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The Issue of Efficiency and the Role of State in New Institutional Economics: A Critical Perspective
New Political Economy
Abstract
This article scrutinises and criticises the notion of efficiency and the role of state in the emergence and evolution of institutions and property rights within the tradition of new institutional economics. Specifically, the attempt is to criticise the efficiency view of the formation of property rights and institutions. It is shown that the efficiency concept cannot provide a sufficient rationale for explaining the origins of private property. Additionally, some recent developments of North's thought are critically scrutinised, showing that his theoretical apparatus could be conceived as a paradise for the eclectic. Further, the role of the state in different versions of the theory of property rights – with a special reference to North's treatment of the notion of state – is, also, critically examined. Although North’s work has virtues compared to the ‘naïve model’ of property rights by recognising and addressing the role of the state and the issue of power in the formation of property rights and institutions, he does not succeed in fully accounting for the existence of institutional arrangements, due to his adherence to an individualist framework.
... Competent and high-quality institutions reduce systemic corruption and may also have an impact on entrepreneurship. Studies (Aidt, 2009;Meramveliotakis, 2021Meramveliotakis, , 2023Thompson, 2018) discuss these relevant aspects, and it is important to include such mechanisms as mediators in the tested relationships, which is a suggestion for future studies to expand and deepen our findings, advancing knowledge on the relationship between corruption and entrepreneurship, an important topic for global society, especially in emerging countries, more subject to corruption and with developing entrepreneurial ecosystems (Kesar et al., 2024). Content courtesy of Springer Nature, terms of use apply. ...
The aim of this study was to clarify how entrepreneurship is affected at the individual level by corruption. To this end, we investigated how major corruption scandals impact entrepreneurs in developed and emerging economies. After observing what the literature says, we developed quantitative research with secondary data. We use individual-level data from the Global Entrepreneurship Monitor to study how entrepreneurs react to major corruption scandals in a developed and an emerging economy. Results indicate that for the developed economy, major corruption events have virtually no direct effect on entrepreneurs' decisions, and relations between entrepreneurs' perceptions and characteristics and entrepreneurial variables are stable. However, in the emerging economy, it has a severe negative direct impact on future intentions. It can change the relationship between several entrepreneurs' perceptions and characteristics and entrepreneurial variables, further impairing future intentions. The volatility we document in the weaker institutional environment is a novel result that may help conciliate conflicting results in the literature and expands the literature on moderating factors in entrepreneurship.
... Future studies will benefit from this present study having new institution economics framework which used new insights from studies such as Meramveliotakis (2020Meramveliotakis ( , 2023 and Urbano et al. (2020) in analysing the role of institutions and governance by replicating the study in developed countries with similar objectives while expanding the role of female labour participation. Declarations Ethics Approval and Consent to Participate This paper does not contain any studies with human participants performed by any of the authors. ...
The study examines the impact of institutional quality on female labour force participation across 48 Sub-Saharan African nations from 1996 to 2021. We specify and estimate the linear regression, pooled panel estimate, and system-generalized method of moments (SYS-GMM) estimation. Findings from the study showed that while economic growth significantly increases female labour force participation in Africa, population growth, fertility rate, and self-employment significantly degrade it. On the other hand, voice, accountability, and regulatory quality considerably boost female labour force participation in Africa, whereas effective governance and political stability indices significantly hinder it. Additionally, sectorial studies revealed that while economic growth and fertility rates boost female employment in the sector within the SSA region, population and self-employment considerably inhibit it. Based on these findings, potential policy directions are suggested.
... North's epistemological contribution lies in his view that institutions reduce transaction costs and "provide the organizational foundation for production and exchange" (Marangos, 2002, p. 484). His inception has inevitably brought a sense of "eclecticism" in its epistemological schemes promoting a new phase in economics imperialism Meramveliotakis 2020). In the neoclassical paradigm's modified version, promoted by North, not least, though not exclusively, through his Structure and Change in Economic History (1981), despite the inarticulate referrals to institutional, ethical, and ideological factors, the individualistic rational choice remains the raison d' être of his account of historical evolution. ...
