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Abstract:
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"The new economics of institutions is a Tower of Babel, a field in search of a common language. A standard definition is lacking even for common terms such as institutions and organizations (often used interchangeably) or transaction costs. Studies of common pool resources frequently open with a lament about the confusion over the exact meaning of the term common property. Many critics of the economics of institutions appear to be confounded by the approach, which they often see as assuming (or concluding) that all institutional change enhances wealth, and that all actors contract on an equal basis which leaves no room for power, exploitation and discrimination. It is claimed also that the economics of institutions ignores culture, ideology and history. Below we take a small step toward order by attempting to integrate the central concepts of institutional economics and putting them in a behavioral context. We conduct the exercise in an appropriate mood of humility, realizing that one-user standards have little value.
"The approach that we advocate is based on the rational choice model, a theoretical tool which shares with democracy the status of both being roundly criticized and lacking any superior alternative. The rational choice approach is more general than often is recognized; it only involves the assumption that actors act consistently with their preferences when faced with alternative opportunity sets."
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