Social Security in Theory and Practice (II): Efficiency Theories, Narrative Theories, and Implications for Reform

166 countries have some kind of public old age pension. What economic forces create and sustain old age Social Security as a public program? Mulligan and Sala-i-Martin (1999b) document several of the internationally and historically common features of social security programs, and explore "political" theories of Social Security. This paper discusses the "efficiency theories", which view creation of the SS program as a full of partial solution to some market failure. Efficiency explanations of social security include the "SS as welfare for the elderly" the "retirement increases productivity to optimally manage human capital externalities", "optimal retirement insurance", the "prodigal father problem", the "misguided Keynesian", the "optimal longevity insurance", the "government economizing transaction costs", and the "return on human capital investment". We also analyze four "narrative" theories of social security: the "chain letter theory", the "lump of labor theory", the "monopoly capitalism theory", and the "Sub-but-Nearly-Optimal policy response to private pensions theory". The political and efficiency explanations are compared with the international and historical facts and used to derive implications for replacing the typical pay-as-you-go system with a forced savings plan. Most of the explanations suggest that forced savings does not increase welfare, and may decrease it.

Social security in theory and practice (II): Efficiency theories, narrative theories and implications for reform

166 countries have some kind of public old age pension. What economic forcescreate and sustain old age Social Security as a public program? Mulligan and Sala-i-Martin (1999b) document several of the internationally and historically common features of social security programs, and explore "political" theories of Social Security. This paper discusses the "efficiency theories", which view creation of the SS program as a full of partial solution to some market failure. Efficiency explanations of social security include the "SS as welfare for the elderly" the "retirement increases productivity to optimally manage human capital externalities", "optimal retirement insurance", the "prodigal father problem", the "misguided Keynesian", the "optimal longevity insurance", the "governmenteconomizing transaction costs", and the "return on human capital investment". We also analyze four "narrative" theories of social security: the "chain letter theory", the "lump of labor theory", the "monopoly capitalism theory", and the "Sub-but-Nearly-Optimal policy response to private pensions theory".The political and efficiency explanations are compared with the international and historical facts and used to derive implications for replacing the typical pay-as-you-go system with a forced savings plan. Most of the explanations suggest that forced savings does not increase welfare, and may decrease it.

The social disembedding of business theory and practice. A (neo-)institutional analysis of the homo economicus and corporate social responsibility, and the inherent responsibility of business scholars

Aim Structure of the Thesis In the first article, I focus on the context in which the Homo Economicus was constructed - i.e., the conception of economic actors as fully rational, informed, egocentric, and profit-maximizing. I argue that the Homo Economicus theory was developed in a specific societal context with specific (partly tacit) values and norms. These norms have implicitly influenced the behavior of economic actors and have framed the interpretation of the Homo Economicus. Different factors however have weakened this implicit influence of the broader societal values and norms on economic actors. The result is an unbridled interpretation and application of the values and norms of the Homo Economicus in the business environment, and perhaps also in the broader society. In the second article, I show that the morality of many economic actors relies on isomorphism, i.e., the attempt to fit into the group by adopting the moral norms surrounding them. In consequence, if the norms prevailing in a specific group or context (such as a specific region or a specific industry) change, it can be expected that actors with an 'isomorphism morality' will also adapt their ethical thinking and their behavior -for the 'better' or for the 'worse'. The article further describes the process through which corporations could emancipate from the ethical norms prevailing in the broader society, and therefore develop an institution with specific norms and values. These norms mainly rely on mainstream business theories praising the economic actor's self-interest and neglecting moral reasoning. Moreover, because of isomorphism morality, many economic actors have changed their perception of ethics, and have abandoned the values prevailing in the broader society in order to adopt those of the economic theory. Finally, isomorphism morality also implies that these economic actors will change their morality again if the institutional context changes. The third article highlights the role and responsibility of business scholars in promoting a systematic reflection and self-critique of the business system and develops alternative models to fill the moral void of the business institution and its inherent legitimacy crisis. Indeed, the current business institution relies on assumptions such as scientific neutrality and specialization, which seem at least partly challenged by two factors. First, self-fulfilling prophecy provides scholars with an important (even if sometimes undesired) normative influence over practical life. Second, the increasing complexity of today's (socio-political) world and interactions between the different elements constituting our society question the strong specialization of science. For instance, economic theories are not unrelated to psychology or sociology, and economic actors influence socio-political structures and processes, e.g., through lobbying (Dobbs, 2006; Rondinelli, 2002), or through marketing which changes not only the way we consume, but more generally tries to instill a specific lifestyle (Cova, 2004; M. K. Hogg & Michell, 1996; McCracken, 1988; Muniz & O'Guinn, 2001). In consequence, business scholars are key actors in shaping both tomorrow's economic world and its broader context. A greater awareness of this influence might be a first step toward an increased feeling of civic responsibility and accountability for the models and theories developed or taught in business schools.

