Economic Thought and Development: Institutional Theories.

Essay by aunxxxUniversity, Master'sB, January 2004

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Does it help decision-makers in poorly performing economies to know that secure property rights are a key feature of successful late developers?

The Inherence trap

An approach to the interrelation: state-property rights-development

"One cannot develop a useful analysis of the state divorced from property rights"

We can no longer understand the course of the world without considering the network and the interrelationships in and among the economic, social, and political factors that surround us. Theories that have focused on isolated elements have proven to be an incomplete understanding of reality, hence an incomplete solution to developmental concerns -understanding development beyond mere economic growth.

Under this scheme, development theories and thus policies, ought to consider the wide range of interconnections among different factors and the nature of the connections per se. Development, far from being a linear chain of subsequent causes and effects, is a complex system where not only the elements, but also the links themselves, play a fundamental role in its inevitable interrelations.

These relations between factors often imply a loss. Institutions, being an element and a link themselves, are defined as "means of reducing these information and transaction costs." Douglass North -The New Institutional Economics-, along with Ronald Coase -The Nature of the Firm-, sustains that by these means, institutions reduce uncertainty in human exchange. In regard of institutions that enforce trust, North gives particular emphasis to property rights. This paper intends to approach the nature of property rights and the inherent role of the state in this matter; to explore the interrelation between these and the rise of late developers; and to analyze the relation of the context of poor economies to the structuring of inefficient property rights.


Aware of the unreliable isolation of factors in an innately interconnected world, the New Institutional Economics was...