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The Architecture of Carbon Markets: Institutional Analysis of the Organizations and Relationships that Build the Market
Abstract
Countries around the world are developing carbon emissions markets as a governance mechanism to reduce greenhouse gas emissions and mitigate anthropogenic climate change. These markets are social institutions, designed to solve the transnational collective action problem of climate change. This article explores the development of carbon markets from an institutional perspective to understand how market networks specifically and social institutions in general are constructed. Drawing on seminal work by Richard Scott and Neil Fligstein, this article explores the way in which organizations build the institution of the carbon markets. As this article aims to demonstrate, a number of public and private organizations, rather than regulatory bodies, build and operationalize the market. The article analyzes how organizations develop the three pillars of the carbon market institution: regulative, normative and cultural-cognitive constructs. Since organizations build the institutional pillars of the carbon market network, the strength of the institution cannot be determined by regulation alone. Certainly regulation gives the carbon markets credibility, but their ability to become an institution of common practice relies on the strength and embeddedness of the organizations that build them. The article concludes by suggesting that the carbon market institution serves to communicate and disseminate a common social value of reducing emissions.
... During Phase I of the EU ETS, European carbon emissions allowances (EUAs) were traded on a number of platforms across Europe including London, Leipzig, Oslo, and Paris at a single arbitrage-free price (Daskalakis et al., 2009). Although the trading platforms are located within Europe, the financial intermediation involved in originating and trading carbon emissions allowances spawns an increasingly global financial network of bankers, lawyers, and project developers around the world (Knox-Hayes, 2009a, 2009b). An emerging strand of literature in the economic geography of carbon markets examines the geography of the professional services market itself. ...
... An emerging strand of literature in the economic geography of carbon markets examines the geography of the professional services market itself. Knox-Hayes (2009a) argues that the clustering of professional expertise in London and New York reflects the way in which the carbon market has emerged in complementarity with conventional capital markets. This clustering also suggests the potential for these cities to become hubs for new financial and technological innovation (Wo´jcik, 2009). ...
This article seeks to describe the geography of clean tech investment which
has emerged in recent years in the USA and the UK. An empirical approach
was used, relying on close-dialogue interviews with senior investment managers
in both markets. The article draws three conclusions. First, clean tech
investment is often strongly influenced by physical geography, particularly in
the area of renewable energy technologies. Second, regulatory settings play
a strong role in the flow of investment. Third, capital flows unevenly between
the different stages of technological maturity in clean energy products — a
phenomenon which has been described as the ‘valley of death’ financing gap.
... During Phase I of the EU ETS, European carbon emissions allowances (EUAs) were traded on a number of platforms across Europe including London, Leipzig, Oslo, and Paris at a single arbitrage-free price (Daskalakis et al., 2009). Although the trading platforms are located within Europe, the financial intermediation involved in originating and trading carbon emissions allowances spawns an increasingly global financial network of bankers, lawyers, and project developers around the world (Knox-Hayes, 2009a, 2009b). An emerging strand of literature in the economic geography of carbon markets examines the geography of the professional services market itself. ...
... An emerging strand of literature in the economic geography of carbon markets examines the geography of the professional services market itself. Knox-Hayes (2009a) argues that the clustering of professional expertise in London and New York reflects the way in which the carbon market has emerged in complementarity with conventional capital markets. This clustering also suggests the potential for these cities to become hubs for new financial and technological innovation (Wo´jcik, 2009). ...
The European Union Emissions Trading Scheme (EU ETS) is the world’s first regional carbon trading market. Its objective is to link European countries around a common price for carbon as a step towards helping the global economy transition to a low-carbon production base. This article is one of the first quantitative econometric attempts to understand how a carbon price operates across different economies. We find that the economic impact of a carbon price varies depending on the underlying energy market structure where the carbon price is imposed. This impact is much stronger than institutional differences associated with the volume of free carbon allowances and the carbon intensity of energy technologies. By examining the role of underlying energy market structures on the role of carbon pricing, this paper contributes to an emerging academic literature on the economic geography of carbon markets. This is relevant to governments around the world which are considering a carbon price in economies with unique energy market legacies.
