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North (1994)Management > Comparative Management > Lectures > Independent Research > North
North (1994) - Institutions"Institutions are social structures and social mechanisms of social order and co-operation governing the behaviour of two or more individuals." (Wikipedia.org) Neo-classical economics assumes we live in a "frictionless and static world", where everyone is rational and information is freely available to everyone. They do not consider the element of institutions or time. North believes that learning process of humans shapes the way institutions evolve. That is, the "the beliefs individuals, groups and societies hold which determine choices are a consequence of learning through time". Institutions are split into two categories:
Institutions determine the transaction costs of a firm. Coase (1937) first made the connection between institutions and transaction costs. "Only under the conditions of costless bargaining will the actors reach the solution that maximises aggregate income...when it is costly to transact, then institutions matter" (Relates to game theory).
Institutions and organisations
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