The relation between economic theory and history, as is crystallised in the history of economic thought, determined the evolution of economic history proper. The twin events of the Marginalist Revolution and the Methodenstreit were crucial in exiling history from economic theory. Moreover, the dominance of the narrative historiographical paradigm in historiography, till the first decades of the twentieth century, determined the absence of theory from economic history. This twofold hiatus is decisive in the short history of economic history. This paper attempts to delineate this gap by showing that an organic symphysis between economic theory and history is indispensable in the understanding economic phenomena.
... This suggests a form of eclecticism and allows North to avoid an overreliance on the rationality postulate of the neoclassical school. For a critique of North's analysis seeMeramveliotakis (2020). 3 According to Lacatos (1970) a research program is an ensemble consisting of a hard core and a protective belt. ...
In recent years the concept of “institutions” has become central in scientific and political discourse. This reflects an increasing awareness of the role of institutions in the functioning of economies and in economic development more generally. Many of the catchphrases articulated within new institutional economics such as “institutions”, “organisations”, “transaction costs”, “property rights” and “contracts”, have become very common in orthodox economics discourse. This development is intellectually stimulating and interesting because it raises some fundamental issues with regard to the role and functioning of institutions. These concepts are seated on Smith's (1776) idea of the 'harmony of interests'. However Smith sees power as dominant in the formation of institutional framework. This chapter aims to provide a Smithian critique based on the notion of power, arguing that the formation of institutions and institutional framework cannot be considered apart from the intrinsic power relations which are vested in society.
Nudges are approaches that direct individuals to perform particular courses of action to meet a pre-determined goal, without coercion. Previous literature has explored the design of nudge and its impact on users’ behavior in several domains and contexts. Still, scarce and fragmented knowledge about the design approaches, ethical considerations, and theoretical grounds have been presented by previous literature. Hence, this study aims to investigate the literature through bibliometric analysis and a narrative review of the nudging techniques and their impact on social behavior with an emphasis on the application domains, nudge designs, ethical considerations, and theoretical grounds. Focusing on nudge design and impact, we scan the landscape of the research in the area through bibliometric analysis and narrative review approaches. We searched for papers that included keywords related to nudges from the Scopus database and analyzed them using a bibliometric-based approach. Several diagrams that visualize the terms of the studies, sources, citations, and thematic trends were presented. The research provides several insights for researchers in terms of the design of the nudge, the theoretical grounds, ethical considerations, and the application domains of nudging.
In recent decades, the mainstream microeconomic and macroeconomic analysis was proven to be insufficient for exploring the dynamic and complex interactions among humans, institutions, and nature in our real economy. On the one side, microeconomics is filled with black-box models that fail to study the actual contractual relations between firms and markets, while on the other side macroeconomics were proven useless because they mistook the beauty of theoretical models for truth. Thus, questions have arisen about using new theoretical and empirical structures that would better describe our economic systems.
Bridging Microeconomics and Macroeconomics and the Effects on Economic Development and Growth is an essential reference source that analyzes the hypotheses that govern the relationships of aggregate structures (macroeconomic analysis) that may be compatible with the assumptions that govern the behavior of individuals, households, and firms (micro analysis), and vice versa, in trying to achieve sustainable economic development and growth. Moreover, modern evolutionary growth thinking is used in trying to bridge the inconsistencies between microeconomics and macroeconomics and confront their failures in order to better describe the economic reality. While highlighting a broad range of topics including globalization, economic systems, and the role of institutions, this book is aimed toward economic analysts, financial advisors, policymakers, researchers, academicians, and students.
he purpose of this article is to review the methodological and analytical foundations of the New Institutional Economics by implying a critical comparison with the Neoclassical and (old) Institutional Economics. After a discussion of the fundamental definitions and concepts of the New Institutional Economics, I turn to the critical comparison with other schools of thought. It is shown that the New Institutional Economics does not break fundamentally from the neoclassical economics. To the contrary, it can be fairly argued that the New Institutional Economics is a research program which is developed within and around the dominant neoclassical paradigm. On the other hand, it is argued that the Old and New Institutional Economics constitute two distinct approaches to the analysis of institutions, stemming from different paradigmatic viewpoints that produce and nurture contrasting perspectives on how to theoretically tackle institutions.
