The Diversity and Rapprochement of Theories of Institutional Change: Original Institutionalism and New Institutional Economics

Abstract

Understanding the complexity of institutional change is a necessary step in gaining deeper knowledge of economic performance over time, and it is one of the main challenges in the research agenda of institutionalism. Institutional change can be studied using a variety of theoretical approaches. We study some of the main approaches to institutional change in original economic institutionalism and new institutional economics. First, after comparing the approaches of Émile Durkheim and Thorstein Veblen, we focus on the contributions of the instrumental value theory and other original institutional traditions in the study of institutional change. Second, new institutional economics improved on the weak points of rational choice institutionalism regarding institutional change and incorporated the “institutions-as-rules” approach (Douglass North) and the “institutions-as-equilibria” approach (Avner Greif, Masahiko Aoki). We analyze both approaches to institutional change. Furthermore, we present an updated nonintegral overview of approaches to institutional change, show several interconnections between original and new institutionalisms, and conclude that the dialogue between the different theories of institutional change is relevant and beneficial.

Keywords:

• institutional change
• new institutional economics
• original institutionalism

JEL Classification Codes:

• B15
• B25
• B52
• O17

Notes

¹ Ayres (1918, 1944), Commons (1897, 1924, 1934), Mitchell (1910, 1913), and Veblen (1899, 1914, 1919) represent the approach of original institutionalism.

² For a comprehensive review of the original institutionalists’ conception of institutions, see W.C. Neale (1987).

³ In this sense, some works have criticized Commons for failing to give sufficient emphasis to extralegal institutions, extralegal self-organization, or spontaneous orders that do not involve legal rules (Hodgson 2003b).

⁴ See S.R. Hickerson (1987) for a deeper review of instrumental valuation in original institutional economics.

⁵ RCI assumes the following features (Hall and Taylor 1996; Peters 1999; Shepsle 2006; Weingast 1996): First, it employs a model of rationality to explain human behavior, and rational individuals that maximize personal utility are the central actors in the political process. Second, it is concerned with the problem of stability of results and of control of public bureaucracy. Third, it provides an explicit and systematic methodology for studying the effects of institutions, which are modelled as constraints on action, and it emphasizes the role of strategic interaction in the determination of political outcomes. Fourth, it is explicitly comparative, through models that compare distinct institutional constraints, with their corresponding implications in behaviors and outcomes (and through the analysis of the way behaviors and outcomes change as the underlying conditions change). Fifth, it explains the existence of institutions via the value provided to actors affected by institutions, and recently the study of endogenous institutions has yielded a distinctive theory about their stability, form, and survival. Sixth, it provides the microfoundations for macro-political phenomena, such as revolutions and critical elections.

⁶ By studying path-dependence as a social process grounded in a dynamics of increasing returns, Paul Pierson (2000) provided an analytical framework for exploring the causes and consequences of increasing returns processes from the perspective of historical institutionalism.

⁷ Institutional change is an incremental process. Nevertheless, there have been some cases in history where discontinuous institutional change took place, including some cases of conquest or revolution (North 1990a).

⁸ North’s (2005) work is an extension of NIE that goes beyond North’s (1990) theoretical foundations, which had not recognized the contributions of original institutional literature according to Dugger (1995).

⁹ Fernando Toboso (2001) presented institutional individualism as a middle way between methodological holism and methodological institutionalism, and argued that old and new institutionalists could provide institutional individualist analyses of institutional change, while retaining the methodological assumptions of their respective schools.

Additional information

Notes on contributors

Gonzalo Caballero

Gonzalo Caballero is an associate professor of economics and David Soto-Oñate is a Ph.D. candidate in economics, both at the University of Vigo (Spain). A previous version of this paper was presented at the 25th Annual Conference of the European Association for Evolutionary Political Economy (EAEPE) on November 7-9, 2013, in Paris, France. The authors are grateful to Christopher Kingston, who reviewed a preliminary version of this paper. They acknowledge the financial support of the Spanish Ministry of Economy (HAR2013-40760-R) and Xunta de Galicia (GRC2014/022). They also appreciate the comments of a reviewer and the Editor of the Journal of Economic Issues which improved this paper.

David Soto-Oñate

Gonzalo Caballero is an associate professor of economics and David Soto-Oñate is a Ph.D. candidate in economics, both at the University of Vigo (Spain). A previous version of this paper was presented at the 25th Annual Conference of the European Association for Evolutionary Political Economy (EAEPE) on November 7-9, 2013, in Paris, France. The authors are grateful to Christopher Kingston, who reviewed a preliminary version of this paper. They acknowledge the financial support of the Spanish Ministry of Economy (HAR2013-40760-R) and Xunta de Galicia (GRC2014/022). They also appreciate the comments of a reviewer and the Editor of the Journal of Economic Issues which improved this paper.