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15 Cards in this Set
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What is New Institutional Economics (NIE) ? |
New Institutional Economics (NIE) is a branch of economics which is related to institutions. -NIE operates within the framework of neo-classical economics, but it relaxes some of its assumptions and includes institutions as an additional constraint - It offers answers to what have remained as puzzles in neo-classical theory. -Basic premise: Institutions matter for economic performance. -Purpose: to explain the determinants of institutions and their evolution over time, to evaluate their impact on economic performance , efficiency and distribution.
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What is the difference between NIE and the “Old Institutional Economics” and the “neoclassical theory”? |
*Differences between NIE and OIE: -NIE: câu trc - OIE maintained that, economic systems evolved as a result of adjustments to existing institutions provoked by technical change. - OIE does not represent a single well-defined school of thought, methodology or program of research. *Differences between NIE and Neo-classical Economics: - NIE builds on, modifies, and extends neo-classical theory; retains and builds on the fundamental assumption of scarcity and hence competition. - However: 1. Adds institutions as a critical constraint. 2. Abandons the rational assumptions, which has made neo-classics an institutionfree-theory. Adds partial rationality assumption. 3. Recognizes the role of transaction costs as the connection between institutions and production cost. 4. Recognizes the importance of property rights. |
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Importance of NIE |
- NIE tries to reveal the way in which non-market institutions (property rights,contracts, etc...) can cope with market failures (externalities, imperfect information and public goods) - NIE is a useful tool to address policy issues in developing countries because: • Frequent occurence of market failure, incomplete/imperfect markets. • Many of the formal rules of behavior that are taken for granted in developed economies do not exist in developing countries. |
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Which branches of research exist with respect to the NIE ? (Strand of NIE) |
1. Public Choice and Political Economy → Social Capital, Economics of information 2. Transaction Costs Economics → Social Capital, Economics of information, Property Rights 3. Theory of Collective Action → Social Capital, Property Rights 4. Property rights literature → Property Rights |
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What is institutions ? What is the difference between institutions and organizations ? |
*Institutions are a set of formal and informal rules of the game in society, or more formally, are humanly devised constraints that structure human interaction. → Formal institutions: • Political rules e.g constitutions, laws • Economic rules (property rights) • Contracts → Informal institutions: • Norms of behaviour • Codes of conducts *Organizations are players or groups of individuals that have a common purpose to achieve certain objectives. -Exp • Political bodies (parties) • Economical bodies (companies) • Social bodies (churches) |
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How can institutions be enforced? |
*State enforced institutions: • State made and enforced institutions (constitution, laws, etc). • State made economic institutions (property rights, contracts). • State enforced sector specific institutions (inheritance law, land reform). *Privately enforced institutions: • Social norms (which are enforced through private sanction or private organizations (arbitral courts). • internalised norms and cultural traditions psychic sanctions (shame, bad conscience). |
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Importance of institutions |
→ limit human action in repeated interaction → particular behaviour is forbidden, encouraged or allowed. → enable reliable expectations on other players. → reduce enforcement and monitoring costs of economic transactions. |
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Explain major contents of the transaction costs theory. |
Transaction costs are costs of: 1. Searching and gathering information on the agents and goods/services. 2. Bargaining and negotiating a contract. 3. Monitoring and enforcing the contract (agreements, rules, etc...) → ICE: Information costs (Ex ante) Contracting costs (Ex ante) Enforcement costs (Ex post) |
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Importance of transaction cost economics |
– Market exchange is not costless. – Firms emerge to economize on transaction costs. – Mode of organization (firm or market) and contracts with lower transaction costs are tend to be chosen. |
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What is social capital? |
- is social organizations (norms, network, social relations, social trust) that enable people to coordinate action to achieve desired goals. |
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How to measure social capital? (Dimentions & Perspectives) |
*Measurement at the ”Micro level” -Group membership -Absence of violation -Contacts, network (*Dimensions of Social Capital: -Volunteerism -Trust -Neighborhood Connections *Perspectives of Social Capital - Bonding capital: social cohesion within the group structure → homogeneous group - Bridging capital: different communities or groups → heterogeneous group) |
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What is "Governance" and "Good Governance"? |
-Governance is more than the government. It concerns the decision-making processes in the connection between state, the private sector and civil society. -Good Governance (= gute Regierungsführung): • stable, political framework conditions • Rules of law (Rechtsstaatlichkeit) • Fighting against corruption • Democracy and participation • Responsible use of public resources and political power by the government. |
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Which available activities and measures to improve Good Governance ? |
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Explain major contents of decentralization. |
-Decentralization is the transfer of responsibilities, control, political power and resources (financial and human capital) of a central unit to local units. |
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Which 3 advantages and 3 disadvantages of decentralization ? |
Advantage: • Bottom-up instead of top-down approach ->Decision-making processes at the local level are based on local information and are thus more efficient. • Accountability, integrity, and transparency. • Monitoring and control can be more easily managed by local units. Disadvantage: •Danger of the local elite abusing public resources. • Danger of corruption. • Human and institutional capacities. |