Research background: Our research is framed by the new institutional theory reflected in: the property rights theory [1] and transfer of ownership of goods and the transaction costs theory that might be associated with economic exchange theory. Overall, we need to consider occurrence of deglobalization and the COVID-19 crisis, which recently not just decelerated growth of the world economy, but even put it to a halt; one might conclude that (de)globalization [2] and the COVID-19 crisis are behind the new “global” [3].
Purpose of the article: We investigate the impact of connectivity between selected countries by cargo maritime transport on costs to import of 1 TEU container transporting a specific commodity in a specific transportation corridor.
Methods: Our research is based on a regression analysis creating a model of UNCTAD statistics; the Liner shipping connectivity index (LSCI); and the WEF Global Competitiveness Index (GCI). We consider the Belt and Road Initiative (BRI) that converges with the global maritime transportation corridor between (Southeast) Asia/China – Northwestern Europe/EU (the North Sea Region) in this respect, bearing in mind the 2017 round of the International Comparison Program recently released by the World Bank.
Findings & Value added: Our research reveals correlation of the costs to import of 1 TEU container vis-à-vis the quality and intensity of liner shipping connections and the quality of the business environment determining the transaction costs in import price. Value added of the paper is our focus on sustainable development reinvigorated by prestigious international organisations and European Union institutions.
Although Douglass North is one of the most widely cited economic historians of our times, his work has been subject to little critical scrutiny, especially with regard to his historical studies. The aim of this paper is to begin to fill this gap by offering a critical review of North's historical studies. First, a brief overview of his theoretical contributions is offered. This is followed by a closer analysis of the theory in its application to history. North's histories are found to be problematic both in themselves and in relation to the theory that he takes to underpin them. To resolve these difficulties requires a break both with his methodology and the supplemented neoclassical economics from which it is drawn.
We use the Business Roundtable’s challenge to the SEC’s 2010 proxy access rule as a natural experiment to measure the value of shareholder proxy access. We find that firms that would have been most vulnerable to proxy access, as measured by institutional ownership and activist institutional ownership in particular, lost value on October 4, 2010, when the SEC unexpectedly announced that it would delay implementation of the Rule in response to the Business Roundtable challenge. We also examine intra-day returns and find that the value loss occurred just after the SEC’s announcement on October 4. We find similar results on July 22, 2011, when the D.C. Circuit ruled in favor of the Business Roundtable. These findings are consistent with the view that financial markets placed a positive value on shareholder access, as implemented in the SEC’s 2010 Rule.
This second edition assesses some of the major refinements, extensions, and useful applications that have developed in neoinstitutionalist thought in recent years. More attention is given to the overlap between the New Institutional Economics and developments in economic history and political science. In addition to updated references, new material includes analysis of parallel developments in the field of economic sociology and its attacks on representatives of the NIE as well as an explanation of the institution-as-an- equilibrium-of-game approach. Already an international best seller, Institutions and Economic Theory is essential reading for economists and students attracted to the NIE approach. Scholars from such disciplines as political science, sociology, and law will find the work useful as the NIE continues to gain wide academic acceptance. A useful glossary for students is included. Eirik Furubotn is Honorary Professor of Economics, Co-Director of the Center for New Institutional Economics, University of Saarland, Germany and Research Fellow, Private Enterprise Research Center, Texas A&M University. Rudolph Richter is Professor Emeritus of Economics and Director of the Center for New Institutional Economics, University of Saarland, Germany. Copyright © Eirik G. Furubotn and Rudolf Richter 1998, 2005. All rights reserved.
