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What is NEW INSTITUTIONAL ECONOMICS? What does NEW INSTITUTIONAL ECONOMICS mean? NEW INSTITUTIONAL ECONOMICS meaning – NEW INSTITUTIONAL ECONOMICS definition – NEW INSTITUTIONAL ECONOMICS explanation.
Source: Wikipedia.org article, adapted under https://creativecommons.org/licenses/… license.
New institutional economics (NIE) is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules (which are institutions) that underlie economic activity and with analysis beyond earlier institutional economics and neoclassical economics. It can be seen as a broadening step to include aspects excluded in neoclassical economics. It rediscovers aspects of classical political economy.
It has its roots in two articles by Ronald Coase, “The Nature of the Firm” (1937) and “The Problem of Social Cost” (1960). In the latter, the Coase theorem (as it was subsequently termed) maintains that without transaction costs, alternative property right assignments can equivalently internalize conflicts and externalities. Thus, comparative institutional analysis arising from such assignments is required to make recommendations about efficient internalization of externalities and institutional design, including Law and Economics.
Analyses are now built on a more complex set of methodological principles and criteria. They work within a modified neoclassical framework in considering both efficiency and distribution issues, in contrast to “traditional,” “old” or “original” institutional economics, which is critical of mainstream neoclassical economics.
The term ‘new institutional economics’ was coined by Oliver Williamson in 1975.
Among the many aspects in current analyses are organizational arrangements (such as the boundary of the firm), property rights, transaction costs, credible commitments, modes of governance, persuasive abilities, social norms, ideological values, decisive perceptions, gained control, enforcement mechanism, asset specificity, human assets, social capital, asymmetric information, strategic behavior, bounded rationality, opportunism, adverse selection, moral hazard, contractual safeguards, surrounding uncertainty, monitoring costs, incentives to collude, hierarchical structures, and bargaining strength.
Major scholars associated with the subject include Masahiko Aoki, Armen Alchian, Harold Demsetz, Steven N. S. Cheung, Avner Greif, Yoram Barzel, Claude Ménard (economist), Daron Acemoglu, and four Nobel laureates—Ronald Coase, Douglass North, Elinor Ostrom, and Oliver Williamson. A convergence of such researchers resulted in founding the Society for Institutional & Organizational Economics (formerly the International Society for New Institutional Economics) in 1997.
Although no single, universally accepted set of definitions has been developed, most scholars doing research under the methodological principles and criteria follow Douglass North’s demarcation between institutions and organizations. Institutions are the “rules of the game,” both the formal legal rules and the informal social norms that govern individual behavior and structure social interactions (institutional frameworks).
Organizations, by contrast, are those groups of people and the governance arrangements that they create to co-ordinate their team action against other teams performing also as organizations. To enhance their chance of survival, actions taken by organizations attempt to acquire skill sets that offer the highest return on objective goals, such as profit maximization or voter turnout. Firms, Universities, clubs, medical associations, unions etc. are some examples….
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