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The New Institutionalism: Contradictory Notions of Change Author(s): Anil Hira and Ron Hira Source: American Journal of Economics and Sociology, Vol. 59, No. 2 (Apr., 2000), pp. 267-282 Published by: American Journal of Economics and Sociology, Inc. Stable URL: http://www.jstor.org/stable/3487905 . Accessed: 09/10/2011 11:08
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New Institutional Economics

The New Institutionalism:

Contradictory Notions of Change
By ANIL HIRA and
RON HIRA*

ABSTRACT. This article suggests that the new institutionalism contains ambiguous and contradictory notions of change. By setting up a model that explains institutional constraints on decision makers, the new institutionalism correctly points out the limits of a rational choice framework of economic decision making. However, by failing to explain the sources and avenues of modifications of those constraints, the new institutionalism is unable to provide a satisfactory explanation of change. Instead, we find a patchwork of exogenous factors, such as technology, culture, and ideology, which feed into institutional change in unclear ways. This paper reaches the conclusion that those factors for change should be examined directly, ratherthan through the proxy of institutions.

Introduction THENEW INSTITUTIONALISM is a relatively new theoretical perspective that

has reached increasing levels of acceptance among social scientists. The rise of the new institutionalism can be seen as a historical modification of rational choice perspectives that became fashionable in the social sciences starting in the 1970s, though the two perspectives are intimately linked to the "behavioralrevolution" of a decade earlier.
*We would like to thank the editor and Patricia Hira for help in improving this piece. Anil Hira is an international trade analyst for the U.S. International Trade Commission. Ron Hira is a Ph.D. candidate at George Mason University's School of Public Policy. of Economics American Journal and Sociology,Vol. 59, No. 2 (April,2000). ? 2000American of Economics Journal and Sociology,Inc.

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Any political scientist who consults the leading journal of the profession (in terms of overall reputation and difficulty of publication), the American Political Science Review, will find him- or herself inundated with rational choice perspectives. Political scientists, then, seem to be moving in the direction of attempting to found a "scientific"basis to their art, just as economists did earlier in the century. The basis of this revolution is attractive in the sense that rational choice perspectives seem to allow for a "universalization" of individuals' political actions, just as a market-based model allows for the aggregation of individuals' economic behavior. More importantly, rational choice models also seem to allow political scientists to come closer to the scientific "holy grail"of the social sciences, namely some measure of predictability of behavior. However, despite some clear, albeit limited, successes in terms of voting behavior models, this ambitious endeavor has faced important theoretical obstacles that are helping to prevent its universalization as a political science model. While these problems have been discussed extensively elsewhere,1 let us remind readers of just a few: precisely defining interests, when both material and non-material influences create them; explaining the effects of identity, culture, and politics on interests and decision-making; and last but not least, explaining the dynamics of decision-making. The argument of this commentary is that the new institutionalist perspective in economics only partially solves some of the problems of the rational choice perspective. More importantly, we suggest that, ironically, the new institutionalism's salving modifications of rational choice actually bring up the most important arguments against it.
II New Institutionalism's Attempt to Save Rational Choice

AS A BRANCH OF ECONOMICS INSTITUTIONALISM dates back at least to the be-

ginning of the twentieth century. "Old"institutionalistsbelieve in path dependency (i.e. the importance of historical context), the autonomy of institutions, evolutionary economics, and a holistic approach to economics, that is, one that considers cultural and political factors of motivation, interaction, and organization. Institutionalists of the old school are now branded by mainstream economists "as whimsical ad-

