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The paper suggests a partial solution to the disjunction between the institutional environment and the institutions of governance by considering the budget constraint. This approach is put in the perspective of the comparative analysis of economic organizations as discrete structural alternatives. The budget constraint presents a whole range of alternative values that are distinct by different transaction costs that organizations meet. Following different values of budget constraint, bounded rationality and opportunism are allocated to alternative uses and asset specificity takes different forms. This approach requires that the discriminating alignment solution considers the prevailing value of the budget constraint, which opens the need for a comparative perspective on efficacious organizational governance. A second level of governance is corporate governance. The debate over corporate governance is centered around decision-making power and the existence of quasi-rents that organizations produce. Given different values of the budget constraint, the definition of what are efficacious systems of decision-making power and appropriation of quasi-rents are distinct in the shareholder value and the stakeholder interest paradigms. Jel Classification: D23, G34, L22, P12

I. Transatlantic Linkages 1. Ken Ash, The Implications of Global Value Chains for Trade Policy and Trade Agreement 2. Ivan Belyacz and Erzsebet Szasz, The Deeper Roots of the Financial System's Propensity to Crisis 3. Bruno Dallago, The Financial and Real Crisis in the Eurozone and Vulnerable Economies II. The Crisis and Policies: A Transatlantic Perspective 4. Steven Rosefielde, Secular Crisis: The Mundell-Fleming Trilemma and EU De-Legitimization 5. Quinn Mills, Assessment of the EU's management of the EZ crisis 6. Nicola Acocella, A Tale of two cities: Exit Policies in Washington and Frankfurt III. Institutions, Rivalry and the Consequences for Democracy 7. Simona Piattoni, Institutional Innovations and EU Legitimacy after the Crisis 8. Paul Blokker, The European Crisis as a Crisis of Democratic Capitalism 9. Layna Mosley, (De)Fault Lines? The EU, National Governments and Private Capital Markets in the Post-Crisis Era IV. The European Currency and Transatlantic Relations 10. Domenico Mario Nuti, Euroarea: Premature, Diminished, Divergent 11. Paolo Guerrieri, The Euro Crisis and its Impact upon Transatlantic Relations 12. Alfred Steinherr, Why Germany should leave the Euro 13. Roberto Tamborini, EMU 2.0 and the German Problem

A peculiar mix of firms of different type and size and characteristic configurations of economic actors are distinctive attributes of the organizational structure of modern economies. One important reason for such diversity lies in the variety of such environmental features1 as topography, international geo-political situation, endowment with natural resources, level of development, and demography that distinguish the countries of the world. Yet, organizational variety is a remarkable feature even in economies that are similar from many perspectives-such as the level of development, endowment with technology, or demand features-that may even show converging economic performance (e.g., in terms of growth rates) that cooperate and are integrated in many ways. This observation holds even in the case of countries that are progressively integrating their economies, such as those of the European Union.2 If economies at comparable levels of development3 are competitive and open-as is increasingly true in developed market economies in a time of globalization-there should be no significant interfirm differences in factors remuneration and access to factors pools, including technology. If we suppose that costs, technology, or segmentation explain the organizational structure of comparable economies, we should observe increasing uniformity. Yet we can observe that intercountry differences persist and do not decrease appreciably in importance, although they evolve.

Although it already existed in Central and Eastern Europe during Soviet times, the irregular economy has boomed in the last dozen years, while undergoing a dramatic change of structure. This boom has sometimes been used to justify the claim that ‘transitional depression’ has been grossly overestimated and, consequently, that growth rates have been underestimated. This paper presents some quantitative estimates in different countries, including Russia. The data show a remarkable difference in the size of the irregular economy in different countries, which calls for explanation. The paper warns against the easy conclusion that the large size of the irregular economy is a synonym for bad official statistics. This warning is then translated into a statistical exercise applied to Hungarian data that offers an evaluation of statistical underestimation and its consequences for growth rates.

The paper explains how the economic system determines the role and features of SMEs in a competitive environment. The economic system is defined as the co-ordinated set of institutions and structures that are economically relevant. As such, the economic system defines the way in which economic actors react to economic variables by adapting and acting and the way in which they interact. In particular, the fundamental features of the economic system contribute to determine what actors can and find profitable to do, i.e. determine the level and configuration of non purely material costs and the features of markets. The economic system also determines incentives to economic actors by defining property rights and their enforcement and the nature of contracts. This in turn influences investment and consumption decisions, the supply of resources, and the production and utilisation of information and knowledge. Finally, the economic system determines the type and features of actors, what actors do and how they do by defining the possibility and profitability of specific human and organisational investment. Based on these functions and given material technology, the economic system defines advantages and disadvantages of different organisational forms. Given capabilities and features of individuals and organisations, that cannot be easily changed in the short run, advantages and disadvantages determine the organisational form that is most efficient in any given context. Finally and considering network externalities and strategic complementarities, such an organisational form determines the organisational configuration as a stable configuration including features, weight and role of particular economic actors, the relation among actors of similar or different size and with governments. In the paper I consider the case of small and medium-size enterprises.

