Organizations and Markets

Aoki on North

16 April 2008 at 10:37 pm Peter G. Klein 1 comment

 | Peter Klein |

Masahiko Aoki’s contribution to a forthcoming North symposium, “Understanding Douglss North in Game-Theoretic Language,” is available on SSRN. North’s 1990 book Institutions, Institutional Change and Economic Performance, writes Aoki,

laid the foundation for New Institutional Economics by conceptualizing institutions as the rules of the game, pointing out the vital importance of effective enforcement and arguing for the crucial roles they play in determining economic performance. Thus it became a seminal book. But if the rules of the game are so crucial, then why doesn’t a lagging economy emulates the rules that prevail in more advanced economies? Why cannot the rules of the game be changed and enforced by emulation? It seemed that in his [1990] book North regarded it as the essential role of polity to change and enforce the (formal) rules of the (economic) game. But in his view, political markets are imperfect and inefficient so that better rules cannot be emulated/devised or enforced as desired. Thus a further question is raised regarding how rules of political games are determined. This problem of potential infinite regression needs to be answered by going back in historical time to the past. Thus history matters to our understanding of institutions and thus the performance of an economy. . . .

In [Understanding the Process of Economic Change, 2005], particularly in Part I, he has made critical progress toward understanding to the nature of this process. He is now more explicit and vocal about the evolutionary nature of institutional change. . . . He innovatively focuses on the evolution of belief systems that human agents hold, arguing that we perceive the “human landscape,” interpret it, discover problems within it and intend to solve them. In this way, we collectively and incrementally change the societal rules of the game. In other words, we may say that there is a coevolution of belief systems and institutions.

See also reviews of the newer book by Alex Field, Stefan Voigt and Stanley Engerman.

Entry filed under: - Klein -, Evolutionary Economics, Institutions, New Institutional Economics.