When talking about institutional reforms, have you ever had a problem with trying to explain in a clear and simple way what institutions are? Structures, systems, rules… It can be hard to formulate a concise definition of a concept that for many remains fairly abstract. Well, seek no further – we have the answer that comes from Dr. Douglass C. North, major contributor to the field of Institutional Economics and winner of the Nobel Prize in Economics 1993. In a presentation featured on the CIPE Development Institute website, he explains:
- “Institutions are incentive systems, that’s all they are. It is important to understand that because being incentive systems, they provide a guide to human behavior.”
He discusses how a good understanding of the New Institutional Economics (NIE) is crucial to analyze the reasons for success or shortcomings of economic reforms in different countries, since this approach explains how and why reforms are affected by pre-existing institutional environments. In order to pursue successful reforms, one must first understand the limitations inherent in a given political, economic, and social system – and how they can be overcome within that particular context.
You can learn more about CIPE Development Institute here.
Published Date: January 15, 2009