Contrary to standard economic theory emphasising the role of individuals, ecological economists such as Daniel Bromley (2006) or Arild Vatn (2005) have highlighted the prominent role of institutions in shaping behaviours, interests and values. In so doing, they have explicitly espoused the legacy of the classical (or ‘old’) school of institutionalism originating from Thorstein Veblen, as well as, arguably, from Karl Marx, as opposed to the ‘new’ institutionalists. This heterodox economic tradition understands the economy as one of existing constructs, with all of its history and variety (as opposed to a deducted structure based on a set of axioms) determining how people/societies organize themselves to secure their sustenance. It emphasizes interdependencies and coordination phenomena.
Institutions are sometimes understood as organisations (such as the Catholic Church, the United Nations, etc.). This understanding is often found in the political sciences and is quite similar to everyday usage of the term. However, classical institutionalists (and, for that matter, ecological economists) tend to carefully distinguish between institutions and organisations. For them, organisations are agents while institutions shape agents.
For Douglas North (1990), one of the leading ‘new’ institutionalists, institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction. The ‘new’ school sees institutions as external constraints while individuals continue to be seen as autonomous. Behaviour will somehow maximize utility or satisfaction attained within these constraints and it will be, in relation to others, instrumental and/or strategic (hence the use by the ‘new’ institutionalism of competitive market and game theory models).
In contrast, the classic (or ‘old’) institutionalists regard institutions as forming individual behaviour. They simplify and offer meaning to situations. For Thorstein Veblen (1919), institutions are ‘settled habits of thought common to the generality of man’. In the same vein, Scott (1995) argues that ‘institutions consist of cognitive, normative, and regulative structures and activities that provide stability and meaning to social behaviour. Institutions are transported by various carriers – cultures, structures, and routines – and they operate at multiple levels of jurisdiction’.
These two definitions are very different. They represent each side of the divide between methodological individualist and social constructivist ontologies. In sum, a definition by an ecological economist (Vatn, 2005) that combines the most important aspects emphasized by classical institutionalists is the following: Institutions are the conventions, norms and formally sanctioned rules of a society. They provide expectations, stability and meaning essential to human existence and coordination. Institutions regularize life, support values and protect and produce interests.
Bromley, D.W. (2006) Sufficient reason: volitional pragmatism and the meaning of economic institutions. Princeton: Princeton University Press.
North, D.C. (1990) Institutions, institutional change and economic performance. Cambridge: Cambridge University Press.
Scott, R.W. (1995) Institutions and organizations. Thousand Oaks: Sage.
Vatn, A. (2005) Institutions and the environment. Cheltenham: Edward Elgar.
Veblen, T. (1919) The place of science in modern civilization. New Brunswick: Transactions Publishers.
This glossary entry is based on a contribution by Julien Francois Gerber
EJOLT glossary editors: Hali Healy, Sylvia Lorek and Beatriz Rodríguez-Labajos