The paradox of formulation of institutional changes; A systematic review

Authors

1 Department of Economics, Faculty of Administrative Sciences and Economics, Ferdowsi University of Mashhad

2 profesor

3 Department of Social Sciences, Ferdowsi University of Mashhad

4 Assistant Professor of Economics, Ferdowsi University of Mashhad

Abstract

"Economic development depends on institutional change and reform". A relative consensus on this statement has been created among economists. The main question of this research is "Where is the starting point of institutional change? What are the main actors and mechanisms of institutional change?" Many development thinkers have stopped after reaching this question, and only a handful of theories can be found regarding the formulation of institutional change. Emphasis on exogenous variables as a driver of institutional change is faced with the challenge of inaction and waiting for exogenous variables to change based on chance. On the other hand, endogenous institutional change also faces the theoretical paradox of free riding; Where, according to collective action theory, there is no reason for Citizens to participate in the process of institutional change. Therefore, both approaches, at least at the theoretical level, face challenges or contradictions.

In this article, an attempt has been made by examining and systematic reviewing of six important theories of institutional change (Hayek's evolutionary approach, North's cognitive approach, Krasner's junctures theory, institutions as equilibrium approach, Acemoglu’s political economy approach, and Roderick's self-discovery approach), To analyze them and to evaluate how they face the above paradox. The results show that the analysis of theories based on the two elements of "factor of change" and "mechanism of change" provides a good opportunity to compare theories and finally it was concluded that in terms of the fuzzy variable of the degree of endogeneity of institutional changes, it can solve the theoretical and practical obstacles in the formulation of institutional changes.

Keywords

References

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