Topics in New Institutional Economics (Econ 529) Douglass North and John Nye Washington University in St. Louis, Spring 2003

Textbooks for the course are

Alston, Lee J., Eggertsson, Thrainn, and North, Douglass C., eds. Empirical Studies in Institutional Change, Cambridge: Cambridge University Press, 1996. (=AEN) Drobak, John and Nye, John, editors, Frontiers of the New Institutional Economics, Academic Press 1997 (=DN) Furubotn, Eirik G. and Richter, Rudolf, Institutions and Economic Theory: The Contribution of the New Institutional Economics, Ann Arbor, Michigan: University of Michigan Press, 1998

Part I: Nye

A.

Economic Theory and the New Institutional Economics

1. Science, methodology, the role of observation, and the need for a broader conception of theory

Feynman, Richard P., Leighton, Robert B., and Sands, Matthew, The Feynman Lectures on Physics, Addison-Wesley, 1963, excerpts Introduction and first two chapters, North, D. C., “Prologue,” and Fogel, R. W., “Douglass C. North and Economic Theory,” in DN McCloskey, Deirdre, “Rhetoric of Mathematical Formalism,” Chapter 10 of Knowledge and Persuasion in Economics, Cambridge: Cambridge University Press, 1994

2. Basics

What are institutions? Relationship to microeconomic theory of variables and to macroeconomic theory of variables How do institutions change?

Alston, Lee J., Eggertsson, Thrainn, and North, Douglass C, “Introduction,” in AEN Eggertsson, Thrainn, “A Note on the Economics of Institutions,” in AEN Alston, Lee J., “Empirical Work in Institutional Economics: An Overview,” in AEN Furubotn and Richter, Chapter 1

3. Do economists know that institutions matter?

Rodrik, Dani, Subramanian, Arvind, and Trebbi, Francesco, “Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development,” NBER Working Paper 9305, 2002 Keefer, Philip and Shirley, Mary M., “Formal versus Informal Institutions in Economic Development,” in Claude Menard (ed.), Institutions, Contracts, and Organizations: Perspectives from New Institutional Economics, Cheltenham, UK: Edward Elgar, 2000

B.

Political Economy Public Choice, Property Rights, and Political Science

Libecap, Gary, “Economic Variables and the Development of the Law,” in AEN Ensminger, J., “Changing Property Rights: Reconciling Formal and Informal Rights to Land in Africa,” in DN Weingast, B. R., “The Political Foundations of Limited Government: Parliament and Sovereign Debt in 17th- and 18th-Century England,” in DN Krueger, “Anne O., “The Political Economy of Controls: American Sugar,” in AEN Higgs, Robert, “Legally Induced Technical Regress in the Washington Salmon Fishery,” in AEN Furubotn and Richter, Chapter 3

C.

Implications of New Institutional Economics for Economic History

Hoffman, P. T. and Rosenthal, J.-L., “The Political Economy of Warfare and Taxation in Early Modern Europe: Historical Lessons for Economic Development,” in DN Greif, A., “On the Interrelations and Economic Implications of Economic, Social, Political and Normative Factors: Reflections From Two Late Medieval Societies,” in DN North, Douglass C. and Weingast, Barry R., “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England,” in AEN Nye, John, War, Wine, and Taxes, work in progress, excerpts

D.

New Institutional Economics and the Analysis of Political Struggle War and Conflict in Economic Perspective Unsolved Problems, New Speculations

Nye, J.V.C., “Thinking About the State: Property Rights, Trade, and Changing Contractual Arrangements in a World with Coercion,” in DN Alston, L.J., Libecap, G.D., and Mueller, B., “Violence and the Development of Property Rights to Land in the Brazilian Amazon,” in DN Furubotn and Richter, Chapters 6 and 9 Schofield, Norman, “Institutional Innovation, Contingency and War: A Review” in Social Choice and Welfare17 (June 2000), 463-479 Schofield, Norman, “Constitutional Political Economy: Rational Choice Theory and Comparative Politics,” Annual Review of Political Science 3 (July 2000), 277-303 Nye, John, “Killing Private Ryan: An Institutional Analysis of Strategy and Military Procurement in World War II,” work in progress

E.

A Brief Introduction to Managerial Issues in Organization

Miller, Gary, Managerial Dilemmas: The Political Economy of Hierarchy, Cambridge: Cambridge University Press, 1992, excerpts Williamson, Oliver E., The Mechanisms of Governance, New York: Oxford University Press, 1996, excerpts Furubotn and Richter, Chapters 2, 5, 8

Part II: North

A.

The Process of Economic Change

1. Rationality, cognition, and choices

North, Douglass C. and Knight, Jack, “Explaining Economic Change: The Interplay Between Cognition and Institutions,” Legal Theory 3:3 (1997) North, Douglass C. and Denzau, Arthur T., “Shared Mental Models,” Kyklos 47:1 (1994), 3-31 Clark, A., “Economic Reason: The Interplay of Individual Learning and External Structure,” in DN David, P.A. and Sanderson, W.C., “Making Use of Treacherous Advice: Cognitive Process, Bayesian Adaptation, and the Tenacity of Unreliable Knowledge,” in DN

2. Belief systems, culture, and cognitive science

North, Douglass C., “Hayek’s Contribution to Understanding the Process of Economic Change,” in Viktor Vanberg, editor, Freiheit, Wettbewerb und Wirtschaftsordnung, Freiburg i.Br.: Rudolf Haufe Verlag, 1999 Vanberg, “Cultural Evolution, Collective Learning, and Constitutional Design” 1994 in: Reisman, D., editor., Economic Thought and Political Theory, Boston: Kluwer Academic Publishers, 1994, 171-204

3. Institutional change

Heiner, Ronald A., “The Origin of Predictable Behavior,” American Economic Review 73:4 (September 1983), 560-595 Cox, Gary W. and McCubbins, Mathew D., “The Institutional Determinants of Policy Outcomes,” in Haggard, Stephan and McCubbins, Mathew D., editors, Presidents, Parliaments, and Policy, Cambridge: Cambridge University Press, 2000 North, Douglass C., “A Transactions Cost Theory of Politics,” Journal of Theoretical Politics 2:4 (1990), 355-367

4. The process of economic change

North, Douglass C., “Institutions,” Journal of Economic Perspectives 5:1. (Winter 1991), 97-112 Eggertsson, Thrainn, “Norms in Economics, with special reference to Economic Development,” in Hechter, Michael and Opp, Karl-Dieter, editors, Social Norms, New York: Russell Sage Foundation, 2001, pp. 76-104 Greif, Avner, “Cultural Beliefs and the Organization of Society: A Historical Reflection on Collectivist and Individualistic Societies,” Journal of Political Economy 102:5 (October 1994), 912-950

B.

Economic Development

North, Douglass C, Summerhill, William, and Weingast, Barry R., “Order, Disorder, and Economic Change: Latin America vs. North America,” in Bueno de Mesquita, Bruce and Root, Hilton, editors, Governing for Prosperity, New Haven: Yale University Press, 2000 Haber, Stephen, Introduction and Chapter 3 in Haber, Stephen, editor, Introduction to Political Institutions and Economic Growth in Latin America, Stanford: Hoover Institution Press, Stanford University, 2000 Three case studies: Russia, China, and Venezuela