Much of the "Economics of Property Rights" Devalues Property and Legal Rights’, Journal of Institutional Economics, December 2015, forthcoming. PDF available on request.
Legal theorists and other commentators have long established a distinction between property and possession. According to this usage adopted here, possession refers to control of a resource, but property involves legally sanctioned rights. Strikingly, prominent foundational accounts of the ‘economics of property rights’ concentrate on possession, downplaying the issue of legitimate legal rights (Von Mises  1981, Alchian 1965, 1977, Barzel 1994, 1997, 2002). Some authors in this genre make a distinction between ‘economic rights’ and ‘legal rights’ where the former are more to do with possession or the capacity to control. They argue that ‘economic rights’ are primary and more relevant for understanding behaviour. But it is argued here that legal factors – involving recognition of authority and perceived justice or morality – have also to be brought into the picture to understand human motivation in modern societies, even in the economic sphere. As other authors including Hernando De Soto (2000) have pointed out, the neglect of the legal infrastructure that buttresses property has deleterious implications, including a failure to understand the role of property in supporting collateralized loans for innovation and economic development.
‘What is Capital? Economists and sociologists have changed its meaning – Should it be changed back?’ Cambridge Journal of Economics, 38(5), September 2014, pp. 1063-86. PDF available on request.
This article traces the historical usages of the term capital and the explosion of different types of supposed ‘capital’ in the twentieth century, including ‘human capital’ and ‘social capital’. In medieval and early modern times, capital meant money investable or invested in business. This meaning persists in business circles today. In contrast, Adam Smith treated physical assets, machines and people as ‘capital’ and this different usage has dominated economics since. The pre-Smithian meaning referred to money or other saleable assets that could be used as collateral. This article questions the change in meaning by economists and sociologists, and highlights the importance of collateralisable property for capitalism. ‘Human capital’ can only be collateral if the humans involved are slaves. ‘Social capital’ can never be used as collateral and it is not even owned. These important issues are masked by the broadened notion of ‘capital’. Given the conceptual problems involved, economists and sociologists should consider returning to the pre-Smithian and surviving business usage of the term.
‘The Evolution of Morality and the End of Economic Man’, Journal of Evolutionary Economics, 24(1), January 2014, pp. 83-106. PDF available on request.
1871 saw the publication of two major treatises in economics, with self-seeking economic man at their center. In the same year Darwin published The Descent of Man, which emphasized sympathy and cooperation as well as self-interest, and contained a powerful argument that morality has evolved in humans by natural selection. Essentially this stance is supported by modern research. This paper considers the nature of morality and how it has evolved. It reconciles Darwin’s notion that a developed morality requires language and deliberation (and is thus unique to humans), with his other view that moral feelings have a long-evolved and biologically-inherited basis. The social role of morality and its difference with altruism is illustrated by an agent-based simulation. The fact that humans combine both moral and selfish dispositions has major implications for the social sciences and obliges us to abandon the pre-eminent notion of selfish economic man. Economic policy must take account of our moral nature.
(With Kainan Huang) ‘Brakes on Chinese Development: Institutional Causes of a Growth Slowdown’, Journal of Economic Issues, 47(3), September 2013, pp. 599-622.
China has enjoyed spectacular economic growth since the 1980s. Economic models based on production functions typically suggest that China’s rapid growth will continue at similarly high rates, but they ignore pressing structural and institutional constraints on its development. Among the problems identified in this paper, we point to an impending demographic shift that will greatly increase the number of economic dependents, the inadequate corporate legal foundation for indigenous private enterprise, and the discriminatory, defective and disruptive system of land tenure. These issues point to a pressing agenda of institutional reform to help China develop in future decades. Reforms have to concentrate on political structures, state efficiency, incentives to educate and train migrant workers, and land tenure, as well as on private enterprise.
‘Understanding Organizational Evolution: Toward a Research Agenda using Generalized Darwinism’, Organization Studies, 34(7), July 2013, pp. 973-992. PDF available on request.
The terms ‘evolution’ and ‘coevolution’ are widely used in organization studies but rarely defined. Often it is unclear whether they refer to single entities or populations. When specific evolutionary processes are suggested, the labelling is often misleading. For example, in the debate over the roles of individual adaptation and competitive selection, the ‘selectionist’ position of Michael Hannan and John Freeman (1989), which emphasizes the role of selection and stresses the limits of individual firm adaptability, is often described as ‘Darwinian’ whereas opposing views that emphasise adaptability are described as ‘Lamarckian’. But these labels are not strictly dichotomous. Scholars have shown that core Darwinian principles, resulting from abstract ontological communality rather than analogy, apply to social evolution. This opens up a research agenda using the principles of generalized Darwinism and the replicator-interactor framework to help understand the evolution of organizations. Some illustrations of the conceptual value of this approach are provided, including understanding the entwinement of selection and adaptation, the nature and role of organizational routines, the place of strategic choice and the growth of organizational complexity. The framework of generalized Darwinism also helps to bridge apparently divergent perspectives in the business strategy and organizational ecology literatures.