This study analyses the forecasting accuracy of the implied volatility of options on futures contracts for the delivery of CO2 emissions allowances (carbon options) traded on the European Climate Exchange. We demonstrate that option implied volatility is highly informative about the variance of returns realized over the remaining life of the options. It is also directionally accurate in predicting future volatility changes. However, we also find that implied volatility of carbon options is biased, especially for periods of time which do not coincide with the remaining life of the option. This suggests that the market has yet to fully mature.
This study analyses the forecasting accuracy of the implied volatility of options on futures contracts for the delivery of CO2 emissions allowances (carbon options) traded on the European Climate Exchange. We demonstrate that option implied volatility is highly informative about the variance of returns realized over the remaining life of the options. It is also directionally accurate in predicting future volatility changes. However, we also find that implied volatility of carbon options is biased and informationally inefficient, especially for periods of time which do not coincide with the remaining life of the option. This suggests that the market has yet to fully mature.
We use meta-analytical techniques to address three central debates in institutional theory: Is organizational behavior the product of social structure or organizational agency? Does conformity to institutional norms enhance or diminish organizational performance? Can organizational field-level factors explain differences in the pull of isomorphic forces across organizational fields? We find that the influence of social structure is weak. Also, the adoption of isomorphic templates improves both symbolic and substantive performance. Finally, we identify several field-level factors that moderate isomorphic processes. We discuss the implications of these findings for institutional theory research.
In advanced capitalist society the state helps shape the institutional organization of the economy. We show how the state shapes the economy through the manipulation of property rights. The state's actions create pressures for change that lead actors to look for new forms of economic organization. The state also assists, leads, or constrains the process of selecting new forms of economic organization that emerge in response to these pressures, and it may or may not ratify these new forms. In contrast to the conventional literature on state economy relations that characterizes the U.S. state as having a weak capacity for successful economic intervention, we argue that property rights actions afford the U.S. state a previously unrecognized source of strength. Data come primarily from historical case studies of organizational transformation in the steel, automobile, commercial nuclear energy, telecommunications, dairy, meat-packing, and railroad sectors.
We examine the antecedents and consequences in developing countries of creating a national stock exchange, a core technology of financial globalization. We study local conditions and global institutional pressures in the rapid spread of exchanges since the 1980s and examine how conditions at the point of adoption affected exchanges' subsequent vibrancy. Little prior research connects the process of diffusion with the operational performance of adopted policies. We find that international coercion was associated with more ceremonial adoption but that, contrary to expectations common in institutional research, contagion processes via peer groups and normative emulation of prestigious actors enhanced vibrancy.
This article addresses the issue of how the market and the non-market are to be understood especially by concentrating on the theory of money. For mainstream economics, the market is simply an institution facilitating exchange, money being the key instrument for alleviating the inefficiencies of barter. In contrast, recent work in other social sciences, such as that by Zelizer, distinguishes among markets, and various roles of money, depending on cultural and social content. While being sympathetic to such an approach, we claim that the commodity is a better analytical starting point than the market. Based on Marx's work, we then show what commodities have in common and establish a common essence for money as generalized purchasing power. This is a peculiarly bland essence that allows money to undertake the variety of social roles identified by Zelizer.
Many of the early important empirical works on policymaking in Washington were built around elite interviews. We first learned about how Congress really operates from pioneers in elite interviewing such as Lewis Anthony Dexter (1969), Ralph Huitt (1969), and Donald Matthews (1960). No less revered is the scholarship of Richard Fenno (1978), John Kingdon (1995), and Robert Salisbury (1993), who have produced enduring and respected work from elite interviewing. Yet there are few other contemporary political scientists working on public policymaking who have built reputations for their methodological skills as interviewers. Elite interviewing is still widely used as the basis for collecting data, but most interviewing depends on a few trusted templates. Most commonly, elites in a particular institution are chosen at random and subjected to the same interview protocol composed of structured or semistructured questions. For example, state legislators are asked a series of questions about their attitudes on particular issues or institutional practices. Or policymakers involved in certain issues are selected and then quizzed about those matters. Some confident and skilled interviewers, like William Browne (1988) and Richard Hall (1996), combine different interview approaches in their work but they are the exceptions and not the rule.
