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Institutions Matter

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  • Douglass C. North

    (Washington University)

Abstract

Successful development policy entails an understanding of the dynamics of economic change if the policies pursued are to have the desired consequences. And a dynamic model of economic change entails as an integral part of that model analysis of the polity since it is the polity that specifies and enforces the formal rules. While we are still some distance from having such a model the structure that is evolving in the new institutional economics, even though incomplete, suggests radically different development policies than those of either traditional development economists or orthodox neo- classical economists. Development economists have typically treated the state as either exogenous or as a benign actor in the development process. Neo-classical economists have implicitly assumed that institutions (economic as well as political) don't matter and that the static analysis embodied in allocative-efficiency models should be the guide to policy; that is "getting the prices right" by eliminating exchange and price controls. In fact the state can never be treated as an exogenous actor in development policy and getting the prices right only has the desired consequences when you already have in place a set of property rights and enforcement that will then produce the competitive conditions that will result in efficient markets.

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Bibliographic Info

Paper provided by EconWPA in its series Economic History with number 9411004.

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Date of creation: 25 Nov 1994
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Handle: RePEc:wpa:wuwpeh:9411004

Note: ascii text, PostScript available, 2117 words
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Web page: http://128.118.178.162

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Blog mentions

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  1. Institutions, revolutions and growth
    by chris dillow in Stumbling and Mumbling on 2011-07-16 12:47:23
  2. Institutional economics hypothesis of the day
    by UDADISI in udadisi on 2011-10-07 01:13:00
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Cited by:
  1. Amable, Bruno, 1999. "Institutional complementarity and diversity of social systems of innovation and production," Discussion Papers, Research Unit: Economic Change and Employment FS I 99-309, Social Science Research Center Berlin (WZB).
  2. Smith, Kip & Dickhaut, John, 2005. "Economics and emotion: Institutions matter," Games and Economic Behavior, Elsevier, vol. 52(2), pages 316-335, August.
  3. Koen, Carla I., 2004. "The dialectics of globalization: what are the effects for management and organization in Germany and Japan," Research in International Business and Finance, Elsevier, vol. 18(2), pages 173-197, June.

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