(With Kainan Huang) ‘Evolutionary Economics and Evolutionary Game Theory: Are They Different Species?’, Journal of Evolutionary Economics, 22, 2012, pp. 345-66. PDF available on request.
Evolutionary game theory and evolutionary economics seem to inhabit different academic spheres and have little collaboration with one another. Neither side cites much research by the other. Does this de facto academic separation impede fruitful possibilities for mutual inspiration and joint development? This paper addresses this question by considering (1) the different origins and research orientations of the two genres, (2) to what extent evolutionary economists could make use of evolutionary game theory, and (3) what evolutionary game theorists might learn from other, less formal, modes of theorising. The paper concludes that while significant possibilities for collaboration exist, the foremost test is whether they can help enhance our understanding of structures and causal processes in the real world.
'Generative Replication and the Evolution of Complexity', Journal of Economic Behavior and Organization,
75(1), July 2010, pp. 12-24. PDF available on request
See report on business applications of this research.
This paper identifies generative replication as a form of replication which has the potential to enhance complexity in social and biological evolution, including the wondrous complexity in the biological world, and complex social institutions such as human language and business corporations. We draw inspiration from the literature on self-reproducing automata to clarify the notion of information transfer in replication processes. To enhance complexity, developmental instructions must be part of the information that is transmitted in replication. In addition to the established triple conditions of causality, similarity and information transfer, a generative replicator involves a conditional generative mechanism that can use signals from an environment and create developmental instructions. We develop a simple model, a one dimensional linear automaton that is consistent with our four proposed conditions for a generative replicator. We show that evolution within this model will indeed approach maximal complexity, but only if our four proposed conditions are not violated.
'On the Institutional Foundations of Law: The Insufficiency of Custom and Private Ordering', Journal of Economic Issues, 43(1), March 2009, pp. 143-66.
Some theorists propose that systems of law largely arise spontaneously, as an extension of customary rules. At most, the role of the state is to endorse customary laws and add some minimal general rules. Some see no essential difference between custom and law. By contrast, this paper argues that law has properties that cannot be reduced to custom or private ordering alone. Customary mechanisms are insufficient to explain adherence to complex systems of law. Furthermore, law proper arose when customs were violated and some higher adjudication was required. We require an explanation of how a system of complex legal rules may be enforced, and why people often obey laws in the absence of obvious incentives or disincentives. Laws and their enforcement depend on stratified social structures within the framework of the state.
(With Thorbjørn Knudsen) ‘Information, Complexity and Generative Replication’, Biology and Philosophy, 43(1), 2008, pp. 47-65. PDF available on request.
The established definition of replication in terms of the conditions of causality, similarity and information transfer is very broad. We draw inspiration from the literature on self-reproducing automata to strengthen the notion of information transfer in replication processes. To the triple conditions of causality, similarity and information transfer, we add a fourth condition that defines a “generative replicator” as a conditional generative mechanism, which can turn input signals from an environment into developmental instructions. Generative replication must have the potential to enhance complexity, which in turn requires that developmental instructions are part of the information that is transmitted in replication. Demonstrating the usefulness of the generative replicator concept in the social domain, we identify social generative replicators that satisfy all of the four proposed conditions.
(With Shuxia Jiang) ‘The Economics of Corruption and the Corruption of Economics: An Institutionalist Perspective’, Journal of Economic Issues, 41(4), December 2007, pp. 1043-61.
This essay criticizes the commonplace definition of corruption as the misuse of public office for private gain. Both elements in this definition are wrong: corruption is also found in the private sector and in some exceptional cases it may not simply be for private gain. Another problem with prevailing treatments of corruption is their reliance on a utilitarian framework, which reduces ethical issues to matters of individual utility. This paper reinstates a non-utilitarian ethical dimension, and regards organizational corruption as involving collusion to violate established, normative rules. It is further established that organizational corruption incurs irreducible social costs that cannot fully be internalized in a Coasean manner, because corruption itself undermines the very framework of property rights.
