Business, Legal & Accounting Glossary
Institutional economics is a branch of economics, which hinges on the study of the role of man-made institutions on the economic behaviour of economic agents. Presently a discipline of mainstream economics has emerged by name of new institutional economics. This economic discipline concerns itself with the study of institutions in the reduction of transaction costs. Heterodox institutional economics stresses the need for a more comprehensive study of institutions. It regards markets as a fallout of complex interactions among various institutions like individual entities, social norms, firms and states. Early proponents of school of institutional economics include economic luminaries like Thorstein Veblen, John R. Commons and Wesley Mitchell. Traditional institutionalism rejects simplification of institutions to just tastes, nature and technology. Tastes, expectations about future, motivations and habits determine the nature of institutions and are restricted and shaped by them also. Traditional institutionalism emphasizes legal foundations of economies as per John R. Commons. It is argued that institutions vacillate as a result of incentives created by them. These are thus regarded as endogenous effects. Traditional institutionalism has been reintroduced as institutionalist political economy. Theoretically, institutional economics contradicts basis of neoclassical economics. It is based on the proposition that economics is inseparable from the concerned socio-political system in which that is embedded. New institutional economics was developed with the advancement of economic theories of distributed and asymmetric information. However new institutional economics has failed to deter criticisms regarding lack of realism and reductionism. New institutional economics is often regarded as a new economic perspective. Information asymmetry in economics occurs when a party to an economic transaction is endowed with either better or more information compared to other parties. Modern institutionalism is at present divided into rival camps represented by new institutional economics and institutional political economy and old institutionalism. New institutional economics include pioneers like Nobel prize winner, Douglass North. old institutionalism has protagonists like Geoffrey Hodgson ( University of Hertfordshire) and Cambridge based Ha-Joon Chang.
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This glossary post was last updated: 29th March, 2020 | 2 Views.