New institutional economics

About: New institutional economics is a research topic. Over the lifetime, 2637 publications have been published within this topic receiving 140686 citations. The topic is also known as: NIE.

Institutions, Institutional Change, and Economic Performance

Abstract: 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 Nature of the Firm

Abstract: Economic theory has suffered in the past from a failure to state clearly its assumptions. Economists in building up a theory have often omitted to examine the foundations on which it was erected. This examination is, however, essential not only to prevent the misunderstanding and needless controversy which arise from a lack of knowledge of the assumptions on which a theory is based, but also because of the extreme importance for economics of good judgement in choosing between rival sets of assumptions. For instance, it is suggested that the use of the word “firm” in economics may be different from the use of the term by the “plain man.”1 Since there is apparently a trend in economic theory towards starting analysis with the individual firm and not with the industry,2 it is all the more necessary not only that a clear definition of the word “firm” should be given but that its difference from a firm in the “real world,” if it exists, should be made clear. Mrs. Robinson has said that “the two questions to be asked of a set of assumptions in economics are: Are they tractable? and: Do they correspond with the real world?”3 Though, as Mrs. Robinson points out, “more often one set will be manageable and the other realistic,” yet there may well be branches of theory where assumptions may be both manageable and realistic. It is hoped to show in the following paper that a definition of a firm may be obtained which is not only realistic in that it corresponds to what is meant by a firm in the real world, but is tractable by two of the most powerful instruments of economic analysis developed by Marshall, the idea of the margin and that of substitution, together giving the idea of substitution at the margin.

Transaction-Cost Economics: The Governance of Contractual Relations

Abstract: THE new institutional economics is preoccupied with the origins, incidence, and ramifications of transaction costs. Indeed, if transaction costs are negligible, the organization of economic activity is irrelevant, since any advantages one mode of organization appears to hold over another will simply be eliminated by costless contracting. But despite the growing realization that transaction costs are central to the study of economics,' skeptics remain. Stanley Fischer's complaint is typical: "Transaction costs have a well-deserved bad name as a theoretical device ... [partly] because there is a suspicion that almost anything can be rationalized by invoking suitably specified transaction costs."2 Put differently, there are too many degrees of freedom; the concept wants for definition.

The New Institutional Economics: Taking Stock, Looking Ahead

Abstract: This paper examines the progressive development of the new institutional economics over the past quarter century. It begins by distinguishing four levels of social analysis, with special emphasis on the institutional environment and the institutions of governance. It then turns to some of the good ideas out of which the NIE works: the description of human actors, feasibility, firms as governance structures, and operationalization. Applications, including privatization, are briefly discussed. Its empirical successes, public policy applications, and other accomplishments notwithstanding, there is a vast amount of unfinished business.

The economic institutions of capitalism : firms, markets, relational contracting

Abstract: This study is based on the belief that economic organization is shaped by transaction cost economizing decisions. It sets out the basic principles of transaction cost economics, applies the basic arguments to economic institutions, and develops public policy implications. Any issue that arises, or can be recast as a matter of contracting, is usefully examined in terms of transaction costs. Transaction cost economics maintains that governance of contractual relations is mainly achieved through institutions of private ordering instead of legal centralism. This approach is based on behavioral assumptions of bounded rationalism and opportunism, which reflect actual human nature. These assumptions underlie the problem of economic organization: to create contract and governance structures that economize on bounded rationality while safeguarding transactions against the hazards of opportunism. The book first summarizes the transaction cost economics approach to the study of economic organization. It develops the underlying behavioral assumptions and the types of transactions; alternative approaches to the world of contracts are presented. Assuming that firms are best regarded as a governance structure, a comparative institutional approach to the governance of contractual relations is set out. The evidence, theory, and policy of vertical integration are discussed, on the basis that the decision to integrate is paradigmatic to transaction cost analysis. The incentives and bureaucratic limits of internal organization are presented, including the dilemma of why a large firm can't do everything a collection of small firms can do. The economics of organization in presented in terms of transaction costs, showing that hierarchy also serves efficiency and permits a variety of predictions about the organization of work. Efficient labor organization is explored; on the assumption that an authority relation prevails between workers and managers, what governance structure supports will be made in response to various types of job attributes are discussed, and implications for union organization are developed. Considering antitrust ramifications of transaction cost economics, the book summarizes transaction cost issues that arise in the context of contracting, merger, and strategic behavior, and challenges earlier antitrust preoccupation with monopoly. (TNM)