Government and Business Flashcards
What are Institutions?
Taken-for-granted rules, norms, and standards
What are Formal Institutions?
explicit and codified (e.g. laws)
What are Informal Institutions?
shared understanding (e.g. acceptable practices and culture)
Institutions enable and constrain firms’ behavior
true
Conformance is needed for firms’ legitimacy
true
Describe origins of institutions
- Institutions solve problems; often, they come to reflect the preferences of powerful and influential people
- Formal institutions result from informal institutions and historical circumstances
Describe why governments are important
- Establish and oversee the rules of the game (acceptable and unacceptable behavior in business)
- Influence the returns to investment and innovation
- Shape the process for influencing government officials
List benefits of government
- Establish order and prevent abuses
- Accomplish large-scale goals that private individuals and organizations cannot or will not
List the costs of government
- Expensive; tends to grow, rarely shrinks
- Reflects the private interests of people in government
What are regulatory institutions?
Laws that specify what individuals and firms are allowed and required to do. The enactment, execution, and enforcement of regulations sometimes diverge.
List advantages of Regulatory Institutions
- Establish frameworks that affect how firms are founded, compete, and cooperate
- Prevent private interests from harming the public good
List the disadvantages of Regulatory Institutions
- Can be used to protect private interests
- Can erect barriers to innovation and entrepreneurship
What are Political Institutions?
- Procedures for changing institutions
- Define the processes through which individuals and organizations influence government officials
List advantages of Political Institutions
- Specify who can serve in government and how
- Can enable change, adaptation, and flexibility
List the disadvantages of Political Institutions
- Can lock certain groups out of the political process
- May enable and legitimize corruption
Define Economic Institutions
- Primarily relates to fiscal (e.g., government spending) and monetary (e.g., the money supply) policies
- Influence and oversee a country’s economic system, especially its capital markets; affect the value of currency
List advantages of Economic Institutions
- Intended to promote stability and reduce uncertainty
- May smooth the natural cycles in market conditions
List disadvantages of Economic Institutions
- Interfere with natural market processes
- Complex; their effects are difficult to predict
Describe State Funding
- Government provides money to organizations
- Grants, loans, contracts, and taxes (e.g. tax credits)
List Advantages of State Funding
- Often fuels new knowledge and innovation, especially for expensive innovation projects that fit government agendas
- Can promote human and social capital, venture formation, job creation, and growth
List Disadvantages of State Funding
- May crowd out private-sector; can hurt non-funded firms; funded firms may use the funding for other purposes
- Government has difficulty picking winners; political conditions may divert funds from the best investments
Define Intellectual Property Protection
- Specifies the ownership and control of knowledge (e.g.., through patents, copyrights, and trademarks)
- Enforces claims on profits generated by the knowledge
List advantages of Intellectual Property Protection
1.Incentivizes investments in innovation; improves value capture; rewards disclosure
2. Provides order for innovation process; discourages counterfeiting; promotes collaboration and technology sharing
List Disadvantages of Intellectual Property Protection
- Creates monopolies, perhaps discouraging innovation; limits knowledge diffusion and extension
- Complex and costly enforcement; incentivizes time-consuming, costly, and destructive patent wars