MAN 6607 - 13983 - Global Org Issues - Chapter 2

A political system in which political plurality is undermined and concentrated government power is imposed

Authoritarianism

The necessity of making rational decisions in the absence of complete information

Bounded rationality

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

Civil law

The internalized (or taken-for-granted) values and beliefs that guide individual and firm behavior

Cognitive pillar

An economy that is characterized by government ownership and control of factors of production

Command economy

A legal tradition that is shaped by precedents and traditions from previous judicial decisions

Common law

Exclusive legal right of authors and publishers to disseminate their work

Copyright

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

Democracy

Rules of the game on how a country is governed economically

Economic system

According to the institution-based view, managers and firms make choices outside institutional constraints.

False

All Western countries practice the absolute laissez-faire philosophy in trade.

False

Cognitive pillar is the coercive power of governments.

False

Contracts in civil law countries tend to be long and detailed compared to contracts in common law countries.

False

Disabling formal institutes does not affect transaction costs.

False

Firms operating in democracies never confront political risk.

False

Force majeure is a method of interpreting a statute by understanding the legislative history leading up to the adoption of that statute.

False

In the United States, only 1% of the land is formally registered.

False

Institutional framework pertains only to a firm's behavior.

False

Intellectual property rights are enforced though the informal institution system.

False

Patents are exclusive rights of firms to use specific names and brands.

False

Right-wing totalitarianism refers to the monopolization of power in the hands of a communist party.

False

The Washington Consensus emphasizes using government intervention over state ownership in business.

False

The common law tradition is mostly spread in non-English speaking countries

False

The cultural school of thought in economic development suggests that rich countries tend to be endowed with natural resources.

False

The regulatory pillar supports both informal and formal institutions.

False

The values and beliefs of a culture are examples of a formal institution.

False

Totalitarian countries have less political risk than democratic ones.

False

Trademarks are legal rights awarded by government authorities to inventors of new products or processes.

False

Transition economies have static institutions.

False

• Laws • Regulations • Rules Supportive pillars: regulatory (coercive)

Formal institutions

1. Communist totalitarianism - centers on a communist party 2. Right-wing - intense hatred against communism 3. Theocratic - monopolization of political power in the hands of one religious party or group 4. Tribal - tribe or ethnic group monopolizing political power and oppressing other tribes or ethnic groups

Four types of totlitarianism

International political relations

Geopolitics

An organization that incorporates elements from different institutional logics

Hybrid organization

• Norms • Cultures • Ethics Supportive pillars: normative and cognitive

Informal institutions

Formal and informal rules of the game

Institution

A leading perspective in global business that suggests that the success and failure of firms are enabled and constrained by institutions

Institution-based view

Formal and informal institutions that govern individual and firm behavior

Institutional framework

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

Institutional transition

Purposive action aimed at creating, maintaining, and disrupting institutions

Institutional work

Intangible property that is the result of intellectual activity

Intellectual property (IP)

Right associated with the ownership of intellectual property

Intellectual property rights (IPR)

A legal system based on religious teachings

Theocratic law

A political system in which one person or party exercises absolute political control over the population

Totalitarianism (dictatorship)

Exclusive legal right of firms to use specific names, brands, and designs to differentiate their products from others

Trademark

The cost associated with economic transactions or, more broadly, the cost of doing business

Transaction cost

Label for a subset of emerging economies, particularly those moving from central planning to market competition (such as China, Poland, Russia, and Vietnam)

Transition economy

A copyright is an example of an intellectual property.

True

A mixed economy has elements of both a market economy and a command economy.

True

An institutional framework is made up of formal and informal institutions governing individual and firm behavior.

True

Civil law uses comprehensive statutes and codes as a primary means to form legal judgments.

True

Convention is required in order to become a signatory country to the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights.

True

Economic systems are examples of formal institutions.

True

In a command economy, all factors of production should be government-owned or state-owned.

True

In a pure market economy, the government only performs functions that the private sector cannot do.

True

In private ownership, liquidation of a firm is forced by competition.

True

Islamic law is the only surviving example of a theocratic legal system that is formally practiced by some existing governments.

True

Opportunism is a source of transaction costs.

True

Proposition 1 of the institution-based view specifically concerns bounded rationality.

True

The laws of a country are part of the formal institution.

True

The normative pillar supports informal institutions.

True

Theocratic totalitarianism refers to the monopolization of political power in the hands of one religious party.

True

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

Legal system

An economy that is characterized by the "invisible hand" of market forces

Market economy

An economy that has elements of both a market economy and a command economy

Mixed economy

Recklessness when people and organizations (including firms and governments) do not have to face the full consequences of their actions

Moral hazard

A strategy that centers on leveraging political and social relationships

Nonmarket (political) strategy:

The mechanism through which norms influence individual and firm behavior (e.g., Values, beliefs, and actions of relevant players that influence the focal individuals and firms)

Normative pillar

The act of self-interest seeking with guile

Opportunism

Exclusive legal right of inventors of new products or processes to derive income from such inventions

Patent

Unauthorized use of intellectual property

Piracy

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

Political risk

The rules of the game on how a country is governed politically

Political system

Objective: Maximize profits for private owners who are capitalists (and maximize shareholder value for public shareholders if the firm is publicly listed). Entry is determined by entrepreneurs, owners, and investors. Financing is from private sources (and public shareholders if the firm is publicly listed).

Private Ownership

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

Property right

Managers and firms rationally pursue their interests and make choices within the formal and informal constraints in a given institutional framework

Proposition 1

While formal and informal institutions combine to govern firm behavior, in situations where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty and providing constancy to managers and firms

Proposition 2

Objective: Optimal balance for a "fair" deal for all stakeholders. Maximizing profits is not the sole objective of the firm. Protecting jobs and minimizing social unrest are legitimate goals. Entry is determined by government officials and bureaucrats. Financing is from state sources (such as direct subsidiaries or banks owned or controlled by governments). Some hybrid SOEs are publicly listed.

State Ownership

A capitalist, market-based system with substantial state ownership

State capitalism

A firm owned and controlled by the state (government)

State-owned enterprise (SOE)