The new institutional labor economics is a promising development, but it has faults that could be remedied by an infusion of theoretical and methodological insights from the old institutional approach. This claim is illustrated by a critical analysis of three key concepts: asset specificity, defefrred rewards, and opportunism. The essay concludes with a set of methodological precepts to guide future research.
As institutions and governance structures develop in modern markets, they tend to “feed back” onto economic activity. Through such feedback loops, market and political arenas can develop symbiotically into relatively coherent “fields” that gradually embed actors’ orientations and activities. Using these insights, this article develops and tests a theory of European integration using comprehensive data collected over the life of the European Union. We show that traders, organized interests, courts, and the EC’s policy-making organs, over time, have produced a self-sustaining causal system that has driven the construction of the European market and polity. The generality of this explanation to a sociology of markets and polity-building projects is discussed in the conclusion.
A neo-Gramscian theoretical framework for corporate political strategy is developed drawing from Gramsci's analysis of the relations among capital, social forces, and the state, and from more contemporary theories. Gramsci's political theory recognizes the centrality of organizations and strategy, directs attention to the organizational, economic, and ideological pillars of power, while illuminating the processes of coalition building, conflict, and accommodation that drive social change. This approach addresses the structure-agency relationship and endogenous dynamics in a way that could enrich institutional theory. The framework suggests a strategic concept of power, which provides space for contestation by subordinate groups in complex dynamic social systems. We apply the framework to analyse the international negotiations to control emissions of greenhouse gases, focusing on the responses of firms in the US and European oil and automobile industries. The neo-Gramscian framework explains some specific features of corporate responses to challenges to their hegemonic position and points to the importance of political struggles within civil society. The analysis suggests that the conventional demarcation between market and non-market strategies is untenable, given the embeddedness of markets in contested social and political structures and the political character of strategies directed toward defending and enhancing markets, technologies, corporate autonomy and legitimacy. Copyright Blackwell Publishers Ltd 2003.
I use the metaphor "markets as politics" to create a sociological view of action in markets. I develop a conceptual view of the social institutions that comprise markets, discuss a sociological model of action in which market participants try to create stable worlds and find social solutions to competition, and discuss how markets and states are intimately linked. From these foundations, I generate propositions about how politics in markets work during various stages of market development--formation, stability, and transformation. At the formation of markets, when actors in firms are trying to create a status hierarchy that enforces noncompetitive forms of competition, political action resembles social movements. In stable markets, incumbent firms defend their positions against challengers and invaders. During periods of market transformation, invaders can reintroduce more fluid social-movement-like conditions. [ABSTRACT FROM AUTHOR]
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Senior Legal Counsel, World Bank 1 1 The views expressed in this article are the views of the authors and do not necessarily represent the views of the World Bank. 2 The World Bank Group is comprised of five associated institutions: the International Bank for Reconstruction and Development (IBRD or World Bank), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the Settlement of Investment Disputes (ICSID). The IBRD is the relevant entity for the purposes of Since the creation of the first World Bank carbon fund over seven years ago, the World Bank carbon business has undergone a number of innovations. In July of 1999, the Executive Directors of the World Bank 2 approved the establishment of a Prototype Carbon Fund (PCF) 3 to promote buying carbon emission reductions in developing countries and countries with economies in transition. This came after years of analytical work 4 framed by the United Nations Framework Convention on Climate Change (UNFCCC) 5 . The PCF has, in many respects, been the pioneer of the global carbon market, piloting transactions several years before the Kyoto Protocol to the UNFCCC entered into effect 6 and acting as a 'role model' for other similar funds that have been launched by the World Bank itself (Carbon Funds), other international financial institutions and the private sector. The basic concept of the PCF was simple. It collected contributions from both public and private sector entities and used those funds to facilitate projects that reduce greenhouse gas (GHG) emissions. The emission reductions so generated are then distributed to the entities that contributed to the fund pro rata based on the amount of their respective contributions. 7 The basic concept was fully endorsed by the 17 private entities and six governments that contributed US$180 million to the PCF. Soon after the PCF became operational in 2000, it entered into its first emissions reductions purchase agreement (ERPA). To date the PCF has identified, on behalf of the fund participants, emission reducing projects ranging from biomass and small hydro to energy efficiency and conservation in over 15 countries. In the World Bank, over the past seven years, carbon finance has grown from the PCF to include 10 Carbon Funds, 8 with a total capitalization of approximately US$2 billion. 9 The Carbon Funds largely focus on compliance interests in the first commitment period (2008–2012) established by the Kyoto Protocol. However, in addition to focusing on compliance obligations, the World Bank has created the Community Development Carbon Fund to allow countries in the poorest regions of the world to benefit from opportunities created by carbon markets, by delivering demonstrable additional sustainable development benefits in addition to emission reductions. Similarly, the World Bank established the BioCarbon Fund to demonstrate opportunities in biological carbon sequestration, and the BioCarbon Fund is still the pre-eminent buyer of assets from land-use and forestry projects worldwide. Additionally, the World Bank has expanded the market beyond generating emission reductions under the current limits of the Kyoto Protocol, including through purchases of emission reductions that are generated post 2012.
