Institutions

In economic theory institutions are seen as ‘gaming rules’, which groups and individuals apply to achieve specific aims (e.g. reduce transaction costs, increase efficiency). Therefore institutions reach from legal policies and regulations in organisations (e.g. in companies, associations or parties) to tacit conventions. After institutions are established they develop an independent existence: they tend to realize the interests of a particular group. Because of this the aims and functions of an institution have to be reviewed regularly.  New aims require normally also an adjustment of the institutional frameworks.

• Note: ‘Political institutions’ (e.g. the German parliament, German government or the European Commission) and ‘Institutional’ investors at financial markets (e.g. pension funds and insurances) are not part of this context.

 

Institutional Analysis

The institutions functionality depends on the participants involved interest.  The key question is: Which factors determine the motivation and which decision rules and impediment factors influence actions? Aims of the institution have to be considered in parallel: How can those aims be achieved while keeping a preferably high self-motivation of the participants? The approach of that institutional analysis allows an improved understanding of stakeholder interactions and controlling contributions of the different institutional frameworks. That applies not only for the status quo, but also for other potential framework arrangements.

 

Law and Economics

Law claims to influence human behaviour with the aim to achieve control objectives in society. The question how suitable impulses from legal norms are, can be only determined with a real-analysis of action-defined parameters.

Modern economic theory understands itself as a theory of human behaviour and aims to identify parameters that are relevant for decisions.

Hence both approaches complement each other. The economic-legal Institutional Analysis is building a bridge between the two disciplines. It contributes to a preferably rational, and therefore equally target-orientated and freedom-preserved creation of legal frameworks.

 

 

sofia research approach: method and implementation

Methods / configuration options based on the Delta-Analysis

The starting point of an economic-legal Institutional Analysis is a constellation, which actors in society (or in companies) perceive as a problem. Relevant actors for a specific issue are selected based on an empirical sound and theoretical reviewed real-analysis. The analysis of the problem situation/ status quo explores the question why actors currently behave the way they do. The findings are contrasted with the societal defined target state/ normative aims, which can be found in legal guidelines.  The comparison between status quo and normative aim results in a Delta. The Delta often comes from insufficient incentives for actors to behave in the way normative guidelines expect it. Additional, the existence of impediments make it even for obliging actors difficult to fulfil the normative intended behaviour. This Incentive and Impediments Analysis (IIA) allows to develop alternative configuration options for the institutional context and to describe the impacts of the involved legal positions, their interests and the related motivation structure of actors. (Link ‘More information about the Delta-Analysis‘)

Politics

Thereby are considerably improved objective and prognostic fundaments for political decisions available. The postulate of rational governmental action, embedded in the constitutional law, which serves the protection of fundamental rights and has found its expression in the proportionality principle, can be achieve on a preferably higher level. That corresponds to the claim of the Federal Constitutional Court, after appropriate investigation and evaluation of the issue by the legislator. The research approach of sofia aims not to replace, but to support the necessary decisions of the legislative process.

 

Companies

The economic-legal Institutional Analysis offers a tool that is interesting for companies too, in fact for the ‘gaming rules’ within a company, the behaviour towards external stakeholders and in political fields. An Institutional Analysis can point out strategical options for corporate management and demonstrate effective implementation tools.

 

Associations

Also other societal actors operate in specific institutional environments. Associations can explore this with regard to their own strategy to open new perspectives and to develop initiatives and campaigns.

Examples
The method of the economic-legal Institutional Analysis was developed in a research project supported by Volkswagen Foundation. Subjects of the exemplary Institutional Analysis were the following areas:

1. Legal protection for children and young persons in advertising
2. Integration of disabled persons into the working world
3. Handling of solvents

 

The method is also applied in the following action fields of research projects:

1. Implementation of nature conservation: nature conservation standards
2. Local climate protection program
3. Management of substance-related risks along the value chain under the REACh regulation, www.reach-helpdesk.de
4. Evaluation of the UVP-law
5. Incentives for area-saving planning and ‘recycling‘ of fallow land to an area cycle agriculture
6. Information flows of electronic devices, www.elvies.de
7. Responsive management of innovation behaviour for sustainability (Responsive Steuerung von Innovationsverhalten für Nachhaltigkeit, ReSINa) in the areas: chemicals, nano materials, genetic engineering and patents.
8. Evaluation of usage and impact of the environment-remedy-law, which allows environment associations the right of action at UVP relevant issues
9. Consumer habits and innovations for sustainable chemicals (Konsumverhalten und Innovationen zur nachhaltigen Chemie (KInChem) – through the example of products with problematic substances
10. Energetic restructuring of existing buildings – especially quarters
11. Market opportunities for ‘Sustainable chemicals‘  through the REACh-regulation