The Approach of Institutional Economics - (march/1998)

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The Approach of Institutional Economics - (march/1998) por Mind Map: The Approach of Institutional Economics - (march/1998)

1. I. Introduction

1.1. § 1º

1.1.1. EN TODAY, THE TERM “new institutional economics” is in widespread use and is associated with a vast literature. Clearly, the temporal adjective in the adopted title of this broad set of postwar theories and approaches has been intended to demarcate the “new institutional economics” from the “old” institutional economics of Thorstein Veblen, John Commons, and Wesley Mitchell. This earlier institutionalism had actually been dominant in economics departments in American universities just after the First World War.1

1.1.2. PT Hoje, o termo "nova economia institucional" está em uso generalizado e está associada com uma vasta literatura. Claramente, o adjectivo temporal no título adotado desse amplo conjunto de teorias e abordagens pós-guerra tem sido destinado para demarcar o "novo quadro da economia institucional " da "velha" economia institucional de Thorstein Veblen, John Commons e Wesley Mitchell. Este institucionalismo anterior tinha, na verdade, sido dominante em departamentos de economia em universidades americanas logo após Primeira Guerra Mundial.1

1.2. § 2º

1.2.1. EN Despite this, little detailed reference has been made by leading exponents of the “new” institutional economics to this predecessor. Two factors may help to explain this oversight. The first is that the history of economic thought is currently a much neglected subdiscipline, and there is now widespread unfamiliarity with the “old” American institutionalism, despite its favored geographic location and accessible language. The second reason is that since its decline in America after 1930 the “old” institutionalism has been repeatedly written off, and is dismissed for failing to provide a systematic and viable approach to economic theory. It is also widely—and wrongly—believed that institutionalism was essentially anti-theoretical and descriptive.

1.2.2. PT Apesar disso, pouca referência detalhada tem sido feito pelos principais expoentes da "nova" economia institucional para seu antecessor. Dois fatores podem ajudam a explicar esse descuido.: o primeiro é que a história do pensamento econômico é atualmente muito negligenciada nesta subdisciplina, e não é de agora esta generalizada falta de familiaridade com o "velho" Institucionalismo norte-americano, apesar de sua localização geográfica privilegiada e linguagem acessível. A segunda razão é que, desde o seu declínio na América depois de 1930, o "velho" institucionalismo foi escrito várias vezes fora, e é descartado por não fornecer uma abordagem sistemática e viável para a teoria do desempenho econômico. É também ampla - e erradamente - acreditava-se que o institucionalismo era essencialmente anti-teórico e descritivo.

1.3. § 3º

1.3.1. EN However, characterizations of the “old” institutionalism as purely descriptive or anti-theoretical do not bear up to close scrutiny. Particularly in the writings of Veblen and Commons, there is a strong emphasis on the importance and priority of the tasks of theoretical explanation and theoretical development. Whatever their limitations, the early institutionalists addressed crucial theoretical issues.

1.3.2. PT No entanto, caracterizações do "velho" Institucionalismo como puramente descritivo ou anti-teórico não suportam um exame mais minucioso. Particularmente nos escritos de Veblen e Commons, não há uma forte ênfase na importância e prioridade das tarefas de explicações e desenvolvimentos teóricos. Apesar de suas limitações, os primeiros institucionalistas suscitaram questões teóricas cruciais.

1.4. § 4º

1.4.1. EN For example, Veblen (1899, 1919) was the first social scientist to attempt to develop a theory of economic and institutional evolution along essentially Darwinian lines (Hodgson 1993). Veblen’s work shares common features with the much later attempts by economists to use evolutionary metaphors from biology by Armen Alchian (1950), Friedrich Hayek (1988), Kenneth Boulding (1981), and Nelson and Sidney Winter (1982). In addition, Commons (1924, 1934) has been acknowledged as a major influence on, for example, the behavioral economics of Herbert Simon (1979) and even the “new” institutionalism of Oliver Williamson (1975). Institutionalists also developed a number of theories of pricing behavior in imperfectly competitive markets (Marc Tool 1991). Traces of the surviving influence of “old” institutionalist ideas are found in many other areas of theoretical and applied economics. Indeed, the influence of institutionalism persisted for some time after the Second World War.2

