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Working papers: 2015

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WP476: R&D Policy Instruments: A Critical Review of What We Do & Don’t Know

Ben R Martin

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In recent years, the term ‘policy instrument’ has been used more frequently with regard to R&D policy and innovation policy. What does this term mean? Where did it come from? What do we know about it, both with regard to the general field of policy studies but also in the specific context of R&D policy? This article examines the development of the notion of policy instruments as part of a body of research known as ‘policy design’. Over the last 50 years, there has been substantial progress in setting policy design on a more systematic basis, with the development of established concepts and analytical frameworks, including various taxonomies of policy instruments. However, with just a few exceptions, this body of research seems to have had little impact in the world of R&D policy. The paper reviews the literature on R&D policy instruments. It identifies a number of challenges for R&D policy instruments in the light of four transitions – the shift from linear to systemic thinking about R&D and innovation, the shift from national governments to multi-level governance, the shift from individual actors to collaborations and networks, and the shift from individual policies to policy mixes. It sets out a research agenda for the study of R&D policy instruments, before ending with a number of conclusions. 

WP475: Twenty Challenges for Innovation Studies

Ben R Martin

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With the field of innovation studies now half a century old, the occasion has been marked by several studies looking back to identify the main advances made over its lifetime. Starting from a list of 20 advances over the field’s history, this discussion paper sets out 20 challenges for coming decades. The intention is to prompt a debate within the innovation studies community on what are, or should be, the key challenges for us to take up, and more generally on what sort of field we aspire to be. It is argued that the empirical focus of our studies has failed to keep pace with the fast changing world and economy, especially the shift from manufacturing to services and the increasingly urgent need for sustainability. Moreover, the very way we conceptualise, define, operationalise and analyse ‘innovation’ seems somewhat rooted in the past, leaving us less able to grapple with other less visible or ‘dark’ forms of innovation.

WP474: Strong State, Weak Managers: How Firms Cope with Autocracy in Hungary

Dorottya Sallai and Gerhard Schnyder

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This paper investigates how companies manage risk associated with political ties in the context of the ‘return of state capitalism’. We show that findings from previous studies of firms’ copying strategies under autocratic regimes are of limited relevance in the context of Hungary, because they lack a sophisticated, theoretically underpinned conceptualisation of ‘the state’. We develop a more fine-grained analysis of the role of the state in emerging markets. We then show that the type of ‘state capitalism’ that is emerging in Hungary poses unique challenges to companies with implications for existing theories of companies’ political ‘buffering strategies’. Based on interviews with business leaders in Hungary, we identify two coping strategies: responsiveness –whereby firms accommodate state pressures by giving in to them – and a non-responsive strategy of ‘dormancy’, which consists in firms putting forward-looking activities on hold and focussing on survival. We discuss implications for theories of corporate political risk management.

WP473: Varieties of Creditor Protection: Insolvency Law Reform & Credit Expansion in Developed Market Economies

Simon Deakin, Viviana Mollica and Prabirjit Sarkar

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We examine the relationship between creditor protection, law reform and credit expansion using longitudinal data for four developed market economies between 1970 and 2005. By decomposing the different elements of creditor protection, we show that civil law countries (France and Germany) have developed a high level of protection for creditors in the form of controls over the management of debtor firms, while common law countries (UK and USA) have arrived at a high degree of protection in relation to secured creditors’ contractual rights over firms’ assets. Using panel causality tests and dynamic panel data modelling, we show that laws strengthening creditors’ control over debtor firms in these four countries had a long-term positive effect on credit expansion, while reforms increasing secured creditors’ rights had a negative effect. We explore the implications of our findings for legal origin theory and the varieties of capitalism approach.

WP472: The CBR Macro-Economic Model of the UK Economy (UKMOD)

Graham Gudgin, Ken Coutts and Neil Gibson

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This working paper provides a detailed exposition of the assumptions, structure and statistical evidence that support a new macroeconomic forecasting and simulation model of the UK economy. The model is based on an annual dataset that produces conditional forecasts or simulations over a five to ten year horizon. The model enables us to discuss issues of policy in quantitative terms so that the orders of magnitude of the economic consequences can be assessed. Readers of our forecast reports will find in this paper the information that justifies the modelling methodology and the empirical evidence supporting the key behavioural relationships of the model.