Proponents of the Veblen-Commons variety of institutionalism have distinguished this school from the so-called "new institutional economics" (NIE hereafter). Recent contri-butions to the Journal of Economic Issues have once again dealt with this issue. In a paper entitled "What Is the Essence of Institutional Economics?" Geoff Hodgson (2000a, 318) has listed five propositions that he considers as the core of what others have called the "old," or original, institutional economics (OIE hereafter). There is no need to repeat all these propositions here, except for proposition 5: "The notion of individual agents as utility-maximising is regarded as erroneous. [Old] Institutionalism does not take the indi-vidual as given. Individuals are affected by their institutional and cultural situations. Hence individuals do not simply (intentionally or unintentionally) create institutions. Through 'reconstitutive downward causation' . . . institutions affect individuals in funda-mental ways." For Hodgson, this is "the single most important defining characteristic of the old institutionalism . . . Among other schools, the new is distinguished from the old institutional economics principally in these terms" (318). As Hodgson (325) noted, by saying this he is reaffirming what he argued in his survey of OIE and NIE (Hodgson 1993b). In her comments on Hodgson, Anne Mayhew (2000, 331) agreed with his identifi-cation of that proposition as the defining feature of OIE. She approvingly interpreted Hodgson as "saying that what is distinctive and attractive about institutional economics is the emphasis on seeing people as cultural animals." Like Hodgson, Mayhew was also
New Institutional Economics (NIE) has been celebrated as a path-breaking approach to the understanding of capitalism. This article advances a conceptual critique of NIE approaches to economic history. The author suggests that NIE cannot solve the underlying tension, that its economics remains ahistorical, and that when history, social relations and realism are invoked, the economics disappears, being replaced by various cultural and state-centred explanations. Therefore NIE is not so much a research programme in progress, but rather an indication of the degeneration of the tools of neo-classical economics.
This essay broadens the theory of property rights, extending it beyond one based on changes in the importance of externality problems to one that is focused on quite different aspects of exchange. It argues that these aspects have been changing in ways that generally, but not always, have increased capitalism's productivity relative to collectivism's. The nature of transactions emphasized here has no necessary connection to, but does not exclude, externality problems. The focus here is on aspects of the relationship between parties who are engaged in exchange activities. Observations on historical happenings supplement the otherwise mainly conceptual and theoretical discussion. Copyright 2002 by the University of Chicago.
In this book, Professor Dahlman applies modern economic methodology to an old historical problem. He demonstrates how the quaint institutions of the ancient English open field system of agriculture can be understood as an intelligent and rational adaptation to a particular problem of production and to certain historical circumstances. He argues that the two major characteristics of this type of agriculture - scattered strips owned by individual peasants and extensive areas of common land - both fulfilled vital economic functions. This overturns the traditional view of the open field system as inefficient and rigidly bound by tradition, and throws light on the behaviour of medeival peasants. Professor Dahlman also offers some generalisations about the economic theory of institutions and institutional change, refuting the idea that an economic analysis of institutions must necessarily be deterministic. As a challenge to some of the fundamental criticisms of the application of economic theory to historical problems, the book will be of great interest to agrarian historians and to economic historians generally, as well as to specialists in the medieval period.
The northern California town of Mendocino, which was the shooting background for the film “East of Eden” starring James Dean, retains some of the air of its late nineteenth century role as a harbor to ship out lumber cut from the mountainsides. Ex-hippies-turned-farmers and artists live in the surrounding area. In the latter half of the 1990s, we rented a house facing the Pacific Ocean from an artist every summer. My wife and daughters went back and forth to Stanford for their activities, but I burrowed myself there for the summer with our dog Robin, brought back with us from Japan, and focused on writing my survey on comparative institutional analysis: Toward a Comparative Institutional Analysis (MIT Press, 2001). Mornings and evenings I took Robin for a walk on the cape where there was a greater than 180 ° view. In the morning, the horizon was veiled in fog, while in the evening the ocean was tinted red by the setting sun. It was the perfect place for rethinking problems and reorganizing chapters. Robin was a small mixed breed with some Shikoku-ken, but she was stubborn and at times got into fights with a large Coast Guard officer’s watch dog. My family enjoyed meals made from the organic produce we bought at the farmers’ market (so many varieties of tomatoes); we also went to the harbor to buy albacore tuna and fresh sea urchin still in its thorny shell.
