Towards a quasi-Lamarckian theory of institutional change.

The paper emphasises two flaws in mainstream economics: the failure to understand human behaviour and the belittling of transaction costs. By stressing the role of knowledge, institutions and path dependence, new institutional economics has provided a powerful answer to these shortcomings. Nevertheless, a number of questions remain open. In particular, path dependence is far from being a continuous process. Its dynamics and its irregularities are by and large unexplained. Hence, a strong need for a convincing evolutionary theory of environmental change. This paper does not deny the validity of the Darwinian view applied to the theory of the firm and of competition in a free-market economy. It is however maintained that the natural-selection process that characterises the Darwinian approach is ill suited to describe economic evolutionary processes. It is shown that a combination of functional analysis and natural selection may indeed be a better solution, for it solves some of the puzzles raised by the public choice school without violating the fundamental tenets of the neo-institutional approach. Still, although this combined view may well explain why the institutional features are retained by the system, it does not clarify why they are introduced in the first place. A third possibility is thus put forward in the second part of the paper, where a new evolutionary theory is suggested. Within this framework, agents are assumed to behave according to their preferences within the existing rules of the game. At the same time, new ideas and sometimes new ideologies may influence their behavioural patterns. The combination between needs and ideologies generates environmental change, especially if so-called "ideological entrepreneurs" are able to transform latent and shared beliefs into an institutional project and enforce it.

Law, Economics and the Institutional Approach to Development and Transition: towards an Evolutionary Perspective

The principles underlying evolutionary psychology suggest an approach to Law and Economics that tends to reject top-down policy making and encourages a bottom-up stance, whereby rules lead to behavioral routines that are consistent with individuals’ shared psychological patterns. The view proposed here is fruitful from a methodological perspective, in that it allows a new classification of societies, new insight on their prospects for economic growth, an innovative appreciation of the chances for successful transition in areas that have undergone substantial political transformation.

A praxeological view of Post-Soviet institutional engineering.

The Misesian lesson in a transition framework leads to a number of questions about the very aims pursued by individuals as they switched from the communist regime to a so-called capitalist environment. According to the answers provided, one may then understand why so many candidates to free-market experiments are now evolving towards some kind of mixed-economy system. This paper tries to suggest the right questions by looking at the origin of the transition process in Eastern Europe. Four different theories are put forwards and analyzed. It is concluded that the so-called transition economies did not opt for a clearly-defined institutional system to oppose to Soviet communism. Rather, transition should refer to a painful process of finding out new institutional rules apt to replace the previous order. Nationalistic feelings surely play an important role and may explain why paternalistic policies tend to be welcome. From a praxeological viewpoint, it will be important to assess whether the present institutional framework is flexible enough to accommodate today's yearning for paternalistic policies, but strong enough to resist pressure to transform paternalism into redistribution and thereby award privileges to new rent-seeking coalitions.

Is there a health-care problem in Western societies?

The recent crisis in public finance that has characterized most Western countries has stoked renewed interest in the possibility of reducing government expenditure by reforming the health-care system. After reviewing the origins of today’s state intervention in this field, the present paper argues that policy-makers will certainly strive to contain health-care of expenditure. Yet, it also claims that unless the ideological context that has favoured the birth and development of the current systems undergoes significant transformation, reform in this area is bound to remain elusive. In particular, the myth of social justice and the concept of human dignity need to be reassessed. The outcome of this process will determine to which extent state intervention in the health sector will lose its rent-seeking connotations, while increasing attention will underscore critical phenomena to which the principle of individual responsibility offers only limited solutions.

On Growth and Development.

Contrary to the mainstream view, the paper offers a subjectivist approach to growth and an institutional view of development. In particular, the term development regards the prevailing rules of the game and their effects on the key variables for economic activity to take off: property rights and entrepreneurship. And growth is deemed to be the result of favourable institutional environments where chances are exploited and individuals succeed in improving their living conditions. From a methodological standpoint it is then argued that the common attempts to measure growth provide at best crude evaluations of the efforts to acquire purchasing power, but hardly measure well-being. From a normative perspective, the role of growth-enhancing government intervention is thus questioned. Doubts are also raised with respect to the recent and increasing literature on institutional design, which seems to ignore much of the lessons taught by the institutional schools - both old and new. And which tends to describe the past, rather than providing explanations that might help us understand the future.

Are Property Rights Relevant for Development Economics? On the Dangers of Western Constructivism.

Although the importance of property rights as the engine of growth remains beyond dispute, this article tries to show that the crucial issue is not so much the definition of the allegedly ‘optimal’ property right system, as the understanding of the ideological elements that justify property rights in the first place – entrepreneurship and self-responsibility. Unless one clearly perceives the nature of the ideological structure that legitimises the rules of the game in a given society, it is virtually impossible to understand why growth-conducive property-right systems fail to emerge and be accepted. Put differently, property rights are certainly necessary for growth. But they are no tools for policy-making. Getting them right – or transferring them from other contexts - is not enough, especially if their assignment and enforcement remains a top-down process, whereby local politicians or international technocrats suggest and enforce institutional arrangements experienced elsewhere.

Hayek and Economic Policy (The Austrian Road to the Third Way).

By examining Hayek’s approach to economic policy, this paper tries to show that his understanding of a free-market society was ambiguous, if not contradictory. Hayek was indeed following the Austrian tradition by rejecting technocratic views of policy-making. Nevertheless, he advocated a constitutional approach ultimately based on the rule of law created behind a veil of ignorance. Regulation and a fairly extensive welfare state are not ruled out either, and are subject to evaluation through a mix of rule of law (what that means), public opinion, common sense. After close inspection of the Road to Serfdom, the Constitution of Liberty, Law, Legislation and Liberty this contribution concludes that not only does Hayek fail to provide clear answers to the fundamental questions of economic policy. He also advocates a Third Way characterised by enlightened social engineering. In particular, the state has the duty to provide a suitable framework for the individual to develop his action, and to meet those social needs that the market fails to satisfy.

Social Contracts and Historical Rules

The public choice-school has explained why policy- making is generally disappointing and frequently against the very interest of the public at large. The economics profession has put forward two kinds of allegedly free-market remedies. On the one hand, the mainstream view underscores the need for more expert advice and better agency rules. On the other, the constitutional standpoint emphasizes the role of meta-rules founded on a social contract, so that abuse can be restrained, if not eliminated. This paper questions the foundations of the new contractarian views, which hardly escape the consequentialist and utilitarian problems raised by the orthodox approach to policy- making. In particular, it is argued that in order to understand the nature of today’s policy- making, rational constructivism is of little help; competing explanations, such as those offered by the institutional or the evolutionary schools, are similarly ineffective. The insufficiencies of the mainstream approaches suggest an alternative. We develop the idea that “First Principles” – that is those set of ideas that have characterized Western Civilization during the past two millennia – provide a better lens for understanding the role and characteristics of policy-making.

Discretionary power, rent-seeking and corruption.

This article considers corruption as a breach of contract between a principal and an agent. This does not necessarily imply that corruption is immoral, for the nature of the violation actually depends on the features of the underlying contract. In this light, under many circumstances corruption turns out to be a rational and understandable reaction to institutional failures, which are often far from accidental. To this purpose, three different stylized institutional frameworks are analyzed: developed, undeveloped and transition countries. Contrary to the mainstream approach to corruption, it is here argued that the origin, scope and consequences of corruption vary significantly across the different frameworks. Normative conclusions should therefore be adjusted accordingly.