The Old and the New Institutionalism in Economics

Abstract

As the limitations of mainstream neoclassical theory became increasingly evident during the post-war period, there occurred a remarkable expansion of research activity in modern institutional economics. Not only did the quantity of institutionally oriented research and writing grow over time but, in addition, modern institutional economics began to secure recognition as a distinct and significant area of study.¹ Nevertheless, it is important to realize that neoinstitutionalist scholars do not speak with one voice, and that the boundaries of the field have not been established with great precision. This is so, in part, because modern institutionalism was not developed in systematic fashion by individuals sharing a common vision, or by those who saw themselves as engaging in a bold new movement designed to bring about a revolutionary approach to economic theory. Rather, theoretical advance took place largely through innovative work in particular sub-fields such as: transactioncost economics, property-rights analysis, law and economics, constitutional economics, etc. Indeed, during the formative years of what we now call the New Institutional Economics, the writings produced in the various specialized areas tended to be rather diverse in style and methodology as well as in content. And, even today, there are real divisions among scholars about how best to treat institutional and organizational questions in economics. Of course, shared intellectual ground does exist. At a fundamental level, the core element that binds different groups of neoinstitutionalist researchers together is the conviction that orthodox neoclassical analysis is overly abstract and incapable, without some modification, of dealing effectively with many problems of interest to theorists and policy makers.