1.4.2. PT

1.5. § 5º

1.5.1. EN Nevertheless, there is a shred of justification for the dismissive statements. Ever since Veblen there has been a failure of the “old” institutionalists to agree upon, let alone develop, a systematic theoretical core. American institutionalism has bequeathed no integrated theoretical system of the stature or scope of that of Karl Marx, Alfred Marshall, Léon Walras, or Vilfredo Pareto. The reasons for this failure cannot be discussed here, save to note that it was not because of a naive and unsustainable belief that economics can proceed with data alone, and without any theory. Although several institutionalists put their faith in data, they all retained some degree of belief in the importance of a theoretical project.

1.5.2. PT

1.6. § 6º

1.6.1. EN The primary reasons for the failure of institutionalism lie elsewhere. In particular, the old institutionalism was partially disabled by a combined result of the profound shifts in social science in the 1910–1940 period and of the rise of a mathematical style of neoclassical economics in the depressionstricken 1930s. Behaviorist psychology and positivist philosophy displaced the instinct psychology and pragmatist philosophy upon which the early institutionalism had been built. With their use of formal techniques, mathematical economists caught the imagination of both theorists and policy makers. In comparison, institutionalism was regarded as technically less rigorous, and thereby inferior.

1.6.2. PT

1.7. § 7º

1.7.1. EN An adequate history of American institutionalism remains to be written. The purpose of the present essay is quite different. The main aims are: to outline the institutionalist approach in broad terms, and to address and evaluate a few “hard core” propositions that were prominent in early institutionalism. A key argument in this paper is that the “old” institutionalism offers a radically different perspective on the nature of human agency, based on the concept of habit. Habits and rules are seen as necessary for human action. A habit-dominated conception of human behavior not only has significant support from psychology, it is also worthy of development and further elaboration by economists.

1.7.2. PT

1.8. § 8º

1.8.1. EN In an institutionalist view, the concept of habit connects crucially with the analysis of institutions. This issue has important implications for both microeconomic and macroeconomic analysis. Some illustrative applications of this general approach are considered in both these domains, with arguments why it is important to take account of habit in human behavior. These approaches do not rely on the standard assumptions of individual rationality. However, while outlining the essentials of a broadly institutionalist approach, it is conceded that institutionalism itself requires much more theoretical and methodological development. The structure of this paper is as follows. Section II sketches how institutional economists proceed in practice. It is noted that institutionalism does not attempt to build an all-embracing, general theory. Instead, complex phenomena are approached with a limited number of common concepts and specific theoretical tools. Section III of this paper defines and elaborates the core concepts of habits and institutions, as rooted in the early institutionalist theory of Veblen and Commons. Section IV shows how much work in the “new” institutionalist vein, including the problem of “institutional infinite regress,” points to a required reformulation of the “new” institutionalist project and a possible convergence with the thinking of the “old” institutionalists. Section V considers the circumstances in which it is necessary or convenient for an agent to rely on habits and rules. Not only are habits and rules ubiquitous, but we are typically required to rely on them whether or not (bounded) optimization is possible. Section VI concludes the essay. 3

1.8.2. PT

2. II. Institutionalist Approaches to Economic Analysis

2.1. A. An Illustration: Theories of Pricing

2.2. B. Starting from Habit: Some Macroeconomic Illustrations

2.3. C. The Institutionalist Approach: Some General Remarks

2.4. D. Some Contemporary Issues in Institutionalist Theory

3. III. Some Core Characteristics of Institutionalist Theory

3.1. A. The “New” and the “Old” Institutionalisms Compared

3.2. B. Agency and Habit

3.3. C. From Habits to Institutions

4. IV. Explaining Institutions: The Problem of Institutional Infinite Regress

4.1. A. Internal Problems in Explanations Based on Given Individuals

4.2. B. Which Came First: The Chicken or the Egg?

4.3. C. Toward Evolutionary Explanations of Institutional Change

5. V. The Necessity of Habits and Rules

5.1. A. Optimization and Rules

5.2. B. The Ubiquity of Habits and Rules

5.3. C. Evolution and the Limits to Rationality

6. VI. Conclusion