IEUPNYK NIE and Growth
The New Institutional Economics:
Its Roots, Growth and Future
Lee J. Alston
Professor of Economics
Institute of Behavioral Science
University of Colorado
What is the NIE?
1) Interdisciplinary
2) Comparative
3) Set of concepts, e.g., property rights,
agenda control, credible commitment…
4) Different levels of analysis, e.g., causes
and consequences of institutions
Figure 1
Institutions and Economic Performance
Government
Informal Institutions
(Norms of Society)
Formal Institutions
(Laws of Society)
Property Rights
Technology
Transaction Costs
Transformation Costs
Costs of Exchange
Costs of Internal Production
Contracts
Economic Performance
Figure 2
The Determinants of Formal Institutions
Economic Performance
Special Interests
Winners
Citizens/Consumers
Losers
Prime Minister
Committees
Executive
Government
Legislature
President
Parties
Laws
Bureaucracies
Competent and Honest
Judiciary
Independent and Honest
Southern Paternalism and the American
Welfare State
•
Paternalism was an implicit contract:
- workers exchanged good and faithful
labor for a variety of in-kind goods and
services
Demand and Supply of Paternalism
• Demand by workers:
- resulted from the discrimination
• Supply by landlords:
- high labor monitoring costs with premechanized agriculture.
• Level of analysis at this point:
- examines contracting given
institutions.
Who Determined the Institutions?
• Political power: agricultural elite
• Political Power of Southerners:
- one-party system in the South
resulted in seniority; and pivotal
ideological position
Institutional Results
• Little change in welfare policy, labor
policy, civil rights or voting rights until
the 1960s
• Why the 1960s? - mechanization of
cotton production
• Southerners abandoned paternalism;
allowed federal welfare state to expand;
and sharecropping disappeared
NIE: What do we know?
Contracting: linkages among institutions,
property rights, transaction costs and
contracts
Political Economy: roles played by
legislative institutions and special
interests in shaping the laws of society
Both have been absorbed into the
mainstream of Neo-Classical
Economics
NIE: What Don’t We Know?
Staying Ahead of the Mainstream
• We know too little about the origins of
norms and how they shape outcomes
• We need a better understanding of
institutional path dependence in the
presence of poor economic outcomes
- the dynamics of institutional change
Why institutional path dependence?
1. Informational problems abound
What can we learn from:
- cognitive psychology and experimental
economics?
- empirical studies of insufficient
political competition and insufficient
media competition
Why Institutional Path Dependence?
2. Disapproval of the outcome but
approval of the process that
generated the outcome. Trapped?
- role of political entrepreneurs
3. Serious collective action problems
- role of political entrepreneurs
4. Insecure “political” property rights
Why Do We Want Insecure Political
Property Rights?
•
Transparent side-payments would
undermine the legitimacy of government.
•
Discourages politicians from making
“bad” policy in order to be bought out.
Why Do We Want Secure Political
Property Rights?
• It would enable more credible
commitment among politicians
• It would stabilize policy
- bright side and dark side of policy
stability
Overcoming Institutional Path Dependence:
Achieving Economic Development
• Political Entrepreneurship
- Cardoso in Brazil vs Chavez in VZ
- Someone who plays for the history books
- Strong but checked executive powers?
• The Role of Crises
- Gives more latitude for political
entrepreneurship
- Greater scope for action can be positive or
negative
How do we make headway in the NIE?
• Continue what we are doing which requires
insights from anthropology, economics,
history, law, psychology, political science
and sociology
• Orchestrated case studies over time of
successful and unsuccessful institutional
change such that we can begin to make
some generalizations
Its Roots, Growth and Future
Lee J. Alston
Professor of Economics
Institute of Behavioral Science
University of Colorado
What is the NIE?
1) Interdisciplinary
2) Comparative
3) Set of concepts, e.g., property rights,
agenda control, credible commitment…
4) Different levels of analysis, e.g., causes
and consequences of institutions
Figure 1
Institutions and Economic Performance
Government
Informal Institutions
(Norms of Society)
Formal Institutions
(Laws of Society)
Property Rights
Technology
Transaction Costs
Transformation Costs
Costs of Exchange
Costs of Internal Production
Contracts
Economic Performance
Figure 2
The Determinants of Formal Institutions
Economic Performance
Special Interests
Winners
Citizens/Consumers
Losers
Prime Minister
Committees
Executive
Government
Legislature
President
Parties
Laws
Bureaucracies
Competent and Honest
Judiciary
Independent and Honest
Southern Paternalism and the American
Welfare State
•
Paternalism was an implicit contract:
- workers exchanged good and faithful
labor for a variety of in-kind goods and
services
Demand and Supply of Paternalism
• Demand by workers:
- resulted from the discrimination
• Supply by landlords:
- high labor monitoring costs with premechanized agriculture.
• Level of analysis at this point:
- examines contracting given
institutions.
Who Determined the Institutions?
• Political power: agricultural elite
• Political Power of Southerners:
- one-party system in the South
resulted in seniority; and pivotal
ideological position
Institutional Results
• Little change in welfare policy, labor
policy, civil rights or voting rights until
the 1960s
• Why the 1960s? - mechanization of
cotton production
• Southerners abandoned paternalism;
allowed federal welfare state to expand;
and sharecropping disappeared
NIE: What do we know?
Contracting: linkages among institutions,
property rights, transaction costs and
contracts
Political Economy: roles played by
legislative institutions and special
interests in shaping the laws of society
Both have been absorbed into the
mainstream of Neo-Classical
Economics
NIE: What Don’t We Know?
Staying Ahead of the Mainstream
• We know too little about the origins of
norms and how they shape outcomes
• We need a better understanding of
institutional path dependence in the
presence of poor economic outcomes
- the dynamics of institutional change
Why institutional path dependence?
1. Informational problems abound
What can we learn from:
- cognitive psychology and experimental
economics?
- empirical studies of insufficient
political competition and insufficient
media competition
Why Institutional Path Dependence?
2. Disapproval of the outcome but
approval of the process that
generated the outcome. Trapped?
- role of political entrepreneurs
3. Serious collective action problems
- role of political entrepreneurs
4. Insecure “political” property rights
Why Do We Want Insecure Political
Property Rights?
•
Transparent side-payments would
undermine the legitimacy of government.
•
Discourages politicians from making
“bad” policy in order to be bought out.
Why Do We Want Secure Political
Property Rights?
• It would enable more credible
commitment among politicians
• It would stabilize policy
- bright side and dark side of policy
stability
Overcoming Institutional Path Dependence:
Achieving Economic Development
• Political Entrepreneurship
- Cardoso in Brazil vs Chavez in VZ
- Someone who plays for the history books
- Strong but checked executive powers?
• The Role of Crises
- Gives more latitude for political
entrepreneurship
- Greater scope for action can be positive or
negative
How do we make headway in the NIE?
• Continue what we are doing which requires
insights from anthropology, economics,
history, law, psychology, political science
and sociology
• Orchestrated case studies over time of
successful and unsuccessful institutional
change such that we can begin to make
some generalizations