A conceptual and analytical framework for understanding economic institutions and institutional change.
Markets are one of the most salient institutions produced by humans, and economists have traditionally analyzed the workings of the market mechanism. Recently, however, economists and others have begun to appreciate the many institution-related events and phenomena that have a significant impact on economic performance. Examples include the demise of the communist states, the emergence of Silicon Valley and e-commerce, the European currency unification, and the East Asian financial crises.
In this book Masahiko Aoki uses modern game theory to develop a conceptual and analytical framework for understanding issues related to economic institutions. The wide-ranging discussion considers how institutions evolve, why their overall arrangements are robust and diverse across economies, and why they do or do not change in response to environmental factors such as technological progress, global market integration, and demographic change.
This article argues that North does not conceptualise the difference between ideologies as shared beliefs, which arise from shared mental models in consequence of bottom-up processes, and ideologies as views which stimulate top-down institutional processes, by means of which informal norms and existing beliefs are re-oriented. Top-down processes are possible because shared beliefs are characterised by variety and malleability, rather than by a (homogeneous) “cultural heritage”. Although in North’s theory the reciprocal influence between informal and formal norms is interpretable as an alternation of bottom-up and top-down processes, he does not develop this perspective.
This book offers a comprehensive assessment of Douglass North’s contribution to economics and the social sciences by examining the origins and structure of his New Institutionalist Economic History (NIEH). Informed by contemporary debates in the philosophy of economics, Krul describes the evolution of North’s theory from mainstream economics to an increasingly heterodox form of New Institutionalism. He also examines what North's original aims were in developing the NIEH research programme and how well it has achieved these aims. By exploring major themes in North's NIEH, with an emphasis on the final stage of his theory, Krul sheds new light on the strengths and weaknesses of North's work. He also discusses the implications of this critical interpretation for the New Institutionalism in economics and other fields of social science.
Matthijs Krul was until recently Research Fellow at the Max Planck Institute for Social Anthropology in Halle (Saale), Germany. He has been a visiting lecturer at Brunel University and the University of Westminster, UK. His work focuses on the intersection between the historiography and the philosophy of economics.
This introduction considers the highly influential contribution of Douglass C. North to economic history and institutional economics, as it developed from the 1960s until his death in 2015. It sketches the evolution of his arguments concerning the roles of institutions, organizations and human agency. North's conception of the economic actor became progressively more sophisticated, by acknowledging the role of ideology and adopting insights from cognitive science. Eventually, he abandoned the proposition that institutions are generally efficient, to propose instead that sub-optimal institutional forms could persist. A few noted criticisms of North's work are also considered here, ranging from those which are arguably off the mark, to others that retain some force. The contributions to this memorial issue are outlined at the end of this introduction.
This article challenges some fundamental propositions of property rights theory by revealing the inability of new institutional economics to fully grasp the notion of property, as reflected in its narrow and problematic definition of property rights. The concept of property relations is proposed as better suited to capture the social and institutional aspects of property. By reconsidering the case of the Montagnais, originally used by Alchian and Demsetz for illustrative purposes, and drawing on the works of Polanyi and McManus, we show that the historical explanation of the emergence of (private) property rights provided by Alchian and Demsetz is flawed.
