Industrial Dynamics Why Connections Matter

Transaction costs

Cognitivism and Innovation in Economics - Two Lectures

This issue of the Department W.P. reproduces two lectures by Professor Loasby organized by the CISEPS (Centre for Interdisciplinary Studies in Economics, Psychology and the Social Sciences at Bicocca) in collaboration with the IEP, the Istituto di Economia Politica of the Bocconi University in Milan. The first lecture was delivered at the University of Milano-Bicocca on 13 October 2003 and the second was staged the day after at the Bocconi University. The lectures are reproduced here together with a comment by dr. Stefano Brusoni of Bocconi and SPRU. Two further comments were presented at the time by Professor Richard Arena of the University of Nice and by Professor Pier Luigi Sacco of the University of Venice. Both of them deserve gratitude for active participation to the initiative. Unfortunately it has not been possible to include their comments in the printed form. In these lectures Brian Loasby opens under the title of Psychology of Wealth (a title echoing a famous essay by Carlo Cattaneo) and he develops an argument in cognitive economics which is based on Hayek’s theory of the human mind with significant complements and extensions, mainly from Smith and Marshall. The second lecture provides a discussion on organization and the human mind. It can be read independently although it is linked to the former. Indeed, in Professor Loasby’s words, “the psychology of wealth leads to a particular perspective on this problem of organization”. The gist of the argument lies in the need to appreciate the significance of an appropriate “balance between apparently conflicting principles: the coherence, and therefore the effectiveness, of this differentiated system requires some degree of compatibility between its elements, but the creation of differentiated knowledge and skills depends on the freedom to make idiosyncratic patterns by thinking and acting in ways which may be radically different from those of many other people”. This dilemma of compatibility vs. independence can find solution in a variety of contexts, as Loasby’s analysis shows. In his comments Richard Arena had focussed on the rationality issues, so prominent in Loasby’s text. For example, he had suggested that the cleavage between rational choice equilibrium and evolutionary order offers ground to new forms of self-organization. Pier Luigi Sacco had emphasized that Loasby’s approach breaks new ground on the economics of culture and paves the way to less simplistic conceptions of endogenous growth than is suggested by the conventional wisdom of current models. Unfortunately, as hinted above, is has proved impossible to include those comments in the present booklet along with Loasby’s lectures. A special obligation must be recorded to Dr. Stefano Brusoni, who has prepared a written version of his own comment which has been printed in this booklet and can be offered to the reader. Among other participants Roberto Scazzieri, of the University of Bologna, Tiziano Raffaelli, of the University of Pisa, Luigino Bruni of Bicocca, Riccardo Cappellin of Rome ‘Tor Vergata’ and others were able to offer significant comments during the two sessions of the initiative. The organizers are particularly grateful to Professor Brian Loasby for the active and generous support of the initiative. Together with our colleagues and students we have been able to admire his enthusiasm and intellectual creativity in treating some of the more fascinating topics of contemporary economics.

Decision Premises, Institutions and Organisation

In formal reasoning, premises are decisive; but most economists are reluctant to treat them as problematic, either for analysts or economic agents. After illustrating the significance of alternative premises for economic theory, we explore the implications of Knightian uncertainty and cognitive limitations for the formation and co-ordination of decision premises as well as the development of dispersed and asymmetric knowledge. Institutions help people to frame decision spaces while facilitating knowledge-sharing; and formal organisation promotes investment in decision-making systems and the development of organisation-specific institutions. A discussion of authority, trust and strategy concludes.Dans le raisonnement formel, les prémisses sont essentielles. Cependant, les économistes sont réticents à les traiter comme problématiques tant pour comprendre le comportement des analystes que celui des agents économiques. Après avoir illustré l’importance des prémisses alternatives pour la théorie économique, nous explorerons les implications de l’incertitude knightienne et des limites cognitives pour la formation et la coordination des prémisses décisionnelles, ainsi que pour le développement de la dispersion et de l’asymétrie des connaissances. Les institutions aident les gens à encadrer les espaces décisionnels tout en facilitant le partage des connaissances. Par ailleurs, l’organisation formelle promeut l’investissement dans les systèmes de prise de décisions, et elle développe les institutions qui sont spécifiques en organisation. Nous concluons par une discussion sur l’autorité, la confiance, et la stratégie

Economic Analysis of Knowledge: The History of Thought and the Central Themes

Following the development of knowledge economies, there has been a rapid expansion of economic analysis of knowledge, both in the context of technological knowledge in particular and the decision theory in general. This paper surveys this literature by identifying the main themes and contributions and outlines the future prospects of the discipline. The wide scope of knowledge related questions in terms of applicability and alternative approaches has led to the fragmentation of research. Nevertheless, one can identify a continuing tradition which analyses various aspects of the generation, dissemination and use of knowledge in the economy

The theory of the firm and its critics: a stocktaking and assessment

Includes bibliographical references."Prepared for Jean-Michel Glachant and Eric Brousseau, eds. New Institutional Economics: A Textbook, Cambridge, Cambridge University Press.""This version: August 22, 2005."Since its emergence in the 1970s the modern economic or Coasian theory of the firm has been discussed and challenged by sociologists, heterodox economists, management scholars, and other critics. This chapter reviews and assesses these critiques, focusing on behavioral issues (bounded rationality and motivation), process (including path dependence and the selection argument), entrepreneurship, and the challenge from knowledge-based theories of the firm