Linking institutions to economic performance: the role of macro-structures in micro-explanations

Abstract

Economists have been investigating the link between institutions and economic performance for several years. While econometric studies of this link have flourished, they are of limited use in understanding the causal mechanisms making some institutions responsible for economic performance. Several works using game theory and akin to the 'new institutional economics' have entertained the goal of developing micro-explanations of the institutions-performance link. Because game theory focuses on individuals' actions and beliefs, game-theoretic studies of institutions are thought to oppose more 'structuralist' explanations that downplay the role of individual agents and put more emphasis on the importance of social (or 'macro') structures. This paper demonstrates that this claim is misconceived, as the micro-explanations produced by game-theoretic models must assume already existing macro-structures. Institutions produce downward effects, shaping each agent's action. Moreover, in a game-theoretic framework, macro-structures are constitutive of individual agency since, without them, agents would often be unable to choose. I illustrate this claim with the example of Avner Greif's study of the role of cultural beliefs in the economic organisation of medieval societies. *

Meso-Level as the Essential Agent in the Formation of Inter-Subjective Relations in the Economy*

“…One of the fundamental problems of Economic Science is to determine the nature of the relationship between macrosystems and microelements. [18] Micro and macro in Economics (in contrast to the philosophical approach to the definition of the "dichotomy" term) not only do not exclude each other, but also can not be separated from each other, mutually affecting the processes that determine the topology of economic space-time and pass at an alternative level of the system hierarchy, as noted, for example, in [3, 9,19].…”

Empirical analysis of legal institutions and institutional change: multiple-methods approaches and their application to corporate governance research

“…There is also an emerging consensus around the basic elements of an integrated theory of institutions and institutional change: this would combine an analysis of micro-level interactions of agents based on evolutionary and epistemic game theory, with an understanding of the emergent properties of macro-level structures, drawing on the theory of complex systems (Aoki, 2010;Gindis, 2009;Hédoin, 2012).…”

“…The following propositions command broad assent: institutions are systems of norms or rules that set prescriptive standards for behaviour (Greif, 2006; Hodgson, 2006; North, 1990); they are characterised by varying degrees of formality, ranging from formal legal rules at one extreme to social norms and conventions at the other (Ostrom, 2005); they are functional, by virtue of reducing transaction costs associated with production and exchange (Coase, 1988; Williamson, 1985); they both reflect behaviour, in the sense of being endogenous to their context or environment over the long term (Aoki, 2007, 2010) and shape it, in the sense of constraining or channelling agents’ choices or options in the short term (North, 1990); they are stable while also displaying adaptive or evolutionary tendencies (Hodgson, 2006); they change over time but cannot straightforwardly be redesigned through conscious action (Voigt, 2013). There is also an emerging consensus around the basic elements of an integrated theory of institutions and institutional change: this would combine an analysis of micro-level interactions of agents based on evolutionary and epistemic game theory, with an understanding of the emergent properties of macro-level structures, drawing on the theory of complex systems (Aoki, 2010; Gindis, 2009; Hédoin, 2012).…”

Entrepreneurship, Transaction Costs and Cultural Background

“…Economic institutions, in the form of property rights and contractualisation, are influenced by the characteristics of trade, cultural stereotypes (Boyer & Petersen, 2012) and elements of human behaviour. Furthermore, institutions are shaping each agent's action (Hédoin, 2012).…”