Institutions Program Overview

Our program examines how governance institutions shape political and economic behavior, economic, political, and social development, and the effectiveness of public policies. As well, we examine how governance institutions themselves are shaped by political and economic actors and processes. Governance institutions include both formal types (e.g., constitutions, laws, and regulations) and informal types, (e.g. norms and culture) for each form influences behavior in the economic and political arenas and in turn is shaped by economic and political practices.

One of our main foci is to first understand how the incentives from institutions lead to different economic and political paths of development for countries around the world. The grand question that motivates several scholars in our program is: Why isn't whole world developed economically and politically? Despite the well-intentioned actions of lenders such as the World Bank, very few countries have broken from their past. It is a puzzle because we know the ostensible institutional determinants for making countries prosperous: active political competition, where the winners do not punish the losers nor do people take to the streets with guns when their side loses; and active economic Schumpeterian competition, where companies and individuals reap profits from their creativity rather than through who they know. Before we can shape useful policy, we must understand the forces at play for maintaining the status quo or promoting change. Understanding the role of institutions leads to better policy prescriptions that will aid in economic, social, and political development.

Scholars in our program are also motivated to understand the micro foundations of institutional analysis. The theoretical foundations at the micro level come from an understanding and analysis of the negotiation, monitoring, and enforcement costs of contracting across individuals and firms, as well as within firms and households. Without a better understanding of the micro determinants of transaction costs and their impact, we cannot fully understand why there is not more cooperation in order to reap the benefits from what is seemingly mutually advantageous exchange. At the macro and micro levels of institutional analysis, scholars examine differences either over time within an economic or political entity, or across economic or political entities. The testing of hypotheses entails using both qualitative and quantitative evidence. Like in a court of law, some determinants are not readily quantifiable but nevertheless can be analyzed with a body of circumstantial evidence.

Understanding the institutional determinants of political and economic outcomes is especially relevant today. Institutional analysis holds the key to analyzing many of the world's most pressing problems. For example: What is causing increasing income inequality in the U.S.? How do increased concentrations of wealth translate into political clout? Why is the Euro zone under threat of collapse? Why have most African nations failed to develop economic and politically? What accounts for the rapid rise of Brazil and China? Why is it is so difficult to establish and maintain international cooperation to deal with global issues such as trade and environment? The answers to these questions cannot be found with cultural or geographic endowment explanations. If culture and geography were the prime determinants of economic and political outcomes, North and South Korea would be equally developed, as would Sonora (Mexico) and Arizona. Understanding the determinants of institutions will generate policy implications to help us "nudge" institutional change in directions to promote human well being. Understanding and measuring the outcomes of institutions will allow us to better assess the costs of dysfunctional or poor institutions, which in turn can help generate policy reform.