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vocates of an unrealistic and basically empirical research programme which posed no challenge to the classical or neoclassical hegemony."2 By contrast, the new institutionalism draws greater legitimacy because of its roots in (traditional) neoclassical economic theory. Rather than seeking to replace neoclassical economics, the new institutionalists wish only to modify the rational choice, utility-based neoclassical model by relaxing some of its assumptions. The new institutionalism focuses on the central assumption of zero transactions costs in neoclassical economic models as the main gap to be filled. New institutionalists therefore seek to integrate institutional analysis within a neoclassical economic framework and to include institutional change as an important variable to be studied.3 Douglass North, a recent Nobel Prize winner (1993), is the most important proponent and theoretician of the new institutionalism. North points out that some of the standard and necessary assumptions of rational choice models are questionable. He notes that preferences are not always transitive (their intensities change over time and they are not in a stable order over time), and that "framing effects" (in which alternate means of presenting a problem result in different choices), preference reversals ("where the order of the choices on the basis of their reported values contradicts the implied ordering in direct choice situations") and ". . . problems in the formulation, manipulation, and processing of subjective probabilities in uncertain choices" also exist.4 Given the incompleteness of information and the need to develop regularized behavior in the face of an ever-changing reality and largely unique situations, patterns of behavior develop. North suggests that institutions consist of these regularized interactions. In other words, for North an institution embodies and guides patterns of behavior.5 North defines institutions as "the rules of the game in a society," or the constraints that shape human interaction.6Unlike standard neoclassical models, institutions are considered to be independent variables in their own right, limiting individual rationality, and affecting the courses of societies. Through institutions, history makes its impression on society, constraining future choices.7 Differences in institutions, moreover, are the primary reasons for differences in economic outcomes. By implication, some institutions in some countries are

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more efficient in reaching social outcomes, which explains, ceteris paribus, why some countries enjoy higher standards of living than others. Organizations are groups of individuals bound by a common purpose to achieve objectives, and are formed within an existing institutional framework. Nonetheless they act as agents of institutional change, by exploiting the margins of institutional frameworks.8 Organizations have different objectives, in line with their different "mental models," but the most important cue for their behavior is the incentive structure set up by institutions. The new institutionalism gives economic (rational) reasons for the existence and role of institutions in societies-namely, to reduce transaction costs by internalizing them and by setting up standard rules of action. Ronald Coase explains that firms internalize some of the normal market transaction costs, such as uncertainty and lack of reputation, that exist between independent actors and agents.9 Transaction costs cover a wide variety of other costs of production and sales that are normally assumed away in standard economic theory, but may, in many cases, prove significant to the ultimate price of the good. The costs that are identified most frequently as transaction costs are information costs, risk costs, waiting costs, and the costs of retailing or using a middleman. Perhaps the most important factor affecting transaction costs is the nature of property rights in a society. New institutionalists believe that changes in the institutional arrangements of property rights can have profound effects on economic outcomes; Armen Alchian and Harold Demsetz use the enclosure acts in Great Britain as one example.10 For the new institutionalism, then, as well as collective action theories, the establishment and enforcement of private property rights are vital to the costs of transaction and to providing the security needed for long-term investments. The absence of property rights, or the ability to enforce them at low cost, is a principle cause of underdevelopment.1" Therefore, how transaction costs are handled by societies plays a major role in determining the societies' economic growth rates.12 One aspect of this, common to most collective action theories as well as to institutionalism, is the need for selective incentives and enforcement. Incentives and enforcement ensure compliance with institutional rules. According to North, information on violations and the

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need for mechanisms of efficient punishment, which are public goods, are vitally important in order to ensure low-cost transacting. Adequate enforcement allows for elaborate contracts.13 The state, as the central provider of economic rules and their enforcement, becomes a crucial actor in this scheme. For the new institutionalists, the state is an autonomous entity, rather than being a medium where diverse interest group coalitions are formed and negotiate. It is therefore able to shape the maximizing preferences of organizations as well as itself being shaped by their behavior. Preferences and meanings thus develop over time, "througha combination of education, indoctrination, and experience. [Preferences]are neither stable or exogenous." Another important modification of rational choice perspectives is that the new institutionalismviews leaders as transformingpreferences and co-opting other leaders into new beliefs and commitments, rather than simply brokering coalitions. The autonomy of institutions means that they are able to affect the distribution of resources, rather than simply reflect it. Institutions shape decisions by presenting a restricted set of policy alternativesto leaders, affecting the rules of the political and economic interactions and contracts, and by developing reputations for power. History, or the rules of experience, affect "the duty" of political intercourse. Each event is affected by its antecedents, ratherthan being a unique outcome of concluded bargains, thus leading to "pathdependency. " Political actors consider institutional rules in making their decisions, since these rules affect reputation, not simply personal preferences. Bargaining may be continuous, with conflict deferred, so that political decisions may be temporary compromises rather than negotiated decisions. Symbols are, furthermore, shared rituals that affect and are affected by behavior and political meaning, and that ensure political stability through shared meaning and consensus.14 The new institutionalists also include considerations of ideologies, altruism, and self-imposed standards of conduct in models of individual behavior as informal constraints on behavior. North believes that these aspects come into play only when the material costs of the related behavior are low. He also believes that culture is another neglected aspect of human behavior from rational models, and defines it as the passing, from one generation to the next, of knowledge, values, and other factors that affect human behavior. Culture also provides a

