Transcript Institutional Economics

Institutional Economics
- origins and main schools
Prof. Jerzy Wilkin
Institutional economics - origins
American institutionalism – main representatives:
T. Veblen (1857-1929) – „The Theory of Leisure Class”
and „The Theory of Business Enterprise”
W.C. Mitchell (1874-1948) – „Business Cycles”, The
Rationality of Economic Activity”
J.R. Commons (1862-1945) – „Legal Fundations of
Capitalism”, „Institutional Economics”
J.K. Galbraith (1908-2006) „The Affluent Society”,
„The New Industrial State”
G. Myrdal (1898-1987) – „An American Dillema”, „Asian
Drama: An Inquiry into Poverty of Nations”
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New institutional economics
R. Coase – „The Nature of the Firm” (1937)
O. Williamson – „Markets and Hierachies”(1975),
„Economic Institutions of Capitalism” (1985)
D.C. North – „Structure and Change in Economic History”
(1981), „Institutions, Institutional Change and
Economic Performance” (1990)
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Main streams of new institutional economics
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Transaction costs economics
Property rights economics
Public choice theory
New economic history
Law and economics
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Two approaches to the study of institutions in
economics
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American
institutionalism:
Contestation of
neoclassical paradigm in
economics;
Holism;
Interdisciplinary
approach
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New institutional
economics:
Utilizes achievements of
neoclassical economics;
Methodological
individualism;
Interdisciplinary
approach
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The meaning of institutions
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American institutionalism:
 „Intitutions – regular patterned behaviour of
people in a society and the ideas and values
associated with these regularities”,
 „widely prevalent highly standardized social
habits, way of thought or action embedded in the
habits of a group of customs of people.”
 „Rules: who may, who must, who may not do
something”
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Institutions …
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New institutional economics:
Norms, markets, organizations
D. North: „Institutions are the rules of the game in
a society or, more formally, are the humanly
devised constraints that shape human interaction.
In consequence they structure incentives in human
exchange, whether political, social, or economic.
Institutionional change shapes the way societies
evolve through time and hence is the key to
understanding historical change.”
„Institutions reduce uncertainty by providing a
structure to everyday life.”
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Institutions in social sciences
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Institutions as a subject of studies in:
Sociology
Economics
Social Psychology
Cultural Anthroplogy
Law
Political Sciences
Study of institutions as an integrating element in social
sciences
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The role of institutions
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The work of invisible hand can be accelerated: „The
invisible hand, if unaided by supporting institutions,
tends to work slowly and at high costs” (Furuboth &
Richter)
Institutions determine transaction costs which
contribute up to 50% of GDP in developed countries
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