‘Evolutionary and Institutional Economics as the New Mainstream?’, Evolutionary and Institutional Economics Review, 4(1), September 2007, pp. 7-25.
Mainstream economics has changed radically since the 1980s, offering greatly enhanced opportunities for intervention by evolutionary and institutional economics. This article surveys the extent of this transformation and the extent that mainstream economics has moved in an evolutionary and institutional direction. There are also signs of a possible gestalt shift in the social sciences, where rules are seen as constitutive of social relations and social reality. This contrasts with the former emphasis in mainstream economics on incremental change and equilibria. On the other hand, mainstream economics has a preoccupation with technique over substance, and the barriers between disciplines impair appropriate conceptual developments.
‘Meanings of Methodological Individualism’, Journal of Economic Methodology, 14(2), June 2007, pp. 211-26.
Advocacy of ‘methodological individualism’ is a widespread, especially among economists. However, the term is rarely defined with adequate precision and some crucial ambiguities are explored in this article. Among these is the commonplace ambivalence over whether explanations should be in terms of individuals alone, or in terms of individuals plus relations between them. It is shown that a great deal hinges on this subtle and often overlooked distinction in explanantia. In particular, explanations in terms of individuals alone have never, as yet, been achieved. Furthermore, the more feasible version of explanations in terms of individuals plus relations between them amount to the introduction of social structure alongside individuals in the explanantia. Serious questions remain whether this version warrants the one-sided emphasis on individuals in the term ‘methodological individualism’.
‘The Revival of Veblenian Institutional Economics’, Journal of Economic Issues,
41(2), June 2007, pp. 325-40.
This paper proposes that a major new opportunity has emerged for a modern revival in Veblenian institutional and evolutionary economics. Discussions of developments in the ‘new’ institutional economics, mainstream economic theory and modern psychology reinforce this conclusion. Along with the idea of endogenous or context-dependent preferences, Veblen’s concept of habit-driven behavior and his view that socio-economic evolution should be understood in Darwinian evolutionary terms, all are increasingly relevant in the light of recent developments. The article concludes by briefly outlining some key tasks on a Veblenian research agenda for the early twenty-first century.
‘Institutions and Individuals: Interaction and Evolution’, Organization Studies, 28(1), January 2007, pp. 95-116.
The conceptualization of the relation between individual and structure is central to social science. After making some key definitions, this paper overviews some recent developments in the social theory of structure and agency, and makes a novel addition, based on a concept of habit derived from pragmatism and Veblenian institutional economics. Processes of habituation provide a mechanism of ‘reconstitutive downward causation’ where institutional circumstances may affect individual preferences. Finally, special characteristics of organizations are discussed, endorsing an evolutionary analytical approach that combines insights from both evolutionary economics and organization science.
(With Thorbjørn Knudsen) ‘The Nature and Units of Social Selection’, Journal of Evolutionary Economics, 16(5), December 2006, pp. 477-89.
On the basis of the technical definition of selection developed by George Price (1995), we describe two forms of selection that commonly occur at the social level, subset selection and generative selection. Both forms of selection are abstract and general, and therefore also incomplete; both leave aside the question of explaining the selection criterion and why entities possess stable traits. However, an important difference between the two kinds of selection is that generative selection can accommodate an explanation of how new variation is created, while subset selection cannot. An evolutionary process involving repeated cycles of generative selection can, in principle, continue indefinitely because imperfect replication generates new variation along the way, whereas subset selection reduces variation and eventually grinds to a halt. Even if the two kinds of selection are very different, they share a number of features. First, neither subset selection nor generative selection implies improvement: neither kind of selection necessarily leads to efficiency or implies systematic outcomes. Second, both subset selection and generative selection can lead to extremely rapid effects in a social population. Third, in the social domain, both generative selection and subset selection involve choice and preference in some way: neither form of selection necessarily excludes intentionality. In concluding the article, we single out a challenge for future research in identifying the role of various units of culture in selection processes and the multiple levels at which social selection processes take place.
‘Institutions, Recessions and Recovery in the Transitional Economies’, Journal of Economic Issues,
40(4), December 2006, pp. 875-94.
