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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Why do some countries succeed while others struggle? Why are some firms profitable while rivals fail? Why do some marriages thrive and others end in divorce? These questions seem unrelated, but societies, companies, and marriages have one important thing in common: they involve more than one individual. They thus face the same fundamental challenges. How can people be made to help rather than hurt each other? How can they use sacrifice, cooperation, and coercion to promote the common good? In this introductory text, Tore Ellingsen equips readers to answer essential questions around the success and failure of humans in groups, drawing on behavioral game theory, psychology, and sociology. He emphasizes how other-regarding preferences such as altruism and dutifulness matter for societies' prosperity, and analyzes the role of culture in the form of shared values and understandings. One lesson is that cooperation is facilitated when people anticipate that they will hold common memories of past behavior, especially if agreements take precedence over leaders' authority. A groundbreaking text, Institutional and Organizational Economics is essential reading for students and scholars of economics, political science, sociology, and public administration.
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Veröffentlichungsjahr: 2023
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CONTENTS
Cover
Dedication
Title Page
Copyright
Preface
1 The Organizational Challenge
2 Sacrifice
3 Selfishness, Rationality, and Utility
Utility and Desire
Utility and Duty
Utility and Evolution
Externalities
Efficiency
4 Situations, Games, and Cooperation
Example: benevolent sacrifice
Magical Reasoning
Altruism
Egalitarianism
Dutifulness and Norms
Social Esteem
Entitlements and Self-Serving Bias
Cooperation
5 Shared Understandings and Values
The group and the individual
Understanding Natural Reality
Understanding Social Reality
Culture and Institutions
Example 1: Culture, lost wallets, and economic success
Example 2: Cultural change in Japan
Example 3: The scientific revolution
6 Predicting Behavior in Games
Finding Nash Equilibria
Interpreting Nash Equilibria
Multi-Stage Games
7 A Model of Anarchy
Exiting Anarchy
8 Changing the Game
Expanding the Situation
Positive Reciprocity
Negative Reciprocity and Punishment
Threat of Punishment
Other Promises and Threats
Changing Understandings Only
9 Coordination
Common Interests
Conflicting Interests
Common Awareness
Clarity
Caveats
10 Authority’s Limitations
11 Relationships
The Threat of Terminating the Relationship
The Threat of Punishment
12 Third-Party Punishment
Collective Responsibility
The Rise of Policing and Lawyering
13 Coercion: Costs and Benefits
Exploitation
Desirable Taxation
14 Contracts and Governance
Baseline: Verifiable Cash Flows and Profit Sharing
Unverifiable Costs and Team Incentives
Formal and Informal Contracts: Ownership vs Control
Unverifiable Benefits: Control as a Bargaining Chip
15 Limited Liability and Corporate Finance
The Ex Ante Diversion Problem
The Ex Post Diversion Problem
16 Asymmetric Information
Screening
Signaling
17 Application: The Oil-Pool Problem
18 Conclusion
19 More Food for Thought
20 Further Reading
Chapter 1. The Organizational Challenge
Chapter 2. Sacrifice
Chapter 3. Selfishness, Rationality, and Utility
Chapter 4. Situations, Games, and Cooperation
Chapter 5. Shared Understandings and Values
Chapter 6. Predicting Behavior in Games
Chapter 7. A Model of Anarchy
Chapter 8. Changing the Game
Chapter 9. Coordination
Chapter 10. Authority’s Limitations
Chapter 11. Relationships
Chapter 12. Third-Party Punishment
Chapter 13. Coercion: Costs and Benefits
Chapter 14. Contracts and Governance
Chapter 15. Limited Liability and Corporate Finance
Chapter 16. Asymmetric Information
Postface
Acknowledgments
Answers to Exercises
References
Index of Authors
General Index
End User License Agreement
List of Illustrations
Chapter 4
Figure 4.1
Rowena’s sacrifice situation
Figure 4.2
Colin’s sacrifice situation
Figure 4.3
A bilateral sacrifice situation (the social dilemma)
Figure 4.4
A bilateral sacrifice game (the social dilemma game)
Figure 4.5
Situation or game?
