POSC 182 Lecture 8 2010

POSC 182 Lecture 8 2010 - POSC 182: Politics and Economic...

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POSC 182: Politics and Economic Policy Unit 1: Institutions Lecture 8: The Origins of Economic Institutions January 22, 2010
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So far, we have a partial explanation of long-run growth Good Institutions Long-run Growth Incentives for Productivity Institutions are the rules of the game that shape human interaction Good institutions lead to long-run growth because they provide the incentives that encourage investments in productivity (physical and human capital and technology) But, then where do institutions come from? ???
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Where Do Good Institutions Come From? Efficient Institutions (Coase) Hypothesis Efficient institutions are chosen and are allowed to persist by society Ideological Origins Hypothesis Efficient institutions that are based on belief systems (that haven’t been disproved are chosen by society) Incidental Institutions Hypothesis Historical accidents lead to different institutions Social Conflict Hypothesis Groups with political power shape institutions
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Efficient Institutions Hypothesis Hypothesis: Society chooses the economic institutions that maximize welfare (i.e. efficient) The only thing that matters is whether the institutions are efficient at addressing societies needs In this view, politics and power do not affect economic institutions Bad institutions cannot persist since political leaders will have an incentive to change them or they will be kicked out of power. The pie is maximized, but we don’t know how it will be distributed.
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POSC 182 Lecture 8 2010 - POSC 182: Politics and Economic...

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