The new institutionalism

Over the last 40 years, new institutionalism has gradually emerged as an important subdiscipline of economics. This field of “transaction cost” economics offers elegant insights into the world of business and economic history and, in the last 20 years, has strongly influenced the study and practice of economic development. The tradition is underpinned by the simple insight that organizational hierarchies and institutions are crucial to the functioning of market economies. This entry explores the emergence of this field from a specific problem within mainstream or neoclassical economics and how it developed separately from an earlier, much more critical institutional economic tradition. It also suggests that this “old” institutional school, based in heterodox economics, offers at least as many valuable insights as the new variety and that the possibility of a rapprochement between the two traditions should be encouraged and nurtured.