WP471: Russia’s Legal Transitions: Marxist Theory, Neoclassical Economics and the Rule of Law

John Hamilton and Simon Deakin

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We review the role of economic theory in shaping the process of legal change in Russia during the two transitions it experienced during the course of the twentieth century: the transition to a socialist economy organised along the lines of state ownership of the means of production in the 1920s, and the transition to a market economy which occurred after the fall of the Soviet Union in the 1990s. Despite differences in methodology and in policy implications, Marxist theory, dominant in the 1920s, and neoclassical economics, dominant in the 1990s, offered a similarly reductive account of law as subservient to wider economic forces. In both cases, the subordinate place accorded to law undermined the transition process. Although path dependence and history are frequently invoked to explain the limited development of the rule of law in Russia during the 1990s, policy choices driven by a deterministic conception of law and economics also played a role.

WP470: Law as Evolution, Evolution as Social Order: Common Law Method Reconsidered

Simon Deakin

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Building on systems theory and the economics of law, this paper argues that evolutionary models can explain certain features of common law reasoning, in particular the way that the doctrine of precedent operates to combine stability with change. The common law can be modelled as an adaptive system which coevolves with its environment, which in this context consists of the political and economic systems of a given society. The common law responds to signals from the economy and from politics (‘cognitive openness’), while retaining its distinct mode of operation (‘operative closure’). A version of the variation, selection, retention algorithm operates at the level of legal decision-making. Theories of legal evolution which stress selection and variation at the expense of inheritance describe only part of the process of legal change and are prone to teleological accounts of evolution to efficiency. Focusing on inheritance or retention helps us to see that the common law can only be qualifiedly adaptive, at best, and that many inefficient rules will persist and survive even in the face of selective pressures. The relevance of this approach is illustrated by an examination of the leading decision in the English (and Scottish) law of tort (or delict), Donoghue v. Stevenson, and its implications for some influential accounts of legal evolution, including legal origin theory, are explored.

WP469: How Should India Reforms Its Labour Laws?

Simon Deakin and Antara Haldar

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We examine the current policy debate around the reform of labour laws in India, which has been stimulated in part by the success of the Gujarat model of economic development. Gujarat’s deregulatory reforms have included changes to the legal regime governing employment terminations, which could form a basis for a change in national-level labour laws. Evidence linking labour law deregulation to growth, however, is weak, whether the focus is on India or the experience of other countries. Building labour market institutions is a long-term process which requires investment in state capacity for the management of risks associated with the transition to a formal economy.

WP468: Legal Institutionalism: Capitalism & the Constitutive Role of Law

Simon Deakin, David Gindis, Geoffrey M Hodgson, Kainan Huang and Katharina Pistor

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Social scientists have paid insufficient attention to the role of law in constituting the economic institutions of capitalism. Part of this neglect emanates from inadequate conceptions of the nature of law itself. Spontaneous conceptions of law and property rights that downplay the role of the state are criticized here, because they typically assume relatively small numbers of agents and underplay the complexity and uncertainty in developed capitalist systems. In developed capitalist economies, law is sustained through interaction between private agents, courts and the legislative apparatus. Law is also a key institution for overcoming contracting uncertainties. It is furthermore a part of the power structure of society, and a major means by which power is exercised. This argument is illustrated by considering institutions such as property and the firm. Complex systems of law have played a crucial role in capitalist development and are also vital for developing economies.

WP467: Disappearing Paradigms in Shareholder Protection: Leximetric Evidence for 30 Countries, 1990-2013

Dionysia Katelouzou and Mathias Siems

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Scholars frequently claim that path dependency of the law, the influence of the US model of corporate governance, and the role of legal origin and the stage of legal development are key for a comparative understanding of shareholder protection. This article, however, suggests that these paradigms of comparative company law gradually seem to disappear. The basis for our assessment is an original leximetric dataset that measures the development of shareholder protection for 30 countries over the last 24 years. Using tools of descriptive statistics, time series and cluster analysis, our main findings are that all legal origins have now in average about the same level of shareholder protection, that paternalistic tools have overtaken enabling tools of protection, and that after the global financial crisis this area has become a less frequent object of law reforms.