Continuing Towards a Comparative Institutional Analysis

In Memory of Masahiko Aoki

Jiahua CHE

June 21, 2017

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 1 / 14 Professor Aoki, Comparative Institutional Analysis, China’s Reform, and I

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 2 / 14 with Japan (v.s. U.S.) as a case in point

I Opening the black box of (Japanese/American) firm — not as a production function, but as an organization structure

I Demonstrating how different ways of organizing firms lead to different product/process specialization

I Explaining why firms in different countries (Japan and U.S.) organize differently:

Complementarity between organization of firms and organization of societies: Not all market economies the same

A Theory of “Institution-Induced” Comparative Advantages

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 3 / 14 I Opening the black box of (Japanese/American) firm — not as a production function, but as an organization structure

I Demonstrating how different ways of organizing firms lead to different product/process specialization

I Explaining why firms in different countries (Japan and U.S.) organize differently:

Complementarity between organization of firms and organization of societies: Not all market economies the same

A Theory of “Institution-Induced” Comparative Advantages with Japan (v.s. U.S.) as a case in point

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 3 / 14 I Demonstrating how different ways of organizing firms lead to different product/process specialization

I Explaining why firms in different countries (Japan and U.S.) organize differently:

Complementarity between organization of firms and organization of societies: Not all market economies the same

A Theory of “Institution-Induced” Comparative Advantages with Japan (v.s. U.S.) as a case in point

I Opening the black box of (Japanese/American) firm — not as a production function, but as an organization structure

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 3 / 14 I Explaining why firms in different countries (Japan and U.S.) organize differently:

Complementarity between organization of firms and organization of societies: Not all market economies the same

A Theory of “Institution-Induced” Comparative Advantages with Japan (v.s. U.S.) as a case in point

I Opening the black box of (Japanese/American) firm — not as a production function, but as an organization structure

I Demonstrating how different ways of organizing firms lead to different product/process specialization

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 3 / 14 Complementarity between organization of firms and organization of societies: Not all market economies the same

A Theory of “Institution-Induced” Comparative Advantages with Japan (v.s. U.S.) as a case in point

I Opening the black box of (Japanese/American) firm — not as a production function, but as an organization structure

I Demonstrating how different ways of organizing firms lead to different product/process specialization

I Explaining why firms in different countries (Japan and U.S.) organize differently:

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 3 / 14 A Theory of “Institution-Induced” Comparative Advantages with Japan (v.s. U.S.) as a case in point

I Opening the black box of (Japanese/American) firm — not as a production function, but as an organization structure

I Demonstrating how different ways of organizing firms lead to different product/process specialization

I Explaining why firms in different countries (Japan and U.S.) organize differently:

Complementarity between organization of firms and organization of societies: Not all market economies the same

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 3 / 14 I Round tripping

I Hong Kong v.s. mainland China

I Immigration/migration

Limit to home-institution-induced comparative advantages

I “Export” home institution?

Home-institution-induced comparative advantages

I China’s twin surplus

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 4 / 14 I Hong Kong v.s. mainland China

I Immigration/migration

Limit to home-institution-induced comparative advantages

I “Export” home institution?

Home-institution-induced comparative advantages

I China’s twin surplus

I Round tripping

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 4 / 14 I Immigration/migration

Limit to home-institution-induced comparative advantages

I “Export” home institution?

Home-institution-induced comparative advantages

I China’s twin surplus

I Round tripping

I Hong Kong v.s. mainland China

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 4 / 14 Home-institution-induced comparative advantages

I China’s twin surplus

I Round tripping

I Hong Kong v.s. mainland China

I Immigration/migration

Limit to home-institution-induced comparative advantages

I “Export” home institution?

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 4 / 14 I Teaching from a Nobel Laureate: three secretes to a successful transition to markets

But can institutions be transplanted (exported/imported)?

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 5 / 14 But can institutions be transplanted (exported/imported)?

I Teaching from a Nobel Laureate: three secretes to a successful transition to markets

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 5 / 14 Professor Aoki, Comparative Institutional Analysis, China’s Reform, and I

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 6 / 14 I Aoki and Greif (Comparative Institutional Analysis): equilibrium rules of game

I Different aspects of an institution are there for a reason: to complement other aspects of the institution I Caution to transplate institutions

What is institution?

I North (New Institutional Economics) : rules of game

I Some institutions are good, others are bad I Institutions of different economies categorically classified as good or bad I Either destined to be bad or transplant (“import”) good to become good?

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 7 / 14 What is institution?

I North (New Institutional Economics) : rules of game

I Some institutions are good, others are bad I Institutions of different economies categorically classified as good or bad I Either destined to be bad or transplant (“import”) good to become good?

