ABSTRACT
This chapter sketches a framework for analyzing institutions. It provides a set of definitions and principles and a structure that provides much of the scaffolding necessary to develop a theory of institutional change. This framework builds on the economic theory of choice subject to constraints. A theory of institutional change is essential for progress in the social sciences in general and economics. Deliberate institutional change will come about, therefore, as a result of the demands of entrepreneurs in the context of the perceived costs of altering the institutional framework at various margins. An extended sketch from American economic history illustrates the way in which institutions, organizations, and the mental models of the actors interact to produce institutional change. Williamson, treating die institutional framework as exogenous, explores the transaction and transformation costs of various organizational forms. The political and economic organizations that have come into existence in consequence of the institutional matrix typically have a stake in perpetuating the existing framework.
