Showing papers by "Douglass C. North published in 1997"

The contribution of the new institutional economics to an understanding of the transition problem

Abstract: Institutions and the way they evolve shape economic performance. Institutions affect economic performance by determining (together with the technology employed) the cost of transacting and producing. They are composed of formal rules, of informal constraints and of their enforcement characteristics; while formal rules can be changed overnight by the polity, informal constraints change very slowly. Both are ultimately shaped by the subjective perceptions people possess to explain the world around them which in turn determine explicit choices of formal rules and evolving informal constraints. Institutions differ from organizations. The former are the rules of the game; the latter are groups of individuals bound together by a common objective function (economic organizations are firms, trade unions, cooperatives; political organizations are political parties, legislative bodies, etc.).

Explaining Economic Change: The Interplay Between Cognition and Institutions

Abstract: Economic theory is built on assumptions about human behavior—assumptions embodied in rational-choice theory Underlying these assumptions are implicit notions about how we think and learn These implicit notions are fundamentally important to social explanation The very plausibility of the explanations that we develop out of rational-choice theory rests crucially on the accuracy of these notions about cognition and rationality But there is a basic problem: There is often very little relationship between the assumptions that rational-choice theorists make and the way that humans actually act and learn in everyday life This has significant implications for economic theory and practice It leads to bad theories and inadequate explanations; it produces bad predictions and, thus, supports ineffective social policies

The Process of Economic Change

Abstract: A good deal is known about what makes for successful economic development, but very little is known about how to get there - that entails an understanding of the process of economic change The paper first examines the sources of successful growth and the

Institutional Changes: A Framework of Analysis

Abstract: A theory of institutional change is essential for further progress in the social sciences in general and economics in particular. Essential because neo-classical theory (and other theories in the social scientist's toolbag) at present cannot satisfactorily account for the very diverse performance of societies and economies both at a moment of time and over time. The explanations derived from neo-classical theory are not satisfactory because, while the models may account for most of the differences in performance between economies on the basis of differential investment in education, savings rates, etc., they do not account for why economies would fail to undertake the appropriate activities if they had a high payoff. Institutions determine the payoffs. While the fundamental neo-classical assumption of scarcity and hence competition has been robust (and is basic to this analysis), the assumption of a frictionless exchange process has led economic theory astray. Institutions are the structure that humans impose on human interaction and therefore define the incentives that (together with the other constraints (budget, technology, etc.) determine the choices that individuals make that shape the performance of societies and economies over time. In the following pages, I sketch out a framework for analyzing institutions. This framework builds on the economic theory of choice subject to constraints. However it incorporates new assumptions about both the constraints that individuals face and the process by which they make choices within those constraints. Too many gaps still remain in our understanding of this new approach to call it a theory. What I do provide are a set of definitions, principles, and a structure which provide (This abstract was borrowed from another version of this item.)