Institutions and History

Question 1

Economic Institutions

Answer 1

1. Well established arrangements and structures that are part of the culture or society (formal: laws, informal: social norms)
2. 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)

Question 2

Traditional Economic Theory

Answer 2

Outcomes are supposed to be independent of the institutional structure

Question 3

Path Dependency

Answer 3

Where we start from matters to where we end up and institutional structure affects the path.

Question 4

Capitalism

Answer 4

Economic system characterized by a specific combination of institutions that started around the Industrial Revolution
- Capitalist economy combines: private property, markets and firms

Question 5

Economic System

Answer 5

A way of organizing the production and distribution of goods and services in an entire economy

Question 6

Institutions

Answer 6

Different set of laws and social customs regulating production and distribution in different ways to participants of the economy

Question 7

Private Property

Answer 7

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

Question 8

Markets

Answer 8

A way of connecting people who may mutually benefit by exchanging goods or services through buying or selling

Question 9

Firms

Answer 9

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

Question 10

Impact of Technology

Answer 10

Firms competing in markets have strong incentives to develop and adopt new tech

Question 11

Specialization

Answer 11

The growth of firms and expansion of markets linking the entire world allowing for historically unprecedented sepcialization in tasks and production

Question 12

Economic Conditions

Answer 12

Firms, private property or markets may fail (in capitalist economy)
- Competitive markets etc

Question 13

Political Conditions

Answer 13

Capitalist institutions are regulated by the gov.
- Gov providing infrastructure, education, etc
- Taxation and other interventions
- Laws and regulations

Question 14

New Institutional Economics North’s Argument

Answer 14

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

Question 15

New Institutional Economics

Answer 15

• 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

Question 16

One size fits all policies and post-communism Russia

Answer 16

• Formal rules can change quickly but not informal ones
• Economies that adopt formal rules of another economy will have v diff performances because of informal norms
• ^ Cannot apply western solutions to former communist countries and have same outcomes - changing social norms is a lengthy process