Douglass North's Theory of Institutions: Lessons for Law and Development

Abstract

This paper offers a critical overview and assessment of North's work on institutions and economic change, focusing on aspects of his work that are of interest to law and development scholars. It examines North's approach to institutions through his historical work focusing on his concept of credible commitment and his interpretation of the effect of the Glorious Revolution on property rights, focusing especially on the role he assigns to property rights in bringing about the Industrial Revolution. The paper also examines North's theory of institutions focusing on three main issues: the pervasive influence of the principles of neoclassical economics; the focus on an end-point model based on successful Western economies; and the failure adequately to account for the role of organizations in the process of change. Finally, the paper discusses the role of law in North's theory. The objective of this section of the paper is to clarify whether law, according to North is a protagonist in the process of institutional change or is merely a by-product of changes taking place elsewhere in society.

Contextualizing speed and cross-border acquisition performance: Labor market flexibility and efficiency effects

“…New institutional economics (NIE) examines the role of institutions in developed economies on economic growth (Faundez, 2016). As defined by Douglas North, an architect of NIE, institutions are the "rules of the game" in society that constrain human interaction (North, 1990).…”

“…Legal regulations set boundaries, even though multinational firms develop capabilities in dealing with institutions that are transferable (Carney et al, 2016). Limited transferability from institutions and capabilities displaying path dependency (e.g., Faundez, 2016) likely has an impact on choices for the speed of integration in cross-border acquisitions.…”

Assessing the Intention to Provide Human Genetic Resources: An Explanatory Model

“…A study by Changli and Xiaodong [29] showed that policy support can influence users' intentions to use balance treasure by directly influencing subjective norms. Policy and system are constraints that are artificially designed and shape people's interactions and exert important influence on personal beliefs, attitudes, and social behavior [30]. When making human genetic resource provision decisions, providers are not only affected by relatives and friends around them, but they are also affected by policies and institution.…”

Foreign direct investment and institutional stability: who drives whom?

“…A study by Jun and Singh (1996) concluded that institutions do not have a substantial impact in promoting FDI. Besides, the Douglas North approach discusses the role of institutions in economic growth and investment (Faundez, 2016). According to North, institutions affect economic growth by increasing or decreasing transaction and production costs.…”

“…There are three critical reasons for this, consisting of ownership advantage, internalisation advantage, and locational advantage. Based on Douglas North and Dunning's theoretical underpinnings, there seems to be a relationship between FDI and institutional stability (Faundez, 2016;Stoian and Filippaios, 2008). However, there is also the concern of crowding out domestic investment (Tekin, 2012).…”