SSP Impact Methodology Applied

Analytic Steps:

1. What is the physical good central to the case?

Try several variations in defining the good (eg. education, but are we analyzing the classroom, educated person, etc.

2. What is the inherent characteristic of the good? Source of interdependence (situation). Goods matter. What are the potentials for one person's acts to affect another? What other cases in your experience have the same situation as the case under consideration?

Note degree (may not be dichotomous high and low). Are several characteristics present which need to be considered together when related to a given right.

What characteristics of people matter? eg. cognition, size of group. Who are the transacting parties? History-path?

3. From theory: specify the structural variables that direct each source of interdependence. What rules are likely to be important for each situation?

Use theory to determine what kinds of structures direct the type of interdependence identified and thus some of the dimensions to look for:

    eg. if IUG is identified, we know something along the lines of factor ownership is the relevant structure and one performance measure of interest is which incompatible user uses the resource and the resulting income distribution.

    eg. if JIG is identified, we know that rules of cost share and who gets to choose the good quality are instrumental in affecting performance measured as income distribution and whose preferences count.

    eg. if HEC is identified, we know that structures that affect incentive to contribute (pay for) the good will affect whether the performance is one of free riders (good underprovided) or unwilling riders.

For starters consider these structural alternatives:

* Market bargaining (eg. factor ownership including liability rules, competition, pricing rules, injunction vs. damages, who chooses quality, union shop rules, advertising rules, voting rules).

* Administrative (eg. taxes, regulation, vertical integration--hierarchy.

* Status-grant (roles). Internalized, learned behaviors. SOP's.

Then-- Boundaries, positions, authority, aggregation rules.

But remember, institutional detail matters.

What needs to be held constant to isolate the impact of institutional alternatives both in production economics and other background institutions (formal and informal)?

4. Select performance variables.

From theory and survey of interest groups, select performance variables relevant for each source of interdependence. Consider time frame and feedback loops to situation, technology and legal structure.

5. Formulate testable SSP hypotheses.

    A testable hypothesis will embody a given situation and two contrasting structures (institutions) and the expected performance associated with each. When you put situation and structure together you will use some model of human behavior. SSP regards profit maximization as one information processing possibility from among many. Some relevant concepts are: bounded (intelligent) rationality and selective perception; framing; cognitive dissonance and regret, C-D gaps, SOP's and inert areas.

    An external (to the individual) rule change alters the pattern of reinforcers coming from the environment and alters the probability of repetition of behavior. People push on the enviornment and the environment pushes back.

6. Test your hypothesis.

Hold right constant, apply to different situations to predict performance. Or, hold situation constant and vary rights to predict performance.

Ex post Analysis of the case:

    a. Cross section (comparative institutional analysis).

    b. Time series.

Ex Ante Analysis: Effect of a rule change which has never been tried for the good in question.

    c. Look for cases of other goods with similar situational characteristics where the same kind of right was applied. Observe performance and use it to infer performance if that kind of right were applied to the case you are analyzing.  In the social sciences, we cannot usually conduct large scale experiments applying two institutional treatments to the same conditions to observe differences in performance.  Still, we want to learn as much as we can from experience.  How can we predict the outcome of a changed rule for resource X where it has never been tried before?  If we can find a resource with the same situational characteristics where institution Y is operating, we may be able to project how Y would work on X.  Different resource characteristics (situation) are the source of different kinds of interdependencies among stakeholders (including buyers and sellers and third parties).  These different kinds of interdependencies are controlled and directed by different institutional rules.  If the characteristics of the two resources are the same, it can be expected that the same institutions newly applied to one of them will produce the same performance as was observed in the previous case.  If the resource characteristics are similar in some respects, but different in others, this can be separated and hypotheses developed as to what institutional modification must be added to control for the interdependencies present in one resource but not the other.

7. Experiment.

    a. In the laboratory.

    b. Urge people and politicians to try some new institutions on a limited basis.
 

If you have any questions or comments, please email schmid@msu.edu

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