Definition
Institutions are the LAW, CUSTOMS, and TRADITIONS of a society. Institutional Economics is a discipline that focuses on the role of institutions
and evolutionary process that will
influence economic behavior. If the standard economics assume the existence of
market and government policy influence economic and trade , Institutional
Economic go deeper.
Human play under the “Rules
Of Game”
Douglas C.North is a Noble Prize for economics 1993
that study the role of Institutions.Institutionist look into the origin of the markets, how its tapping
the state and other factor encouraging economic activity such as a social condition. Douglass North sees institutions
as “humanly devised constraints that
shape human interaction”. The interaction has rules.The rules are what makes
his people act like in common.(eg. Society social code, customs, and
traditions). This was called the North’s
Institutions and run within the set “Rules Of Games”.
Evolution of
Instituition
Institution's economic study institutions
and believe that the complex relation of
the market come from various Intuitions such as Individual, firms,states,social norms and others are built from the
past.Choice in the future shape of the past.The niche area of Institutional economics is bounded rationality (Human are incapable to become rational all the
time) , learning and evolution.
Traditional Institutions,
Economics
They reject the idea of the institutional
change just because of taste, environment
and technology. The institutional nature shaped and limited by the
expectation of the future, habits, and
motivation. Things will not change if people choose to do the same thing
routinely. Those values create the world
-view.
The Importants Of Markets and Property for Norths Institutions
He mentions that Property right for the institution is an essential for economic
growth. States must guarantee the order
of the institution which going to give
power to activate property right. This power also allows states to use resources for its own benefit. The
market cannot survive without state
to monitored institution.
According to North, the state also cannot survive under anarchy. Therefore, the institution within
the state must be strengthened to strengthen the economy . The Bad institutions disrupt economic growth.While good institutions
prosper the nation.
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