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language-based conceptual framework for interpreting sensory images. Informal constraints reduce transactions costs, such as the costs of information (to monitor compliance) and measurement. North uses religious zealotry as an example of culturally-based and non-material behavior. By contrast, formal rules are contracts set in the political, economic, and social systems and are explicitly defined.15 The new institutionalist school seems to solve several problems of the rational choice model without destroying its primary structural foundations. While we retain the image of autonomous individuals pursuing their interests, we add the interesting factors of path dependence (history); the value and importance of stable rules for behavior, which might explain why short-term irrationalchoices are made; and the effects of culture and ideology in shaping preferences. The danger in this approach, of course, is that the bandages applied here may actually point to fatal weaknesses in the rational choice model, rather than salving a few wounds or "anomalies."
III The New Institutionalism: How Its Explanation of Change Brings Out Its Own Weaknesses

mortality of both the rational choice model and the new institutionalism can be pointed out by examining any of the more ambiguous factors of human behavior that the new institutionalism seeks to incorporate via the medium of institutions: culture, ideology, irrationality, or history. We will present just one critique of the new institutionalism based upon this last factor, namely how it explains change. The new institutionalists explain institutional change in two ways.16 First, institutions change in reaction to new economic factors, reflected in changes in relative prices and tastes. Second, entrepreneurs (who can be either organizations or individuals) exploit openings within the institutional system, resulting in innovative change. The ultimate sources of change in these factors, however, are exogenous to the model. Changes in relative prices and tastes affect incentives. Relative prices are held to result from changes in factors or productivity.
IN FACT,the

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Changes in tastes, however, have sources unknown to North. Both types of changes affect the bargaining power of interested parties, thus changing the institutional contracts among them. North postulates that violence due to the inability to compromise may result from the lack of mediating institutions, limited degrees of freedom of political representatives from their constituents, and the inability to form a winning coalition. "Broad based support for violent action requires ideological commitment to overcome the free-rider problem." He also postulates that change may be continuous or evolutionary and discontinuous or revolutionary, though the latter is usually related to the former.17 The problem here is that the institution itself, in this case the state, is given a monopoly of violence in order to enforce contracts and/or compromises supposedly freely entered into by the interested parties-a self-contradiction. From this perspective, how could we explain a violent change in the state or in the bargaining within a state, or even the autonomous acts of repression of a state upon powerful interest groups? In other words, how the new institutionalists explain changes in the "rules"themselves is crucial to explaining the sources of independent power of the rules and the institutions that embody them.18 In fact, North believes that there are two main factors in understanding the dynamics of institutional change. The first is the symbiotic relationship between institutions and organizations revolving around the incentive structureprovided by the institutions. The second is the feedback process by which individuals perceive and react to changes in the opportunity set. In other words, the sense of the firstrelationship is that organizations optimize in accordance with their environment. For example, steel companies in a country that receive subsidies for hiring personnel hire more employees and spend part of their subsidy to lobby institutions to continue, and perhaps increase, those subsidies. The second factor, the feedback process, results in entrepreneurial activity producing incremental change in the institutional framework. Individuals attempt to modify the institutional system at the margins in order to improve their outcomes.19 Entrepreneursexist because of the transactions costs for information between individuals and their true optimization strategy. In simpler terms, individuals maximize their opportunities in a system given limited information (and some individuals