JEL Codes: D02, D23, P14
After a literature survey and review of the salient features of the open field system, as practised in England, the volume examines the concept of property rights and transaction costs, as they relate to the choice of ownership structure as a means of achieving efficient resource allocation. The recently developed theory of economic institutions is related to the open field system and the enclosure movement. The open-field study provides a basis for critically appraising the current theory of communal property rights and collective decision-making agreements. It illustrates how property rights theory can become an exciting and useful tool for the economic historian.- John Sheail
These reflections are prompted by the papers by Ménard (2014) and Ménard and Shirley (2014). Their essays centre on the path-breaking contributions to the ‘new institutional economics’ (NIE) by Ronald Coase, Douglass North and Oliver Williamson. In response, while recognising their substantial achievements, it is pointed out that these three thinkers had contrasting views on key points. Furthermore, Ménard's and Shirley's three ‘golden triangle’ NIE concepts – transaction costs, property rights and contracts – are themselves disputed. Once all this is acknowledged, differences of view appear within the NIE, raising interesting questions concerning its identity and boundaries, including its differences with the original institutionalism. There are sizeable overlaps between the two traditions. It is argued here that the NIE can learn from the original institutionalism, particularly when elaborating more dynamic analyses, and developing more nuanced, psychologically-grounded and empirically viable theories of human motivation.
In this landmark work, a Nobel Prize-winning economist develops a new way of understanding the process by which economies change. Douglass North inspired a revolution in economic history a generation ago by demonstrating that economic performance is determined largely by the kind and quality of institutions that support markets. As he showed in two now classic books that inspired the New Institutional Economics (today a subfield of economics), property rights and transaction costs are fundamental determinants. Here, North explains how different societies arrive at the institutional infrastructure that greatly determines their economic trajectories. North argues that economic change depends largely on "adaptive efficiency," a society's effectiveness in creating institutions that are productive, stable, fair, and broadly accepted--and, importantly, flexible enough to be changed or replaced in response to political and economic feedback. While adhering to his earlier definition of institutions as the formal and informal rules that constrain human economic behavior, he extends his analysis to explore the deeper determinants of how these rules evolve and how economies change. Drawing on recent work by psychologists, he identifies intentionality as the crucial variable and proceeds to demonstrate how intentionality emerges as the product of social learning and how it then shapes the economy's institutional foundations and thus its capacity to adapt to changing circumstances. Understanding the Process of Economic Changeaccounts not only for past institutional change but also for the diverse performance of present-day economies. This major work is therefore also an essential guide to improving the performance of developing countries.
An important research programme has developed in economics that extends neo-classical economic theory in order to examine the effects of institutions on economic behaviour. The body of work emerging from this line of inquiry includes contributions from various branches of economic theory, such as the economics of property rights, the theory of the firm, cliometrics and law and economics. This book is a comprehensive survey of this research programme which the author terms 'neoinstitutional economics'. The author proposes a unified approach to this research, integrating the work of various contributors and emphasising the common principles of inquiry that tie the work together. The theoretical discussion is accompanied by empirical studies dealing with a range of institutions and economic systems. This book will serve as the primary resource for economists and students who want to learn about this important branch of economic theory.
Examines the role that institutions, defined as the humanly devised constraints that shape human interaction, play in economic performance and how those institutions change and how a model of dynamic institutions explains the differential performance of economies through time. Institutions are separate from organizations, which are assemblages of people directed to strategically operating within institutional constraints. Institutions affect the economy by influencing, together with technology, transaction and production costs. They do this by reducing uncertainty in human interaction, albeit not always efficiently. Entrepreneurs accomplish incremental changes in institutions by perceiving opportunities to do better through altering the institutional framework of political and economic organizations. Importantly, the ability to perceive these opportunities depends on both the completeness of information and the mental constructs used to process that information. Thus, institutions and entrepreneurs stand in a symbiotic relationship where each gives feedback to the other. Neoclassical economics suggests that inefficient institutions ought to be rapidly replaced. This symbiotic relationship helps explain why this theoretical consequence is often not observed: while this relationship allows growth, it also allows inefficient institutions to persist. The author identifies changes in relative prices and prevailing ideas as the source of institutional alterations. Transaction costs, however, may keep relative price changes from being fully exploited. Transaction costs are influenced by institutions and institutional development is accordingly path-dependent. (CAR)
The governance of natural resources used by many individuals in common is an issue of increasing concern to policy analysts. Both state control and privatization of resources have been advocated, but neither the state nor the market have been uniformly successful in solving common pool resource problems. After critiquing the foundations of policy analysis as applied to natural resources, Elinor Ostrom here provides a unique body of empirical data to explore conditions under which common pool resource problems have been satisfactorily or unsatisfactorily solved. Dr Ostrom uses institutional analysis to explore different ways - both successful and unsuccessful - of governing the commons. In contrast to the proposition of the 'tragedy of the commons' argument, common pool problems sometimes are solved by voluntary organizations rather than by a coercive state. Among the cases considered are communal tenure in meadows and forests, irrigation communities and other water rights, and fisheries.
