Information about Institutional Economics
Institutional economics, known by some as Institutional political economy, focuses on understanding the role of human-made institutions in shaping economic behavior. Aspects of institutional economics are part of mainstream economics -- in particular the so-called new institutional economics -- and focuses on the role of institutions in reducing transaction costs. Heterodox institutional economics emphasizes a broader study of institutions and views markets as a result of the complex interaction of these various institutions (e.g. individuals, firms, states, social norms).
"Traditional" institutionalism [1] rejects the reduction of institutions to simply tastes, technology, and nature (see naturalistic fallacy). Tastes, along with expectations of the future, habits, and motivations, not only determine the nature of institutions but are limited and shaped by them. If people live and work in institutions on a regular basis, it shapes their world-views. Fundamentally, this traditional institutionalism (and its modern counter-part institutionalist political economy) emphasizes the legal foundations of an economy (see John R. Commons) and the evolutionary, habituated, and volitional processes by which institutions are erected and then changed (see John Dewey, Thorstein Veblen, and Daniel Bromley.) The vacillations of institutions are necessarily a result of the very incentives created by such institutions, and are thus endogenous. Emphatically, traditional institutionalism is in many ways a response to the current economic orthodoxy; its reintroduction in the form of institutionalist political economy is thus an explicit challenge to neoclassical economics, since it is based on the fundamental premiss that neoclassicists oppose: that economics cannot be separated from the political and social system within which it is embedded. Some of the authors associated with this school include Robert Frank, Warren J. Samuels, Mark R. Tool, Geoffrey Hodgson, Daniel Bromley, Jonathan Nitzan, Shimshon Bichler, Elinor Ostrom, and Anne Mayhew.
With the development of theories of asymmetric and distributed information an attempt was made to integrate institutionalism into mainstream neoclassical economics, under the title new institutional economics. However, this latter variant of institutionalism failed to supersede the classical school, because heterodox economists argue it was heir to what they perceive as the flaws of neoclassical economics. Specifically, new institutional economics failed to avoid criticisms of reductionism and lack of realism: these were levelled at neoclassical economics for effectively ignoring institutions, and at new institutional economics for attempting to reduce institutions to 'rational' and 'efficient' resolutions to the problem of transaction costs.
Early institutional economics
Institutional economics focuses on learning, bounded rationality, and evolution (rather than assume stable preferences, rationality and equilibrium). It was once the main school of economics in the United States, including such famous but diverse economists as Thorstein Veblen, Wesley Mitchell, and John R. Commons. Some institutionalists see Karl Marx as belonging to the institutionalist tradition because he described capitalism as a historically bounded social system; other institutionalist economists disagree with Marx's definition of capitalism, instead seeing defining features such as markets, money and the private ownership of production as evolving over time, as a result of the purposive actions of individuals."Traditional" institutionalism [1] rejects the reduction of institutions to simply tastes, technology, and nature (see naturalistic fallacy). Tastes, along with expectations of the future, habits, and motivations, not only determine the nature of institutions but are limited and shaped by them. If people live and work in institutions on a regular basis, it shapes their world-views. Fundamentally, this traditional institutionalism (and its modern counter-part institutionalist political economy) emphasizes the legal foundations of an economy (see John R. Commons) and the evolutionary, habituated, and volitional processes by which institutions are erected and then changed (see John Dewey, Thorstein Veblen, and Daniel Bromley.) The vacillations of institutions are necessarily a result of the very incentives created by such institutions, and are thus endogenous. Emphatically, traditional institutionalism is in many ways a response to the current economic orthodoxy; its reintroduction in the form of institutionalist political economy is thus an explicit challenge to neoclassical economics, since it is based on the fundamental premiss that neoclassicists oppose: that economics cannot be separated from the political and social system within which it is embedded. Some of the authors associated with this school include Robert Frank, Warren J. Samuels, Mark R. Tool, Geoffrey Hodgson, Daniel Bromley, Jonathan Nitzan, Shimshon Bichler, Elinor Ostrom, and Anne Mayhew.
New institutional economics
- See also main article.
With the development of theories of asymmetric and distributed information an attempt was made to integrate institutionalism into mainstream neoclassical economics, under the title new institutional economics. However, this latter variant of institutionalism failed to supersede the classical school, because heterodox economists argue it was heir to what they perceive as the flaws of neoclassical economics. Specifically, new institutional economics failed to avoid criticisms of reductionism and lack of realism: these were levelled at neoclassical economics for effectively ignoring institutions, and at new institutional economics for attempting to reduce institutions to 'rational' and 'efficient' resolutions to the problem of transaction costs.
Institutionalism today
Modern institutionalism is thus sharply divided between new institutional economics represented by people like Nobel Prizewinner Douglass North and institutional political economy and "old" or "critical" institutionalism (an approach radicaly opposed to mainstream neoclassical economics) associated with the Cambridge economist Ha-Joon Chang, Warren Samuels, Michigan State University, and Geoffrey Hodgson from University of Hertfordshire.Some Sources
- North, Douglass C. "Institutions, Institutional Change and Economic Performance", Cambridge University Press (1990).
- Commons, John. "Institutional Economics," American Economic Review Vol. 21 (1931): pp. 648-657.
- Hodgson, Geoffrey M., "The Approach of Institutional Economics," Journal of Economic Literature v36, n1 (March 1998): 166-92.
