Institutional Economics

Economic Approaches:

Key assumptions and aspects:

  • Main concern: Economic development
  • Economies are made up of: Individuals and institutions
  • Human beings are: Shaped by social rules, culture, instincts and habits
  • Economies change through: Changes in institutions
  • Favoured methods: Inductive statistical and qualitative analysis
  • Typical policy recommendations: Regulate capitalism and prevent corrupt and extractive practices through legal institutions and societal countervailing forces

Institutional economics arose in the beginning of the 20th century out of the desire to make economics an empirical science. Instead of assuming that people behave according to universal and ahistorical principles, they argue that people derive habits and value-orientations from their institutional environment, which they in turn influence through their interactions with other people. The economy is, therefore, studied holistically, instead of looking at isolated individuals and markets. During the interwar period, institutional economics obtained great importance. After the Second World War, however, it was pushed to the margins of the discipline by the dominance of the neoclassical synthesis. Since the 1970s, there has been an attempt, under the name of new institutional economics, to include institutions in a neoclassical framework by thinking about institutions as transaction costs minimizers. This has caused institutional economists, who do not start from neoclassical assumptions, to call themselves original or old institutional economists.


  • Institutionalist Economics on Exploring Economics, from 2016. 
  • Rethinking Economics: An Introduction to Pluralist Economics by Liliann Fischer, Joe Hasell, J. Christopher Proctor, David Uwakwe, Zach W. Perkins, & Catriona Watson, from 2018, chapter 4. 
  • Economics: The User’s Guide by Ha-Joon Chang, 2014, chapter 4.
  • A Companion to the History of Economic Thought by Warren J. Samuels, Jeff. E. Biddle & John B. Davis, from 2003, chapters 23 and 28C. 
  • Institutions in Economics: The Old and the New Institutionalism by Malcolm Rutherford, from 1999.
  • The Institutionalist Movement in American Economics, 1918-1947: Science And Social Control by Malcolm Rutherford, from 2011.
  • The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism by Geoffrey Hodgson, from 2004.