Demand for Wealth-Reducing Institutional Change: The Role of Ideas and Interests

Abstract

Rodrik (Journal of Economic Perspectives 28(1):189–208, Winter 2014), in a recent paper, calls on economists to recognize the role of ideas in institutional change. This chapter takes up the challenge by considering ideas about how the world works and ideas about the legitimacy of social arrangements, distinguishing between instrumental models (the relations between instruments and outcomes) and moral models (issues of legitimacy). I then explore an empirical case, the efforts by the government of Iceland 2009–2013 to dismantle the country’s regulatory system of ocean fisheries, which is based on individual transferable quotas and widely seen as the most efficient system of its kind in Europe. The exports of fish products have for more than a century been Iceland’s engine of growth. The attempts at introducing inefficient institutions came in the wake of, and even as a response to the country’s dramatic 2008 financial collapse. I identify seven instrumental and moral theories that were crucial for the reform process. The decision makers’ varying understanding and acceptance of these ideas gave substance to the traditional variables of power and interests and influenced how the agents responded to individual transferable quotas.