This article analyses 1989-2005 economic growth in the transitional economies in Europe and Central Asia, and points to factors that help to explain the differences in outcome. An econometric analysis finds prominent indices of property rights, corruption, economic freedom, tax incidence and civil liberties as statistically insignificant in this regard. The analysis here also undermines the idea that the severe recessions of the 1990s might eventually promote faster growth. Statistically significant variables include the degree of ethnic fractionalization and an index of democracy, both of which were negatively correlated with GDP growth. Underlining the influence of long lasting institutional factors, both 1989 GDP and subsequent growth were enhanced by membership of what others have described as the zone of Western Christendom, which excludes predominantly Orthodox or Muslim countries. Overall, the analysis here points to the need for effective national institutions that can enforce legal and general rules of the economic game, reap positive benefits for democracy, and overcome the negative economic legacy of ethnic and other divisions.
(With Thorbjørn Knudsen) ‘Dismantling Lamarckism: Why Descriptions of Socio-Economic Evolution as Lamarckian are Misleading’, Journal of Evolutionary Economics, 16(4), October 2006, pp. 343-66.
This paper addresses the widespread tendency to describe socio-economic evolution as Lamarckian. The difference between Lamarckian and Darwinian replication is clarified. It is shown that a phenotype-genotype distinction must first be established before we can identify Lamarckian transmission. To qualify as Lamarckian inheritance, acquired properties at the phenotypic level must be encoded in a genotype that is passed on to the next generation. Some possible social replicators (or genotypes) are identified, with a view to exploring possible distinctions between genotype and phenotype at the social level. It is concluded that the Lamarckian label does not readily transfer to socio-economic evolution, despite the fact that social genotypes (such as routines) may adapt within any given phenotype (such as an organisation). By contrast, no such problems exist with the description of socio-economic evolution as Darwinian.
(With Thorbjørn Knudsen) ‘Why We Need a Generalized Darwinism and Why a Generalized Darwinism is Not Enough’, Journal of Economic Behavior and Organization,
61(1), September 2006, pp. 1-19. Essential Science Indicators, Hot Paper Status, January 2008.
Complex evolving systems, consisting of populations of varied and replicating entities are found in both nature and human society. There exists no alternative to the core Darwinian principles of variation, selection and inheritance to explain the evolution of such systems. Neither the actual existence of human intentionality nor the hypothetical possibility of Lamarckian acquired character inheritance offers a barrier to the use of Darwinian principles. On the contrary, Darwinism is always required to complete the explanation. However, while Darwinian principles are always necessary to explain complex evolving population systems they are never sufficient on their own.
(With Thorbjørn Knudsen) ‘Balancing Inertia, Innovation, and Imitation in Complex Environments’,Journal of Economic Issues,
40(2), June 2006, pp. 287-95.
This article adds to prior studies by examining mixtures of innovation and imitation in environments characterized by different levels of complexity in a Kauffman-type NK framework. We establish that organizations balancing inertia and innovativeness at intermediate levels always have an advantage over the extremes of local and distant search examined in prior studies. We further show that a range of equally viable search strategies are available, with imitation and inertia as substitutes. As complexity increases, however, the set of viable strategies shrinks and high levels of fitness are obtained at lower levels of inertia and imitation.
(With Richard Carter) ‘The Impact of Empirical Tests of Transaction Cost Economics on the Debate on the Nature of the Firm’, Strategic Management Journal, 27(5), May 2006, pp. 461-76.
Transaction cost economics (TCE), as developed and operationalized by Oliver Williamson, is one of the most prominent and influential developments in the social sciences. In recent years, on the basis of many empirical studies, it has been claimed that the evidence has corroborated TCE. If so, this would have major implications for the debate between TCE and other approaches to understanding the nature of the firm. In this paper we submit the most prominent TCE empirical work to critical scrutiny, on the basis of the standards and predictions in Williamson’s own writings. We find a much more mixed picture, with few studies giving unambiguous support to Williamson’s TCE. Furthermore, a significant number of the studies can be re-interpreted in terms of a competence or capabilities approach. We conclude that the empirical evidence does not decisively support Williamson’s TCE and we stress the importance of an empirical program of joint testing of rival theoretical approaches.
‘What Are Institutions?’, Journal of Economic Issues, 40(1), March 2006, pp. 1-25.
A primary aim of this paper is to establish some workable meanings of key terms including institution, convention and organization, by drawing on insights from several academic disciplines. Institutions are defined broadly as systems of established and prevalent social rules that structure social interactions. This, in turn, prompts some examination of the concept of a rule, and why rules are followed. The paper then addresses the controversial distinction between institutions and organizations. Douglass North’s influential formulations of these terms are criticized for being incomplete and misleading. Here an organization is treated as a type of institution involving membership and sovereignty. Further types of institution are also considered, including the difference between self-organizing and other institutions, and the differences in degrees of sensitivity to varying personality types of the agents involved.