The Review of Austrian Economics, 17:1, 87–113, 2004.
2004 Kluwer Academic Publishers. Manufactured in The Netherlands.
Institutional Endowments and the Lithuanian
Holding as Innovative Network: A Problem of
Institutional Compatibility in the Baltic Sea Area
University of S
orn, SE-141 89 Huddinge, Sweden
Abstract. Post-socialist Lithuania had an undeveloped banking, a weak network commitment, and a resilient
nomenklatura.Anevolutionary Crossroads game shows that this made the nomenklatura bank convention stronger
than the capitalist bank convention. In the nomenklatura bank convention, rent-seeking behavior decreases network
commitment and thereby the effect of network complexity, thus making learning-by-ﬁnancing weaker. This created
a problem of institutional compatibility of bank-industry networks in the Baltic Sea Area during Lithuania’s ﬁrst
voucher stage of privatization that might be overcome by foreign direct investment initiated in her second hard
KeyWords: bank-industry networks, post-socialist holding companies, corporate governance, conventions,
evolutionary game theory, Lithuania, Sweden, Baltic Sea Area
JEL classiﬁcation: G30, O12, P51
Economic integration of the Baltic Sea Area raises issues of institutional compatibility
of Hayek’s (1978) discovery procedure between diverse social orders. Within the Baltic
Sea Area, a comparative institutional analysis between Sweden, a market economy, and
Lithuania, an emerging market economy, or transition economy, is of particular interest.
By July 1, 1999, Sweden was the largest foreign investor in Lithuania, followed by the
USA, Finland, Denmark, and Germany (OECD 2000). The issue, here, is the integration
between market economies and emerging market economies rather than a casual comparison
of transition economies, e.g. the Baltic states. This implies a comparative analysis of two
historically speciﬁc cases. Hence, a model applied to analyze the evolution of economic
institutions of Sweden may have to be modiﬁed to analyze the evolution of economic
institutions of Lithuania. A comparison between Lithuanian and Swedish bank-industry
networks will be considered from this perspective.
The voucher privatization in Lithuania between 1991 and 1995, led to the evolution of
investment funds, where people invested their vouchers for shares in those funds (Mygind
This paper is based on my own ideas and previous work. The version originally submitted had an implicit afﬁnity
with Austrian economics. The comments of two anonymous referees facilitated the matching of expectations of an
Austrian paper. Funding from the Baltic Sea Foundation for my research project Social Contract and Innovation
System in Lithuania and Sweden is acknowledged.