Douglass North’s Theory of Institutions: Lessons for Law and Development

Abstract

This paper offers a critical overview and assessment of North’s work on institutions and economic change, focusing on aspects of his work that are of interest to law and development scholars. The paper consists of four sections. Section 1 examines North’s approach to institutions through his historical work. It discusses his concept of credible commitment and focuses especially on his interpretation of the effect of the Glorious Revolution on property rights and the role he assigns to property rights in bringing about the Industrial Revolution. Section 2 examines North’s theory of institutions, as reflected in his major theoretical books: Institutions, Institutional Change, and Economic Performance (1990); Understanding the Process of Economic Change (2005); and Violence and Social Orders (2009). It focuses on three related features: the pervasive influence of the principles of neoclassical economics; the exclusive focus on an end-point model based on successful Western economies; and the reluctance to account for the role of organizations in the process of change. Section 3 discusses the role of law in North’s theory. Its objective is to clarify whether, in his theory, law is a protagonist in the process of institutional change or subordinate to economic and political processes. The final section concludes and draws together some of the points developed in the paper.

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