3.4 North and Institutions

3.4 North and Institutions - 3-4.According to Nobel Prize...

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Unformatted text preview: 3-4.According to Nobel Prize winner Douglass North, institutions are endogenous if we take a long run view. Yet, initial conditions seem to persist over time. Explain and analyze the question of institutional persistence in history and discuss its implications.(Class note 11/17; Reading Engerman and Sokoloff; Institutions, institutional change, and economic performance Douglass Cecil North)Douglass Norths position Institution Endogenous (long-run view)-Institutions exist due to the uncertainties involved in human interaction; they are the constraints devised to structure that interaction. Institutions vary widely in their consequences for economic performance; some economies develop institutions that produce growth and development, while others develop institutions that produce stagnation.-Institutions create the incentive structure in an economy, and organizations will be created to take advantage of the opportunities provided within a given institutional framework. North argues that the kinds of skills and knowledge fostered by the structure of an economy will shape the direction of change and gradually alter the institutional framework. Institutional development may lead to a path-dependent pattern of development. -What made the economic development path of Western Europe unique includes change in the size of markets and change in the relative product and factor prices, which are fundamental institutional changes towards productivity raising economic activities.-Example: political institutions in England in 17th centuryoEngland was under monarchical rule and evolved into a parliamentary democracy in order to control on the exercise of arbitrary and confiscatory power by the Crown. New institutions produced a marked increase in the security of property rights (Institutional changes)...
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This note was uploaded on 04/19/2010 for the course ECON 0430 taught by Professor Arroyoabad during the Fall '10 term at Middlebury.

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3.4 North and Institutions - 3-4.According to Nobel Prize...

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