Alternative banking: theory and evidence from Europe

Since financial liberalization in the 1980s, non-profit maximizing, stakeholder-oriented banks have outperformed private banks in Europe. This article draws on empirical research, banking theory and theories of the firm to explain this apparent anomaly for neo-liberal policy and contemporary market-based banking theory. The realization of competitive advantages by alternative banks (savings banks, cooperative banks and development banks) has significant implications for conceptions of bank change, regulation and political economy.

Decision‐Making in Public Good Dilemmas: Theory and Agent‐Based Simulation

In many real world contexts individuals find themselves in situations where they have to decide between options of behaviour that serve a collective purpose or behaviours which satisfy one’s private interests, ignoring the collective. In some cases the underlying social dilemma (Dawes, 1980) is solved and we observe collective action (Olson, 1965). In others social mobilisation is unsuccessful. The central topic of social dilemma research is the identification and understanding of mechanisms which yield to the observed cooperation and therefore resolve the social dilemma. It is the purpose of this thesis to contribute this research field for the case of public good dilemmas. To do so, existing work that is relevant to this problem domain is reviewed and a set of mandatory requirements is derived which guide theory and method development of the thesis. In particular, the thesis focusses on dynamic processes of social mobilisation which can foster or inhibit collective action. The basic understanding is that success or failure of the required process of social mobilisation is determined by heterogeneous individual preferences of the members of a providing group, the social structure in which the acting individuals are contained, and the embedding of the individuals in economic, political, biophysical, or other external contexts. To account for these aspects and for the involved dynamics the methodical approach of the thesis is computer simulation, in particular agent-based modelling and simulation of social systems. Particularly conductive are agent models which ground the simulation of human behaviour in suitable psychological theories of action. The thesis develops the action theory HAPPenInGS (Heterogeneous Agents Providing Public Goods) and demonstrates its embedding into different agent-based simulations. The thesis substantiates the particular added value of the methodical approach: Starting out from a theory of individual behaviour, in simulations the emergence of collective patterns of behaviour becomes observable. In addition, the underlying collective dynamics may be scrutinised and assessed by scenario analysis. The results of such experiments reveal insights on processes of social mobilisation which go beyond classical empirical approaches and yield policy recommendations on promising intervention measures in particular.

Rethinking disability theory and practice: challenging essentialism

This edited volume argues that even in recent Critical Disability Studies which have sought to critique essentialist assumptions in relation to Disability, nevertheless essentialisms remain which predetermine and predirect definitions and arguments in the field. This volume analyses such essentialisms in a wide range of areas such as childhood, gender, sexuality, reproduction, ADHD, autism, the animal, d/Deafness, hirsutism, the body, and vision. Particularly issues such as 'agency', 'voice' and 'body' are explored in terms of their political implications.

Isolated capital cities and misgovernance: theory and evidence

Motivated by a novel stylized fact { countries with isolated capital cities display worse quality of governance { we provide a framework of endogenous institutional choice based on the idea that elites are constrained by the threat of rebellion, and that this threat is rendered less e ective by distance from the seat of political power. In established democracies, the threat of insurgencies is not a binding constraint, and the model predicts no correlation between isolated capitals and misgovernance. In contrast, a correlation emerges in equilibrium in the case of autocracies. Causality runs both ways: broader power sharing (associated with better governance) means that any rents have to be shared more broadly, hence the elite has less of an incentive to protect its position by isolating the capital city; conversely, a more isolated capital city allows the elite to appropriate a larger share of output, so the costs of better governance for the elite, in terms of rents that would have to be shared, are larger. We show evidence that this pattern holds true robustly in the data. We also show that isolated capitals are associated with less power sharing, a larger income premium enjoyed by capital city inhabitants, and lower levels of military spending by ruling elites, as predicted by the theory.

