Abstract

Two claims that are central to the research agenda of the New Institutional Economics (NIE) are that institutions affect economic performance and that both the causes and effects of institutions can be analyzed using economic concepts (North 1990). According to North (1990: 3), “institutions are the rules of the game in a society or, more formally, the humanly devised constraints that shape human interaction.” Ostrom (2005: 3) describes institutions as “the prescriptions that humans use to organize all forms of repetitive and structured interactions, including those within families, neighborhoods, markets, firms, sports leagues, churches, private associations, and governments at all scales.” Formal rules, which “say what individuals must, must not, may, can, and cannot do,” and that are enforced by an “authoritative agency” are institutions (Commons [1924] 1995: 138). But so are informal norms based on custom and tradition, which can also shape economic behavior. This chapter provides an overview of several levels of institutional analysis, ranging from informal norms to specific rules, discusses the concepts of institutional efficiency and change, and concludes with some questions for future research.