Ronald Coase Institute



Glossary for New Institutional Economics
Version: |English|Chinese Simplified|Chinese Traditional|Arabic|

 
Compiled by Alexandra Benham


|Collective Action|Commons|Contract|Corruption|Governance Structure|
|Informal Economy| Institution|New Institutional Economics|Opportunity Cost|
|Organization|Path Dependence|Property Rights|Rent-Seeking|Social Capital|
|Social Cost|Transaction|Transaction costs|


Institution
The rules of the game: the humanly devised constraints that structure human interaction.  They are made up of formal constraints (such as rules, laws, constitutions), informal constraints (such as norms of behavior, conventions, self-imposed codes of conduct), and their enforcement characteristics.
Ref

New Institutional Economics
Incorporates a theory of institutions into economics. It builds on, modifies, and extends neoclassical theory. It retains and builds on the fundamental assumption of scarcity and hence competition - the basis of the choice theoretic approach that underlies microeconomics.
   It has developed as a movement within the social sciences, especially economics and political science, that unites theoretical and empirical research examining the role of institutions in furthering or preventing economic growth. It includes work in transaction costs, political economy, property rights, hierarchy and organization, and public choice.  Most scholars view the work of Ronald Coase as a central inspiration for the field.
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Organization
A group of individuals bound by some common purpose to achieve objectives. Organizations include political bodies (political parties, regulatory agencies), economic bodies (firms, trade unions), social bodies (churches, clubs), and educational bodies (schools, universities).  
   Note that the term "institution" refers to the rules of the game, whereas "organization" refers to players of the game.
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Transaction
A transaction occurs when a good or service is transferred across a technologically separable interface.
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Transaction Costs
The costs of resources utilized for the creation, maintenance, use, and change of institutions and organizations. They include the costs of defining and measuring resources or claims, the costs of utilizing and enforcing the rights specified, and the costs of information, negotiation, and enforcement.
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Property Rights
There are two distinct meanings:  economic property rights and legal property rights. The economic property rights of an individual over a commodity or an asset are the individual's ability, in expected terms, to consume the good or the services of the asset directly or to consume it indirectly through exchange. These can include (1) the right to use an asset, (2) the right to earn income from an asset and contract over the terms with other individuals, and (3) the right to transfer ownership rights permanently to another party.
   The legal property rights are the property rights that are recognized and enforced by the government.
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Governance Structure
1. A system of rules plus the instruments that serve to enforce the rules.
2. The explicit or implicit contractual framework (including markets, firms, and mixed modes) within which a transaction is located.
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Contract
A legally enforceable agreement.  It is a formal, legal commitment to which each party gives express (though not necessarily written) approval and to which a particular body of law applies.
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Social Cost
An actor (business firm, individual, etc.) initiating an action does not necessarily bear all the costs or reap all the benefits of that action. Those that the actor does bear are the private costs; those that the actor does not bear are the external costs. The sum of these two is the social cost.
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Collective Action
Actions taken by two or more people, comprising a group or organization, in pursuit of the same collective good
a good such that, if any member of the group consumes it, it cannot feasibly be withheld from the others in the group.
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Commons
A scarce resource used in common, from which it is not feasible to exclude potential beneficiaries from using or consuming it, and for which each actor's use or consumption of it subtracts from its availability to others.
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Social Capital
1.Features of social organizations, such as trust, norms, and networks, that can improve the efficiency of society by facilitating coordinated actions.
2. An attribute of an individual in a social context. Social capital is determined by a) the individual’s connections - whom he/she knows, and common group memberships, b) the strength of these ties, and c) the resources available to these various groups. It can be acquired partly through purposeful actions and can be transformed into conventional economic gains.
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Informal Economy
Economic actions and activities conducted outside the legal framework of society.  The activities or products may in themselves may be legal, but they are conducted in a way which disobeys specific legal provisions, such as registration with the government, payment of taxes, and so on.
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Corruption
Behavior which deviates from the formal duties of a public role because of private-regarding (close family, personal, private clique) pecuniary or status gains; or violates rules against the exercise of certain types of private-regarding influence.
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Rent-Seeking
The outlay of resources by individuals and organizations in the pursuit of rents created by government.
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Opportunity Cost
The evaluation placed on the most highly valued of the rejected alternatives or opportunities when a choice is made. It is the value that is given up in order to secure the higher value that selection of the chosen object embodies.
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Path Dependence
A condition that exists when the outcome of a sequence of economic changes can be significantly influenced by temporally remote events, including happenings dominated by chance elements rather than systematic forces.
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Sources (terms listed alphabetically)

Collective Action
Mancur Olson (1965), The Logic of Collective Action: Public Goods and the Theory of Groups, Cambridge, MA: Harvard University Press, p. 1, p. 14.

