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Institutional Changes: A Framework of Analysis

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  • D. North

Abstract

A theory of institutional change is essential for further progress in the social sciences in general and economics in particular. Essential because neo-classical theory (and other theories in the social scientist's toolbag) at present cannot satisfactorily account for the very diverse performance of societies and economies both at a moment of time and over time. The explanations derived from neo-classical theory are not satisfactory because, while the models may account for most of the differences in performance between economies on the basis of differential investment in education, savings rates, etc., they do not account for why economies would fail to undertake the appropriate activities if they had a high payoff. Institutions determine the payoffs. While the fundamental neo-classical assumption of scarcity and hence competition has been robust (and is basic to this analysis), the assumption of a frictionless exchange process has led economic theory astray. Institutions are the structure that humans impose on human interaction and therefore define the incentives that (together with the other constraints (budget, technology, etc.) determine the choices that individuals make that shape the performance of societies and economies over time. In the following pages, I sketch out a framework for analyzing institutions. This framework builds on the economic theory of choice subject to constraints. However it incorporates new assumptions about both the constraints that individuals face and the process by which they make choices within those constraints. Too many gaps still remain in our understanding of this new approach to call it a theory. What I do provide are a set of definitions, principles, and a structure which provide
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Suggested Citation

  • D. North, 1997. "Institutional Changes: A Framework of Analysis," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 3.
  • Handle: RePEc:nos:voprec:1997-03-0160
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    Cited by:

    1. Ahrens, Joachim & Jünemann, Patrick, 2010. "Transitional institutions, institutional complementarities and economic performance in China: A 'Varieties of Capitalism' approach," Discourses in Social Market Economy 2010-11, OrdnungsPolitisches Portal (OPO).
    2. Marco Grasso & Enzo Di Giulio, 2003. "Mapping sustainable development in a capability perspective," HEW 0309001, EconWPA.
    3. Gérard Charreaux, 1996. "Pour une véritable théorie de la latitude managériale et du gouvernement des entreprises," Working Papers CREGO 0960601, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    4. repec:sgh:gosnar:y:2018:i:1:p:59-86 is not listed on IDEAS
    5. Yongjing Zhang & Mei Wang, 2014. "Towards Behavioral Political Economy of Institutional Change: With Field Facts from China," CESifo Working Paper Series 4956, CESifo Group Munich.
    6. Monasso, Ton & van Leijden, Fabian, 2007. "Telecommunication regulation as a game: deepening theoretical understanding," MPRA Paper 7625, University Library of Munich, Germany.
    7. Stefano Pareglio & Alessandro Vaglio & Marco Grasso & Stefania Migliavacca & Enzo Di Giulio, 2005. "Modelling sustainable human development in a capability perspective," Public Economics 0504008, University Library of Munich, Germany.
    8. Zanella, Matheus A. & Schleyer, Christian & Speelman, Stijn, 2014. "Why do farmers join Payments for Ecosystem Services (PES) schemes? An Assessment of PES water scheme participation in Brazil," Ecological Economics, Elsevier, vol. 105(C), pages 166-176.
    9. Ullah, Kafait & Arentsen, Maarten J. & Lovett, Jon C., 2017. "Institutional determinants of power sector reform in Pakistan," Energy Policy, Elsevier, vol. 102(C), pages 332-339.
    10. repec:gam:jlands:v:7:y:2018:i:2:p:63-:d:146063 is not listed on IDEAS
    11. Jorge Bielsa & Ignacio Cazcarro, 2014. "Implementing Integrated Water Resources Management in the Ebro River Basin: From Theory to Facts," Sustainability, MDPI, Open Access Journal, vol. 7(1), pages 1-24, December.

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