I Aoki and Greif (Comparative Institutional Analysis): equilibrium rules of game

I Different aspects of an institution are there for a reason: to complement other aspects of the institution I Caution to transplate institutions

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 7 / 14 From institution to institutional change

I Aoki (2001): a self-sustained system of shared beliefs about how the game is played

I To bridge institution at work and institutional chaos?

I Smooth institutional transition

I “Public proposition” (Aoki 2011, 2012, 2013, 2014, 2015)

I Chaotic institutional transition

I Conflicts (Aoki 2015, Aoki, Che, Nakabayashi 2017 in application to the historical comparison of China and Japan)

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 8 / 14 I But how about complementarity? The contrasting experience in transition from central planning to markets

I “institution as rules of game”: a bit blackbox

I To add contents to the existing concept of institution, Aoki (2001) breaks down institution into several domains

An analysis of institution is not only to understand why our institution is here, but also to highlight what are the necessary ingredients and constraints for betterment

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 9 / 14 The contrasting experience in transition from central planning to markets

I “institution as rules of game”: a bit blackbox

I To add contents to the existing concept of institution, Aoki (2001) breaks down institution into several domains

An analysis of institution is not only to understand why our institution is here, but also to highlight what are the necessary ingredients and constraints for betterment

I But how about complementarity?

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 9 / 14 I “institution as rules of game”: a bit blackbox

I To add contents to the existing concept of institution, Aoki (2001) breaks down institution into several domains

An analysis of institution is not only to understand why our institution is here, but also to highlight what are the necessary ingredients and constraints for betterment

I But how about complementarity? The contrasting experience in transition from central planning to markets

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 9 / 14 An analysis of institution is not only to understand why our institution is here, but also to highlight what are the necessary ingredients and constraints for betterment

I But how about complementarity? The contrasting experience in transition from central planning to markets

I “institution as rules of game”: a bit blackbox

I To add contents to the existing concept of institution, Aoki (2001) breaks down institution into several domains

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 9 / 14 Starting from choices (private or public) and hence choice sets

I What determine boundaries of these choice sets are rights

Example: imagine your budget constraint set

(Formal) institution as a system of rights

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 10 / 14 For institutional performance, not only rights but how individuals assigned to “players” to exercise rights matter

I But personnel rights are also associated with “players”, thus who exercise personnel rights matter for institutional performance ... and hence infinite regress (Che and Chung 2016)

Historical evolution matters for institutional performance, transplantation may very well not work as expected

Institutional change is about change of allocation of rights across “players”

Rights are associated with “players” rather than specific individuals

I Personnel rights assign individuals to “players”

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 11 / 14 I But personnel rights are also associated with “players”, thus who exercise personnel rights matter for institutional performance ... and hence infinite regress (Che and Chung 2016)

Historical evolution matters for institutional performance, transplantation may very well not work as expected

Institutional change is about change of allocation of rights across “players”

Rights are associated with “players” rather than specific individuals

I Personnel rights assign individuals to “players”

For institutional performance, not only rights but how individuals assigned to “players” to exercise rights matter

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 11 / 14 Historical evolution matters for institutional performance, transplantation may very well not work as expected

Institutional change is about change of allocation of rights across “players”

Rights are associated with “players” rather than specific individuals

I Personnel rights assign individuals to “players”

For institutional performance, not only rights but how individuals assigned to “players” to exercise rights matter

I But personnel rights are also associated with “players”, thus who exercise personnel rights matter for institutional performance ... and hence infinite regress (Che and Chung 2016)

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 11 / 14 Institutional change is about change of allocation of rights across “players”

Rights are associated with “players” rather than specific individuals

I Personnel rights assign individuals to “players”

For institutional performance, not only rights but how individuals assigned to “players” to exercise rights matter

I But personnel rights are also associated with “players”, thus who exercise personnel rights matter for institutional performance ... and hence infinite regress (Che and Chung 2016)

Historical evolution matters for institutional performance, transplantation may very well not work as expected

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 11 / 14 Rights are associated with “players” rather than specific individuals

I Personnel rights assign individuals to “players”

For institutional performance, not only rights but how individuals assigned to “players” to exercise rights matter

I But personnel rights are also associated with “players”, thus who exercise personnel rights matter for institutional performance ... and hence infinite regress (Che and Chung 2016)

Historical evolution matters for institutional performance, transplantation may very well not work as expected

Institutional change is about change of allocation of rights across “players”

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 11 / 14 Given allocation of rights, enforcement of rights depends on how rights are interpreted

I Rights to interpret all other rights are judicial rights

I “Shared beliefs” hinges on those exercising judicial rights

I Whether “shared beliefs” can be “self-sustained”, depends critically on, among other things, the allocation of personnel rights to player exercising judicial rights

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 12 / 14 System of rights in application to the study of China’s Communist Party Institution

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 13 / 14 Masa, We Miss You….

Jiahua CHE Continuing Towards a Comparative Institutional Analysis In Memory of MasahikoJune Aoki 21, 2017 14 / 14