Knowledge and the Role of Institutions in Economic Theory

Abstract

This paper discusses the role of institutions in neoclassical economics. Whether there is a problem with how neoclassical economics explains the evolution of institutions is a question open to debate. Proponents of neoclassical economics argue that since one can explain any institutional setting and its evolution as merely the consequences of the logic of choice (i.e. of optimization facing given constraints), our understanding of institutions is merely another example of neoclassical analysis (e.g. James Buchanan, Gordon Tullock and Douglass North). The primary concern of some opponents of the neoclassical economics has been to show that the pro-neoclassical view is simply false. In particular, they have seen that advocates of the neoclassical view presume that neoclassical choice theory can easily be made dynamic. Some opponents go so far as to argue explicitly that this presumption is completely unfounded [Shackle 1972; Hicks 1976]. The question of dynamics is even sometimes allege

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