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are able to discern more opportunities than others, thus demonstrating entrepreneurial potential). In summary, over time organizations and individuals act more efficiently in an institutional framework, in the process altering the framework itself. Therefore, the incentives to innovate, which are critical to economic growth, are positively or negatively affected by the institutional environment. North uses the example of property rights, which allow for patents to show how innovation is incentivized.20 In other words, the institutional structure can affect the degree of risk that entrepreneurs are willing to take and the amount of attention paid to advancing knowledge in the society as a whole. The lack of an environment which encourages innovation and cooperation, along with path dependence, is thus responsible for underdevelopment.21 However, the new institutionalistsmust explain why some societies, seeing the inefficiency of their own institutions, do not simply imitate the more optimal institutions of their successful peers in order to approximate those rates of economic growth. Instead, income and growth differentials persist over long periods of time, resulting in a more or less stable hierarchy of successful and unsuccessful countries (in terms of economic growth). In this case, new institutionalists invoke "pathdependency," but do not specify exactly how it works. We need to know when and how such changes occur to understand this factor. At the same time, sudden changes often occur in spite of (or outside of) institutions and the incentives they supposedly center around, such as the fall of the Eastern Bloc or even just the overthrow of a ruler. The fact of the matter is that changes may come from groups outside the system. Marginalized groups, either created by the rules or exogenous to the system, can make claims upon the institutions of a society in the forms of informal lobbying, manifestations, or simple resistance. Finally, the main partners who are interest group foundations of the existing institutional structures can change in identity, interest, or power over time. For example, Third World governments have been able to liberalize their economies over the last two decades, despite the heavy losses to the previously protected domestic partners that this change entailed. Third World military governments and dictators have, in recent decades, also been under pressure from previously marginal groups (out-

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side of the institutional structure), such as "the mothers of the disappeared" in Argentina. The diminution of labor as a factor throughout the world economy defies simple explanation by evolutionary trajectory, changes in decision-making processes of institutional structures, or even the introduction of new technologies. The new institutional model also ignores ubiquitous exogenous shocks such as economic crises. The model ignores basic changes in primary identities as well. For instance, the identity of gender has undoubtedly changed over time, changing the claims and expectations of "normal"and institutional behavior. The overarching question of change lies, of course, in the new institutionalists' explanation of economic growth. Here too, the school of thought seems to fall short. North believes that the Third World is generally characterized by an institutionalframework that favors redistributive,monopolistic, and opportunity-restrictingactivities, rather than productive, competitive opportunity-creatingones.22 Organizations in this environment will maximize in ways unproductive to the society's long-run interest. In North's model, organizations always improve in efficiency;23yet in an unproductive framework, such improvements translate into increasingly dysfunctional social outcomes. This scenario, of course, is analogous to the problems presented by collective action, though in the organization-national relationship rather than in the individual-organization nexus. In sum, the new institutionalistsattempt to explain change as the result of entrepreneurship, and states as embedded in culture a set of focal points or rules promoting change in certain directions. The example of state-led development in East Asia as opposed to private sector leadership in U.S. and Western European economic growth, as well as stateled stagnation in Latin America and Africa, however, lead us to conclude that the sources of change differ from society to society and from situation to situation. In other words, there is no one set of rules or focal points we can identify as inducing "productive change." Moreover, most Third World countries can hardly be characterized as having excess redistributionof assets; if anything, the opposite is probably true. North states that there are two fundamental challenges in creating efficient institutions: aligning informal with formal constraints and "creatingand maintaining a polity that will support adaptively efficient institutions."By the former, North means that people judge the system