- Chang, Ha-Joon, "Globalization, Economic Development and the Role of the State", Zed Books (2002)
- Cheung, Steven N. S., "The Structure of a Contract & the Theory of a Non-Exclusive Resource," J. of Law and Economics 13:49-70 (1970).
- Schmid, A. Allan, Conflict & Cooperation: Institutional & Behavioral Economics, Blackwell (2004).
- Keaney, Michael., "Critical Institutionalism: From American Exceptionalism to International Relevance", in "Understanding Capitalism: Critical Analysis From Karl Marx to Amartya Sen", ed. Doug Dowd, Pluto Press, 2002.
- Samuels, Warren J., "The Legal-Economic Nexus," Routledge (2007).
- _____, “Institutional Economics," The , v. 2 (1987). pp. 866-64.
- John Kenneth Galbraith, "Power & the Useful Economist," American Economic Review 63:1-11 (1973).
External links
Institutional political economy refers to a body of political economic thought in distinction from institutional economics stemming from the works of Thorstein Veblen, John Commons, Wesley Mitchell, John Dewey and more recent political economists such as Geoffrey Hodgson, Jonathan
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New institutional economics (NIE) is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules that underly economic activity.
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Heterodox economics [1] refers to approaches or schools of economic thought that fall outside mainstream economics, or the Walrasian model ("Walrasian economics"
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Thorstein Bunde Veblen (born Tosten Bunde Veblen July 30, 1857 – August 3, 1929) was a Norwegian-American sociologist and economist and a founder, along with John R. Commons, of the Institutional economics movement.
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Wesley Clair Mitchell (August 5, 1874 – October 29, 1948) was an American economist known for his empirical work on business cycles and for guiding the National Bureau of Economic Research in its first decades.
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John Rogers Commons (1862–1945) was a well-known institutional economist and labor historian at the University of Wisconsin-Madison.
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Life and career
Born in Hollansburg, Ohio, Commons had a religious upbringing which led him to be an advocate for social justice early..... Click the link for more information.
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Economic systems
Ideologies and Theories
Primitive communism
Capitalist economy
Corporate economy
Fascist economy
Laissez-faire
Mercantilism
Natural economy
Social market economy
Socialist economy
Communist economy
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Ideologies and Theories
Primitive communism
Capitalist economy
Corporate economy
Fascist economy
Laissez-faire
Mercantilism
Natural economy
Social market economy
Socialist economy
Communist economy
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The naturalistic fallacy is often claimed to be a formal fallacy. It was described and named by British philosopher G. E. Moore in his 1903 book Principia Ethica.
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Institutional political economy refers to a body of political economic thought in distinction from institutional economics stemming from the works of Thorstein Veblen, John Commons, Wesley Mitchell, John Dewey and more recent political economists such as Geoffrey Hodgson, Jonathan
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John Rogers Commons (1862–1945) was a well-known institutional economist and labor historian at the University of Wisconsin-Madison.
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Life and career
Born in Hollansburg, Ohio, Commons had a religious upbringing which led him to be an advocate for social justice early..... Click the link for more information.
John Dewey (October 20, 1859 – June 1, 1952) was an American philosopher, psychologist, and educational reformer, whose thoughts and ideas have been greatly influential in the United States and around the world.
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Thorstein Bunde Veblen (born Tosten Bunde Veblen July 30, 1857 – August 3, 1929) was a Norwegian-American sociologist and economist and a founder, along with John R. Commons, of the Institutional economics movement.
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The word endogenous means "arising from within", the opposite of exogenous.
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Biology
Endogenous substances are those that originate from within an organism, tissue, or cell [1] ...... Click the link for more information.
Institutional political economy refers to a body of political economic thought in distinction from institutional economics stemming from the works of Thorstein Veblen, John Commons, Wesley Mitchell, John Dewey and more recent political economists such as Geoffrey Hodgson, Jonathan
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Neoclassical economics refers to a general approach in economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand.
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Geoffrey M. Hodgson (born 28 July 1946) is a Research Professor of Business Studies in the University of Hertfordshire, and also the head of the Centre for Research in Institutional Economics. He is the editor-in-chief of the Journal of Institutional Economics.
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Jonathan Nitzan is a Professor of Political Economy at York University, Toronto, Canada. Nitzan has written a number of articles with Shimshon Bichler dealing with the political economy of Israel and the United States, as well as theorizing of capital as the quantification of power.
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Shimshon Bichler teaches political economy at colleges and universities in Israel. Along with Jonathan Nitzan, Bichler has created an engaging power theory of capitalism and theory of differential accumulation in their analysis of the political economy of wars, Israel, and
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New institutional economics (NIE) is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules that underly economic activity.
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In economics and contract theory, an information asymmetry is present when one party to a transaction has more or better information than the other party. (This is also called a state of asymmetric information).
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Neoclassical economics refers to a general approach in economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand.
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New institutional economics (NIE) is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules that underly economic activity.
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Neoclassical economics refers to a general approach in economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand.
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New institutional economics (NIE) is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules that underly economic activity.
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Neoclassical economics refers to a general approach in economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand.
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New institutional economics (NIE) is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules that underly economic activity.
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In economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange. For example, most people, when buying or selling a stock, must pay a commission to their broker; that commission is a transaction cost of doing the stock deal.
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New institutional economics (NIE) is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules that underly economic activity.
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