Chapter 2

Question 1

Institutional transition

Answer 1

Fundamental and comprehensive changes introduced to the formal and informal rules of the game that affect firms as players

Question 2

Institution-based view

Answer 2

A leading perspective in global business that suggests that the success and failure of firms are enabled and constrained by institutions

Question 3

Institution

Answer 3

Formal and informal rules of the game

Question 4

Institutional framework

Answer 4

Formal and informal institutions that govern individual and firm behavior

Question 5

Formal institution

Answer 5

Institutions represented by laws, regulations, and rules

Question 6

Regulatory pillar

Answer 6

The coercive power of governments

Question 7

Informal institution

Answer 7

Institutions represented by cultures, ethics, and norms

Question 8

Normative pillar

Answer 8

The mechanism through which norms influence individual and firm behavior

Question 9

Norms

Answer 9

Values, beliefs, and actions of relevant players that influence the focal individuals and firms

Question 10

Cognitive pillar

Answer 10

The internalized (or taken-for-granted) values and beliefs that guide individual and firm behavior

Question 11

Transaction cost

Answer 11

The cost associated with economic transactions or, more broadly, the costs of doing business

Question 12

Opportunism

Answer 12

The act of seeking self-interest with guile

Question 13

Transition economies

Answer 13

A subset of emerging economies, particularly those moving from central planning to market competition (such as China, Poland, Russia, and Vietnam)

Question 14

Bounded rationality

Answer 14

The necessity of making rational decisions in the absence of complete information

Question 15

Political system

Answer 15

The rules of the game on how a country is governed politically

Question 16

Democracy

Answer 16

A political system in which citizens elect representatives to govern the country on their behalf

Question 17

Totalitarianism (dictatorship)

Answer 17

A political system in which one person or party exercises absolute political control over the population

Question 18

Political risk

Answer 18

The risk associated with political changes that may negatively impact domestic and foreign firms

Question 19

Legal system

Answer 19

The rules of the game on how a country’s laws are enacted and enforced

Question 20

Civil law

Answer 20

A legal tradition that uses comprehensive statutes and codes as a primary means to form legal judgments

Question 21

Civil law countries example

Answer 21

Argentina, Belgium, Brazil, Chile, China, Egypt, France, Germany, and Greece

Question 22

Common law

Answer 22

A legal tradition that is shaped by precedents and traditions from previous judicial decisions

Question 23

Common law countries example

Answer 23

Australia, Canada, Hong Kong, India, Ireland, Kenya, and the United States

Question 24

Theocratic law

Answer 24

A legal system based on religious teachings

Question 25

Theocratic law countries example

Answer 25

Iran, Saudi Arabia, and the United Arab Emirates

Question 26

Property right

Answer 26

The legal right to use an economic property (resource) and to derive income and benefits from it

Question 27

Intellectual property (IP)

Answer 27

Intangible property that is the result of intellectual activity

Question 28

Intellectual property right (IPR)

Answer 28

Right associated with the ownership of intellectual property

Question 29

Patent

Answer 29

Exclusive legal rights of inventors of new products or processes to derive income from such inventions.

Question 30

Trademarks

Answer 30

Exclusive legal rights of firms to use specific names, brands, and designs to differentiate their products from others

Question 31

Piracy

Answer 31

The unauthorized use of intellectual property rights

Question 32

Economic system

Answer 32

Rules of the game on how a country is governed economically

Question 33

Market economy

Answer 33

An economy that is characterized by the “invisible hand” of market forces

Question 34

Command economy

Answer 34

An economy in which all factors of production are government- or state-owned and controlled, and all supply, demand, and pricing are planned by the government

Question 35

Mixed economy

Answer 35

An economy that has elements of both a market economy and a command economy

Question 36

Market transition debate

Answer 36

The debate about how to make the transition to a market economy work in most effective and least disruptive way

Question 37

Path dependency

Answer 37

The present choices of countries, firms, and individuals are constrained by the choices made previously

Question 38

Herd mentality

Answer 38

A behavior influenced by the movement of the crowd (or the herd) with little independent judgment

Question 39

Title of Chapter 2

Answer 39

Understanding Formal Institutions: Politics, Laws, and Economics