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1 Institutional Economic Theory Economics 451 University of Missouri-Kansas City.

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1 1 Institutional Economic Theory Economics 451 University of Missouri-Kansas City

2 2 Path Dependence – A Story and a Metaphor The Reivers

3 3 From Faulkner’s The Reivers There was something dreamlike about it. Not night-marish: just dreamlike--the peaceful, quiet remote, sylvan, almost primeval setting of ooze and slime and jungle growth... [In it] the expensive useless mechanical toy rated in power and strength by the dozens of horses, yet held helpless and impotent in the almost infantile clutch of a few inches of the temporary confederation of two mild and pacific elements—earth and water—...; the three of us,... now unrecognizable mud-colored creatures engaged in a life-and-death struggle with it,... And all the while, the man sat in his tilted chair on the gallery watching us while Ned and I stained for every inch... and Boon... strove like a demon, titanic,... lifting and heaving it forward;... he dropped, flung away his pole... “How much do you have to pay him to get dug out?” Ned asked. “Two dollars,” Boon said.” “Two dollars?” Ned said. “ This sho beats cotton. He can farm right here setting in the shade without even moving. What I wants Boss to get me is a well-traveled mudhole.” “Morning, boys,” he said. “Looks like you’re about ready for me now.: “Looks like it, “ Boon said.... “We might a got through... if you folks didn’t raise such heavy mud up here.” “Don’t hold that against us,” the man said. “Mud’s one of our best crops up thisaway.” “At two dollars a mudhole, it ought to be your best,” Ned said. “That was last year,” the man said. “It’s double now.” “It’s six dollars,” he said. “I charge a dollar a passenger. There was two of you last year. That was two dollars. The price is doubled now. There’s three of you. That’s six dollars Boon said, “Suppose I don’t pay you six dollars. Suppose I don’t pay you nothing.” “You can do that too,” the man said. “.... Maybe you’d rather walk back to Jefferson than pay two dollars.” (Faulkner, pp. 80- 91)

4 4 Roads, Cars & Mud holes Evolution of Roads, Cars And the Economy becomes dependent on single source variable route individual transportation system GM plan Economies are both path dependent and path created Depends on structure, function and flexibility Flexibility is inversely related to strength of tradition Myth, legend and invidious differential advantage Strength of status quo Flexibility is directly related to strength of learning and growth of community shared knowledge Technology Education Objective and Experiential knowledge (the interaction of knowing & doing)

5 5 Mud PuddlesMud HolesQuagmires Wooden baseball batsTypewriter KeyboardsCities located in flood plains VHS videotapesComputer Operating systemsCities located in deserts File name extensionOPEC and ExxonRailroad gauge Y2K bugNational brand beerAutomobile dominated transportation Language homonymsSport Utility VehiclesPecuniary dominated industrial apparatus A taxonomy of Muddiness

6 Organization of Production--Structure Market forces self-adjusting utopian Regulation wage –price controls – why are objectives/objections seen as government interference in market, etc who will impose – government – regulatory bodies public private may be problematic, e.g., Texas Railroad Commission Pubic Regulation—collective action Planning types scope

7 Sector Type Decentralized Private Decentralized Public Decentralized Private Centralized Private Centralized Public A Taxonomy of Economic Planning

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