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RESEARCH PRODUCT

Institutional Arrangements Matter for Both Efficiency and Distribution: Contributions and Challenges of the New Institutional Economics

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Are scholars in the New Institutional Economics tradition systematically disregarding distributive aspects when approaching policy issues as was the case during the 1970s and 1980s? Do economic and political agents usually care about distribution too? To provide an answer to these questions is the basic purpose of this chapter. The analysis carried out demonstrates that not all NIE oriented scholars disregard distributive issues. Some contributions are examined as examples, mainly in the so-called political economy branch of NIE. By means of a well-known graphical tool, the chapter also emphasizes that all of us clearly care about distribution, not just about efficiency, when participating in market transactions as well as in collective political decisions. The analysis also reveals very persuasively how institutional reforms affect participants’ relative rights and capacities to act and bargain, not just the total amount of transaction costs experienced by them. Though unfamiliar to many new institutionalists, the author concludes that all this has been acknowledged by authors such as North, Eggertsson and Libecap.