Product Description

Continuing his groundbreaking analysis of economic structures, Douglass North develops an analytical framework for explaining the ways in which institutions and institutional change affect the performance of economies, both at a given time and over time. Institutions exist, he argues, due to the uncertainties involved in human interaction; they are the constraints devised to structure that interaction. Yet, institutions vary widely in their consequences for economic performance; some economies develop institutions that produce growth and development, while others develop institutions that produce stagnation. North first explores the nature of institutions and explains the role of transaction and production costs in their development. The second part of the book deals with institutional change. Institutions create the incentive structure in an economy, and organizations will be created to take advantage of the opportunities provided within a given institutional framework. North argues that the kinds of skills and knowledge fostered by the structure of an economy will shape the direction of change and gradually alter the institutional framework. He then explains how institutional development may lead to a path-dependent pattern of development. In the final part of the book, North explains the implications of this analysis for economic theory and economic history. He indicates how institutional analysis must be incorporated into neo-classical theory and explores the potential for the construction of a dynamic theory of long-term economic change. Douglass C. North is Director of the Center of Political Economy and Professor of Economics and History at Washington University in St. Louis. He is a past president of the Economic History Association and Western Economics Association and a Fellow, American Academy of Arts and Sciences. He has written over sixty articles for a variety of journals and is the author of The Rise of the Western World: A New Economic History (CUP, 1973, with R.P. Thomas) and Structure and Change in Economic History (Norton, 1981). Professor North is included in Great Economists Since Keynes edited by M. Blaug (CUP, 1988 paperback ed.)

Product Details

• Amazon Sales Rank: #77589 in Books
• Published on: 1990-10-26
• Original language: English
• Binding: Paperback
• 159 pages

Review
"At a time when economic and political institutions are being reformed and replaced all over the world, North's book is required reading for all social scientists and policy makers." T.N. Srinivasan, Yale University

"North here draws upon the literature concerning the formation of economic institutions...to ask significant questions about differences among economies across time and space...This is an exciting and stimulating work, and one that will leave its mark upon the work of economic historians. It will also be important for political scientists and other social scientists, to learn the message and relevance of an influential strain of non-mainstream economic thinking." Stanley Engerman, University of Rochester

"In a careful but wide-ranging analysis grounded in rational-choice theory, he stresses the ways in which institutional arrangements, once adopted, may lead quite rational actors to behave in ways that are collectively suboptimal." Paul Pierson, World Politics

Customer Reviews

Incentiv-creating institutions
The puzzle of the modern world is not that so many people are poor, but that so many are wealthy. How do democracies, with well-defined property rights and education for all com into place? In this Nobel prize winning work, North investigates some issues overlooked by most economists: the role of a society's institutions, defined as formal and informal constraints, varying from written laws to vague values (but important nevertheless) in a society. Economic theory is not able to explain the great differences in wealth between nations, argues North, and that is certainly a shame, because that would be the most interesting explanation it could possibly make. The solution is to include institutions into economic analysis.

Institutions determine transaction costs. In neoclassical economic theory, transaction costs are usually assumed to be zero (for reasons of comfort). North assumes transaction costs to make up half of the economy in a modern well-organized Western society with efficient institutions. A major reason for developing countries to be poor is that transaction costs are prohibitive, obstructing the benefits of trade.

North asks some extremely important questions in this book, but I was a bit disappointed that he didn't offer more answers. English not being my natural tongue, I found the book a bit hard to read. However, being very interested in the subject, I found it well worth the effort. Without a major (interest) in economics, you should probably enjoy some of the reviews instead. North's main answer to the main question, by the way, is that countries will prosper if the incentives created by their institutions motivate production, and not redistribution.

Most comprehensive book ever
Douglass North is an amazing writer. If you are purchasing this book, you probably already know what this book is about and its impact. This book, I would argue is largely responsible for his receiving the Nobel Prize in 1993.

His new-institutionalist view links together history, economics, political science, sociology, and every other social science. This book truly inspired me to specialize in institutional economics. Every social issue can be approached from the institutional perspective, namely that institutions determine actions and the market determines institutions. Though my professors are all old institutionalists, they agree this is the best book by far on the subject and most research papers in the subject thus reference this book.

For more information on New Institutional Social Science, visit the website at http://cniss.wustl.edu/people.html

Important for all social scientists and interesting for all
As a Japanese, I am interested in how North�fs concept �ginstitutions�h are useful for explaining the gap in performance of the US and Japanese economy during the 1990s. What kinds of policy prescriptions can the Japanese government derive from North�fs argument on institutions?
Institutions are the constraints or mechanisms (such as rules on property rights) to reduce uncertainties inherent in human interaction and thus to reduce transaction costs. As a extreme case, you will find it difficult to make a long-term economic transaction or commitment in Baghdad just after Iraq�fs defeat in the war with the US, since there are no institutions in that particular moment.
Broadly, this concept is related to the argument by Christopher Freeman at SPRU on �gnational system of innovation,�h especially on norms and rules on intellectual rights, and generation and transfer of technological knowledge enabled by those norms and rules. I think the US system is superior on that.
My point is that this already classic book would be valuable for thinking on those topical issues.