New institutional economics
New institutional economics (NIE) is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules (which are institutions) that underlie economic activity and with analysis beyond earlier institutional economics and neoclassical economics. See also institutional economics.
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- In spite of such limitations, the New Institutional Economics research programme, given its willingness to acknowledge the central role played by information in the economic process, constitutes a marked advance over what is on offer from the neoclassical orthodoxy. There, information retains the status of the luminiferous ether of classical physics before Einstein: a ubiquitous medium that admitted of a mechanical account of action at a distance and kept the world conveniently Newtonian.
Institutional economics, however, needs a more explicit and dynamic theory of information flows if it is to make more than a dent in the neoclassical defences. Having established that there exists credible institutional alternatives to markets, it needs to show how information production and exchange underpins them all, shaping their internal evolution as well as how they collaborate and compete. In effect, what is needed is a theory of social learning that extends beyond the individual or the organization to encompass more complex institutional settings. Such as theory, I believe, is foreshadowed in Douglas North’s historical studies of institutions. It now needs further development.
- Max Boisot, (1995), Information Space, Routledge, London, p. 290; As cited in: Ortiz et al. (2006)
- Following the lead given by new institutional economics, we shall take the transaction as our unit of analysis. For our purposes, a transaction can be thought of as any act of social exchange that depends on information flows for its accomplishment. Transactions can be as simple and brief as the purchase of a packet of cigarettes, or as complex as and extended as those which bind a Zen master to his disciples. Like institutional economists, we are interested in the relationship that can be established between different transactional characteristics and the phenomenon of institutionalization. Our use of the term transaction, however, will extend beyond that of institutional economics where the focus has tended to be primarily on transaction costs and efficiency considerations. These, to be sure, are relevant. But, as we shall see, they are not the whole story.
- Max Boisot, Knowledge Assets: Securing Competitive Advantage in the Information Economy: Securing Competitive Advantage in the Information Economy. Oxford University Press, 1998. p. 124; As cited in: Ortiz et al. (2006)
- If economists wished to study the horse, they wouldn't go and look at horses. They'd sit in their studies and say to themselves, "what would I do if I were a horse?"
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M - REdit
- Institutions are the humanly devised constraints that structure political, economic, and social interaction. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights). Throughout history, institutions have been devised by human beings to create order and reduce uncertainty in exchange.
- Douglass North. (1991). "Institutions." Journal of Economic Perspectives, 5(1): 97-112; Abstract
- What is missing from the policy analyst's tool kit - and from the set of accepted, well-developed theories of human organization - is an adequately specified theory of collective action whereby a group of principals can organize themselves voluntarily to retain the residuals of their own efforts.
- Elinor Ostrom (1996) Governing the Commons: The Evolution of Institutions for Collective Action p. 25-26
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- The importance to economics of the study of institutions is no longer a controversial proposition, thanks in part to the scholarly literature generated by the new institutional economics movement. Institutions are more than organizations – property is an institution, but not an organization – but organizations are an important form of institution and will be the focus of my paper, as it is, to a considerable extent, of the new institutional economics.
- Richard Posner "From the new institutional economics to organization economics: with applications to corporate governance, government agencies, and legal institutions" (2010).
- Oliver Williamson has argued that markets and hierarchical organizations, such as firms, represent alternative governance structures which differ in their approaches to resolving conflicts of interest. The drawback of markets is that they often entail haggling and disagreement. The drawback of firms is that authority, which mitigates contention, can be abused. Competitive markets work relatively well because buyers and sellers can turn to other trading partners in case of dissent. But when market competition is limited, firms are better suited for conflict resolution than markets. A key prediction of Williamson's theory, which has also been supported empirically, is therefore that the propensity of economic agents to conduct their transactions inside the boundaries of a firm increases along with the relationship-specific features of their assets.
- The Royal Swedish Academy of Sciences. "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2009: Press Release," on nobelprize.org, 12 October 2009.
- Neil Fligstein is one of the most productive empirical researchers in economic sociology. His new book [The Architecture of Markets, 2001] can be interpreted as an attempt to answer the questions just mentioned, among others. He argues that “the sociology of markets lacks a theory of social institutions” (p. 8) and “needs to be clarified theoretically” (p. 9). The book’s aim is to give an outline of new theoretical foundations of a sociology of markets. Fligstein points out that “there are real differences in theoretical assumptions” between institutional economics and his version of a sociology of markets (p. 10). The first major part of the book is devoted to an explication and elaboration of a specifically sociological approach to markets called the “political-cultural approach.” In the second part, Fligstein applies this approach to various empirical cases and data of twenty-first-century capitalist societies.
- Thomas Voss, and Neil Fligstein. "The Architecture of Markets: An Economic Sociology of Twenty-First-Century Capitalist Societies." (2004): 617-620.