North (1991) - Institutions

Jump to navigation Jump to search
Has bibtex key
Has article title Institutions
Has author North
Has year 1991
In journal
In volume
In number
Has pages
Has publisher
©, 2016


North, Douglass (1991). "Institutions", Journal of Economic Perspectives pdf


Institutions are the humanly devised constraints that structure political, economic and social interaction. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights). Throughout history, institutions have been devised by human beings to create order and reduce uncertainty in exchange. Together with the standard constraints of economics they define the choice set and therefore determine transaction and production costs and hence the profitability and feasibility of engaging in economic activity. They evolve incrementally, connecting the past with the present and the future; history in consequence is largely a story of institutional evolution in which the historical performance of economies can only be understood as a part of a sequential story. Institutions provide the incentive structure of an economy; as that structure evolves, it shapes the direction of economic change towards growth, stagnation, or decline. In this essay I intend to elaborate on the role of institutions in the performance of economies and illustrate my analysis from economic history.