Institutions and History Flashcards
Economic Institutions
- Well established arrangements and structures that are part of the culture or society (formal: laws, informal: social norms)
- Specific agencies or foundations, either government or private devoted to collecting or studying economic data: commissioned with the job of supplying a good or service or implement policies that are important to the economy (Bank of England)
Traditional Economic Theory
Outcomes are supposed to be independent of the institutional structure
Path Dependency
Where we start from matters to where we end up and institutional structure affects the path.
Capitalism
Economic system characterized by a specific combination of institutions that started around the Industrial Revolution
- Capitalist economy combines: private property, markets and firms
Economic System
A way of organizing the production and distribution of goods and services in an entire economy
Institutions
Different set of laws and social customs regulating production and distribution in different ways to participants of the economy
Private Property
The right that one can enjoy one’s possessions in way’s on their own choosing excluding others from the use if they see fit
Markets
A way of connecting people who may mutually benefit by exchanging goods or services through buying or selling
Firms
A business organization which pays wages to employ people and purchase inputs to produce and market goods and services with the intention of making profit
Impact of Technology
Firms competing in markets have strong incentives to develop and adopt new tech
Specialization
The growth of firms and expansion of markets linking the entire world allowing for historically unprecedented sepcialization in tasks and production
Economic Conditions
Firms, private property or markets may fail (in capitalist economy)
- Competitive markets etc
Political Conditions
Capitalist institutions are regulated by the gov.
- Gov providing infrastructure, education, etc
- Taxation and other interventions
- Laws and regulations
New Institutional Economics North’s Argument
Neoclassical theory is inappropriate in analysing and prescribing policies that will induce development
Idea of rationality should be modified
- Two assumptions made: - time and institutions dont matter
:- Institutions form incentive structure of a society
:- Time is the dimension in which the learning processes of individuals shape the way institutions evolve
- Neoclassical results of efficient markets only obtains when it is costless to transact
New Institutional Economics
- Shows importance of transaction costs
- The cost associated with exchange of goods or services and incurred in overcoming market imperfections
- The structure of the institutions determine the transactions costs
- Explains path dependency