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to be fair, hence lending an informal stability to the formal rules and reducing the collective action problems. For the latter, North refers to the needs for transparency and accountability in reducing the information costs of the voter.24 However, we would contend that, given resource and status hierarchies, there are always oppositions between formal and informal acceptance of the rules of a game. These oppositions open the way for continual dynamism in living rules-we live in a world of contradictions, which opens the way for marginal exploitation of what is "legitimate."On a more superficial level, how do we know which comes first: economic growth leading to cooptive stability and acceptance of the rules of economic behavior, or the stability as a prerequisite for growth? Even only examining Western long-term economic growth as the new institutionalists do, we cannot reach any clear conclusion on this matter. Moreover, even in the evoked case of change by organizations making new demands on institutions, or working in "the margins,"the new institutionalism fails to explain exactly what is the relationship between organizations and the institutional framework. Organizations probably have differential influence on different issues, and constraints on action may equally depend on other factors, such as the international environment or public opinion. In emphasizing the "rules of the game," the new institutionalism underplays the importance of power, position, and prestige in manipulating or ignoring those rules. In addition, the new institutionalism also underestimates the importance of personality. One person, such as Park of South Korea or Pinochet of Chile, can make an enormous difference in economic outcomes without being a policy entrepreneur. We should say instead it is a combination of power and entrepreneurship that leads to changes in the rules of the game. The rate of change is yet another problematic feature. Sudden changes in economic welfare or in institutions, as in the case of the East Asian miracle economic growth, would seem to be especially challenging to North's gradualistic approach, and in fact, he leaves aside the problem of acceleration of changes. In some cases in history, small changes, such as the foundation of the abolitionist movement in the U.S. in the nineteenth century, seem to have profound effects in leading to other movements for change and in affecting or constrain-

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ing the process of future institutional change. In line with this example is the problem of cataclysmic change. One example of this type of change in the long run is the effect of the Vietnam War on the symbolism of the U.S. government both at home and abroad. Underlying these uncertainties is the problem of defining an institutional framework, its staying power, and the power of organizations to change it. Another problem in operationalization is defining social goals in order to determine the (dis)functionality of an institutional framework. While Bangladesh, for example, probably has institutional and organizational weaknesses, it also suffers from a variety of natural and external pressures, such as floods and commodity prices. Perhaps one should also extend "path dependence," or the constraints of history, onto the present ideology of people, to natural resource development, and to external constraints. Especially important here is the downplaying of the role of ideology and culture in determining and defining the efficiency of institutions, which may differ from one time and space to another. Finally, North and the new institutionalists tackle the problem of technological change in a limited and rather strange way. To be sure, North acknowledges the importance of technological change when he states, "Changes in technology ... provided the fundamental driving force for increasing incomes." He then also says, "Ratherthan viewing institutional change as a way of implementing technical change, our framework allows for institutional change to be an important and indeWhile one can understand North's argupendent source of growth."25 ment that the relationship between technical and institutionalchange is complex and interdependent, he ignores more direct causes of technological change, such as individual breakthroughs or inventions. Moreover, if one analyzes firm behavior and outcomes more closely in the technology arena, one can make the argument that luck and chance also play a large part in the rewards to particulardevelopments. How else can one explain the fact that Microsoft rather than IBM benefited the most from the development of IBM's personal computer? One might argue that Bill Gates was more entrepreneurial than his IBMcustomers, but it is doubtful that he was able to even imagine the outcomes of his exploratory process. This furthermore underscores the importance of Bill Gates' personal attributes, rather than any institu-

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tional framework per se. Finally, technological innovation economists also reject the notion that the technological entrepreneur or firm exhibits maximizing behavior.26 To be sure, the new institutionalists, particularly North, would respond that they do allow for other factors as sources of change, namely changes in technology, increases in knowledge and population, and the informal constraints of ideology, norms, and culture.27 But while North evokes the need to better understand these phenomena as sources of institutional change, they still remain ambiguous residual factors in the new institutional model.28 The view of culture as "a series of focal points" hardly does justice to the many and ambiguous ways in that culture is defined. Furthermore,culture seems to contain contradictions, such as income redistribution to the needy and simultaneous espousal of equality of opportunity, as well as complementarities which can serve as organizing points. In fact it is the very ambiguity of cultural norms that allows for innovation, rather than a set of stable rules that opens the way for entrepreneurship. One need only think of the diversity of religious interpretation to understand the ambiguity of rules and guidance. Our examination of the new institutionalism leads us to conclude that institutions are just proximate sources of change. Since a host of phenomena, particularly technology, entrepreneurship, culture, ideology, and norms, are the factors that change institutions (or show how institutions reflect stability at a given time), why not study these factors directly?29
IV

