The Demarcation between the "Old" and the "New" Institutional Economics: Recent Complications

By Dequech, David | Journal of Economic Issues, June 2002 | Go to article overview

The Demarcation between the "Old" and the "New" Institutional Economics: Recent Complications


Dequech, David, Journal of Economic Issues


Proponents of the Veblen-Commons variety of institutionalism have distinguished this school from the so-called "new institutional economics" (NIE hereafter). Recent contributions to the Journal of Economic Issues have once again dealt with this issue. In a paper entitled "What Is the Essence of Institutional Economics?" Geoff Hodgson (2000a, 318) has listed five propositions that he considers as the core of what others have called the "old," or original, institutional economics (OIE hereafter). There is no need to repeat all these propositions here, except for proposition 5: "The notion of individual agents as utility-maximising is regarded as erroneous. [Old] Institutionalism does not take the individual as given. Individuals are affected by their institutional and cultural situations. Hence individuals do nor simply (intentionally or unintentionally) create institutions. Through 'reconstitutive downward causation' ... institutions affect individuals in fundamental ways." For Hodgson, this is "the single mos t important defining characteristic of the old institutionalism... Among other schools, the new is distinguished from the old institutional economics principally in these terms" (318). As Hodgson (325) noted, by saying this he is reaffirming what he argued in his survey of OIE and NIE (Hodgson 1993b).

In her comments on Hodgson, Anne Mayhew (2000, 331) agreed with his identification of that proposition as the defining feature of OIE. She approvingly interpreted Hodgson as "saying that what is distinctive and attractive about institutional economics is the emphasis on seeing people as cultural animals." Like Hodgson, Mayhew was also restating a point made on previous occasions. The contrast between OIE and NIE is clear when, for example, Mayhew (1989) attributed to NIE the aim of making institutions endogenous by explaining them with the tools of neoclassical theory, so that institutions are chosen by individuals and not allowed to condition individual choice.

The present paper points out the need to qualify these and similar views, while recognizing that this way of contrasting OIE and NIE was very useful when first formulated by Hodgson, Mayhew, and others and continues to be so in most cases. The paper's intended contribution is not to criticize these authors but to show that there have been recent developments that make it more complicated to distinguish between these two varieties of institutional economics. In particular, some authors associated with NIE have put forward views that indicate an incorporation of, or at least an important move toward, the very point that Hodgson, Mayhew, and others see as most distinctive of OIE vis-a-vis NIE.

The remainder of the paper is organized as follows. The first section presents a taxonomy of different types of influence that institutions have on economic behavior. In the light of this taxonomy, the second section shows that some new institutionalists have recently pointed out what I call the deeper cognitive function of institutions. In doing so, they seem to have significantly embraced the old institutionalist notion of the institutionalized individual" or "cultural animal." The third section then discusses some implications of this for the demarcation between OIE and NIE.

Institutions and Their influence on Economic Behavior

I have suggested elsewhere (Dequech 1998) that, based on the work of several institutionalists, one can identify at least three types of influence that institutions have on economic behavior. The first, which may be called the restrictive function of institutions, consists in their role as constraints on economic behavior. The second refers to what Hodgson (1988) called the cognitive function of institutions. These two functions of institutions are not totally independent of one another, since restrictions themselves can under certain circumstances be seen as information providers. …

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