Institutionalism and new institutional economics

This article concentrates on the development of institutional economic theories which have begun to study institutions and their role in the economic development and behavior since the very end of the 19th century. Institutional theories have been a critical reaction to the almost complete ignorance of institutions in the neoclassical economics. This reaction has manifested itself in two very different forms united by the persuasion that institutions play a fundamental role in forming economic behavior and in reaching specific economic performance, and that institutions change in time and frequently react to economic factors. Earlier American institutionalism has been developing since the last decade of the 19th century in the works of Thorstein Veblen and John R. Commons and their followers. It is critical to the neoclassical economics and its methodological individualism, and considers man a social being whose behavior is formed by many social and cultural factors affecting institutions which play a decisive role in economic and social evolution. New institutional economics (property rights school or transaction costs economics) has been developing rapidly since the 60s of the 20th century. This stream of economic thought tries to modify the standard neoclassical approach by introducing institutions and their evolution. it defines institutions as rules and connects them with property rights and transaction costs. The bases of this approach can be found in the works of the Nobel Price Winners for economics R. Cease and D. North.