Institutions--Institutional-Change-and-Economic-Pe

PoliticalEconomyofInstitutionsandDecisions•Continuinghisgroundbreakinganalysisofeconomicstructures,DouglassNorthheredevelopsananalyticalframeworkforex­plainingthewaysinwhichinstitutionsandinstitutionalchangeaffecttheperformanceofeconomies,bothatagiventimeandovertime.Institutionsexist,heargues,duetotheuncertaintiesinvolvedinhumaninteraction;th!=yaretheconstraintsdevisedtostructurethatinteraction.Yetinstitutionsvarywidelyintheirconsequencesforeconomicperfor­mance;someeconomiesdevelopinstitutionsthatproducegrowthanddevelopment,whileothereconomiesdevelopinstitutionsthatproducestagnation.Northfirstexploresthenatureofinstitutionsandexplainstheroleoftransactionandpro­ductioncostsintheirdevelopment.Thesecondpartofthebookdealswithinstitu­tionalchange.Institutionscreatetheincentivestructureinaneconomy,andorganizationswillbecreatedtotakeadvantageoftheopportunitiesprovidedwithinagiveninstitu­tionalframework.Northarguesthatthekindsofskillsandknowledgefosteredbythestruc­tureofaneconomywillshapethedirectionofchangeandgraduallyaltertheinstitutionalframework.Hethenexplainshowinstitutionaldevelopmentmayleadtoapath-dependentpatternofdevelopment.Inthefinalpartofthebook,Northexplainstheimplicationsofthisanalysisforeconomictheoryandeconomichistory.Heindicateshowinstitutionalanalysismustbeincorpo­ratedintoneoclassicaltheoryandexploresthepotentialfortheconstructionofadynamictheoryoflong-termeconomicchange.INSTITUTIONS,INSTITUTIONALCHANGEANDECONOMICPERFORMANCETHEPOLITICALECONOMYOFINSTITUTIONSANDDECISIONSeditorsJamesAlt,HarvardUniversityDouglassNorth,WashingtonUniversityinSt.LouisOtherbooksintheseriesYoramBarzel,EconomicAnalysisofPropertyRightsRobertH.Bates,BeyondtheMiracleoftheMarket:ThePoliticalEconomyofAgrarianDevelopmentinKenyaGaryD.Cox,TheEfficientSecret:TheCabinetandtheDevelopmentofPoliticalPartiesinVictorianEnglandGaryLibecap,ContractingforPropertyRightsMatthewD.McCubbinsandTerrySullivan,eds.,Congress:StructureandPolicyCharlesStewartIII,BudgetReformPolitics:TheDesignoftheAppropriationsProcessintheHouseofRepresentatives,I865-I92I~!INSTITUTIONS,INSTITUTIONALCHANGEANDECONOMICPERFORMANCEDOUGLASSC.NORTHTIll'riglllo/theUlliIWS;I}'ofCambridgeTOprilltandsdlallmamu'rofbookswasgranIt,dbJ'H,'/IryV/JIill1534.TII(·Urrilwsil),Iw.rprintt'tlalldpublishedl'ol11illllr)flJlysince15B4.CAMBRIDGEUNIVERSITYPRESSCambridgeNewYorkPortChesterMelbourneSydneyPublishedbythePressSyndicateoftheUniversityofCambridgeThePittBuilding,TrumpingtonStreet,CambridgeeB2IRP40West20thStreet,NewYork,NYIOOII,USA10StamfordRoad,Oakleigh,Melbourne3166,Australia©CambridgeUniversityPress1990FirstpublishedI990PrintedintheUnitedStatesofAmericaLibraryofCongressCataloging-in-PublicationDataNorth,DouglassCecil.Institutions,institutionalchangeandeconomicperformance/DouglassC.North.p.cm.(ThePoliticaleconomyofinstitutionsanddecisions)Includesbibliographicalreferences.ISBN0-521-39416-3.-ISBN0-521-39734-0(pbk.)I.Institutionaleconomics.2.Organizationalchange.3.Economicdevelopment.I.Title.II.Series.HB99.5.N671990302.3'5-dC209°-1673BritishLibraryCataloguinginPublicationDataNorth,DouglassC.(DouglassCecil)Institutions,institutionalchangeandeconomicperformance.-(Politicaleconomyofinstitutionsanddecisions).1.Economics.TheoriesI.TitleII.Series33°·155ISBN0-52I-39416-3hardbackrSBN0-52r-39734-0paperbackSerieseditor'sprefacePrefaceContentsPartIInstitutionsIAnintroductiontoinstitutionsandinstitutionalchange2Cooperation:thetheoreticalproblem3Thebehavioralassumptionsinatheoryofinstitutions4Atransactioncosttheoryofexchange'.5Informalconstraints6Formalconstraints7Enforcement,8InstitutionsandtransactionandtransformationcostsPartIIInstitutionalchange9Organizations,learning,andinstitutionalchange10StabilityandinstitutionalchangeIIThepathofinstitutionalchangePartIIIEconomicperformance12Institutions,economictheory,andeconomicperformance13stabilityandchangeineconomichistory14Incorporatinginstitutionalanalysisintoeconomichistory:prospectsandpuzzlesReferencesIndexvpagevivii3II172736465461738392107II8131Serieseditor~sprefaceTheCambridgeSeriesinthePoliticalEconomyofInstitutionsandDeci­sionsisbuiltaroundattemptstoanswertwocentralquestions:Howdoinstitutionsevolveinresponsetoindividualincentives,strategies,andchoices,andhowdoinstitutionsaffecttheperformanceofpoliticalandeconomicsystems?ThescopeoftheseriesiscomparativeandhistoricalratherthaninternationalorspecificallyAmerican,andthefocusispos­itiveratherthannormative.Inthischallengingtheoreticalwork,DouglassNorthexamineshowtoexplainthevastlydifferentperformancesofeconomiesoverlongperiodsoftime.AskingWhatcombinationofinstitutionsbestpermitscapturingthegainsfromtrade?,heoffersabroadperspectiveonhowinstitutionspersistandchange,supersedinghisownearlierworkonincentivesto­wardefficientinstitutions.Nowhisfocusisontheinteractionofinstitu­tions,definedasanyconstrainthumansdevisetoshapetheirinteractions,andorganizations,createdtotakeadvantageoftheopportunitiespresent­edbyinstitutionsinshapingthedevelopmentofeconomies.Theimpor­tanceofinstitutionsarisesfromthecostlinessofmeasur