Institutional Theory and Its Importance
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Questions and Answers

What do institutions provide according to institutional theory?

  • A way to resolve conflict after it reaches open hostility
  • Support and infrastructure for decision makers only
  • A way to resolve conflict before it reaches open hostility (correct)
  • Rules of the game for individuals

    • What is the primary function of formal institutions?

  • Provide the rules of the game for business
  • Influence behavior through norms and values
  • Influence behavior through laws and regulations (correct)
  • Establish standards and propagate principles

    • What type of institution is characterized by a collection of shared ideas that define reality?

  • Formal institution
  • New institutional theory
  • Informal cognitive institution (correct)
  • Informal normative institution

    • What is the primary difference between formal and informal institutions?

    <p>Formal institutions influence behavior through laws, while informal institutions influence through norms</p> Signup and view all the answers

    What is the purpose of new institutional theory?

    <p>To understand institutions as social constructs that limit behavior</p> Signup and view all the answers

    What is an example of an informal normative institution?

    <p>The United Nations</p> Signup and view all the answers

    What is the primary focus of the International Development Association (IDA)?

    <p>Poorest nations via interest-free loans and grants</p> Signup and view all the answers

    What is the primary function of the International Bank for Reconstruction and Development (IBRD)?

    <p>Funding economic development projects in middle-income nations</p> Signup and view all the answers

    What is the primary goal of the Organisation for Economic Co-operation and Development (OECD)?

    <p>Promoting economic expansion of developed countries</p> Signup and view all the answers

    What type of institution is the World Bank?

    <p>Non-profit cooperative</p> Signup and view all the answers

    Which organization funded the Kajaki hydroelectric dam in Afghanistan?

    <p>USAID and the World Bank</p> Signup and view all the answers

    What is the main difference between the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)?

    <p>IBRD focuses on middle-income nations, while IDA focuses on poorest nations</p> Signup and view all the answers

    What is the primary goal of economic integration agreements such as ASEAN and EU?

    <p>To increase economic growth and cooperation among member states</p> Signup and view all the answers

    What is the main concern of those who oppose international institutions such as the WTO and EU?

    <p>They may undermine national sovereignty and independence</p> Signup and view all the answers

    What is the role of the European Commission in the EU?

    <p>To administer daily operations and implement EU policies</p> Signup and view all the answers

    What is the main advantage of supranational agreements according to their proponents?

    <p>They provide benefits that far outweigh their trade-offs</p> Signup and view all the answers

    What is the primary goal of the European Monetary Union (EMU)?

    <p>To establish a common currency and monetary policy</p> Signup and view all the answers

    What is the role of the European Parliament in the EU?

    <p>To represent the people of Europe</p> Signup and view all the answers

    What is the main difference between a free trade agreement and a free trade area?

    <p>A free trade agreement reduces tariffs, while a free trade area eliminates tariffs</p> Signup and view all the answers

    What is the main purpose of the Association of Southeast Asian Nations (ASEAN)?

    <p>To provide a security agreement among member states</p> Signup and view all the answers

    What is the primary way that formal institutions impact firms?

    <p>By creating formal constraints</p> Signup and view all the answers

    What is the relationship between informal institutions and manager behavior?

    <p>Informal institutions have a direct impact on manager behavior</p> Signup and view all the answers

    What is the result of the impact of formal institutions on firms?

    <p>A change in firm behavior</p> Signup and view all the answers

    What is the role of informal institutions in shaping firm behavior?

    <p>They influence manager behavior, which in turn impacts firm behavior</p> Signup and view all the answers

    What is the relationship between firm behavior and manager behavior?

    <p>Firm behavior is directly influenced by manager behavior</p> Signup and view all the answers

    What type of constraints do informal institutions have?

    <p>Normative and cognitive constraints</p> Signup and view all the answers

    What is one of the benefits of economic integration agreements in the European Union?