The work of Douglass North, Nobel Prize-winning contributor to the new economic history, is critically examined by Ben Fine and Dimitris Milonakis as a telling case through which to better understand the limitations of rational models in economics, which have become widely influential in the social sciences. North's commitment to go beyond rational choice is exemplary, and richer than the newer economic history in this respect. What is missing, according to this analysis, is the social as starting-point; at best the social is reconstructed on the basis of methodological individualism.
Douglass North is a pivotal figure in the development of the 'new' economic history as well as the 'new' institutional economics. However, the relationship between these two aspects of his thinking remains undeveloped in previous critical assessments of North's work. The relationship is clarified here. The evidence presented indicates that three distinct phases can be distinguished in his writings between the 1950s and the 2000s. The paper relates these changing views to the shifting mainstream within economics and the effects that this shift has in turn had on economic history research. Economic history has adapted to economic research by abandoning some practices associated with the earlier cliometric literature. Furthermore, North is unique to the extent that his recent writings represent something of a convergence with 'old' institutionalism.
All societies must deal with the possibility of violence, and they do so in different ways. This book integrates the problem of violence into a larger social science and historical framework, showing how economic and political behavior are closely linked. Most societies, which we call natural states, limit violence by political manipulation of the economy to create privileged interests. These privileges limit the use of violence by powerful individuals, but doing so hinders both economic and political development. In contrast, modern societies create open access to economic and political organizations, fostering political and economic competition. The book provides a framework for understanding the two types of social orders, why open access societies are both politically and economically more developed, and how some 25 countries have made the transition between the two types.
This is a study of the way individuals organise the use of resources in order to maximise the value of their economic rights over these resources. Property rights and all forms of organisation result from people’s deliberate actions. In the tradition of Coase, this study offers a unified theoretical structure to deal with exchange, rights formation and organisation which traditional economic theory assumes away. A person’s economic property rights over an asset are defined here as the person’s ability to gain from the asset by direct consumption or by exchange. It is prohibitively costly to measure accurately all assets’ attributes; therefore, rights to them are never fully delineated. Property is consequently in danger of appropriation by others. Individuals enhance their rights by such actions as the protection and better delineation of their assets. In this new edition, Professor Barzel introduces the central role of equity capital as a guarantor of the activities of the firm and elaborates on the distinction between economic rights and legal rights.
In this book, Itai Sened examines the political institution of property and other individual rights. His argument is that the foundation of such rights is to be found in the political and economic institutions which grant and enforce them and not in any set of moral principles or ‘nature’. The book further argues that individual rights are instituted through a political process, and not by any hidden market forces. The origin of rights is placed in a social contract that evolves as a political process in which governments grant and protect property and other individual rights to constituents, in return for economic and political support. Extending neo-institutional theory to the subject, and using a positive game theoretic approach in its analysis, this book is an original contribution to scholarship on the evolution of rights.
Economics textbooks invariably describe the important economic choices that all societies must make by the following three questions: What goods are to be produced? How are these goods to be produced? Who is to get what is produced? This way of stating social choice problems is misleading. Economic organizations necessarily do resolve these issues in one fashion or another, but even the most centralized societies do not and cannot specify the answer to these questions in advance and in detail. It is more useful and nearer to the truth to view a social system as relying on techniques, rules, or customs to resolve conflicts that arise in the use of scarce resources rather than imagining that societies specify the particular uses to which resources will be put.
