pareto, and Marshall. The new economic sociology has sought to revive the neglected subdiscipline using the construct of interpersonal networks. Richard Swedberg has assembled 42 substantial papers in this collection. This article, reviewing his selection, proceeds in three stages. First, it provides a general framework for the debate. Second, it discusses the papers specifically linked to networks. Third, it analyses the contributions that go beyond the concept of social processes as personal relationships.

Bruce Caldwell's Hayek's Challenge should be welcomed as the first serious book on one of the most important thinkers of the twentieth century. However, this review begins by pointing out a number of curious omissions and silences concerning Hayek's career in the book. We propose that the key to understanding the turns and reversals in his thought lay in his politics, and not as Caldwell has it, in some abstract philosophical doctrines. Central to that thesis is Hayek's fostering the development of Neoliberalism through such institutional structures as the Mont Pèlerin Society.