ABSTRACT
New Institutional Economics is the neoclassical economists’ attempt to deal with the observed fact that institutions matter. For New Institutional Economics, a broader view is offered to recognize that social institutions — which the economy depends on or is constrained by — are like capital and thus also take time to be changed. Critics of New Institutional Economics point out that the process of making any decision — including one that leads to the creation of an institution — depends on the existence of institutions. Market behavior depends on the existence of the market. To see institutions only as solving a problem of transaction-cost minimization presumes that a failure to minimize transaction costs is a social problem. To explain institutions this way seems to run the risk of opening up New Institutional Economics to the same criticism that faced neoclassical theorists in the 1940s who presumed that consumers were lightning-fast calculators of marginal utility.