Based on World Bank-International Emissions Trading Association study The findings and opinions expressed here are the sole responsibility of the authors. They do not necessarily reflect the views of the International Emissions Trading Association (IETA) or of IETA member companies, who cannot be held responsible for the accuracy, completeness, reliability of the content of this study or non-infringement of third parties' intellectual property rights. The findings and opinions expressed in this paper also do not necessarily reflect the views of the World Bank, its executive directors, or the countries they represent; nor do they necessarily reflect the views of the World Bank Carbon Finance Unit, or of any of the participants in the Carbon Funds managed by the World Bank.
I investigate how social embeddedness affects an organization's acquisition and cost of financial capital in middle-market banking-a lucrative but understudied financial sector. Using existing theory and original fieldwork, I develop a framework to explain how embeddedness can influence which firms get capital and at what cost. I then statistically examine my claims using national data on small-business lending. At the level of dyadic ties, I find that firms that embed their commercial transactions with their lender in social attachments receive lower interest rates on loans. At the network level, firms are more likely to get loans and to receive lower interest rates on loans if their network of bank ties has a mix of embedded ties and arm's-length ties. These network effects arise because embedded ties motivate network partners to share private resources, while arm's-length ties facilitate access to public information on market prices and loan opportunities so that the benefits of different types of ties are optimized within one network. I conclude with a discussion of how the value produced by a network is at a premium when it creates a bridge that links the public information of markets with the private resources of relationships.
This paper focuses on the increasing number of regional, national and international systems for trading and transfer of greenhouse gas emission allowances and emission reduction credits. The paper will serve as a platform for further discussions on the development of the international carbon trading market. The analysis builds on the International Emissions Trading Association (IETA) Trading Schemes Database, which has been developed by Point Carbon, covering all known trading schemes and programs. A full overview of all existing trading schemes and proposals is presented, showing inter alia the outreach and judicial nature of the systems, the range and nature of emission reduction or credit purchase targets, allocation methods used, links to external systems, and possibilities for the use of project-based credits. A comparative assessment is performed on a number of design criteria, allowing for conclusions to be drawn on the level of harmonisation of these systems, and the identification of convergence or divergence of important operational features. The systems covered in the analysis display considerable variation when it comes to key design criteria and functionality. A rapid integration of many of the planned and active systems seems likely following the agreement on the EU emissions trading scheme, and will be further accelerated if the Kyoto Protocol is ratified.
Frank Dobbin, Forging Industrial Policy: The United States, Britain and France in the Railway Age, Cambridge: Cambridge University Press, 1997, £15.95 (pbk) xii+262 pp. (ISBN 0-521-62990-X). - - Volume 33 Issue 4 - Howard Newby
Why is the technological performance of some industrial economies far superior to that of others? This is the question which underlies this paper and with which it seeks to engage. Two key constituents of innovative capacity are identified as effective supplies of information and skill. Within conventional economic theory the standard reason given for the under-supply of these two peculiar commodities is their shared vulnerability to the problem of ‘market failure’. In the course of the paper we strive to move significantly beyond this market failure position, as concisely stated by Kenneth Arrow, and explore at length the significant role played by politics and moral regulation in the securing of effective powers of innovation. In relation to this latter task, an opportunity arises to place Wolfgang Streeck's neo-industrial vision of Diversified Quality Production under critical scrutiny.
