« Back to Results

Institutional Economics of Consumption, Regulation, and Law

Paper Session

Sunday, Jan. 7, 2018 10:15 AM - 12:15 PM

Loews Philadelphia, Congress C
Hosted By: Association for Evolutionary Economics
  • Chair: Wolfram Elsner, University of Bremen

Institutional Economics and Consumption Reconsidered

John Watkins
Westminster College


The financial crisis of 2008 provided an informal test of mainstream and institutional views of consumer behavior. The test posed by the financial crisis assumes the form of a “story.” A successful story provides a reasonably coherent explanation of events, confirming our beliefs and justifying our policies. First, the paper examines the failure of mainstream economics to present a coherent story of consumer behavior. Ignoring the relevance of assumptions as advocated by Milton Friedman leads economists to hypostasize the model, filtering information central to the crisis. Second, Minsky’s discussion of consumer behavior and its effect on cash inflows to businesses represents an institutional explanation regarding why Keynes’ long-run vision did not occur. The third section expands on some of the themes addressed by Minsky found among the contributions of institutional economists, focusing on efforts to mold the institutions to increase cash inflows to corporations and protect those inflows.

Consumer Sovereignty and Consumer Privacy

Valerie K. Kepner
King's College


Inspired by David B. Hamilton’s paper, "Institutional Economics and Consumption," as published in the December 1987, volume 21, number 4 edition of the Journal of Economic Issues, as well as the recent United States presidential election, I will discuss the current function of the consumer as viewed by marketers, lobbyists, business owners, and politicians. More specifically, I will evaluate the Obama-era Federal Communications Commission’s Internet Service Provider (ISP) privacy rule, the current Administration’s recent repeal of the rule, and the public’s reaction to the repeal of the rule. Additionally, I will discuss ways by which consumers can retain their privacy as consumers. This isn’t to say consumers should be protected at all costs, but rather that a balance of power be maintained. Key to the societal benefits of a free market, according to mainstream economists, is a balance of power between producers and consumers, and the current political distaste for government regulations protecting consumers’ sovereignty and privacy is currently poorly articulated and violates the very spirit of the benefits of a free market economic system. Institutional economics adds much to this discussion when considering the role of power and culture as it relates to consumers.

Collective Action and the Institutionalist Approach to Financial Regulation

Faruk Ülgen
University of Grenoble


Twenty years ago, in line with The Institutional Principle of the Principle of Economics, Dudley Dillard crystallized, in a AFEE’s Veblen-Commons Award article, his analysis of capitalism stating that money was a core institution of capitalism such that capitalist society’s evolution could be traced to the characteristics of money. I draw heavily upon this tradition that regards capitalism as a “Money Economy” which rests on a historically specified set of interrelated social institutions, structured by and structuring social interaction. The purpose of my article is to contribute to the development of institutional economics through a specific approach to collective action with regard to the systemic viability issue of a Money Economy. I argue that the “collective action problem” is more accurately posed in the case of financial stability which can be regarded as a public good that every member of society needs, but no one can provide at individual level. As capitalism develops through more financialized forms, new institutions-working rules (in the sense of John Commons) emerge to govern economic and social relations among public and private actors. Therefore viability relies on the institutional transformation process seeking to provide economies with relevant public supervision/regulation that could shape financial markets’ strategies so as to ensure macro-stability. I then suggest a precautionary principle-based approach to financial regulation that aims to ensure a sustainable provision of public utilities (finance and financing of the economy) and public goods (financial system’s stability) which is consistent with the characteristics of the Money Economy.

Regulating the Internet: Power Relationships and the Public Interest

Robert Loube
Loube Associates


Regulation of access to the Internet has become the central focus of the Federal Communications Commission (FCC). That focus concerns net neutrality, pricing standards, service availability and privacy concerns. The FCC ‘s regulation has vacillated between a reduced form common carrier approach and a market oriented private contract approach.
Trebing warns against the reliance on market solutions when a small number of providers dominate a market. He proposes that regulators identify the sources of market power and develop rules to offset that power. Melody asserts that the economic characteristics of communications systems affect the nature of the information that is generated and the conditions under which it is used. He notes that information retained by communications providers can be used as inside information to enhance economic power. Klein recognizes that those who possess economic power can manipulate the institutional responses to changing technological relationships.
The paper will demonstrate that changes in FCC policies revolve around which power group’s interest count rather than directed toward the reduction of economic power and achieving public interest goals. Second, the paper will identify sources of market power and demonstrate how firms leverage market power in one market to obtain power in other markets. Third, the paper will show how mainstream economic theories are used to defend the market power of dominant firms and how net neutrality positions are intertwined with whose interest counts. Finally, the paper will show how a regulatory paradigm built on Institutionalist principals will lead to the achievement of high efficiencies.

The Legal-economic Nexus From the Perspective of the New Institutional Economics and Original Institutional Economics

Antoon Spithoven
Utrecht University


The dominant approach to law and economics gives priority to the price mechanism for the allocation of resources. Starting from a given allocation of property rights, it assumes that rational maximizing individuals or organizations bargain an efficient outcome as long as benefits are higher than the costs. However, if transaction costs are higher than benefits, then law matters and, depending on the goals that legislators pursue, might either increase or decrease efficiency. In any case, if there are transaction costs, lawmakers and lawyers should aim to minimize them. Conversely, original institutional economists acknowledge the primacy of relevance of the price mechanism as the focal point of analysis but give priority to the assignment of property rights for the allocation of resources. They approach law and economy not in terms of efficient decision-making but as a function of each other. Within this legal-economic nexus, judges interpret the law to settle conflicts. They assess and interpret laws on the contingent and historic concept of reasonable value, at which it is acknowledged that members of organizations may pursue different goals. By referring to their interpretation of possible precedencies, they rule upon the constitutionality of economic legislation, notwithstanding that the U.S. Constitution does not include any economic theory. The assessment of reasonable values and the interpretation of precedencies reflect the dominant ideology among judges. If the latter is at odds with the dominant ideology in Congress, then judges are likely to rule against choices by legislators on highly ideologically contested economic issues.
Timothy A. Wunder
University of Texas-Arlington
JEL Classifications
  • E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
  • L5 - Regulation and Industrial Policy