This paper develops the empirical and theoretical case that differences in economic institutions are the fundamental cause of differences in economic development. We first document the empirical importance of institutions by focusing on two “quasi-natural experiments” in history, the division of Korea into two parts with very different economic institutions and the colonization of much of the world by European powers starting in the fifteenth century. We then develop the basic outline of a framework for thinking about why economic institutions differ across countries. Economic institutions determine the incentives of and the constraints on economic actors, and shape economic outcomes. As such, they are social decisions, chosen for their consequences. Because different groups and individuals typically benefit from different economic institutions, there is generally a conflict over these social choices, ultimately resolved in favor of groups with greater political power. The distribution of political power in society is in turn determined by political institutions and the distribution of resources. Political institutions allocate de jure political power, while groups with greater economic might typically possess greater de facto political power. We therefore view the appropriate theoretical framework as a dynamic one with political institutions and the distribution of resources as the state variables. These variables themselves change over time because prevailing economic institutions affect the distribution of resources, and because groups with de facto political power today strive to change political institutions in order to increase their de jure political power in the future. Economic institutions encouraging economic growth emerge when political institutions allocate power to groups with interests in broad-based property rights enforcement, when they create effective constraints on power-holders, and when there are relatively few rents to be captured by power-holders. We illustrate the assumptions, the workings and the implications of this framework using a number of historical examples.
Sustained growth in both incomes and life spans are the hallmarks of modern development. Fluctuations around trend in the former, or business cycles, have been a traditional focus in macroeconomics, while similar cyclical patterns in mortality are also interesting and are now increasingly studied. In this paper, I assess the welfare implications of cyclical fluctuations in mortality using a new utility-theoretic model of preferences over uncertain length of life. Echoing the classic result of Lucas (1987) regarding business cycles, my findings suggest that short-term fluctuations in mortality are not very costly. While consumption fluctuations are relatively large, cyclical fluctuations in mortality are tiny compared to the much larger static uncertainty in length of life that derives from naturally rising mortality rates through age. Secular improvements in life expectancy and gains against static health inequalities appear to be much more important than cyclical mortality.
Las instituciones sociales son lugares donde los individuos viven y trabajan en interrelación. Ser miembro de una comunidad o sociedad es vivir dentro de un conjunto de instituciones sociales. En esta obra, el autor trata de responder a las preguntas del porqué hay tantas instituciones o porqué éstas toman determinada forma en una sociedad y otra muy distinta en otro contexto, cómo se desarrollan o cuándo y porqué las instituciones cambian. El autor hace una crítica a una amplia gama de teorías acerca del cambio institucional y desarrolla una nueva teoría de dicho cambio, mediante la cual enfatiza las consecuencias de la distribución de las instituciones sociales.
The distinction between new and old institutional economics may be unhelpful in depicting those theorists who defy clear categorisation. One such writer is Douglass North, who is associated with the new institutionalism but who deviates from the neoclassical principles which supposedly form the foundations of this school. The paper analyses his work to show how he combines both mainstream and alternative ideas. In attempting to reconcile individual agency with social structure, North suggests that institutions provide the constraints under which decisions are made but that individuals and organisations can alter those constraints. While his work is an attempt to advance interdisciplinary research, it fails to provide a fully integrated theoretical approach. Copyright 2002, Oxford University Press.
As the literature has given increasing attention to the roles played by transaction costs and bounded rationality in shaping economic outcomes, attempts have been made to redefine the concept of economic efficiency. The traditional criterion, which is linked to the standard Pareto conditions, is said to lead to the nirvana fallacy. The newer, alternative definitions, however, are also open to criticism on grounds that they involve contradictory assumptions. It appears that, for logical consistency to hold, only a loose, qualitative definition of allocative efficiency can be established for a system in which decision makers have limited cognitive capacity and both transaction and deliberation costs are positive. Given this interpretation, the analytical focus should shift from concern with narrow technical issues of allocative efficiency to a consideration of how legal, social and other constraints can be changed to improve economic performance.
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.