New institutional economics
The New Institutional Economics ( NIE ) is a recent theory of economics that examines the effect of institutions on economic entities ( private household, business ). A distinction is the New Institutional Economics of the ( "old" ) Institutional Economics.
- 5.2.1 benefits
- 5.2.2 disadvantages
Subject
Institutions within the meaning of the New Institutional Economics are formal and informal rules, including the mechanisms of their enforcement, which restrict the behavior of individuals in transactions. They serve to reduce uncertainty and thus promote the possibility of interpersonal exchange.
History
Already some classics dealt with what we today call institutions. Thus Adam Smith already deals with constraints on action in the form of informal institutions and David Hume discussed property rights. John Stuart Mill recognized the importance of habits for the formation of market prices. However, both the Neoclassical theory and the Keynesian neglected ultimately institutions. The New Institutional Economics can be traced back to the essay published in 1937, The Nature of the Firm of Ronald Coase. The term " new institutional economics " but was only coined in 1975 by Oliver Williamson. The New Institutional Economics has found at least since the mid-20th century great recognition in the economics. A large part of it was also the Nobel Laureate Douglass North. In Germany, especially the business ethics Karl Homann has excelled through the ethical foundation of the institution concept.
Assumptions
There are explicitly taken into account leeway in prices, market power, persistent imbalances of the market, incomplete contracts, asymmetric information, changeable knowledge, bounded rationality, opportunism and transaction costs.
The new institutional economics thus differs substantially from the neoclassical theory, are in their simple model of Homo economicus replaced or supplemented the assumptions that seem appropriate for the issues dealt with.
Example
If two individuals operate with each other trading, the exchange of goods of relevant standards, customs and habits ( informal institutions ) and laws (formal institutions ) is regulated. In a breach of these rules occurs one ( monetary or non -monetary ) penalty, either by the company (internal institutions ) or by the state ( external institutions ) is enforced. The reliable observance of rules increases the willingness of individuals to engage in commerce. An institutional environment that encourages transactions between individuals, by setting incentives for cooperation and uncertainty reduced, has a strong welfare -promoting.
- Basis of institutional economics is the interaction theory, what the actual institutional theory touches.
- Application directions are the theory of state and society as well as the analysis of operational / organizational issues substantially.
- Major subdivisions are: principal-agent theory, theory of property rights ( property rights theory ), transaction cost theory
Coordination of economic activities
The coordination between suppliers and buyers is dependent on the form of organization. The term " organization" should be understood here as an institution as well as the people involved. It can perform the following forms of coordination are distinguished:
Market
Benefits
- Contracts are closed spontaneously
- The individuals are independent in their decision
- Coordination takes place through prices
- High flexibility
- Low administrative costs
- High innovation potential
- The person of the actor is irrelevant
- Highest possible performance incentives
Disadvantages
- Risk of opportunism ( no voice option )
- Only clearly specified services can be exchanged
- The transfer of knowledge is limited ( tacit knowledge )
- Search and information costs are very high
Hierarchy / company
Benefits
- Fixed contracts (eg employment )
- Coordination is done via transfers ( from supervisor to employee )
- The coordination cost is lower than the " market "
- Activities can be better planned
- Confidential information and knowledge can be exchanged open
- Culture
- Openness of the (power) spectrum
- Voice option
Disadvantages
- Administrative costs
- No incentives to compete
- (limited ) exit option
- Inertia of the structures
Network
Union of the advantages of market and hierarchy:
- Predictability is better than the market
- The flexibility is higher than that of the hierarchy
- Examples are agreements (cartels ), strategic alliances, virtual enterprises
In particular for small and medium-sized enterprises (SMEs), the shape of the network an appropriate response to competitive dynamics dar..
Another approach to network theory provides Mark Granovetter. This sees the relations of Individuuen or company nestled at the market in social networks. Classical economics, whose abstract image of the ideal market, as Granovetter, these networks do not know.
According to Ronald Coase companies exist because of the use of market-based pricing mechanism is more accurate incur costs with transaction costs. This can be avoided by coordination within an organization. Such costs include, for example, the cost of negotiating detailed contracts or cost of uncertainty about the reliability of a supplier ( eg insolvency risk from supplier).
Markets exist because the integration of activities in a company in turn, have a cost. These costs are an increasing integration limits (see also X - efficiency).
Cooperation is a hybrid of market and hierarchy in the sense that the parties voluntarily assume both sides contractual rules. Although this limit the possibilities for action from both sides, but still lead to greater mutual advantage than according to the rules of the market alone. Problems of coordination in accordance with these higher-level contractual rules can then be escalated - eg in court.
With the question of the coordination of cross-company supply chains, which can be regarded as the parent (virtual) organization unit concerned of the logistics of the supply chain management (SCM). Theoretical approaches of SCM start again partly on the institutional economics.