IN RECENT YEARS the wheel of history apparently turned back in some parts of Europe, as several previously unified multinational countries broke up, following peaceful or bloody disintegration processes. If one is convinced that-in economic terms-integration is better than disintegration, because the latter reduces the market and increases transaction costs, and therefore diminishes the scope for the division of labour and economies of scale, one should conclude that there is no economic rationality in nationalism that leads to disintegration. And indeed, the traditional economic case for nationalism is one of a force that leads to the building and integration of nations, not the opposite. In this context the case of former Yugoslavia is certainly relevant for a variety of reasons. Observers have had a hard time finding rational processes behind the Yugoslav scenario; in fact, the explanation is usually based on collective irrationality, justified or at least strengthened by historical factors, which led entire peoples to actively fight for a future which outsiders consider to be inferior-in terms of consumers' welfare, social peace, economic expansion-to the previously existing one.1 Since the classical contributions by Viner and Meade, economic analysis has proved the benefits of economic integration under certain conditions, and has also considered the case of non-optimal trade and monetary areas,2 which can partly contribute to the explanation of the poor economic performance and ultimately the break-up of Yugoslavia. However, disintegration of previously economically unified states entails greater transaction costs, renunciation of the benefits of a larger market, and consequently of a greater division of labour and economies of scale. Under these circumstances, it is difficult to see a rational economic motive for nationalism and economic disintegration. Moreover, one should bear in mind that the disintegration of a previously unitary, although supposedly inefficient, system is usually followed by a rapid break down in the economic relations among its previous, now independent components, which is not easily off-set by closer links with other economies. This point is amply illustrated not only by Yugoslavia but also by the former members of the CMEA and the republics of the ex-Soviet Union. In all these cases, the relations among these countries have rapidly declined in both relative and absolute terms, and they have been replaced only in part by relations with other countries. Finally, disintegration is no guarantee of more effective and rapid systemic change, a point

This chapter provides an overview of the economic-political transition in post-Communist states and the role of international organizations, particularly the European Union, which through integration conditionality played an important role in the transition. It also provides a methodical matrix of the main domestic and exogenous rationales, which stemmed the decentralization in different Central and Eastern European Countries (CEECs). The chapter offers an analytical categorization of the approaches employed at the decentralized local level to promote local development, focusing on approaches analyzing the role of regional development agencies (RDAs) and area-based strategies to enhance local development. Keywords:area based development (ABD) approach; capital-centered economic development; Central and Eastern European Countries (CEECs); regional development agencies (RDAs)

Inefficient economic systems can be stable and their transformation towards efficiency may fail because of investment in system-specific assets, costliness of systemic change, and existence of various asymmetries. As a consequence, individual choices are based on subjective models derived from system-specific capital and investment that are nonconvergent and originate consequent actions. These factors may impede the development of a new efficient system because rational actors prefer to invest directly in the distribution of property rights over existing assets. This diminishes the possibility to capture potential social gains from systemic change and reproduces systemic inefficiency. Copyright 1996 by WWZ and Helbing & Lichtenhahn Verlag AG

Small and medium-sized (SMEs) enterprises in Hungary account for 99.9% of all enterprises and for more than two thirds of employment. Since transformation started in 1989 they have been the only net makers of employment. In spite of such remarkable importance, results have been modest compared to the amount of Hungarian and foreign, mostly EU resources poured into the sector. Less than a sixth of SMEs are fast-growing and only a tiny minority of SMEs make use of bank credit. According to various indicators and in spite of bright spots, the SMEs context is problematic and SMEs features are often unfavourable and hardly competitive. In recent years the goal of upgrading SMEs and strengthening their contribution to the economy has acquired central position among policy goals and activity. Although progress has been made, the results are weak and in some cases drawbacks have happened. The paper starts from analysing the SMEs situation, reviews the main features of the recently implemented policy strategies, assesses whether these strategies are appropriate to address the situation, including the effects of the domestic and international crises, and considers whether the targets pursued are realistic and important, and the instruments considered in line with the targets

The unfolding of the crisis in the Eurozone can be explained by the interaction of institutional features and policy failures, and by their interconnection with real and financial imbalances. The crisis has shown that internal divergence in the EZ is based on important structural components which are unsustainable in the long run. Indeed, the crisis has magnified the gap between the vulnerable peripheral member countries and a more resilient core. The paper analyses those factors that opened the way to the diffusion of the financial and economic crisis in the Eurozone. It also discusses the structural consequences of these events and critically analyses the institutional and political reforms which the Eurozone is facing in order to enhance its capability to cope with external shocks.