In this research, we traced the development of natural environmental issues in two organizations in real time over the period of a year. Participant observations, discussions with organizational members, and corporate documents yielded insights used to develop a model describing issue flows in both organizations. With this model, we identified the factors that influenced the scope, scale, and speed of organizational response to issues. Our methods provided insights into why issues generated organizational responses and also why they did not.
Two factors appeared to be critical in explaining organizational responses to issues: individual concerns and organizational values. Individual concerns gave rise to an issue champion or seller. An issue consistent with organizational values was perceived as strategic. These were necessary conditions; without either condition, the issue would not be resolved. It is argued further that individual discretion and excess resource slack will moderate the relationship between these direct effects and the scope, scale, and speed of organizational response. The framework that emerged from the data is conveyed through a set of four propositions.
This Connexions essay aims to reflect on the nature, rationale, and implications for research and researchers of conducting case studies. It draws on the works of Primo Levi and Giorgio Agamben on the meaning of the testimony and the paradox of Auschwitz: only those who died could fully testify the atrocities of the camp, but they tragically passed away. Thus each testimony presents a lacuna, and one needs to listen to the voices coming from this empty space to comprehend what happened. For organizational scholars, this paradox metaphorically implies that listening to managers and interviewees has nothing to do with telling what could be seen (a fact) and rather relates to what is missing (a lacuna) and thus the issue is one of investigating this absence (this space left empty by whichever testimony). This opens some ethical questions: What is the role of researchers in this investigation? Where does their ‘authority’ to narrate come from? What are they ‘authorized’ to recount? And with what consequences? Are researchers ineluctably perpetrators of a domination in the absence (and in the name) of the Other or is there an escape from this?
Examines the role that institutions, defined as the humanly devised constraints that shape human interaction, play in economic performance and how those institutions change and how a model of dynamic institutions explains the differential performance of economies through time. Institutions are separate from organizations, which are assemblages of people directed to strategically operating within institutional constraints. Institutions affect the economy by influencing, together with technology, transaction and production costs. They do this by reducing uncertainty in human interaction, albeit not always efficiently. Entrepreneurs accomplish incremental changes in institutions by perceiving opportunities to do better through altering the institutional framework of political and economic organizations. Importantly, the ability to perceive these opportunities depends on both the completeness of information and the mental constructs used to process that information. Thus, institutions and entrepreneurs stand in a symbiotic relationship where each gives feedback to the other. Neoclassical economics suggests that inefficient institutions ought to be rapidly replaced. This symbiotic relationship helps explain why this theoretical consequence is often not observed: while this relationship allows growth, it also allows inefficient institutions to persist. The author identifies changes in relative prices and prevailing ideas as the source of institutional alterations. Transaction costs, however, may keep relative price changes from being fully exploited. Transaction costs are influenced by institutions and institutional development is accordingly path-dependent. (CAR)
The general topic of this chapter is the relation of the society outside organizations to the internal life of organizations. Part of the specific topics have to do with the effect of society on organizations, and part of them concern the effects of organizational variables on the surrounding social environment. I intend to interpret the term “social structure” in the title in a very general sense, to include groups, institutions, laws, population characteristics, and sets of social relations that form the environment of the organization. That is, I interpret “social structure” to mean any variables which are stable characteristics of the society outside the organization. By an “organization” I mean a set of stable social relations deliberately created, with the explicit intention of continuously accomplishing some specific goals or purposes. These goals or purposes are generally functions performed for some larger structure. For example, armies have the goal of winning possible military engagements. The fulfillment of this goal is a function performed for the larger political structure, which has functional requirements of defense and conquest. I exclude from organizations many types of groups which have multiple purposes (or which perform multiple functions for larger systems, whether these are anyone's purposes or not), such as families, geographical communities, ethnic groups, or total societies. 1 also exclude social arrangements built up on the spur of the moment to achieve some specific short-run purpose. For instance, I will not consider a campaign committee for some political candidate as an “organization,” although a political party would definitely meet the criterion of continuous functioning and relatively specific purposes.
