Evolution of an Institutionalist Economist's Research Program

Mahdavi, Abulqasim; Aghdam, Ali Nasiri

Evolution of an Institutionalist Economist's Research Program

Authors

¹ Associate Professor, Faculty of Economy, University of Tehran

² Research Assistant Professor, Jehad Danishgahi of Faculty of Economy, University of Tehran

Abstract

The purpose of this paper is to investigate the evolution of Douglass Cecil North's
research program. Our study indicates his plan has been directed by this question:
What are the effective factors on the success or the failure of the economies and why
the performances of economies are so different? Realizing the strong effect of
institutions on economic performance, in 1970s North conducts several studies
about institutions, economic growth and change. However, because of his reliance
on the tool box of neoclassic economics, he could not explain the inefficiency of
institutions which govern the economies worldwide. Therefore he abandons the idea
of efficient institutions, substitutes the assumption of bounded rationality for
instrumental rationality, follows the concept of path dependence, and presents a
model to explain inefficient institutions and weak economic performance. In
subsequent decades North tends in a gradual manner to cognitive science, goes
beyond the assumption of bounded rationality, and instead of emphasizing on
the computational aspect of cognition emphasizes on the connectionist aspect
of cognition. North believes it is the ideologies of the individuals that, during
years and in a cumulative way, determine the individual choice and the path of the evolution of economic systems. Therefore, without understanding the process of cognition, it is not possible to obtain a correct understanding of economic changes.

Keywords