    <p>Reduced cost of doing business within the European Union</p> Signup and view all the answers

    What is the main challenge faced by the French alternative energy company in the mini-case?

    <p>Responding to Chinese activities in West Africa</p> Signup and view all the answers

    What is one of the advantages of maintaining a higher standard of data privacy in the European Union?

    <p>Improved consumer protection</p> Signup and view all the answers

    What is Autumn Sprunk's advice for gaining international experience?

    <p>Get creative and enjoy the experience</p> Signup and view all the answers

    What is the purpose of economic integration agreements?

    <p>To reduce the cost of doing business within a region</p> Signup and view all the answers

    What is the main benefit of having a common currency in the European Union?

    <p>Reduced cost of doing business within the European Union</p> Signup and view all the answers

    What is the main goal of the French alternative energy company in the mini-case?

    <p>To explore FDI in response to Chinese activities in West Africa</p> Signup and view all the answers

    Which organization would you look to for help in developing a list of investment alternatives and of criteria for the ownership recommendation?

    <p>Global institutions</p> Signup and view all the answers

    Study Notes

    Institutional Theory

    • Institutions provide ways to resolve conflicts before they reach open hostility and support and infrastructure for decision makers.
    • New Institutional Theory understands institutions as social constructs that limit behavior and provide rules for business.
    • Institutions can be classified into two types: formal and informal.
    • Formal Institutions influence behavior through laws and regulations, using the threat of force and sanctions.
    • Informal Institutions influence behavior through norms, values, customs, and ideologies, with no penalty for noncompliance.

    Types of Institutions

    • Informal Normative Institutions are organizations that establish standards and propagate principles, such as the UN and NGOs.
    • Informal Cognitive Institutions are collections of shared ideas that define reality, often neither explicit nor tangible (e.g., guanxi).

    International Monetary Institutions

    • The World Bank is a nonprofit cooperative that funds developing nations, organized into two major and three smaller institutions.
    • International Bank for Reconstruction and Development (IBRD) focuses on middle-income nations.
    • International Development Association (IDA) provides interest-free loans and grants to the poorest nations.

    Economic Development

    • The World Bank funds development projects, such as the Kajaki hydroelectric dam in Afghanistan.

    World Development and Trade Organizations

    • Organisation for Economic Co-operation and Development (OECD) is a group of developed countries dedicated to promoting economic expansion and providing research on economic and business topics.

    Economic Integration Agreements

    • Association of Southeast Asian Nations (ASEAN) is an agreement among Southeast Asian nations that began as a security agreement, grew to a free trade agreement, and is continuing towards a free trade area, known as AFTA.
    • European Union (EU) is a body of 27 European countries that resulted from the Maastricht Treaty, with three areas of integration: economic, foreign policy, and domestic affairs.
    • European Union has an Economic and Monetary Union (EMU) established the euro, with a European Parliament, Council of the European Union, and European Commission.
    • European Union has harmonized national standards, labeling laws, testing procedures, and consumer protection measures, reducing the cost of doing business within the EU.
    • European Union maintains a higher standard of data privacy.

    Global Debate

    • International institutions, such as the United Nations, can be seen as promoting harmony or violating national sovereignty and reducing the power of nation-states.
    • The benefits of supranational agreements may outweigh their trade-offs.

    Other

    • Autumn Sprunk gained international experience through her work with AIES EC and the Peace Corps in Colombia, advising to get uncomfortable with uncertainty, get creative, and enjoy the experience.
    • The mini-case "Getting Help from Global Institutions" explores the development challenge of a French alternative energy company exploring FDI in response to Chinese activities in that sector in West Africa.
    • The figure "Influence of Institutions on Firms, Managers, and Firm Behavior" illustrates the impact of formal and informal institutions on firms, managers, and firm behavior.

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    Description

    Learn about the role of institutions in resolving conflicts, providing support for decision makers, and understanding them as social constructs. Explore institutional theory and its significance.

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