A NYT piece on the Douglas North (who passed away this
week at the age of 95):
Highlights from North’s Nobel Prize lecture:
“Institutions form
the incentive structure of a society and the political and economic
institutions, in consequence, are the underlying determinant of economic
performance. Time as it relates to economic and societal change is the
dimension in which the learning process of human beings shapes the way
institutions evolve. That is, the beliefs that individuals, groups, and
societies hold which determine choices are a consequence of learning through
time - not just the span of an individual's life or of a generation of a
society but the learning embodied in individuals, groups, and societies that is
cumulative through time and passed on intergenerationally by the culture of a
society….
Institutions are
the humanly devised constraints that structure human interaction. They are made
up of formal constraints (rules, laws, constitutions), informal constraints
(norms of behavior, conventions, and self imposed codes of conduct), and their
enforcement characteristics. Together they define the incentive structure of
societies and specifically economies. Institutions and the technology employed
determine the transaction and transformation costs that add up to the costs of
production. ”