International Entrepreneurship Learning Objectives Understand the basic functioning of New Institutional Economics and be able to apply selected models to international management Train your ability to critically reflect on the wider institutional contexts and their influence on business ID: 808382
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Slide1
C1.1.1 Theoretical Foundations of
International
Entrepreneurship
Slide2Learning Objectives
Understand the basic functioning of New Institutional Economics and be able to apply selected models to international management
Train your ability to critically reflect on the wider institutional contexts and their influence on business
Understand the added complexity of working within multiple institutional environments in international business
Slide3Agenda
1. New Institutional Economics
1.1 The Role of Institutions in International Business
1.2 Basic Foundations of New Institutional Economics
1.3 Theoretical Streams in New Institutional Economics
Property Rights Approach
Transaction Cost
Principal Agent Theory
Slide4Nations in a Global World
InterNATIONalisation?
What is a “nation” and what is its purpose?
4
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Slide5Nations in a Global World
2 important dimension of nations
+
Sommersemester 2016
Costs of coordination are decreasing
Max. value creation and use of coordination
(Wolff, 2005)
Slide6Agenda
1. New Institutional Economics
1.1 The Role of Institutions in International Business
1.2 Basic Foundations of New Institutional Economics
1.3 Theoretical Streams in New Institutional Economics
Property Rights Approach
Transaction Cost
Principal Agent Theory
Slide7Why Institutional Theory?
7
Nations have a cost advantage through homogeneous constraints and incentives
These constraints and incentives are shaped by “institutions
”
Internationalisation = working in several national setups
Implies the need to understand institutional structures to benefit from cost advantage across national boundaries
Slide8“
Institutions are the rules of the game of a society
”
(North, 1990)
“
Institutions are the humanly devised constraints that structure human interaction
”
(North, 1994)
“
They are made up of formal and informal constraints and their enforcement characteristics
”
(North, 1994)
Made by humans
Define incentive structures
Influence behaviour and interaction
What is an institution?
8
Slide9Institutions ...
Are the rules of the game in a society or, more formally, are humanly devised constraints that shape human interaction (North, 1990, p. 3)
Organisations...
Are groups of individuals bound by some common purpose to achieve objectives (North, 1990, p. 5)
Institutions are rules of the game, not the players)
Institutions structure private and social life
Institutions reduce uncertainty
Institutions can be formal or informal
Institutions can develop spontaneously or be implemented by power
Organisations adapt to the institutional framework conditions to reach their objectives
Organisations try to change institutions to achieve their objectives
Organisations differ in the power and way they can influence institutions
Institutions vs. Organisations
Sommersemester
2016
What is an institution?
(Söllner, 2005)
Slide10Embeddedness:
Informal institutions, customs,
traditions, norms, religion
Institutional Environment:
Formal rules of the game, esp.
property (polity, judiciary,
bureaucracy)
Governance: Playing the game,
esp. contract
(aligning governance
structures with transactions)
Resource
allocation and employment
(prices and quantities,
incentive alignment)
Level
L1
L2
L3
L4
Frequency
(years)
10
2
to 10
3
10 to 10
2
1 to 10
continuous
Purpose
Often non-calculative,
spontaneous
Get the institutional
environment right,
1st order economising
Get the governance
structures right,
2nd order economising
Get the marginal conditions right,
3rd order economising
(Williamson, 2000)
L1: social theory L3: transaction cost economics
L2: economics of property rights/positive political theory L4: neoclassical economics/agency theory
10
Slide11Internationalisation
of SMES
Video
Slide12Embeddedness:
Informal institutions, customs,
traditions, norms, religion
Institutional Environment:
Formal rules of the game, esp.
property (polity, judiciary,
bureaucracy)
Governance: Playing the game,
esp. contract
(aligning governance
structures with transactions)
Resource
allocation and employment
(prices and quantities,
incentive alignment)
Level
L1
L2
L3
L4
Cultural differences (food preferences, cooking traditions, language..)
Williamson (2000)
12
Different laws, quality standards, technical differences ..
Differences in business behaviour
Individual level: different educational background and knowledge background of clients
Slide13Agenda
1.
New Institutional Economics
1.1 The Role of Institutions in International Business
1.2 Basic Foundations of New Institutional Economics
1.3 Theoretical Streams in New Institutional Economics
Property Rights Approach
Transaction CostPrincipal Agent Theory
Slide14New Institutional Economics
14
How did New Institutional Economics evolve?
There are assumptions in the neoclassical theory, which are not (always) present:
Perfect information
Rationality
Costless interactions
Secure property rights
Slide15Which assumptions is New Institutional Economics based on?
