Abstract
Rodrik (Journal of Economic Perspectives 28(1):189–208, Winter 2014), in a recent paper, calls on economists to recognize the role of ideas in institutional change. This chapter takes up the challenge by considering ideas about how the world works and ideas about the legitimacy of social arrangements, distinguishing between instrumental models (the relations between instruments and outcomes) and moral models (issues of legitimacy). I then explore an empirical case, the efforts by the government of Iceland 2009–2013 to dismantle the country’s regulatory system of ocean fisheries, which is based on individual transferable quotas and widely seen as the most efficient system of its kind in Europe. The exports of fish products have for more than a century been Iceland’s engine of growth. The attempts at introducing inefficient institutions came in the wake of, and even as a response to the country’s dramatic 2008 financial collapse. I identify seven instrumental and moral theories that were crucial for the reform process. The decision makers’ varying understanding and acceptance of these ideas gave substance to the traditional variables of power and interests and influenced how the agents responded to individual transferable quotas.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
See Kuran (1995) on preference falsification. We may theorize about types of environments that are most likely to stimulate creativity but obviously we do not foresee new ideas.
- 2.
The distinction between the top-down and bottom-up paradigms bears a superficial but misleading resemblance to the macroeconomics and microeconomics distinction in economic theory. The content of mainstream economics changes as the ideological pendulum swings between the two paradigms. In the bottom-up phase, macroeconomics takes on the appearance of microeconomics.
- 3.
- 4.
The authorities in China maintained existing planning quotas but allowed economic agents to produce for the market once they had met the assigned planning targets, thus creating opportunities for the agents to profit. The dual-track system, at least in theory, came close to meeting the marginal efficiency conditions of neoclassical economics (Qian 2003).
- 5.
Instruments of policy are visible and unambiguous but the related outcomes are not, for instance, in the case of the death penalty. Uncertainty about outcomes creates an opportunity for competing social entrepreneurs to make their cases for and against particular institutions.
- 6.
The same agent can be simultaneously both material and moral duty bearer, although empirically it may be impossible to measure the impact of each component on behavior.
- 7.
In theory, a fisheries ministry could complement a TAC with a long list of constraints intended to prevent indirect open access. The industry would then be micromanaged by the ministry. Such attempts have not been successful.
- 8.
In 2011 the fishing industry employed some 5 % of the Icelandic labor force. The industry contributed 11 % to GDP and 38 % to the country’s goods exports. The export share underestimates the importance of the fisheries because the other major export item is primary aluminum and ferrosilicon made from imported metallic minerals. The producers use the country’s abundant geothermal and hydroelectric energy to power their smelters.
- 9.
On the EU fisheries policy, see Khalilian et al. (2010).
- 10.
Eggertsson (1990) discusses these models in greater detail and provides basic references.
- 11.
The industry’s average EBITDA was 7 % in 1980–1984, 15 % in 1984–1992, and 21 % in 1992–2010. The rise and fall of the exchange value of the króna have also influenced EBITDA Íslandsbanki 2012, Figure 11). Note that Iceland caught 430,000 tons of cod in 1980 and only 157,000 in 2012. Currently the cod stocks appear to be recovering fast. The allowed catch for the 2013–2014 season is 215,000 tons.
- 12.
The fishing industry, of course, contributes toward the war chests of the Independence Party.
References
Acemoglu, D., & Robinson, J. (2008). The role of institutions in growth and development. Working Paper No. 10, Commission on Growth and Development. Washington, DC: The World Bank.
Acemoglu, D., & Robinson, J. A. (2012). Why nations fail: The origins of power, prosperity and poverty. New York: Crown.
Acemoglu, D., & Robinson, J. A. (2013). Economics versus politics: Pitfalls of policy advice. Journal of Economic Perspectives, 23(2), 173–192.
Barzel, Y. (1989). The economic analysis of property rights. New York: Cambridge University Press.
Bhagwati, J. (1978). Anatomy and consequences of exchange control regimes. Cambridge, MA: Ballinger.
Caplan, B. (2001). Rational ignorance versus rational irrationality. Kyklos, 54(2), 3–26.
Chai, S. K. (1998). Endogenous ideology formation and economic policy in former colonies. Economic Development and Cultural Change, 46, 263–290.
Coase, R. H. (1960). The problem of social cost. Journal of Law and Economics, 3, 1–44.
Eggertsson, T. (1990). Economic behavior and organization. New York: Cambridge University Press.
Eggertsson, T. (2005). Imperfect institutions: Possibilities and limits of reform. New York: Cambridge University Press.
Íslandsbanki. (2012). íslenski sjávarútvegurinn [The fishing industry]. Reykjavik.
Khalilian, S., Froese, R., Proelss, A., & Requate, T. (2010). Designed for failure: A critique of the common fisheries policy of the European Union. Marine Policy, 34(6), 1178–1182.
Knight, F. H. (1933). Review of the philosophy of Henry George, by George R. Geiger. Journal of Political Economy, 41(5), 687–690.
Knight, F. H. (1953). The fallacies of the single tax. Freeman, 809–811.
Knútsson, O., & Kristófersson, D. M. (2014). Samanburdur a fiskveidistjornunarkerfum [A comparison of systems of fisheries regulation]. Frjals verslun, (5), 64–69.
Kuran, T. (1995). Private truths, public lies: The social consequences of preference falsification. Cambridge, MA: Harvard University Press.
Leighton, W., & López, E. (2013). Madmen, intellectuals, and academic scribblers: The economic engine of political change. Stanford, CA: Stanford University Press.
North, D. C. (1990). Institutions, institutional change and economic development. New York: Cambridge University Press.
North, D. C. (2005). Understanding the process of economic change. Princeton, NJ: Princeton University Press.
Qian, Y. (2003). How reform worked in China. In D. Rodrik (Ed.), In search of prosperity: Analytical narratives on economic growth (pp. 297–333). Princeton, NJ: Princeton University Press.
Rodrik, D. (2014). When ideas trump interests: Preferences, worldviews, and policy innovations. Journal of Economic Perspectives, 28(1), 189–208.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2015 Springer International Publishing Switzerland
About this chapter
Cite this chapter
Eggertsson, T. (2015). Demand for Wealth-Reducing Institutional Change: The Role of Ideas and Interests. In: Schofield, N., Caballero, G. (eds) The Political Economy of Governance. Studies in Political Economy. Springer, Cham. https://doi.org/10.1007/978-3-319-15551-7_1
Download citation
DOI: https://doi.org/10.1007/978-3-319-15551-7_1
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-15550-0
Online ISBN: 978-3-319-15551-7
eBook Packages: Business and EconomicsEconomics and Finance (R0)