New institutional economics
Also called: NIE · Topic: Schools of Economic Thought and Economic Laws · NCERT: Beyond NCERT
Meaning
New institutional economics (NIE) studies how institutions shape economic results. Institutions are laws, property rights, contracts and norms. NIE analyses them through transaction costs, meaning the costs of using the market: searching, bargaining and enforcing deals.
Its key thinkers are:
- Ronald Coase, "The Nature of the Firm" (1937): firms exist to save transaction costs (Nobel 1991).
- Douglass North: institutions are "the rules of the game" (Nobel 1993).
- Oliver Williamson (governance of firms) and Elinor Ostrom (community management of shared resources), who shared the 2009 Nobel.
Example
A company makes a part in-house instead of buying it, because repeatedly negotiating and enforcing contracts with outside suppliers would cost more. That choice is Coase's transaction-cost logic.
Don't confuse with
- Old institutional economics (Veblen, Commons): more descriptive and critical, for example Veblen's "conspicuous consumption". It did not use transaction-cost analysis.
Related concepts
- Institutional economics
- Path dependence
- Creative destruction
- Development economics
- Structuralism (development economics)
- Dependency theory
- Developmental state