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IDARI COURSE OUTLINE – ECONOMICS OF CONVENTIONS
The conventional fabric of markets
Frédéric Morand (frederic.morand@nuigalway.ie)
14 July 2003
Markets belong to the most prodigious constructions of humanity. They allow
us to exchange with others without necessarily speaking to them or even
without meeting them.
Markets obey conventional judgments. Our desire to hold money as store of
wealth, for example, is a barometer of the degree of distrust of our own
calculations and conventions concerning the future (Keynes 1937). Trust in
money is just but one of the many conventions governing our economies.
Conventions can be briefly defined as a regularity in behaviour, commonly
agreed to within a group, and which specifies behaviour in a particular
recurrent situation (Schotter 1981). A protection against uncertainty (‘This apple
has an organic label: it has not been sprayed’), conventions make interpersonal
relations possible. This protection, however, is never absolutely guaranteed (‘Is
this organic label reliable?’): conventions are subject to lock-in effects, conflicts,
and change, with determining consequences on the sustainability of markets.
Conventions play a fundamental socio-economic role. How to make a sound
use of such an essential resource? This module (5 x 2 hours) offers an
introduction to the understanding of conventions, starting from their adoption
through learning and innovation (§1). It exposes some of the difficulties facing
economic theory when attempting to address social interaction (§2). The
example of trust will be taken as an illustration (§3). The French Conventions
Theory provides a perspective that may help overcoming the previous
difficulties (§4). An original model of learning as a change of conventions will
be discussed (§5).
1.
Why does learning matter to transition economies?
Transition to market economy requires change in mental models.
Hagedorn, 2000; What to learn? Evaluating the Privatization Experience in Transition,
Understanding Transition of Central and Eastern European Agriculture.
Institutional Change and Economic Performance in a Comparative Perspective:
Berlin, 10 (November 2-4).
Bromley, 2000; A most difficult passage: The economic Transition in Central and Eastern
Europe and the Former Soviet Union, KATO Symposium, Understanding
Transition of Central and Eastern European Agriculture. Institutional Change
and Economic Performance in a Comparative Perspective: Berlin, 37 (2-4
November).
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2.
How to understand learning?
A theoretical gap in Economics: learning is more than ‘choosing rationally’ (and
intentionally).
North, 2000; Understanding institutions; in C. Ménard, Institutions, Contracts and
Organizations. Perspectives from New Institutional Economics, Edward Elgar:
Cheltenham (UK) and Northampton (MA, USA), 7:10.
Thaler, 2000; From Homo Economicus to Homo Sapiens, Journal of Economic
Perspectives; Vol. 14, 133-141 (Winter).
3.
Trust and interest in market mediations
There are mediations between collectives and individuals. What are they? How to
analyse them? Credibility and trust, as a particular interaction structure, will be
analysed
Kreps, 1995; Corporate culture and economic theory; in K. A. Shepsle and J. E. Alt,
Perspectives on positive political economy, Cambridge University Press:
Cambridge, 90-143.
Williamson, 1993; Calculativeness, Trust, and Economic Organization, Journal of Law &
Economics; Vol. 36, 453-486 (April).
4.
Beyond the ‘pure market logic’ in Economics
Towards an economic theory of institutions. Rule and market are not necessarily
conflicting in economic analysis.
Favereau, 2001; Theory of information: from bounded rationality to interpretive reason; in
P. Petit, Economics and Information, Kluwer: Dordrecht, 93:120.
Thévenot, 2001; Conventions of co-ordination and the framing of uncertainty; in E.
Fullbrook, Intersubjectivity in Economics, Routledge: London.
5.
Analysing learning through conventions and routines
Limits, perspectives and applications of an original learning model where learning
binds agents and structure together in a transformative process between explicit and
tacit information.
6.
Indicative further readings
Akerlof, 1970; The market for "lemons": quality uncertainty and the market mechanism,
Quarterly Journal of Economics; Vol. 84, 488:500.
Arrow, 1974; The Limits of Organization, W. W. Norton & Co: New York and London.
Invisible institutions (p. 23:26)
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Arrow, Bolin, Costanza, Dasgupta, Folke, Holling, Jansson, Levin, Mäler, Perrings
and Pimentel, 1995; Economic Growth, Carrying Capacity, and the Environment,
Science; Vol. 268, 520:521.
Arthur, 2000; Cognition: the Black Box of Economics; in D. Colander, The Complexity
Vision and the Teaching of Economics, Edward Elgar Publishers, Northampton
(Mass.), Chapt.3, 7 p..
Bikhchandani, Hirshleifer and Welch, 1992; A Theory of Fads, Fashion, Custom, and
Cultural Change as Informational Cascades, Journal of Political Economy; Vol. 100,
992-1026.
Bowles and Gintis, 2000; Walrasian economics in retrospect., The Quarterly Journal of
Economics; Vol. 115, 1411-1439 (Nov 2000).
Bowles, 1998; Endogenous Preferences: The Cultural Consequences of Markets and other
Economic Institutions, Journal of Economic Literature; Vol. 36, 75:111 (March).
Boyer and Orléan, 1992; How do conventions evolve?, Journal of Evolutionary
Economics; Vol. 2, 165:177.
Bromley, 2000; Can Agriculture Become an Environmental Asset?, World Economics;
Vol. 1, 127-139 (July-September).
Granovetter, 1978; Threshold Models of Collective Behavior, American Journal of
Sociology; Vol. 83, 1420:1443.
Hodgson, 1993; Optimization and Evolution; in G. Hodgson, Economics and Evolution.
Bringing Life Back into Economics, Polity Press and Blackwell Publishers:
Cambridge UK, 197:213. chap. 13: Panglossian dialogue
Juma, 2002; The global sustainability challenge: from agreement to action, International
Journal of Global Environmental Issues; Vol. 2, 1-14.
Keynes, 1937; The General Theory of Employment, Quarterly Journal of Economics; Vol.
51, 209:223.
Porter and van der Linde, 1995; Toward a New Conception of the EnvironmentCompetitiveness Relationship, Journal of Economic Perspectives; Vol. 9, 97:118.
Schotter, 1981; The Economic Theory of Social Institutions, Cambridge University Press:
Cambridge.
Simon, 1976; From Substantive to Procedural Rationality; in S. Latsis, Method and
Appraisal in Economics, Cambridge University Press: Cambridge, 129:148.
Stiglitz, 1999; Whither Reform? Ten Years of the Transition, Annual Bank Conference on
Development Economics: Washington, 32 (28-30 April).
Thévenot, 1999; Pragmatic regimes governing the engagement with the world; in K.
Knorr-Cetina, T. Schatzki and V. Savigny Eike, The practice Turn in
Contemporary Theory, Routledge: London.
Tversky and Kahneman, 1982; Judgments of and by Representativeness; in D.
Kahneman, P. Slovic and A. Tversky, Judgment under Uncertainty: Heuristics
and Biases, Cambridge University Press: Cambridge, 84:93.
Vatn and Bromley, 1997; Externalities - A Market Model Failure, Environmental and
Resource Economics; Vol. 9, 135-151.
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