This book1 is concerned with the factors that shape the local ability to withstand, cope with and benefit from the increasing openness of the economy and focuses on the interplay between local and global dimensions, which constitutes the role of local capacities, opportunities and constraints.

Transformation has been put in motion by a variety of both endogenous and exogenous forces. Although not any process was under the control of those countries, their choice of goals and instruments was anyway particularly great, at least theoretically. However, transformation was implemented as a rather narrowly defined and technically circumscribed problem-solving process aiming at applying sound general principles of economics and management to reach well-defined goals. It turned out to generate new problems and resulted in different outcomes in different countries and, within individual countries, in different territories. This paper treats transformation as innovation and considers that it had to deal with different dimensions, including both general principles and local features, opportunities, and constraints, and both analysis based on problem-solving, and interpretation of the new situation. These dimensions should have been managed simultaneously, but failed to do so. The paper provides a general explanation for the failure in managing simultaneously the various components of transformation and considers what the 2008 international crisis has revealed of the implementation of 20 years of transformation.

As a result of substantial efforts by the governments and citizens in the former socialist countries, the shift to a market economy is now entering its second phase. If the first phase of the economic transformation was to constitute the social and economic institutions that are vital for establishing a ‘minimum’ system of market economy, then the present aim should be to enhance these hastily introduced institutions for the further development of capitalism.

Standard economics has supposed for a long time that the economy is coordinated by the price mechanism and that no explicit governance problem is involved. However, Coase has proven that this description is only partial, Berle and Means have stressed that ownership and control of firms are often separated, and later on Williamson has demonstrated that hierarchies play a fundamental role. Coase’s path-breaking contribution has been the starting point of a burgeoning literature on the nature of the firm. This literature splits the problem into two parts that concern first, the firm boundaries and their determination, and, second and given those boundaries, the way in which the different constituents of the firm are coordinated and the residual income or residual decision-making power (given incomplete or missing contracts) is allocated.

Entrepreneurs are a driving force of transformation in that they activate the new market institutions, including the new private sector; innovate products and processes, markets and social relations; assist companies privatization and restructuring; support competition and transform economic organization. However, there is no guarantee that privatization and liberalization result in entrepreneurship: it may result in ‘proprietorship’, that is, aversion to capital accumulation and competition and orientation towards consumption of the surplus (Scase 2003). As a consequence, entrepreneurs often make no productive contribution at all by producing goods and services that increase the overall economic value produced in the economy, and in some cases play a destructive role (Baumol 1993, 2004).

This book is about transformation in the framework of European integration. However uncertain the latter has become after the unexpected results of the French and Dutch referendums on the European constitution, the path for the Balkans to European integration is outlined, although the exact track is admittedly uncertain, with the exception of Romania and Bulgaria.

Includes bibliographical references, Chapter 1: The Governance Mechanism of Russian Firms: Its Self-enforcing Nature and Limitations / Ichiro IWASAKI, Chapter 2: Corporate Ownership and Control in the Russian Companies after the Decade of Reforms: As Reflected by Statistical and Sample Surveys / Tatiana DOLGOPYATOVA, Chapter 3: Corporate Governance in Russia: Formal Rules and Real Incentives of Economic Agents / Andrei YAKOVLEV, Chapter 4: Experiments and Reality: A Comment on Andrei Yakovlev's Paper / Bruno DALLAGO

In this chapter the term “irregular economy” indicates the social phenomena and activities that are undertaken for economic ends that share the characteristic of being deliberate attempts to evade or avoid the rules (laws, regulations, central plans, administrative orders, contracts, agreements, and related costs) that apply to a particular context; the purpose is to achieve a goal that is permitted, tolerated, or at any rate not explicitly condemned in the economic system concerned. The irregular economy, therefore, displays a discrepancy between economic goals — which are permitted — and the so-called rule-breaking instruments and means used to achieve them.[l]

The transformation of socio—economic systems is the outcome of complex changes in institutions and economic and non—economic variables. Transformation can take place in different ways (cf. Wagener 1993), provided that changes in various areas are mutually compatible, that other elements of the socioeconomic system adapt, and that barriers to change are overcome.