A New Institutional Economics Perspective on Industry by Jan Sammeck

By Jan Sammeck

The thought of self-regulation as an tool able to mitigating socially bad practices in industries - corresponding to corruption, environmental degradation, or the violation of human rights - is receiving significant attention in idea and perform. by means of coming near near this phenomenon with the speculation of the recent Institutional Economics, Jan Sammeck develops an analytical method that issues out the serious mechanisms which come to a decision concerning the effectiveness of this software. by way of integrating conception with sensible examples of self-regulation, this research highlights the need to examine the institutional incentives of an undefined, in an effort to come to a valid judgement in regards to the feasibility and effectiveness of this software in a given situation.

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This idea opens up the analysis for a re-introduction of legitimacy into the context. Legitimacy is transferred from stakeholders to the firm in exchange for what can be considered a contribution to public welfare. That is, society considers the generation of private profits in certain circumstances legitimate, because it recognizes the benefit, which generally speaking is the creation of welfare, in exchange for being integrated into the sphere of legitimate entities of society. 83 Particular stakeholders engage in transactions with a firm in that they exchange a specific resource with the firm, such as goods, money, labor, or security of property rights.

This chapter intends to explain why a firm will join industry peers in order to give a collective commitment to following ethical standards. 95 In both cases, mitigation of transaction costs is central.  93 To further illustrate this idea, consider the extreme example of an entirely illegitimate organization: the mafia. The mafia operates on particular markets, for example the market for illegal drugs. As the production and distribution of such drugs is considered by at least large parts of society as socially undesirable, it does not consider the mafia to be legitimate, but rather, installs mechanisms that attempt to end its existence, such as for example, the courts and special police units.

E. to not cooperate. In the simplest case, one may distinguish between transactions in which an individual is either of good or bad type. Good types intend to cooperate, while bad types intend not to. However, information about whether an individual is of good or bad type is private, such that no one knows about the other’s type. The main conclusion is that a bad agent may find it optimal to mimic the behavior of a good agent in order to convince the transaction partner to exchange with him some valued good.

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