New Institutional Economics
5 min research!
Slide16Which assumptions is New Institutional Economics based on?
1. Introduction to NIE
New Institutional Economics
Slide17Agenda
1. New Institutional Economics
1.1 The Role of Institutions in International Business
1.2 Basic Foundations of New Institutional Economics
1.3 Theoretical Streams in New Institutional Economics
Property Rights Theory
Transaction Cost
Principal Agent Theory
Slide18Property
Rights
Theory
Transaction
Cost
Theory
Principal
Agent
Theory
New Institutional Economics
Theoretical Streams in New Institutional Economics
Slide19Property Rights Theory
The right to use an asset
(=
usus
)
The right to change an asset
(=
abusus
)
The right to take earnings from an asset (=
usus
fructus
)
The right to sell an asset
Coordination rights
Value generating rights
(
Coase
, 1960 and
Furubotn
, Richter, 2005)
Slide20Property
Rights
Theory
Transaction
Cost
Theory
Principal
AgentTheoryNew Institutional Economics
Theoretical Streams in New Institutional Economics
Slide21Transaction Costs
Slide22Assumptions
Bounded rationality
Utility maximisation/Opportunism
Constraints
Uncertainty
Specificity
Frequency
Transaction atmosphere
Availability of resources
22
Transaction Costs
Slide23Trans-action Costs
Slide24Property
Rights
Theory
Transaction
Cost
Theory
Principal
AgentTheoryNew Institutional Economics
Theoretical Streams in New Institutional Economics
Slide25You want to sell your used car
You know that your car has some problems. Your potential buyer does not know that.
Asymmetric Information
What happens?
25
Principal Agent Theory
Slide26Principal Agent Theory
P
A
Asymmetric Information
Hires
Performs
Self-interest
Self-interest
Slide27Assumptions
Bounded rationality
Utility maximisation
Risk affinity
Constraints
Three different types of risks:
Adverse selection
Moral hazard
Hold up
27
Principal Agent Theory
Slide28Adverse Selection
28
Principal Agent Theory
Slide29Moral hazard
Principal Agent Theory
Slide30Hold up
30
Principal
Agent Theory
Slide31Risk
Attributes
Adverse Selection
Moral Hazard
Hold Up
Background of the risk
Asymmetrical information
(characteristics of product)
Asymmetrical information
(monitoring of action)
One-sided specific investment
Time of occurrence in relation to contract signing
Ex ante
Ex post
Ex post
Contractual approach to solve problem
Selection mechanisms
(
signaling
/
screening)
Incentive
systems
Vertical integration or mutual dependencies
31
Principal Agent Theory
Slide32Principal Agent Theory – Bread Fans
Slide33Summary
Slide34Summary - Learning Objectives
Understand the basic functions of New Institutional Economics and be able to apply selected models to international management
Train your ability to critically reflect on the wider institutional contexts and their influence on business
Understand the added complexity of working within multiple institutional environments in international business
Slide35References
Coase, R. H. (1960). The problem of social cost.
Journal of law and economics, 3(1),
1-44.
North, D. C. (1990). Institutions, institutional change and economic performance.
Cambridge University Press
.
North, D. C. (1994). Economic performance through time. The American economic review, 84(3), 359-368.Furubotn, E. & Richter, R. (2005). Institutions and Economic Theory. University of Michigan Press. Williamson, O. E. (1975). Markets and hierarchies. New York, 2630.Williamson, O. E. (2000). The new institutional economics: taking stock, looking ahead. Journal of economic literature, 38(3), 595-613.Wolff, B. (1995). Contractual Problems in market relations. In U. Bernitz, & P. Hallström (Eds.), Principles of Justice and the European Union (pp. 83–95). Juristförlaget.Wolff, B. (2005). Internationales Management aus der Perspektive der neuen Institutionenökonomik, in: Schauenberg, B./Schreyögg, G./Sydow, J. (Hrsg.): Managementforschung, Wiesbaden, 107-143.
Slide36Recommended
Further Reading:
Akerlof
, G. A. (1970). The market for" lemons": Quality uncertainty and the market mechanism. The quarterly journal of economics, 488-500.
North, D. C. (1994). Economic performance through time. The American economic review, 84(3), 359-368.
Khalil, E. L. (1995).
Organizations
versus institutions. Journal of Institutional and Theoretical Economics (JITE)/Zeitschrift für die gesamte Staatswissenschaft, 445-466.Williamson, O. E. (2000). The new institutional economics: taking stock, looking ahead. Journal of economic literature, 38(3), 595-613.36