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Institutions, Contracts and Organizations

Institutions, Contracts and Organizations

Perspectives from New Institutional Economics

Edited by Claude Ménard

This outstanding book presents new original contributions from some of the world’s leading economists including Ronald Coase, Douglass C. North, Masahiko Aoki, Oliver E. Williamson and Harold Demsetz. It demonstrates the extent and depth of the New Institutional Economics research programme which is having a worldwide impact on the economics profession.

Chapter 27: Values and governance systems

Pieter H.M. Ruys, René van den Brink and Radislav Semenov

Subjects: economics and finance, industrial organisation, institutional economics


Pieter H.M. Ruys, René van den Brink and Radislav Semenov* INTRODUCTION An organization is ruled by internal values. These constitute its culture and eventually determine the performance of the organization. To a large extent, however, these internal values are determined by external values, that is, the cultural values and the governance system of the society in which the organization performs. These observations are also valid for the ruling paradigm in economics, the general equilibrium model in neoclassical theory. The internal values of consumers and producers is to maximize utility and profits, which is consistent with and supported by the external market rules. These neoclassical models have given an impressive description of the economy on the basis of basically one value concept, the maximization of individual utility. This force explains, among others, the internal profit-maximization culture imposed on firms under neoclassical governance of society. This correspondence between the internal values of all firms and households with the external values in the society constitutes the basis of general equilibrium theory. However, there are more cultural dimensions in society than the utilitymaximizing one. When these other cultural dimensions are taken into account, the neoclassical concepts of a producer and a consumer have to be expanded. The rules governing these agents have to be designed by more sophisticated tools. Why is this relevant? Why would one want to incorporate other cultural values in governance than the neoclassical ones? The main reason is, of course, that such other values exist in society and...

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