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Five Propositions about Institutional Change

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Type: Working Paper
Author: North, Douglass C.
Date: 1993
Series: Economic History, no. 9309001
URI: https://hdl.handle.net/10535/3876
Sector: Theory
Subject(s): institutional change
Abstract: "The five propositions about institutional change are: 1) The continuous interaction between institutions and organizations in the economic setting of scarcity and hence competition is the key to institutional change. 2) Competition forces organizations to continually invest in skills and knowledge to survive. The kinds of skills and knowledge individuals and their organizations acquire will shape evolving perceptions about opportunities and hence choices that will incrementally alter institutions. 3) The institutional framework provides the incentives that dictate the kinds of skills and knowledge perceived to have the maximum pay-off. 4) Perceptions are derived from the mental constructs of the players. 5) The economies of scope, complementarities, and network externalities of an institutional matrix make institutional change overwhelmingly incremental and path dependent."

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