institutional economics

Syllable breakdown

Dictionary meaning

a school of economic thought that emphasises the role of institutions — formal rules, laws, organisations, and informal norms, conventions, and cultural practices — in shaping economic behaviour and outcomes, in contrast to neoclassical approaches that treat markets as operating according to universal principles independent of institutional context; the original institutional economics of Thorstein Veblen, John R. Commons, and Wesley Mitchell in the early twentieth century emphasised habit, power, and social convention as drivers of economic life; the new institutional economics of Douglass North, Oliver Williamson, and Elinor Ostrom from the 1970s onward used transaction cost analysis, property rights theory, and game theory to explain how institutions emerge and evolve to reduce uncertainty and govern economic exchange; institutional economics has become central to development economics through work linking institutional quality to long-run economic performance