Figure 4.6
The Altruists’ social dilemma game
Figure 4.7
The Egalitarians’ social dilemma game
Figure 4.8
The Norm-abiders’ social dilemma game
Figure 4.9
A coordination situation
Chapter 5
Figure 5.1
Key concepts
Figure 5.2
Formal and informal institutions (prescriptive norms)
Chapter 6
Figure 6.1
A common-interest coordination game
Figure 6.2
The Distribution game
Figure 6.3
An Anti-coordination game
Figure 6.4
A high-risk game
Figure 6.5
A Sequential Sacrifice game
Figure 6.6
Sequential Sacrifice game in single matrix
Figure 6.7
Sequential Sacrifice game as a tree
Figure 6.8
A Threatening game
Chapter 7
Figure 7.1
Production possibilities and consumption possibilities
Chapter 8
Figure 8.1
Reward situation
Figure 8.2
Reward game with gratitude
Figure 8.3
Reward game with positive reciprocity norm
Figure 8.4
Punishment situation
Figure 8.5
Punishment game with grievance
Figure 8.6
Punishment game with sanctioning norm
Figure 8.7
Contract Game
Figure 8.8
Coercion Game
Figure 8.9
Promise game
Chapter 9
Figure 9.1
Standard coordination game
Figure 9.2
Stag Hunt game
Figure 9.3
The Distribution game
Figure 9.4
The Chicken (Hawk–Dove) game
Chapter 10
Figure 10.1
Promise game
Chapter 11
Figure 11.1
Reward game (Trading game)
Figure 11.2
A Trust game with punishment
Chapter 12
Figure 12.1
A Trust game with professional punishment
Chapter 13
Figure 13.1
An Extortion game
Figure 13.2
A social dilemma game with a penalty contract
Figure 13.3
Timing
Chapter 14
Figure 14.1
Employees’ stage game
Figure 14.2
Timing
Chapter 15
Figure 15.1
Financial contracting game I
Figure 15.2
Financial contracting game II
Chapter 20
Figure 20.1
The Blame game
Answers to Exercises
Figure 20.2
The Conditional norm-abiders’ social dilemma game
Guide
Cover
Table of Contents
Dedication
Title Page
Copyright
Preface
Begin Reading
Postface
Answers to Exercises
References
Index of Authors
General Index
End User License Agreement
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Dedication
To my parents Grete and Jan and my wife Lisa
Institutional and Organizational Economics
A Behavioral Game Theory Introduction
Tore Ellingsen
polity
Copyright © Tore Ellingsen 2024
The right of Tore Ellingsen to be identified as Author of this Work has been asserted in accordance with the UK Copyright, Designs and Patents Act 1988.
First published in 2024 by Polity Press
Polity Press65 Bridge StreetCambridge CB2 1UR, UK
Polity Press111 River StreetHoboken, NJ 07030, USA
All rights reserved. Except for the quotation of short passages for the purpose of criticism and review, no part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.
ISBN-13: 978-1-5095-5901-5
A catalogue record for this book is available from the British Library.
Library of Congress Control Number: 2023932485
The publisher has used its best endeavors to ensure that the URLs for external websites referred to in this book are correct and active at the time of going to press. However, the publisher has no responsibility for the websites and can make no guarantee that a site will remain live or that the content is or will remain appropriate.
Every effort has been made to trace all copyright holders, but if any have been overlooked the publisher will be pleased to include any necessary credits in any subsequent reprint or edition.
For further information on Polity, visit our website:politybooks.com
Preface
The book’s title echoes the name of an academic association I recently had the honor to preside over: Society for Institutional and Organizational Economics (SIOE).1 Members of SIOE come from all parts of social science, including economics, management, political science, law, and sociology. My hope is that the same will be true of the book’s readers.
Leading academic journals are full of institutional and organizational economics. Yet, there are few university courses with this focus. Perhaps a new textbook will encourage more teachers to create one. In addition, I hope the book can be helpful as complementary reading in other courses – just as many of SIOE’s members see our yearly conference as their second conference.
The book is meant to be self-contained. A patient and talented high-school student could absorb everything without consulting other sources. That said, the text sometimes investigates difficult issues and leaves out a lot of detail. Even experienced social scientists are likely to find some challenging and unfamiliar ideas. For the benefit of curious readers who want to know more as well as advanced readers wanting to check the logical coherence and empirical basis of my claims, I have included a closing chapter with pointers to relevant readings.
Chapters 1–5 are easiest. Chapters 12–15 are too hard for an intro class. My 3rd-year economics BSc students enjoy the whole book, as do MSc and PhD students. Or so they say.
A message to students: As you progress through the book, you will need to absorb quite a bit of “behavioral game theory.” If you have never come across it before, it may feel intimidating. But please don’t be put off. It’s both simpler and more practically relevant than it first seems.
A message to teachers: This book is concise. I have included some exercises, stories, and food for thought, but your students might demand more. On my home page, I will maintain a repository of lecture slides (using Latex Beamer). Upon request, if you give a course, I will also share some additional exercises and solutions for them.
