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Institutions

Author

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  • Douglass C. North

Abstract

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. Together with the standard constraints of economics they define the choice set and therefore determine transaction and production costs and hence the profitability and feasibility of engaging in economic activity. They evolve incrementally, connecting the past with the present and the future; history in consequence is largely a story of institutional evolution in which the historical performance of economies can only be understood as a part of a sequential story. Institutions provide the incentive structure of an economy; as that structure evolves, it shapes the direction of economic change towards growth, stagnation, or decline. In this essay, I intend to elaborate on the role of institutions in the performance of economies and illustrate my analysis from economic history.

Suggested Citation

  • Douglass C. North, 1991. "Institutions," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 97-112, Winter.
  • Handle: RePEc:aea:jecper:v:5:y:1991:i:1:p:97-112
    Note: DOI: 10.1257/jep.5.1.97
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.5.1.97
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    References listed on IDEAS

    as
    1. Posner, Richard A, 1980. "A Theory of Primitive Society, with Special Reference to Law," Journal of Law and Economics, University of Chicago Press, vol. 23(1), pages 1-53, April.
    2. Watts, Ross L & Zimmerman, Jerold L, 1983. "Agency Problems, Auditing, and the Theory of the Firm: Some Evidence," Journal of Law and Economics, University of Chicago Press, vol. 26(3), pages 613-633, October.
    3. de Roover, Florence Edler, 1945. "Early Examples of Marine Insurance," The Journal of Economic History, Cambridge University Press, vol. 5(2), pages 172-200, November.
    4. Curtin,Philip D., 1984. "Cross-Cultural Trade in World History," Cambridge Books, Cambridge University Press, number 9780521269315, February.
    5. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-131, March.
    6. Stiglitz, Joseph E, 1989. "Markets, Market Failures, and Development," American Economic Review, American Economic Association, vol. 79(2), pages 197-203, May.
    7. Douglass C. North, 1955. "Location Theory and Regional Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 63, pages 243-243.
    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Two Essays on Douglass North
      by Peter Klein in Organizations and Markets on 2007-06-22 19:54:23
    2. Institutions as Capital?
      by Wayne Cain in econ trek on 2011-11-13 21:57:00

    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Schools of Economic Thought, Epistemology of Economics > Heterodox Approaches > Institutional Economics

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    Cited by:

    1. Mark A. Pollack, 2007. "The New Institutionalisms and European Integration," The Constitutionalism Web-Papers p0031, University of Hamburg, Faculty for Economics and Social Sciences, Department of Social Sciences, Institute of Political Science.
    2. Lorenzo Pellegrini & Gideon Kruseman, 2008. "Institutions and Forest Management: A Case Study from Swat, Pakistan," Working Papers 2008.42, Fondazione Eni Enrico Mattei.
    3. Fan, Joseph P. H. & Morck, Randall & Lixin Colin Xu & Yeung, Bernard, 2007. "Does"good government"draw foreign capital ? Explaining China's exceptional foreign direct investment inflow," Policy Research Working Paper Series 4206, The World Bank.
    4. Gonzalo Escribano, 2006. "Europeanisation without Europe? The Mediterranean and the Neighbourhood Policy," EUI-RSCAS Working Papers 19, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).

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    More about this item

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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