Mechanisms of Endogenous Institutional Change

This paper proposes an analytical-cum-conceptual framework for understanding the nature of institutions as well as their changes. In doing so, it attempts to achieve two things: First, it proposes a way to reconcile an equilibrium (endogenous) view of institutions with the notion of agents’ bounded rationality by introducing such concepts as a summary representation of equilibrium as common knowledge of agents. Second, it specifies some generic mechanisms of institutional coherence and change -- overlapping social embededdness, Schumpeterian innovation in bundling games and dynamic institutional complementarities -- useful for understanding the dynamic interactions of economic, political, social and organizational factors.

The Five-Phases of Economic Development and Institutional Evolution in China and Japan

Based on the variable rate of gross domestic product per capita growth and its sources, this paper first identifies five phases of economic development that are common to China, Japan, and Korea: M (Malthusian), G (government-led), K (à la Kuznets), H (human capital based) and PD (post demographic-transition). But there are also marked differences in the onset, duration, and institutional forms of these phases across these economies. In order to understand these differences, this paper explores the agrarian origins of institutions in Qing China and Tokugawa Japan (and briefly Chosŏn Korea) and their path-dependent transformations over those phases. In doing so, the paper employs game-theoretic reasoning and interpretations of divergent institutional evolution between China and Japan, which also clarifies the simplicity of prevailing arguments that identify East Asian developmental and institutional features with authoritarianism, collectivism, kinship-dominance, Confucianism and the like. Finally, the paper examines the relevance of the foregoing developmental discussions to the institutional agendas faced by the People’s Republic of China (PRC) and Japan in their respective emergent phase-transitions. In what way can the PRC avoid the “middle income trap”? What institutional shortcomings become evident from the Fukushima catastrophe and how can they be overcome in an aging Japan?development phases; institutional evolution; agrarian origin; prc economy; middle income trap; post demographic transition; east asia; norm

Organizations under Large Uncertainty: An Analysis of the Fukushima Catastrophe

This paper analyzes the impacts of the March 11, 2011, earthquake and tsunami at the Fukushima nuclear power plant in Japan, which were amplified by a failure of coordination across the plant, corporate, industrial, and regulatory levels, resulting in a nuclear catastrophe comparable in cost to Chernobyl. It derives generic lessons for industrial structure and regulatory frame for the electric power industry by identifying the two shortcomings of a horizontal coordination mechanism: instability under large shocks and the lack of defense in depth.The suggested policy response is to harness the power of Òopen-interface-rule-based modularity by creating an independent nuclear safety commission and an independent system operator owning the transmission grid module in Japan. We propose a transitory price mechanism that can restrain price volatility while providing investment incentives.horizontal coordination, modularity, nuclear power, regional monopoly, electricity regulation, safety regulation, public ownership, independent system operator

Understanding the Silicon Valley Phenomena

Silicon Valley, Innovation enterprises, Tournament games

Coordination Under Uncertain Conditions: An Analysis of the Fukushima Catastrophe

This paper analyzes the impacts of the 11 March 2011 earthquake and tsunami at the Fukushima nuclear power plant in Japan, which were amplified by a failure of coordination across the plant, corporate, industrial, and regulatory levels, resulting in a nuclear catastrophe, comparable in cost to Chernobyl. It derives generic lessons for industrial structure and regulatory frame of the electric power industry by identifying the two shortcomings of a horizontal coordination mechanism: instability under large shock and the lack of “defense in depth.”fukushima catastrophe; nuclear power; earthquake and tsunami

Economic and political transitions from premodern to modern states in the Meiji Restoration and Xinhai Revolution: A strategic approach

Economists often identify a reduction in the share of agricultural employment as a quantitative indication of the economic growth of nations. But this process did not occur in earnest in the People's Republic of China until the 1980s and to some extent in Japan until well into the mid-20th century. Were extractive political regimes, commonly regarded as the primary drivers of economic performance, solely responsible for the lateness of these developments? This paper deals with this question from a strategic perspective by examining the interactions between the polity and the economy in both countries. It begins by characterizing the complementary nature of the peasant-based economy and the agrarian-tax state in premodern China and Japan. It then describes how endogenous strategic forces evolved from among the intermediate organizations in each country to challenge the incumbent dynastic ruler in response to the commercialization of the peasant-based economy on one hand and the fiscal and military weakening of the agrarian-tax state on the other. The paper then introduces a three-person game model between a ruler and two challenging organizations, and derives conditions for multiple equilbria and their comparative static. The analytical results help to identify the endogenous strategic forces that led the Meiji Restoration and the Xinhai Revolution to move from a premodern state of play to nation-state building and modern economic regimes in each country

Institutional Complementarities between Organizational Architecture and Corporate Governance

This paper explores an analytical reason why diverse corporate governance structure can be generated and sustained. The paper identifies three generic modes of organizational architecture in terms of information connectedness between the manager and the workers. Any of them cannot have absolute informational advantage in achieving an organizational objective independently of attribute of organizational product and technological task environment. Using the concept of strategic complementarity in game, it is then shown that a different type of governance structure may be associated with each mode of organizational architecture that can resolve respective moral hazard problem in the second best manner. Argument clarifies a limited applicability of the property rights approach for understanding a diversity of corporate governance. Topics such as codetermination, the stake-holder society view, and the Silicon Valley model are related to the analysis.

An Organizational Architecture of T-form: Silicon Valley Clustering and its Institutional Coherence (Formerly 03004)

While referring to a present author's article that compared the J-model vs. A-model as stylized models of Japanese and American firms, O.E.Williamson (1995) suggested the possibility of the third model of organizational architecture referred to T-forms. As examples of the forms, he suggested temporary organizational forms such as joint ventures. In this paper, I formulate the third type of organizational architecture (information capsulated form) which may be naturally derived in contrast to the A-model (hierarchical decomposition) and the J-model (information assimilation form) from an information systemic point of view. Further, I formulate the model of clustering of entrepreneurial firms of Silicon Valley type nesting this third type and analyze its logical structure by which unique values can be created because of its temporariness -- option value and tournament value. Finally, using the game-theoretic framework, I explain reasons why the Silicon Valley model can have institutional coherency and suggest a way to extend the Williamsonian institution-analytic framework.