Institutional factors of economic changes: Development trajectories of Douglas North’s theory

Abstract

The present article considers the contribution of Douglas North to general institutional economic theory with a special emphasis on the research of institutional factors of economic changes. It has been revealed how agents’ interaction models are formed and how institutions influence the agents’ behavior and change their models. It is especially important, that D. North's conclusions and their development in modern economic theory result in the emergence of the so-called institutional macroeconomics and being a scientific discipline it explains economic changes on long intervals of evolution. The main emphasis in the article is put on two D. North’s works: “Institutions, Institutional Changes and Economic Performance” (1990) and “Understanding the Process of Economic Change” (2005). The advantages and possible disadvantages of the new institutional approach by D. North that is devoted to a long interval of social evolution have been demonstrated. In particular the formal informal institutions relations have been discussed as well as compulsion mechanisms that according to D. North belong to special institutions that play a significant role in the description of institutional changes at long time intervals have been considered. The role of a government and government regulation mechanisms have been studied based on the compulsion mechanisms to observe the rules and norms in economy. We study the connection between transaction and transformation costs that are conventionally considered independently in the frameworks of a new modern institutionalism. The authors’ attitude to technologies as special and rather stable institutions at particular time periods has been proven. This attitude is opposite to the view that institutions and technologies are interconnection factors of institutional changes according to D. North. From the authors’ point of view the model approach by D. North provides restricted representation of institutional changes of complex social and economic model. Moreover, there is a redistribution of weights of change factors and D. North’s theory is not able to determine the regularities in the weights change. In its turn the introduction of the trust factor by G. Akerlof and R. Shiller is not a sufficient decision as different social institutions have macroeconomic importance. These institutions predetermine economy development and trust forms that are formed between some agents. For example, technologies are such institutions and processability of economy as a system predetermines its economic dynamics and demand for the change of some institutions into the others-institutional changes regime. Thus the task under consideration is difficult and has not been solved in economics yet. The opportunity to solve the above mentioned challenges using the postulates of “institutional macroeconomics” as the scientific analysis branch has been founded.

Keywords

Douglas North’s theory, institutional macroeconomics, institutions, compulsion mechanisms, agents, trust, institutional changes, transaction costs, technology

For citation

Popov E.V., Sukharev O.S. Institutional factors of economic changes: Development trajectories of Douglas North’s theory. Perm University Herald. Economy, 2017, vol. 12, no. 3, pp. 338–359. DOI 10.17072/1994-9960-2017-3-338-359

Acknowledgements

The authors appreciate the editorial staff of the scientific journal “Perm University Herald. ECONOMY” for the publication of the article, dedicated to the memory of Nobel laureate in economy Douglas North.

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