In contrast to traditional welfare economics, new institutional economics has made a major contribution to analyzing institutions as both preconditions and elements of economic activities. By including institutions’ incentives and restrictions on human beings, it has made a significant first step toward the further development of economic science. The usual starting point, however, is a world without uncertainty where so‐called “anomalies” from “rational” behavior cannot occur; but in this world, institutions are not necessary either. Related research demonstrates the relevance of factors like intrinsic motivation, internalization of norms, habit formation, etc., but these characteristics are typically treated in a half‐hearted way as mere anomalies. Instead, it is time to take the full second step and to include the effects of institutions on economic actors as well as to take the third step, namely, to consider the fact that economic agents form institutions. We exemplify these further steps and look on the interaction between institutions and economic actors which leads to a general institutional economics.
International Journal of Social Economics – Emerald Publishing
Published: Mar 1, 2003
Keywords: Economics; Institutional analysis; Motivation; Transaction costs