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In a series of recent papers, Mark Roe and Lucian Bebchuk have developed further the concept of path dependence, combined it with concepts of evolution and used it to challenge the wide-spread view that the corporate governance systems of the major advanced economies are likely to converge towards the economically best system at a rapid pace. The present paper shares this skepticism, but adds several aspects which strengthen the point made by Roe and Bebchuk. The present paper argues that it is important for the topic under discussion to distinguish clearly between two arguments which can explain path dependence. One of them is based on the role of adjustment costs, and the other one uses concepts borrowed from evolutionary biology. Making this distinction is important because the two concepts of path dependence have different implications for the issue of rapid convergence to the best system. In addition, we introduce a formal concept of complementarity and demonstrate that national corporate governance systems are usefully regarded as – possibly consistent – systems of complementary elements. Complementarity is a reason for path dependence which supports the socio-biological argument. The dynamic properties of systems composed of complementary elements are such that a rapid convergence towards a universally best corporate governance systems is not likely to happen. We then proceed by showing for the case of corporate governance systems shaped by complementarity, that there even is the possibility of a convergence towards a common system which is economically inferior. And in the specific case of European integration, "inefficient convergence" of corporate governance systems is a possible future course of events. First version December 1998, this version March 2000.
In contrast to the US and recently Europe, Japan appears to be unsuccessful in establishing new industries. An oft-cited example is Japan's practical invisibility in the global business software sector. Literature has ascribed Japan's weakness – or conversely, America's strength – to the specific institutional settings and competences of actors within the respective national innovation system. It has additionally been argued that unlike the American innovation system, with its proven ability to give birth to new industries, the inherent path dependency of the Japanese innovation system makes innovation and establishment of new industries quite difficult. However, there are two notable weaknesses underlying current propositions postulating that only certain innovation systems enable the creation of new industries: first, they mistakenly confound context specific with general empirical observations. And second, they grossly underestimate – or altogether fail to examine – the dynamics within innovation systems. This paper will show that it is precisely the dynamics within innovation systems – dynamics founded on the concept of path plasticity – which have enabled Japan to charge forward as a global leader in a highly innovative field: the game software sector as well as the biotechnology industry.