Working Paper No. 155

The Formation of Incentive Mechanisms in Different Economic Systems

When studying incentives in different economic systems, traditional comparative economics focuses on comparing incentives within markets to incentives within hierarchies. Advantages of the former are treated as advantages of private enterprise, and advantages of the latter as advantages of socialist planning or government control. This approach has two weaknesses which prevents it from reaching any conc1usive results. First, no universally valid answer can be given to the question of which of the two types of incentives lead to a socially more efficient behavior. Second, the markets vs. hierarchies issue are not directly relevant to the comparison of real economic systems, for most of them contain mixtures of both types of organization and incentives.

The present paper proposes an organizationally dynamic approach which is free of these weaknesses. This approach shifts the focus from the way in which given types of organization function to the processes through which organizations form and reform. Different economic systems are then evaluated according to their capacity to channel such processes towards the formation of efficient organizational structures with efficient mixtures of incentives. The main conc1usion of the paper then is that a certain type of private enterprise is superior to government control and all forms of socialism in terms of such a capacity.

Interdisciplinary European Studies

The European Union and the Return of the Nation State


This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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