The Institutional Sources of Economic Transformation: Energy Policy from the Oil Crises to Climate Change

Abstract

Why are some governments more effective in promoting economic change than others? We develop a theory of the institutional sources of economic transformation. Domestic institutions condition the ability of policymakers to impose costs on consumers and producers. We argue that institutions can enable transformation through two central mechanisms: insulation and compensation. The institutional sources of transformation vary across policy types-whether policies impose costs primarily on consumers (demand-side policies) or on producers (supply-side policies). Proportional electoral rules and strong welfare states facilitate demand-side policies, whereas autonomous bureaucracies and corporatist interest intermediation facilitate supply-side policies. We test our theory by leveraging the 1973 oil crisis, an exogenous shock that compelled policymakers to simultaneously pursue transformational change across OECD countries. Panel analysis, case studies, and discourse network analysis support our hypotheses. The findings offer important lessons for contemporary climate change policy and low-carbon transitions.

Designing policy mixes for the sustainable management of water resources

“…In fact, studying variance within governance arrangements and corporatism (i.e., whether states or other units of analysis differ in established structures of influence through industry associations or NGOs) should further help to develop a theoretical link between interests and power structures and the level of coherence and congruence of policy mixes (Finnegan et al, 2021). There is reason to assume that countries with pre-existing, strong ties to industry associations are less likely to develop coherent and congruent policy mixes, leading to less sustainable water resource management.…”

Strategic State Capacity: How States Counter Opposition to Climate Policy

“…The alignment of interests through financial incentives and the quieting of opposition through direct compensation, for instance, have immediate fiscal consequences. Similarly, domestic institutions are likely to provide opportunities or constraints for different strategies, including the ability to compensate interest groups and to delegate policy implementation to autonomous bureaucracies (Finnegan et al, 2021).…”