Institutional Economics: An Introduction

Institutional economics is a branch of economics that studies the organization and functioning of societies. It explains why some countries become rich and others remain poor, why markets require regulation, and how economic transactions are organized in the absence of a state. It also discusses the role of formal and informal institutions in economic growth and development.

Format: Paperback / softback
Length: 306 pages
Publication date: 11 April 2019
Publisher: Cambridge University Press

Why do some countries remain poor while others become rich? Do markets require regulation to function efficiently? If markets offer an efficient way of exchanging goods, why do individuals even create firms? How are economic transactions organized in the absence of a state that could enforce contracts and guarantee property rights?

Institutional economics has provided social scientists with the tools to answer many fundamental questions about the organization and functioning of societies. This introduction to institutional economics is concise yet accessible, catering to students of economics as well as anyone interested in this topical research area and its specific subfields. Both formal and informal institutions, such as customs, habits, and traditions, are discussed with respect to their causes and consequences, highlighting the significant role they play in economic growth and development.

The study of institutional economics has revealed that economic outcomes are not solely determined by market forces. While markets are essential for the efficient exchange of goods and services, they are not sufficient to explain why some countries succeed while others fail. Formal institutions, such as laws, regulations, and contracts, play a crucial role in shaping economic outcomes. They provide a framework for organizing economic activities, protecting property rights, and promoting fairness and efficiency.

For example, a well-developed legal system can create a stable environment for investment and entrepreneurship, attracting capital and fostering economic growth. Similarly, a robust social safety net can reduce poverty and inequality, improving the well-being of citizens and enabling them to participate fully in the economy. In contrast, weak or corrupt institutions can hinder economic development by creating uncertainty, stifling innovation, and promoting rent-seeking behavior.

In addition to formal institutions, informal institutions, such as customs, habits, and traditions, also play a significant role in shaping economic outcomes. These institutions are often deeply embedded in society and can have a powerful impact on economic behavior. For example, cultural norms and values that prioritize hard work and perseverance can encourage individuals to invest in education and training, leading to higher productivity and economic growth.

However, informal institutions can also be sources of inequality and poverty. For example, gender-based discrimination in the workplace can limit the opportunities available to women, perpetuating poverty and inequality. Similarly, cultural norms that prioritize wealth and status over social welfare can lead to a lack of investment in public goods such as education and healthcare, which can have negative consequences for economic development and social well-being.

To address these challenges, policymakers and social scientists need to work together to promote the development of strong and inclusive institutions. This can involve implementing policies that promote equality and opportunity, such as gender-neutral laws and policies that support entrepreneurship and innovation. It can also involve promoting cultural change and values that prioritize social welfare and economic development.

In conclusion, institutional economics has provided valuable insights into the factors that contribute to economic growth and development. By understanding the role of formal and informal institutions, policymakers and social scientists can work together to create a more equitable and prosperous world. While markets are essential for the efficient exchange of goods and services, they are not sufficient to explain why some countries succeed while others fail. Strong and inclusive institutions are crucial for promoting economic growth and social well-being.

Weight: 458g
Dimension: 153 x 227 x 17 (mm)
ISBN-13: 9781108461085