[Excerpt] Our primary aims in this effort are twofold: to clarify the independent theoretical contributions of institutional theory to analyses of organizations, and to develop this theoretical perspective further in order to enhance its use in empirical research. There is also a more general, more ambitious objective here, and that is to build a bridge between two distinct models of social actor that underlie most organizational analyses, which we refer to as a rational actor model and an institutional model. The former is premised on the assumption that individuals are constantly engaged in calculations of the costs and benefits of different action choices, and that behavior reflects such utility-maximizing calculations. In the latter model, by contrast, 'oversocialized' individuals are assumed to accept and follow social norms unquestioningly, without any real reflection or behavioral resistance based on their own particular, personal interests. We suggest that these two general models should be treated not as oppositional but rather as representing two ends of a continuum of decision-making processes and behaviors. Thus, a key problem for theory and research is to specify the conditions under which behavior is more likely to resemble one end of this continuum or the other. In short, what is needed are theories of when rationality is likely to be more or less bounded. A developed conception of institutionalization processes provides a useful point of departure for exploring this issue.
This essay seeks to lay the foundation for an understanding of
welfare state retrenchment. Previous discussions have generally
relied, at least implicitly, on a reflexive application of theories
designed to explain welfare state expansion. Such an approach is
seriously flawed. Not only is the goal of retrenchment (avoiding
blame for cutting existing programs) far different from the goal of
expansion (claiming credit for new social benefits), but the welfare
state itself vastly alters the terrain on which the politics of social
policy is fought out. Only an appreciation of how mature social
programs create a new politics can allow us to make sense of the
welfare state's remarkable resilience over the past two decades of
austerity. Theoretical argument is combined with quantitative and
qualitative data from four cases (Britain, the United States,
Germany, and Sweden) to demonstrate the shortcomings of
conventional wisdom and to highlight the factors that limit or
facilitate retrenchment success.
Preface to this edition, by Steven Lukes Introduction to the 1984 edition, by Lewis Coser Introduction to this edition, by Steven Lukes Durkheim's Life and Work: Timeline 1858-1917 Suggestions for Further Reading Original Translator's Note The Division of Labour in Society by Emile Durkheim Preface to the First Edition (1893) Preface to the Second Edition (1902) Introduction PART I: THE FUNCTION OF THE DIVISION OF LABOUR 1. The Method of Determining This Function 2. Mechanical Solidarity, or Solidarity by Similarities 3. Solidarity Arising from the Division of Labour, or Organic Solidarity 4. Another Proof of the Preceding Theory 5. The Increasing Preponderance of Organic: Solidarity and its Consequences 6. The Increasing Preponderance of Organic: Solidarity and its Consequences (cont.) 7. Organic Solidarity and Contractual Solidarity PART II: THE CAUSES AND CONDITIONS 8. The Progress of the Division of Labour and of Happiness 9. The Causes 10. Secondary Factors 11. Secondary Factors (cont.) 12. Consequences of the Foregoing PART III: THE ABNORMAL FORMS 13. The Anomic Division of Labour 14. The Forced Division of Labour 15. Another Abnormal Form Conclusion Original Annotated Table of Contents
This Policy Brief is intended to assist readers unfamiliar with the design and development of the EU Emissions Trading System. Readers familiar with the ETS may choose to move directly to the Commentary and Research sections of this Special Issue.
Many factors are important when it comes to conducting high quality elite interviews. As my colleagues have noted in their presentations in San Francisco and in their essays in this issue, gaining valid and reliable data from elite interviews demands that researchers be well prepared, construct sound questions, establish a rapport with respondents, know how to write up their notes, and code responses accurately and consistently. Improving these skills will certainly reduce the amount of measurement error contained in interview data. Unfortunately, none of these skills matter if you do not get the interview. In other words, everything that my colleagues have talked about depends on getting in the door, getting access to your subject. A well-prepared personable researcher who would be able to control an open-ended and wide-ranging interview, while establishing a strong informal rapport with an elite respondent will never get to demonstrate his or her interviewing skills—or ability to decrease measurement error—if the meeting never takes place. Furthermore and fundamentally, systematic error will also be introduced if researchers only get access to certain types of respondents.
