institution

The concept of "institution" refers to a regularity of >actions in a >network of actors, which are generated by their common knowledge about the context, causes and consequences of those actions, and which is a compound of related classes of >configurations.

Actors follow the >rules that generate the regularity of action, and which can be referential and non-referential >knowledge. The rules are complex cognitive schemes linked with >emotions that commit the actors to the action, and which stabilize mutual expectations in the sense of an >equilibrium in the network. As a result, institutions generate network configurations by the induced actions of actors which belong to the same classes, that is, show similar properties. Thus, institutions are a cognitive abstraction over network configurations which has become independent from the particular actors that generate the regularity.

Such kind of regularities in networks can be conventions, informal institutions or formal institutions. A convention is stabilized by the internal commitment (or simply self-interest) of actors, whereas both formal and informal institutions are stabilized via external sanctions by other actors, which are in turn rule-governed, that is based on institutions in turn. Formal institutions differ from informal institutions because in case of the former there is an >organization that imposes the sanctions, and there is an explicit set of referential knowledge defining the rule of the institution. Informal institutions are sanctioned via simple actions by other actors in a network.

Another difference between the three kinds of institutions is the different >cognitive mechanisms. Whereas conventions emerge inductively out of the transfer of configurations among a group of actors, informal institutions are generalized via analogy and formal institutions are generalized deductively.

This means, that the evolution of institutions is never directly dependent on the environment of the economic system, but always mediated via the mechanisms of sanctions in the population. This observation further implies that institutions always involve >power relations between some actors, at least in case of sanctions. As a consequence, institutional change is never dominated exclusively by efficiency considerations, for example, matching the requirements of certain technological changes exclusively. There is always the possibility of conflicts between power and efficiency. One of the most important analytical approaches to efficiency is >transaction cost analysis.

Institutions relate to structures of technologies and power to form >order. This includes mutual relations among institutions, which can support or contradict each other. The analysis of these relations in terms of long-run stable structures is the object of the >taxonomy of institutions.

Basic References
Our concept of institutions is strongly influenced by American Institutionalism, especially regarding the cognitive-emotional dimension and the possible conflicts between different structures of technology and power. For a recent influential statement on this see
Paul D. Bush, The Theory of Institutional Change, in: Journal of Economic Issues, Vol. XXI, No. 3, S. 1075-1116, 1987.

In terms of the analytical approach, the most advanced contribution to institutional analysis in an evolutionary setting is:
Masahiko Aoki, Toward a Comparative Institutional Analysis, Cambridge/London: MIT Press, 2001.

There are web-resources on institutional economics. I recommend to start out from:
American institutionalism
Schmid's website

Semantic Field
network   order
technology   institution   power