The primary aim: increase the understanding of institutional change in industrial policy

• Institutional innovations in the political process and all institutions that have an impact on innovative behavior by all types of firm.

Innovations in institutions

The new institutional economics

Organizational development (transactions inside firms or through markets) is optimized:

Minimize (production + transaction costs) subject to - Incomplete contracts - Opportunistic behavior (self-interest, incorrect information) - Preferences are given

Institutions (property rights) are “exogenous rules of the game”.

Institutions as Nash-equilibrium of a game

No player is motivated to change his or her strategy as long as other players remain committed to their current strategies

• Strategy: action plan the players choose to maximise their satisfaction on the basis of expectations regarding other’s possible choices and their consequences.

• Institution a self-enforced rule of the game only if it is taken-for-granted by the players (constitutes part of the player’s mind-set)

Innovations in institutions

New combinations of games, which are linked in new ways to create economic value through externalities

Initiated and established or institutions in one game make choices viable and established in another game.

One of the agents in one game breaks the routine and makes experimental choices

Mechanisms promoting institutional change:

• Bundling of multiple economic-exchange domains by a single player

• Bundling of multiple domains by a third strategic party

• The social exchange-domain embeds (multiple) economic-, political- and organisational exchange domains

• Institutional complementarities

Qustions for discussions:

1) The EU Commission seems to believe that the creation of a European Research Area (investments in R&D, creation of centres of excellence) is a major instrument for economic growth. Are there any difficulties involved in making this instrument a pillar of the Lisbon strategy?

2) A small Swedish municipality - Gnosjö (close to Älmhult, where IKEA was born) – is known for excellent entrepreneurial activities. The region is also famous for an extremely high rate of membership in free church parishes. Are there any connections between these two characteristics? If the answer is yes; can we learn anything from this for a theory of institutional innovation?