a. what do institutions do? Essentially their key role is to reduce uncertainty, and limiting the range of acceptable action does this.
b. uncertainty incresases transaction costs, a term made highly popular by Oliver Williamson
c. Transaction costs are the costs associated with carrying out an economic transaction or, in short, the costs of doing business
d. transaction costs will increase if others behave opportunistically, defined rather nicely by Williason as 'self-interest seeking with guile'. Institutional frameworks can reduce the potential for such opportunistic behaviour.
e. In summary,, Peng and Meyer (2011) argue convicingly that for international business, institutions matter.
f. they suggest that at the heart of an institution-based view there are two core propositions.
i- firstly, managers and firms rationally pursue their interests and make choices within the formal and informal constraints of a given institutional framework
ii- secondly, although formal and informal institutions combine to govern firm behaviour, in situations where formal constrainst fail or are unclear, informal constrains will play a larger role in reducing uncertainty and proving constancy to managers and firms.