Institutions Flashcards
Three important features of institutions
- that they are “humanly devised,” (in contrast to geographic factors)
- that they are “the rules of the game” setting “constraints” on human behavior;
- that their major effect will be through incentives
Oliver Williamson identifies three interrelated levels of institutions. Name them.
Level 1: Social or Cultural Foundations (Informal institutions)
Level 2: Basic institutional Environment (Formal institutions)
Level 3: Institution of Governance
Oliver Williamsons 1 level of institution
Social or Cultural Foundations (Informal institutions).
Basic foundations for a society’s
institutions: Informal institutions, customs, traditions, ethics and social norms, religion.
Changes in lower-level institutions in the hierarchy may stimulate supporting changes in higher-level institutions.
Oliver Williamsons 2 level of institution
Basic Institutional Environment (Formal
Institutions).
“The formal rules of the game.”: Formal rules created by government.
Constitutions, political systems, and basic human
rights; property rights and their allocation; laws, courts.
Changes occur quicker than in Level 1
Oliver Williamsons 3 level of institution
Institutions of Governance.
“The play of the game.”: The actual functioning of the government.
Changes occur quicker than Level 2.
What are Williamsons argument for social and cultural foundations placing constraints on the attributes of the basic institutional environment?
Example: societies with hierarchical non-democratic political systems, easily shift instantly to modern democratic political or human rights institutions.
It takes lot of time to achieve shift to attributes an other country have.
Williamsons framework of speed of change
Changes in the cultural foundations take place most slowly and are most “embedded” in the institutions of a society.
Changes to the cultural environment constrain the choice of basic institutional arrangements, adaptation –> Level 2 may be slowed
What is a good institution?
A good institution is an institution that encourages development including growth, promotes freedoms and leads to improved standard of living.
Institutions matter for economic development
- influence peoples behaviour
- determine how a society organises itself (investments, education, technology, behavior, distribution of resources)
How can settler mortality be an exogenous measure of institutional quality?
Potential settler mortality -> settlements –> early institutions –> current institutions –> current performance
What is informal institutions?
Social norms and culture
Exemple:
- Norms allow for corruption
- Social norm for leaders to extract resources for own benefit
- Matrilineal vs Patrilineal societies
- Cultural fractionalisation cause of conflict
- Norms impact attitudes toward education
What determines formal political institutions?
Political institutions –> de jure political power –> economic institutions –> economic performance & distribution of resources (t+1) –> de facto political power –> political institutions (t+1)
What determines formal distribution of resources
distribution of resources –> de facto political power –> Political institutions (t+1)
Three distinct institutional characteristics
- economic institutions: shape the incentives of key economic actors, important for distribution of resources. Matter for economic growth.
The choice of economic institutions is determined by the interest among groups.
- Political power: De jure (power originates from political institutions, dictatorship, democracy), De facto (group of individuals who may not possess political power, may still posses power to revolt.)
- Political institutions: determine de jure political power and depend on (past) de jure and de facto political power.
De facto
group of individuals who may not possess political power, may still posses power to revolt.
Power originates from
1. the ability of groups within society to overcome their collective action problem
2. the economic resources available to them
De jure
Power originates from political institutions
Exemple: democracy vs. dictatorship, constraints on politicians).
Political institutions allocate de jure political power. Those that hold political power decide political institutions. Incentive to keep the status quo.
How is persistance important to determine institions?
Persistance: the distribution of resources and political institutions is relatively slow-changing and persistent.
How is shocks important to determine institutions?
Shocks: The potential for change to the balance of de facto political power have the potential to generate major changes in political institutions,
and consequently in economic institutions and economic growth
dvs. Big changes in who holds political power can cause big changes in how things are done politically, which can then affect how things are done economically, and how much the economy grows.
How can we change informal institutions?
Information campaigns are important.
Role models
Change incentives
How can we change formal institutions?
Change laws (propert rights, stronger judicary, insurance programs offset risk)
Require multi-pronged approach
