Political And Economic Institutions In Society

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Register to read the introduction… If we base the description of each type on North’s definition for institutions, political institutions are the “rules of the political game” and are those that determine in a society the distribution of political power and the way that political power changes hands. Examples of political institutions are electoral rules, accountability, political stability, rule of law, number of veto players, presidential or parliamentary system, years in office etc. Similarly economic institutions can be defined as the “economic rules of the game” and are those that determine economic opportunities in societies. Examples of economic institutions are property rights, the type of credit arrangements, commercial law etc. In addition economic institutions influence economic activities as they shape incentives and have significant impact on investments and production. Acemoglu et al. (2005, pg. 392) provides a figure of how political institutions interact with economic institutions and affect economic performance. The relationship is described in Figure 1 …show more content…
One institution (e.g. property rights, rule of law etc.) is established when the costs are less than the benefits that the groups are facing. So if the current conditions in societies are beneficial for a certain group, while are negative for another, these two groups can negotiate and through this to change the institutions, increasing in this way the total surplus. According to this view the differences in institutions between countries arise from the different characteristics that each country has, meaning that no right or wrong institutions exist, but only efficient or not, because while an institution may create significant benefits for a country or a society, it might have the opposite effect on another. The second view is “the social conflict view”. Following this view the institutions may appear as choices of groups, but the major difference with the first view is that instituions are not necessarily efficient. This view, origins from the idea that institutions are shaped mostly from the social groups that hold political power and these groups are making choices in order to increase their own benefits, so in some cases the emerging institutions may not maximize the total surplus. Avner Greif (2008) offers an example with the analysis of the origin of constitutionalism. Greif (2008) emphasized on the fact that constitutionalism evolved from the need of the ruler for administration, in other words for a group of people to implement policies and monitor the society. This group of people acquired administrative power – political power – and so was able to negotiate with the ruler, disregarding the non-elite. Furthermore all the institutions that evolved afterwards were protecting and improving the benefits of the elite. Third one is “the ideology/beliefs view”, which

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