Conclusion

accelerating the quantification of human behavior through rational choice models, some cracks are beginning to appear on the engine of "econometricsization" of the social sciences. Institutionalism, both old and new, brings some of these problems to the forefront. Institutionalists point out that human behavior must be considered at the aggregate, not just the individual level. It is difficult to explain why group forces had nothing to do with the Iranian soldiers-martyrsduring the 1980s Iran-Iraqwar. If martyrdom is self-maximizing in an altruistic sense, then anything can be

WHILE MUCHOF SOCIAL SCIENCE is

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defined as self-interest. If indeed anything can be defined as self-interest, just what does self-interest explain or predict? While the new institutionalists attempt to explain innovation as entrepreneurship, they fail to explore the way in which both complementarities and contradictions in social systems, rather than simply an "enabling"environment, allow for innovation. Perhaps the most important point that new institutionalistsbring out is that increasing the size of organizations can increase efficiency by reducing transaction costs, such as the costs of uncertainty between a principal and an agent. This seems quite counterintuitive to traditional economic thinking with its emphasis on competition, and to the new institutionalists' own statements on the importance of entrepreneurship. More importantly, it explains a crucial basis for hierarchy in all social institutions-the benefits of stability and predictability of behavior. Yet, this new truism of the benefits of hierarchy brings to the forefront new and exciting issues as yet unresolved. For example, just how are we to know or measure the efficiency of a hierarchy that reduces transactions costs with a more decentralized organization which has higher costs but is more flexible, innovative, and adaptive? Institutionalism also yields insights into class and group conflict. From a neo-Marxist point of view, the institution of the state is a tool of the dominant class(es). The institutional framework itself, then, can be used by the dominant classes to preserve the status quo through presenting differential opportunities, rules, and regulations to different individuals and groups. In other words, institutions can dominate and shape social interactions. The new institutionalism therefore clearly incorporates power, which is largely absent as a variable in traditional non-Marxist economics. In short, institutions are extremely powerful tools of system maintenance and legitimization. Despite these insights, if we take seriously the new institutionalism's features of path dependence, the importance of context, and group norms, we can hardly maintain an individual actor-based, rational choice-type of model. In modifying the assumptions of rational choice models and introducing the seed of relativity, i.e., the relative uniqueness of situations, the new institutionalism fails in its attempts to improve rational choice models and loses their virtue of predictive power. We are inevitably led to call for an entirely new model of hu-

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man behavior that incorporates, but goes beyond, the new institutionalism. Future models should explicitly define and delineate the true ultimate sources of institutional change, namely changes in culture, ideas, and social practice, and then we can turn to how they relate to the institutional and preference changes that result from them.30
Notes 1. See, for example, Jane J. Mansbridge, ed., Beyond Self-Interest,Chicago: The University of Chicago Press, 1990. 2. ChristerGunnarsson, "Whatis New and What is Institutional in the New Institutional Economics? An Essay on Old and New Institutionalism and the Role of the State in Developing Countries." Scandinavian Economic History Review 39 (1991), 50. 3. Ibid., p.60. 4. Douglass C. North, Institutions, Institutional Change and Economic Performance, New York: Cambridge University Press, 1990, 18. 5. Ibid., pp. 21-26. 6. Ibid., p. 3. 7. A good summary of North's theoretical framework is found in North, "A Theory of Institutional Change and the Economic History of the Western World," in Michael Hechter, ed., The Microfoundations of Macrosociology, Philadelphia: Temple University Press, 1983, pp. 190-215. 8. Ibid., p. 5. 9. Ronald Coase, "The Nature of the Firm,"Economica 4 (Nov. 1937): 386405. 10. Armen A. Alchian and Harold Demsetz, "The Property Rights Paradigm," Journal of Economic History 33 (1973), 22. 11. One of the few examples of an application of new institutionalism to a specific case of underdevelopment is De Soto's study of Peru. See Hernan De Soto, The Other Path: The Invisible Revolution in the Third World, New York: Harper and Row, 1989. 12. North, Institutions, p. 7. 13. Ibid., pp. 57-8. 14. James G. March and Johan P. Olson, "The New Institutionalism:Organizational Factors in Political Life," The American Political Science Review 78 (1984), 734-744. 15. Ibid., pp. 41-47. 16. A good summary of North's thoughts on the matter are found in North, "Five Propositions about Institutional Change," in Jack Knight and Itai Sened, Explaining Social Institutions, Ann Arbor:University of Michigan Press, 1995, pp. 15-26. 17. Ibid., pp. 83-90.