Theory and practice of industrial policy: evidence from the Latin American experience

Includes bibliography

Compensation, Incentives and Risk: Economic Theory and Russian Practise

Mr. Pechersky set out to examine a specific feature of the employer-employee relationship in Russian business organisations. He wanted to study to what extent the so-called "moral hazard" is being solved (if it is being solved at all), whether there is a relationship between pay and performance, and whether there is a correlation between economic theory and Russian reality. Finally, he set out to construct a model of the Russian economy that better reflects the way it actually functions than do certain other well-known models (for example models of incentive compensation, the Shapiro-Stiglitz model etc.). His report was presented to the RSS in the form of a series of manuscripts in English and Russian, and on disc, with many tables and graphs. He begins by pointing out the different examples of randomness that exist in the relationship between employee and employer. Firstly, results are frequently affected by circumstances outside the employee's control that have nothing to do with how intelligently, honestly, and diligently the employee has worked. When rewards are based on results, uncontrollable randomness in the employee's output induces randomness in their incomes. A second source of randomness involves the outside events that are beyond the control of the employee that may affect his or her ability to perform as contracted. A third source of randomness arises when the performance itself (rather than the result) is measured, and the performance evaluation procedures include random or subjective elements. Mr. Pechersky's study shows that in Russia the third source of randomness plays an important role. Moreover, he points out that employer-employee relationships in Russia are sometimes opposite to those in the West. Drawing on game theory, he characterises the Western system as follows. The two players are the principal and the agent, who are usually representative individuals. The principal hires an agent to perform a task, and the agent acquires an information advantage concerning his actions or the outside world at some point in the game, i.e. it is assumed that the employee is better informed. In Russia, on the other hand, incentive contracts are typically negotiated in situations in which the employer has the information advantage concerning outcome. Mr. Pechersky schematises it thus. Compensation (the wage) is W and consists of a base amount, plus a portion that varies with the outcome, x. So W = a + bx, where b is used to measure the intensity of the incentives provided to the employee. This means that one contract will be said to provide stronger incentives than another if it specifies a higher value for b. This is the incentive contract as it operates in the West. The key feature distinguishing the Russian example is that x is observed by the employer but is not observed by the employee. So the employer promises to pay in accordance with an incentive scheme, but since the outcome is not observable by the employee the contract cannot be enforced, and the question arises: is there any incentive for the employer to fulfil his or her promises? Mr. Pechersky considers two simple models of employer-employee relationships displaying the above type of information symmetry. In a static framework the obtained result is somewhat surprising: at the Nash equilibrium the employer pays nothing, even though his objective function contains a quadratic term reflecting negative consequences for the employer if the actual level of compensation deviates from the expectations of the employee. This can lead, for example, to labour turnover, or the expenses resulting from a bad reputation. In a dynamic framework, the conclusion can be formulated as follows: the higher the discount factor, the higher the incentive for the employer to be honest in his/her relationships with the employee. If the discount factor is taken to be a parameter reflecting the degree of (un)certainty (the higher the degree of uncertainty is, the lower is the discount factor), we can conclude that the answer to the formulated question depends on the stability of the political, social and economic situation in a country. Mr. Pechersky believes that the strength of a market system with private property lies not just in its providing the information needed to compute an efficient allocation of resources in an efficient manner. At least equally important is the manner in which it accepts individually self-interested behaviour, but then channels this behaviour in desired directions. People do not have to be cajoled, artificially induced, or forced to do their parts in a well-functioning market system. Instead, they are simply left to pursue their own objectives as they see fit. Under the right circumstances, people are led by Adam Smith's "invisible hand" of impersonal market forces to take the actions needed to achieve an efficient, co-ordinated pattern of choices. The problem is that, as Mr. Pechersky sees it, there is no reason to believe that the circumstances in Russia are right, and the invisible hand is doing its work properly. Political instability, social tension and other circumstances prevent it from doing so. Mr. Pechersky believes that the discount factor plays a crucial role in employer-employee relationships. Such relationships can be considered satisfactory from a normative point of view, only in those cases where the discount factor is sufficiently large. Unfortunately, in modern Russia the evidence points to the typical discount factor being relatively small. This fact can be explained as a manifestation of aversion to risk of economic agents. Mr. Pechersky hopes that when political stabilisation occurs, the discount factors of economic agents will increase, and the agent's behaviour will be explicable in terms of more traditional models.