Chapter 2 Flashcards
Institutions
“rules of the game”
Institutional transitions
Fundamental and comprehensive changes introduced to formal and informal rules of
the game that affect firms as players
Institution-based view
Success and failure of firms are enabled and constrained by institutions
Institutional framework
Formal and informal institutions governing individual and firm behavior
Formal institutions
Laws, regulations, and rules - may be imposed by home countries and host countries
Norms
Values, beliefs, and actions
Regulatory pillar
formal - have to
Coercive power of governments
Normative pillar
informal - ought to
How values, beliefs, and actions of other relevant players influence behavior of focal individuals and firms
Cognitive pillar
informal - want to
Internalized, or taken for-granted, values and beliefs that guide individual and firm, or group, behavior
Transaction costs
Costs associated with economic transactions or, the costs of doing business – uncertainty, such as political or economic instability, can cause these costs to greatly rise
Opportunism
Act of seeking self-interest with guile (deceit): cheating or misleading, confusing others in transactions which will then increase their cost.
Political system
Rules of the game on how a country is governed politically
Political risk
Risk associated with political changes that may negatively impact domestic and foreign firms
Democracy
System in which citizens elect representatives to govern the country on their behalf
Totalitarianism (dictatorship)
System in which one person or party exercises absolute political control over the population
Totalitarian Structures
Communist
Right-wing
Theocratic
Tribal
Legal systems
Rules of the game on how a country’s laws are enacted and enforced
Civil Law
Comprehensive statutes and codes as a primary means to form legal judgments
Europe, Mexico, Japan
Common Law
English origin, shaped by precedents and traditions from previous judicial decisions
US, UK, Australia
Theocratic law
Based on religious teachings
Iran, Saudi Arabia
Property rights
Legal rights to use an economic property (resource) and derive income and benefits from it
Intellectual property
Intangible property the result of intellectual activity
Intellectual property rights (IPR)
Rights associated with ownership of intellectual property
Patent
Legal rights awarded by government authorities to inventors of new products or processes
Copyright
Exclusive legal rights of authors and publishers to publish and disseminate their work
Trademark
Exclusive legal rights of firms to use specific names, brands, and designs to differentiate their products from others
Economic system
Rules of the game on how a country is governed economically
Market economy
Characterized by the “invisible hand” of market forces; government takes a hands-off, or laissez faire, approach
Command economy
Government taking the “commanding height” in the economy; all factors of production are government- or state owned and controlled, and all supply, demand, and pricing are planned by the government
Mixed economy
Elements of both market economy and command economies
Washington Consensus
View centered on unquestioned belief in the superiority of private ownership over state ownership. This is seen in economic policy making led by the International Monetary Fund and the World Bank
Moral hazard
Recklessness when people and organizations (including firms and governments) do not have to face the full consequences of their actions