Examines the role that institutions, defined as the humanly devised constraints that shape human interaction, play in economic performance and how those institutions change and how a model of dynamic institutions explains the differential performance of economies through time. Institutions are separate from organizations, which are assemblages of people directed to strategically operating within institutional constraints. Institutions affect the economy by influencing, together with technology, transaction and production costs. They do this by reducing uncertainty in human interaction, albeit not always efficiently. Entrepreneurs accomplish incremental changes in institutions by perceiving opportunities to do better through altering the institutional framework of political and economic organizations. Importantly, the ability to perceive these opportunities depends on both the completeness of information and the mental constructs used to process that information. Thus, institutions and entrepreneurs stand in a symbiotic relationship where each gives feedback to the other. Neoclassical economics suggests that inefficient institutions ought to be rapidly replaced. This symbiotic relationship helps explain why this theoretical consequence is often not observed: while this relationship allows growth, it also allows inefficient institutions to persist. The author identifies changes in relative prices and prevailing ideas as the source of institutional alterations. Transaction costs, however, may keep relative price changes from being fully exploited. Transaction costs are influenced by institutions and institutional development is accordingly path-dependent. (CAR)
Capitalist development is framed in two epochs with distinctive (if overlapping) socio-political, economic and cultural features-modernity and post-modernity. Constant through each epoch has been the drive to increase control of collective organization in space and time. This paper suggests that a new epoch has emerged, where humanity has become such a force of nature so as to destabilize its own environment and ultimately threaten its survival - neo-modernity. This paper explores the creation of markets to commoditize the atmosphere and control greenhouse gas emissions. Carbon markets are an important infrastructure to enable humanity to integrate nature into its socio-political and economic organization. The carbon markets are the beginning, the embodiment of a process designed to reorganize human activities, but also to organize a newly elevated natural environment. As with other epochs, the key to success in neo-modernity is organizing complex and divergent human activities across space and time. Using an institutional approach, built on case-studies and close dialogue with market participants in the London, New York, Chicago, Paris and Washington D.C. this paper analyzes the construction of carbon markets, including 1) how the markets organize the environment in space and time, and 2) how market members organize themselves in space and time. Particular attention is paid to the compressions of the spacetime of carbon commodities through the establishment of platforms, exchanges and verifiers. This paper argues that markets are coordinating networks - the epitome of neo-modernity infrastructure.
This article explores the development of carbon emissions markets through analysis policy formation in the United States. Whether the markets can be developed and operate quickly enough to have an impact in mitigating greenhouse gas production will be determined in large part by how well-designed and stringent the emissions markets are. In addition to the political challenges, the carbon emissions markets now must be developed in the face of financial crisis. The conditions surrounding the development of these markets raise doubt as to whether carbon emissions markets can be successfully designed. It raises the question: are markets inevitably path dependent, subject to historical events and driven by socio-cultural activity? Drawing insight from coalition and field stabilization theory, I argue that carbon emission market formation is path dependent, but only to the extent that it is shaped by prior existing conditions and perceptions of civil society. Case studies of policy formation the United States and California legislatures are used to demonstrate process of coalition formation and policy field stabilization. The article suggests that policy formation is a path dependent process structured by equilibrium of the motivations the institutions that build coalition.
One difference between economists and geographers is the significance attached by the former to stylized facts and the very different significance attached by the latter to the diversity of economic life. The paper begins with this distinction and argues that Krugman's theory-enslaved stylized facts may impoverish theoretical innovation in economic geography just as the efficient-markets hypothesis has had severe consequences for research in finance. An alternative to theory-enslaved stylized facts is suggested, noting the inevitable and antagonistic relationship between theory and empirical observation. My philosophical perspective is neither foundational nor postmodern, but is, rather, a version of philosophical skepticism. Having reviewed recent developments in economic geography, the claimed virtues of objectivity and the supposed dangers of subjectivity are disputed. I suggest that the former is compromised by its reliance upon a ready-made world, while the dangers of the latter are exaggerated by an implied commitment to an uncontested truth. This is the basis for arguing the virtues of close dialogue in economic geography and in the geography of finance in particular.
