Douglas North, "Institutions,": A Journal of Economic Perspectives, 1991
- Key Data Market
- Degree of market concentration
- Technological developments
- Changes in consumer behavior
Institutions are the constraints that shape political, economic and social human interactions. They consist of both informal constraints (sanctions, taboos, customs etc.) and formal rules (constitutions, laws, property rights etc.).
By creating an order and by reducing uncertainty in trade, institutions provide the incentive structure of an economy, and their development determines the direction of economic change (growth, stagnation or decline).
Previous works (such as those of Williamson, 75, 85) have considered institutions as efficient solutions to organizational problems in a competitive environment. Yet economic history is largely that of economies that failed to produce a set of economic rules likely to promote sustained economic growth.
Here, Douglass North develops a reflection on the very role of institutions in the performance of economies. Can an economy realize how efficient it is on competitive markets by the approach of Williamson? Institutions constrain human interactions by two crucial channels: - production costs, and transaction costs. By lowering them, the institutions that allow the potential gains from exchange become feasible. D. North presents an analysis of economic history.
D. North studied the genesis of modern economies following the economic conception of history seen as a series of historical stages, while pointing out that this theory of development of economies is schematic and questionable.
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