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Essay on New Institutional Economics

In the last two decades, an intellectual revolution has been brewing in the social sciences. Researchers in economics and the other social sciences had traditionally thought of economics as but one of the fields in the social sciences. It is nevertheless increasingly being discovered that the economic approach is much more broadly applicable to the study of human behavior than was previously thought to be the case.

Economic analysis, it is argued, is applicable to homo sapiens and not restricted to homo economics. This realization has resulted in the application of the economic approach to issues and problems in political science, law, anthropology, history, family demographics, fertility studies, scientific research, language, crime, international relations, and, especially in this essay, the human side of business organizations.

This “economic imperialism” is giving rise to a new paradigm, which has the suggested imperial title of “General Economics”. A zoologist seeing it as referring to both biology and economics defines it as “the study of how the availability of scarce resources affect the structure and activity of organized beings”. who arrived at a similar conclusion long before, would also agree that the above definition of economics is consilient with the evolutionary functionalism found in sociobiology.

There is now a developing belief that this evolving evolutionary economic functionalist approach could be the skeletal structure for the unified biological and social science of the future; a skeleton to which the other social scientific disciplines would be the flesh and muscles.

One important stream of thought in this general application of the economic approach to non-economic behavior is the increasing concentration on the study of human institutions through the economic approach.

This analysis of human institutions through the economic approach is the “New Institutional Economics”. The new institutional economics (NIE) is an interconnected web and an amalgam of Transaction costs economics, the cooperative and non-cooperative game theory of social institutions, an evolutionary approach to economics, the economics of property rights the economic analysis of history, an economic approach to legal institutions and an analysis of distributional coalitions among others.