What Are Institutions?

Key Definitions (I) Social structures include all sets of social relations, including the episodic and those without rules, as well as social institutions. Institutions are systems of established and embedded social rules that structure social interactions.

Key Definitions (II) Rules are understood as socially transmitted and customary normative injunctions or immanently normative dispositions, that in circumstances X do Y. Conventions are particular instances of institutional rules.

Key Definitions (III) Organizations are special institutions that involve –Criteria to establish their boundaries and to distinguish their members from nonmembers; –Principles of sovereignty concerning who is in charge; –Chains of command delineating responsabilities within the organization.

Key Definitions (IV) Habituation is the psychological mechanism by which individuals acquire dispositions to engage in previously adopted or acquired rule-like behavior.

General Notes on Institutions (I) The durability of institutions stems from the stable expectations of the behavior of others. Institutions enable ordered thought, expectation, and action by imposing form and consistency on human activities. Institutions constrain and enable behavior.

General Notes on Institutions (II) Not all social structures are institutions. –Example: demographic structures Rules include legal rules, norms of behavior and social conventions. Rules are codified because breach of rules must be identified explicitly.

General Notes on Institutions (III) Many regularities in society are not rules; they develop because of reciprocating intentions and expectations –This involves a network of mutual beliefs rather than actual agreement between individuals. –It involves approval or disapproval. –They do not imply sanctions. –These are norms.

General Notes on Institutions (IV) Rules create habits: –Habits are acquired in a social context and not genetically transmitted. –Habits are the constitutive material of institutions providing them durability, power, and normative authority.

General Notes on Institutions (V) Self-enforcement vs. External Enforcement –Informal institutions  Self-enforcement Coordination games –Formal institutions  External enforcement Prisoner’s dilemma

General Notes on Institutions (VI) The most basic institution is LANGUAGE. Agent sensitive and agent insensitive institutions –Change of preferences  Change of institutions?

Social Embeddedness Institutional Environment Governance Resource Allocationcontinuous years years ,000 years

New Institutional Economics Ronald Coase Douglas North Oliver Williamson

What Institutions? Political Legal Cultural, Religious and Social Applications to Doing Business & Reform of Institutions