Financial markets, processes, and instruments are often difficult to fathom; the credit crisis highlights both their importance and their fragility. Donald MacKenzie is one of the most perceptive analysts of the workings of the financial world. In this book, he argues that economic agents and markets need to be analyzed in their full materiality: their physicality, their corporeality, their technicality. Markets are populated not by disembodied, abstract agents, but by embodied human beings and technical systems. Concepts and systematic ways of thinking that simplify market processes and make them mentally tractable are essential to how markets function. In putting forward this material sociology of markets, the book synthesizes and contributes to the new field of social studies of finance: the application to financial markets not just of economics but of wider social-science disciplines, in particular science and technology studies. The topics covered include the development of financial derivatives exchanges (non-existent in 1970, but now trading products equivalent to $13,000 for every human being on earth); arbitrage; how corporate profit figures are constructed; the crucial new markets in carbon emissions; and a case-study of a hedge fund (based, unusually, on direct observation of its trading). The book will appeal to research students and academics across the social sciences, and the general reader will enjoy the book's explanations and analyses of some of the most important phenomena of today's turbulent markets.
This article looks at the role of market complementarities in developing new carbon markets. I argue that markets are composed
of social as well as economic networks. The reliance of these networks on social connectivity and proximity makes the development
of new markets particularly suited to established financial centers like London and New York and reinforces the importance
of these centers. London and New York provide not only resources and financial infrastructure, but also institutional proximity
that develops routines and practices between complementary firms. I investigate three levels of complementarity between (existent
and new) markets and within the new carbon markets: the complementarity of expertise and information, the complementarity
of institutions and services and the complementarity of market systems. Case studies constructed from expert interviews in
London and New York are used to support the argument. This article concludes by commenting on the dialectic nature of financial
agglomeration and market embeddedness.
The concept of embeddedness has general applicability in the study of economic life and can alter theoretical and empirical approaches to the study of economic behaviors. Argues that in modern industrial societies, most economic action is embedded in structures of social relations. The author challenges the traditional economic theories that have both under- and oversocialized views of the conception of economic action and decisions that merge in their conception of economic actors atomized (separated) from their social context. Social relations are assumed to play on frictional and disruptive, not central, roles in market processes. There is, hence, a place and need for sociology in the study of economic life. Productive analysis of human action requires avoiding the atomization in the extremes of the over- and undersocialized concepts. Economic actors are neither atoms outside a social context nor slavish adherents to social scripts. The markets and hierarchies problem of Oliver Williamson (with a focus on the question of trust and malfeasance) is used to illustrate the use of embeddedness in explicating the proximate causes of patterns of macro-level interest. Answers to the problem of how economic life is not riddled with mistrust and malfeasance are linked to over- and undersocialized conceptions of human nature. The embeddedness argument, on the contrary, stresses the role of concrete personal relations and networks (or structures) in generating trust and discouraging malfeasance in economic life. It finds a middle way between the oversocialized (generalized morality) and undersocialized (impersonal institutional arrangements) approaches. The embeddedness approach opens the way for analysis of the influence of social structures on market behavior, specifically showing how business relations are intertwined with social and personal relations and networks. The approach can easily explain what looks otherwise like irrational behavior. (TNM)
This article focuses on Prolegomena to a Theory of Social Institutions, an essay by Talcott Parsons first published in the American Sociological Review. Parsons's Prolegomena is an object lesson for those who would read past theoretical work in terms of present-day conceptual categories. Written more than a half century ago, before it became standard sociological practice to differentiate the micro from the macro, a voluntaristic approach from a functionalist approach, a focus on action from an emphasis on social system and social structure, the paper escapes latter-day pigeonholes. Prolegomena shows that the early Parsons upheld a package of ideas that circumvents such polarities by combining what he terms a voluntaristic conception of human action in which the factors of will and effort are central, with a functionalist analysis that views economic, political, educational, and other social institutions as constituting a system that regulates action in relative conformity with the ultimate common values. The goal of the essay is to arrive at social institutions and certain aspects of social structure by beginning with human action, understood subjectively in terms of the means-end schema, and proceeding from there to action systems composed of long and complex [means-end] chains--chains analytically divisible into the conditional factors of heredity and environment, an intermediate sector made up of technological, economic, and political elements, and the sector of ultimate values.
This paper surveys sociological approaches to the study of markets. After considering the economic approach, I delineate the wide range of theoretical schools, including alternative schools in economics, economic anthropology, cultural sociology, the embeddedness approach, and the new political economy. I also briefly discuss recent debates on the transition from planned economy to market and on globalization. I conclude by noting the difficulties of theorizing about the historical and institutional complexity of markets. [ABSTRACT FROM AUTHOR]