There are more comments to make and a long list of people to thank. But you will better understand my gratitude if you have first had a look at the book’s substance, so I leave further meta-comments to the Postface.
1.
The society was founded in 1997 under the name International Society for New Institutional Economics (ISNIE). The name changed in 2015.
https://sioe.org
.
1The Organizational Challenge
Some countries are peaceful and prosperous. Others are hostile and poor.
Why do some countries succeed while others fail?1
Why are some firms profitable while others in the same business make losses?
Why do some marriages prosper while others end in divorce?
At first sight, the three questions may seem completely unrelated. The success and failure of countries is the domain of political science. The success and failure of firms is the domain of management science. The success and failure of marriages is the domain of psychology and folklore.
Yet, countries, firms, and marriages have one thing in common: They comprise more than one individual. Therefore, they all face the same organizational challenge: How can people be made to help rather than hurt each other?The organizational challenge existed long before we had countries, firms, and marriages. It existed before our ancestors became human.
Answers to the challenge usually contain at least one of the following three elements.
Sacrifice:
Individuals voluntarily make sacrifices for others.
Cooperation:
Individuals coordinate their actions for mutual benefit.
Coercion:
Individuals are forced to take actions that benefit others.
Our task is to understand how desirable sacrifice, cooperation, and coercion come about. I cannot promise to deliver a definite answer. But I can promise to share with you a powerful language for discussing possible answers: the language of behavioral game theory.
The meaning of success depends on the group we consider. For example, two families can each be successful in the sense that family members cooperate well with each other in serving the family’s goals. Yet, if a large fraction of each family’s resources is used for the purpose of fighting against the other family, then the society comprising both families is not successful. The cooperation that is valuable at one level can be harmful at other levels.
A noteworthy example is due to Banfield (1958), who makes a detailed study of the life in Chiaromonte, a small town in Southern Italy. He observes that nepotism and corruption is widespread, as people give priority to their families over the community at large. As a result, Banfield argues, the town is underdeveloped. In a broader empirical study, Putnam (1993) addresses Banfield’s argument by comparing different parts of Italy. Putnam documents that the more prosperous regions in the North tend to have more extensive traditions of community-wide and non-hierarchical associations, such as guilds, clubs, and choirs.
More generally, people in the North behave less selfishly and more in line with the broader social interest. As a result, there is less need for regulation. Also, the regulators themselves behave less selfishly. When business partners and regulators are trustworthy, entrepreneurs dare to invest, and investment leads to prosperity.2 Likewise, firms function better when employees can trust their employers and vice versa. Political philosopher John Stuart Mill expressed it well:
The moral qualities of the labourers are fully as important to the efficiency and worth of their labour, as the intellectual [...] The advantage of humankind of being able to trust one another penetrates into every crevice and cranny of human life: the economical is perhaps the smallest part of it, yet even this is incalculable.
(Mill, 1848, Vol. I, Book I, Ch. VII, para. 5)
But just as strong families can constitute a problem for their town when they engage in feuds and nepotism, strong towns and countries can cause problems for the wider world. For example, it might not have been a coincidence that the rise of the Nazi party was most rapid and extensive in the parts of Germany that were rich in civic associations, including animal breeders, chess clubs, and choirs.3
From now on, when we study the relative success of local regions, the relevant group boundary is the local community. When we study the world’s ability to deal with global challenges such as climate change, pandemics, or nuclear war, the relevant group boundary is the global population.
The book is primarily theoretical. It provides concepts for thinking systematically about sacrifice, cooperation, and coercion, often by means of stylized examples. Many of these examples involve “societies” comprised of only two parties. The reason is that the fundamental organizational challenge is often the same, regardless of whether situation involves two individuals, two million individuals, or two billion individuals.4
1.
Do you want to know what has been written about this exact topic? For the most part, I refrain from giving references to academic research in the main text. However, in
Chapter 20
I offer some pointers to the relevant literature you may want to consult.
2.
The original purpose of Putnam’s project (which he conducted together with Italian researchers Leonardi and Nanetti) was to study the impacts of Italy’s sudden decision – in the spring of 1970 – to decentralize political power. As it turned out, the new local governments were more effective in the North than in the South. In trying to find out why, the researchers came to raise the much larger question of how societies succeed.
3.
This provocative hypothesis is explored by Satyanath, Voigtländer, and Voth (2017).
4.
There are important exceptions; I mention one in
Chapter 12
and one in
Chapter 13
.
