A History of New Institutional Economics: from Intuition to Institutionalization
Abstract: NIE is a success story by many measures: four Nobel laureates in under 20 years, increasing penetration of mainstream journals, and significant impacts on major policy debates ranging from anti-trust law to development aid. This success is remarkable for a field that took shape in the 1970’s around some relatively vague intuitions. But over time NIE’s early intuitions have been progressively transformed into powerful conceptual and analytical tools that have spawned a robust base of empirical research. NIE’s success is even more remarkable when we consider that it was divided from its birth into several distinct schools of thought. One such school of thought, identified with Coase and Williamson, has focused on property rights and contracts at the firm level. Another, identified with Douglass North, has analyzed broader institutional environments and the role of the state. These and other approaches began productive discussions and attracted new adherents with the creation of an international society, the International Society for New Institutional Economics or ISNIE. NIE’s successful institutionalization should not obscure its roots as a revolutionary paradigm. Nor should it mask NIE’s persistent divisions and the continued resistance to some aspects of its research program. This paper reviews the history of NIE including the creation of ISNIE, documents the sometimes bumpy road to its current successes, and elucidates the challenges ahead.