Institutions, Transition Economies, and Economic Development

Institutions, Transition Economies, and Economic Development

Institutions, Transition Economies, and Economic Development

Institutions, Transition Economies, and Economic Development


Why are some nations wealthy while others are desperately poor? Why, when technology is advancing rapidly, can these poorer nations not catch up? This book explains the New Institutional Economics and relates it to the economics of Poland and Russia.


A nation's institutional framework is the most important factor determining its economic performance through time. Yet in economic theory, the role of institutions has been treated superficially at best and most often ignored completely. Recently research in the fields of institutions, transaction costs, and information has rapidly been working its way into "mainstream" economics. A revolution in economic theory is under way, one that will permanently expand the way that economists think about the performance of real-world economies.

One of my reasons for studying economics was to understand the huge disparity in standards of living across countries. As a graduate student, I sat through many economic theory courses discussing Pareto efficiency and various versions of Rational Expectations models. I had a sense that what I was learning was not applicable to a real-world economy. Furthermore, these theories contributed nothing whatsoever to my understanding of economic disparities across countries. Then I took Douglass North's course on the New Institutional Economics. This theory of institutions and its conception of the role that institutions play in determining economic performance seemed grounded in reality and went to the heart of my questions.

I was excited about what I was learning. Economics as a social science was now able to convincingly explain real-world events. Ever since, as an instructor, I have attempted to integrate the New Institutional Economics into my classes. This has not been an easy task. The main obstacle is that there is no book on institutions written specifically for undergraduate students. This book fills that gap. It is intended for use in upper-level undergraduate courses in any course on institutions, economic development, transition studies, or comparative economic systems. Because the book is targeted primarily to undergraduates, difficult economic concepts are explained thoroughly. However, the book's readership need not be limited to undergraduates and academics. It can be read and easily understood by anyone interested in the question of why some nations are wealthy while most are poor.

The New Institutional Economics provides a broad theoretical framework for analyzing and explaining economic performance. Despite some . . .

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