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18. We would go even further and say that the definition of the state used by North is far too limited. The state is not just the arbiter of the rules of the game, but also the embodiment of the leadership, hopes, myths, and overall identity of the population as a whole. See North, "A Theory of Institutional Change," pp. 198-200. 19. Ibid., pp. 7-8. 20. Ibid., p. 75. 21. Ibid., p. 130. 22. In fact, we believe the major errors of the new institutional model probably arise from an exclusive focus on Western history, where institutions and rules have been more closely linked to economic development. North's work has exclusively examined Western, namely American or Western European, case studies. 23. Ibid., p. 9. 24. See North, "The Ultimate Sources of Economic Growth," in Explaining Economic Growth:Essays in Honour ofAngus Maddison," NY: North-Holland, 1993, pp.70-73. 25. Douglass C. North and John J. Wallis, "IntegratingInstitutional Change and Technical Change in Economic History: A Transaction Cost Approach," Journal of Institutional and TheoreticalEconomics 150/4 (1994), pp. 609411. 26. Richard R. Nelson and Sidney G. Winter, An Evolutionary Theory, of Economic Change, Cambridge, MA: Harvard University Press, 1982, p. 14. 27. Though the new institutionalists evoke these other factors, they still emphasize the primacy of property rights and institutional arrangements in setting growth rates. See North, Structure and Change in Economic History, p. 17. 28. Though North lays out some basic hypotheses about ideology, they are not incorporated into his model. This is rather confusing, since he continually calls for "a positive model of ideology." See Structure and Change, pp.49-58, "Five Propositions," and "Ideology and Political/Economic Institutions," Cato Journal, 8:1 (Spring/Summer 1988), pp. 15-28. He does note in at least one place that "diverse ideologies stem from either diverse geographic origins or from occupational specializations." (North, "ATheory of Institutional Change," p. 197.) It hardly needs stating that the origins, dynamics, and mechanics of ideology are considerably more complex in nature than this would imply. See Malcolm Rutherford, "The Old and the New Institutionalism," Journal of Economic Issues, 29:2 (June 1995), pp.444-51 and James L. Curtis, "Structureand Change in the Political Economy of Douglass North,"Administration and Society, 16:4 (Feb 1985), pp.512-517, for additional commentary. 29. It is strange that the new institutionalists, including North, often refer to the effects of ideology and culture in their case studies, but do not clearly incorporate them into their theoretical framework. For an example of a case study along these lines, see Avner Grief, "On the Interrelations and Economic Implications of Economic, Social, Political, and Normative Factors: Reflections from Two Late Medieval Societies," in John N. Drobak and John V. C. Nye,

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The Frontiers of the New Institutional Economics, NY: The Academic Press, 1997, pp. 57-94. 30. In my book, I try to lay out a first step model of how ideas affect economic policy. See Anil Hira, How Ideas Affect Economic Policy in Latin America: Regional, National, and Organizational Models, Westport, CT: Green-

wood Press, 1998.