Quick guide to New Institutional Economics
Section snippets
The brand name
The name New Institutional Economics (NIE) may confuse the reader.1 In the NIE context, the word “institution” does not refer to organizations (government agencies, industrial associations, corporations, hospitals), and, as Ronald Coase has emphasized, NIE is not a modern version of the old Institutional
The most useful concept
The most useful theoretical contribution of NIE is the idea that transactions are costly. In our world of incomplete information, measurement and enforcement in voluntary and involuntary transactions is costly; we have unavoidable transaction costs.
The weakest link
NIE studies not only rules (institutions) that formal organizations (parliaments, courts, business and professional associations, golf clubs) create and enforce but also informal institutions. Informal institutions correspond approximately to self-enforced social norms. Self enforcement is spontaneous and decentralized, involving alternatively self control, second party enforcement, or third party enforcement. Third party enforcement occurs when someone who is not directly involved punishes
The most ignored concept
Although most NIE scholars recognize social norms as important elements in institutional change, they are often reluctant to assign comparable roles to social theories (or social models).
The status quo concept
Autocratic governments maintain power by relying on small but powerful core groups of supporters. The autocrats reward the elites by providing them with economic resources and control over key industries. The first priority of all political leaders is to stay in power and for autocratic leaders that involves satisfying the material and other personal needs of their elite supporters. Democratic leaders require support from a majority of the voters. They cannot reward their voters personally but
Conclusion: the new frontier
The intellectual interest in the NIE approach is a positive function of the gap between prevailing economic property rights (institutions) and best practice (most productive) arrangements. A large productivity gap on a national scale is found in two circumstances: (a) in low-income countries that are far below the world’s production possibilities frontier and require new institutions to successfully import already known technologies; and (b) in frontier countries that have recently discovered
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Cited by (31)
Multilevel governance, PV solar energy, and entrepreneurship: the generation of green hydrogen as a fuel of renewable origin
2022, Utilities PolicyCitation Excerpt :Williamson (1975) introduced the new academic term “New Institutional Economics”. Along with North and Coase (Coase, 1984; North, 1986), Williamson is one of the most prominent representatives of this economic approach, although other authors have also contributed to the development of NIE through their research, such as Ostrom (Ostrom, 1990, 2002, 2007, 2009), Weingast (Weingast, 1993, 1995, 2008), Eggertsson (Eggertsson, 1990, 1997, 2013), Ménard and Shirley (Ménard and Shirley, 2005, 2014) and Rutherford (Rutherford, 1989, 1995). The institutions represent the central concept of the NIE approach.
A Framework for Understanding the Institutional Arrangements of Urban Village Redevelopment Projects in China
2020, Land Use PolicyCitation Excerpt :To increase the efficiency of the institutional arrangement, policymakers need to consider the transaction costs involved (Shahab et al., 2018). Most neo-institutional economists define institutions as the rules of a game in which individuals and their organisations are the players (Eggertsson, 2013). The function of institutions designed by human beings is to reduce the uncertainty (Ménard & Shirley, 2005; North, 1990) that can lead to the emergence of transaction costs.
Spatially varying relationships between land ownership and land development at the urban fringe: A case study of Shenzhen, China
2020, CitiesCitation Excerpt :The development of “New Institutional Economics” (NIE) theories advanced traditional urban economic theories by highlighting that institutional factors are also influential in affecting the transaction cost of economic activities, which cannot be neglected. For some economic activities, the institutional cost may exceed the market cost (Bardhan, 1989; Coase, 1998; Eggertsson, 2013; North, 1987; Williamson, 2000). In China's land market, both market and institutional forces are at play and institutional factors are often more influential than market forces.
Energy governance in the context of energy service security: A qualitative assessment of the electricity system in Bangladesh
2018, Applied EnergyCitation Excerpt :Apart from that, qualitative policy analyses are important complements to classical quantitative approaches [61]. The first dimension identified, institutional settings and regulatory paradigm, refers to the regulative perspectives of institutional theory in which formal organizations create and enforce rules of the game (laws, regulations and outlines) [77] for the existing socio-technical systems, i.e. the electricity system. Formal rules and established practices influence actors’ (regulators, policy-makers, producers, consumers etc.) behavior, while downplaying the role of informal institutions (e.g., social & cultural norms and collective expectations) [78].
Teaching comparative economic systems 25 years after the collapse of the Soviet Union
2016, International Review of Economics EducationCitation Excerpt :Guo and Lee (2011), in their study of publishing patterns, find that publications classified under the JEL Code for Economic Systems (P) have declined noticeably from 2.58% in 1991–0.25% in 2007.4 Many blamed the lack of theory and absence of a consistent methodology in CES studies for precipitating the decline in the field (Eggertsson, 2013; Pryor, 2005). Dallago (2004, 84) opined that “CES does not have a distinct method, but is more an eclectic field of research in which researchers belonging to different schools of economic thought and following different theories work on problems of more or less common interest”.
Artificial intelligence as a factor in reducing transaction costs in the virtual space
2023, Artificial Intelligence, Management and Trust