Formal institutions: Economic, political and legal systems

28 important questions on Formal institutions: Economic, political and legal systems

What is an institutional framework?

Formal and informal institutions governing individual and firm behaviour.

What are informal institutions?

Rules that are not formalised but exist in for example norms and values

What is a regulatory pillar?

The coercive power of governments.
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What are the 3 pillars in which institutions can be classified?

1. the regulatory pillar
2. the normative pillar
3. Cognitive pillar

What is the normative pillar?

The mechanism through which norms influence individual and firm behaviour.

What is the cognitive pillar?

The internalised, taken-for-granted values and beliefs that guide individual and firm behaviour

What is an institutional transition?

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

What is the key role of institutions?

To reduce uncertainty. They constrain the range of acceptable actions, thereby reducing uncertainty

What are transition economies?

Economies in which institutional transition is so pervasive, that they seem to be in constant transition.

What are the 2 primary political systems?

1. Totalitarianism
2. Democracy

What is a democracy?

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

What are the variations among democracies?

1. Proportional representation vs first-past-the-post
2. Direct vs indirect elections of governments (choosing the president directly vs choosing representatives that elect government)
3. Representative versis direct democracy
4. Centralisation of power

What is proportional representation in a democracy?

All votes are added up and seats are allocated to political parties proportionally to the number of votes.

What is a first-past-the-post system in a democracy?

Each constituency elects one representative only. This system favours the stronger parties

Why do politics matter for international business?

1. Political systems determine who sets the rules, and whose interest may be reflected in the rules
2. Political systems determine where and how businesses may be able to influence legislative processes through lobbying and corruption
3. Influence how frequently rules of game for business are changed

What is political risk?

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

What is the economic system?

Rules of the game on how a country is governed economically

What are theoretical prototypes of markets?

1. Pure market economy
2. Command economy

What is a command economy?

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

What is the varieties of capitalism view?

Suggests that economies have different inherent logics on how markets and other mechanisms coordinate economic activity

What is the legal system?

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

What is civil law?

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

What are property rights?

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

What are intellectual property rights?

Rights associated with the ownership of intellectual property

What is intellectual property?

Intangible property that results from intellectual activity

What is a patent?

Legal rights awarded by government authorities to inventors of new technological ideas, who are given exclusive rights to derive income from such inventions

What is a trademark?

An exclusive legal right of firms to use specific names, rands and designs to differentiate their product from others

What are the 4 E's necessary to protect IPRs?

1. Enforcement
2. Education
3. External pressure
4. Economic growth

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