Commons
Elinor Ostrom (1990), Governing the Commons, Cambridge: Cambridge University Press, p. 2, p. 6.

Contract
Scott E. Masten (2000),
Contractual Choice, in Encyclopedia of Law and Economics, Volume III. The Regulation of Contracts, Boudewijn Bouckaert and Gerrit De Geest, eds., Cheltenham: Edward Elgar, p. 25.

Corruption
Joseph S. Nye (1967), Corruption and Political Development: A Cost-Benefit Analysis, American Political Science Review, 61 (2): 417-427.

Governance Structure
Eirik G. Furubotn and Rudolf Richter (1997), Institutions and Economic Theory: The Contribution of the New Institutional Economics, Ann Arbor: The University of Michigan Press, p. 5.
Oliver E. Williamson (1981), The Modern Corporation, Journal of Economic Literature 19 (4):1537-1568, p. 1544
.

Informal Economy
Hernando de Soto (1989), The Other Path, New York, Harper & Row, p. 12.

Institution
Douglass C. North (1994),
Economic Performance Through Time, Nobel prize lecture, December 19, 1993. Also published in The American Economic Review, 84 (3): 359-368,
p. 360.

New Institutional Economics
Douglass C. North (1992),
The New Institutional Economics and Development, Washington University in St. Louis, p.1.
John Nye (2004), personal communication.

Opportunity Cost
James M. Buchanan (1987), Opportunity Cost, in The New Palgrave: A Dictionary of Economics, John Eatwell, Murray Milgate, and Peter Newman, eds, London: Macmillan Press, volume 3, pp. 718-721.

Organization
Douglass North (1990), Institutions, Institutional Change and Economic Performance, Cambridge: Cambridge University Press, p. 5.

Path Dependence
Paul A. David (1985),
Clio and the Economics of QWERTY, American Economic Review 75 (2): 332-337, p. 332.

Property Rights
Yoram Barzel (1997), Economic Analysis of Property Rights, Cambridge: Cambridge University Press, second edition, pp. 1-2.
Thrainn Eggertsson (1990), Economic Behavior and Institutions, Cambridge: Cambridge University Press.

Rent-Seeking
Anne O. Krueger (1974),
The Political Economy of the Rent-Seeking Society, The American Economic Review, 64 (3): 291-303, p. 291.
Gordon Tullock (1998),
The Fundamentals of Rent-Seeking , The Locke Luminary Vol. I, No. 2 (Winter 1998) Part 2.

Social Capital
Robert D. Putnam (1993), Making Democracy Work, Princeton: Princeton University Press,
p. 167.
Pierre Bourdieu (1986), Forms of Capital, in Handbook of Theory and Research for the Sociology of Education, John G. Richardson, ed., Westport, CT: Greenwood Press, pp. 241–60. Discussed in
Joel Sobel (2002),
Can We Trust Social Capital?, Journal of Economic Literature 40 (1):
139–154, p. 139.

Social Cost
Ronald Coase (1960), The Problem of Social Cost, Journal of Law and Economics 3:1-44.

Transaction
Oliver E. Williamson (1996), The Mechanisms of Governance, Oxford: Oxford University Press, p. 379.

Transaction Costs
Eirik G. Furubotn and Rudolf Richter (1997), Institutions and Economic Theory: The Contribution of the New Institutional Economics, Ann Arbor: The University of Michigan Press, p. 40.


|Collective Action|Commons|Contract|Corruption|Governance Structure|
|Informal Economy| Institution|New Institutional Economics|Opportunity Cost|
|Organization|Path Dependence|Property Rights|Rent-Seeking|Social Capital|
|Social Cost|Transaction|Transaction Costs|





  ALSO SEE
  About New Institutional Economics
  NIE Terms Translated

  Reading List - Introductory
  Reading List - North & Nye 2003
  Links and Resources




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