Which proposition reflects the essence of the institution-based view?

The correct proposition highlights that firms operate within a framework of institutional constraints, which signifies the essence of the institution-based view in economics. This perspective emphasizes the role of various institutions—like laws, regulations, norms, and customs—that influence the behavior of firms and their strategic decisions in the global marketplace.

The institution-based view posits that such constraints shape how organizations interact with their environments, impacting their performance and strategies. It suggests that understanding these institutional frameworks is crucial for managers as they navigate the complexities of global business, illustrating how external factors affect firm behavior and competitive advantage.

This contrasts with the other options, which do not accurately capture the essence of the institution-based view. For instance, the idea that individuals act solely on predefined societal norms doesn't account for the broader institutional influences on firms. Similarly, the notion that managers act without constraints ignores the significant impact of institutional frameworks on decision-making. Lastly, stating that institutions are irrelevant in global business undermines the critical role that legal, political, and social institutions play in shaping business operations and strategies.