Developmental economists define a close link between the institutional structure and economic performance.

How individuals are incentivized in an economy is defined by the relevant institutional structure. In other words, written rules, unwritten rules such as habits and traditions, the extent to which these rules are obeyed and the character of the sanctions imposed in the case of the violation of these rules play determinant role in this process.

Last Saturday I provided an example from the bureaucracy in which certain people mob some personnel members to save positions for their supporters. I referred to the habit in which an investigation or inquiry is launched against someone to dismiss him/her of duty or to supplant him/her.

Patching to some group
Let me add a note here. This happened to me about seventeen years ago. But that period was quite amusing for me for two reasons. First, the folders the officials asked to investigate composed predominantly of reports on economic and econometric models developed by the research unit. Think about it: An investigator in an effort to identify an erroneous action reports to his/her superiors: "the correlation coefficient of this equation is not high enough". Second, I had already applied to the university for an academic position months before the initiation of the investigation.

Anyway, let's get back to the issue. Such an institutional structure will eventually incentivize the act of "getting patched to some group". It creates a perception where supporting a certain ideology or group has advantage over knowledge, hard work and skills. Besides, this gradually reduces the efficiency and the performance of the relevant institution.

Disincentive

Developmental economists define a close link between the institutional structure and economic performance due to similar reasons. They investigate the incentive mechanisms different institutional structures employ when analyzing large income gaps between countries. Incentive mechanisms affect the behavior patterns of individuals which later affect the way the institutional structure evolves.

A number of disincentive mechanisms apply in the academic world as well. These mechanisms can give way to weird outcomes. For instance, the wage system becomes ill. For instance, there are a very small number of academic staff members in some departments. Despite this, some of these departments open evening education programs. Then, we end up with instructors who teach thirty-forty hours a week. They are asked to make publications with this workload so that they can become professors. In such picture, a number of highly "academic" journals no one cares about blossom. Many smart people turn their back on the academic world. Bad text books appear. Staff members who are actually capable of conducting research and who are only capable of instructing are evaluated on the basis of a single set of criteria. I can enumerate many more outcomes.

I will focus on these individually starting next Saturday.

This commentary was published in Radikal daily on 21.05.2011