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Regular version of the site

Institutional Economics

Academic Year
Instruction in English
ECTS credits
Course type:
Elective course
4 year, 1, 2 module


Course Syllabus


Course on Institutional Economics is a step towards understanding institutions and their role in economics and society. During this course we will show that in the world where all transactions are connected with costs and people squint towards opportunism, it is important to create rules and systematically monitor everyone is following them. Together these rules and enforcement mechanisms are called institutions. The main objective of this course is to demonstrate how institutions work in various spheres, what happens if they become weak or inefficient. We will talk about the institution of property rights and about contracts, will look for historic examples and analyze modern cases, will find evidence of the fact that institutions are vitally important for the prosperity of countries as well as for making the simplest transactions between citizens possible. Course on Institutional Economics gives an overview of modern institutional theory, its development and current state, its basic instruments and approaches. Special focus is made on ways to use these instruments and approaches for solving real-life problems.
Learning Objectives

Learning Objectives

  • to form a detailed view about current development of new institutional theory, about main instruments and approaches
  • to develop competences, which allow to implement the methodology of new institutional economics towards solving practical problems
Expected Learning Outcomes

Expected Learning Outcomes

  • Ability to use theory of institutions in analysis of institutional environment of different settings
  • Ability to use instruments of game theory to analyse institutions
  • Ability to use instruments of new institutional economics to analyse particular institutions
  • Ability to use instruments of game theory and social networks to analyse institutions
  • Ability to use instruments of game theory to analyse incentives in transactions
  • Ability to use instruments of new institutional economics to analyse relations between firms, individuals and state
  • Understanding of main questions that could be addressed by New Institutional Theory
  • Ability to use instruments of new institutional economics to analyse contracts
  • Ability to use instruments of new institutional economics to analyse firms
  • Ability to use instruments of new institutional economics to analyse public sector
Course Contents

Course Contents

  • Introduction to New Institutional Economics.
    Rational choice model. Full and perfect information. Bounded rationality. Incomplete and imperfect information. Ultimate game. Beauty contexts game. Assumptions of New Institutional Economics. Incomplete specification of rules.
  • Institutions
    Definitions of institutions: different approaches. Functions of institutions. Coordination, cooperation, and redistribution problems. Norms. Rules. Conventions. Enforcement systems. Examples based on game theory. Formal and informal institutions.
  • Transaction Costs
    Definitions of transaction and transaction costs. Transaction cost theory. Specific investments. Site specificity, physical asset specificity, dedicated assets. Governance forms. Fundamental transformation. North-Eggertsson classification of transaction costs. Transaction goods. Measurement costs.
  • Institutions, Transaction Costs and Networks
    The role of networks in institutional analysis. Evolutionary model of convention formation in different structures. Basic measures: centrality, closeness, betweenness.
  • Contract Theories
    Incomplete contracts. Grossman-Hart model. Decision rights. Principal-agent framework. Asymmetric information. Adverse selection. Signaling. Screening. Moral hazard. Hidden action and information. Delegation.Agency costs. Incentive contracts. Opportunistic behavior.
  • Institutions of Property Rights
    Definition of property rights. The Coase theorem and externalities. Categories of property rights. Property rights regimes. Collective property. Common property. Residual rights. Land rights. The naive theory of property rights emergence.
  • The New Institutional Economics Applied to Firms.
    Agency problems. Separation of ownership and control. Residual rights and organizational forms. Open corporations. Partnerships. Non-profit organizations. Measurement of agency costs.
  • The New Institutional Economics Applied to Public Sector.
    Contract theories of the state. Institutional analysis of bureaucracy. Rules and freedom trade-off. Intrinsic motivation. Multiple principals. Proper scope of government: application of the incomplete contract theory. Public procurement issues.
  • Institutional Change, Institutions and Growth.
    How to explain substantial differences in levels of economic development between countries? In other words, why some countries are rich and other are poor? What potential explanations offer economists? How to establish causal links in the analysis of economic development? What is the role of informal institutions in economic development? Institutional traps: corruption, tax evasion, barter.
Assessment Elements

Assessment Elements

  • non-blocking Online questionnaires
  • non-blocking control work
  • non-blocking Research project
  • non-blocking Presentations and discussions during the seminars
    Each student may make a presentation of an article only once Each article is presented by (1-2) groups of 2 students To do this he or she should choose the concrete article and get a confirmation at the seminar or by email (CourseOnIE@gmail.com). Each article is connected to the certain seminar topic, so you can make presentation only at the seminar, which is specified in the plan
Interim Assessment

Interim Assessment

  • Interim assessment (2 module)
    0.3 * control work + 0.2 * Online questionnaires + 0.25 * Presentations and discussions during the seminars + 0.25 * Research project


Recommended Core Bibliography

  • Bloom, N., Liang, J., Roberts, J., & Ying, Z. J. (2015). Does Working from Home Work? Evidence from a Chinese Experiment*. Quarterly Journal of Economics, 130(1), 165–218. https://doi.org/10.1093/qje/qju032
  • COASE, R. H. (1988). 1. The Nature of the Firm: Origin. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.6EF0F9C3
  • Di Tella, R., & Schargrodsky, E. (2003). The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires. Journal of Law and Economics, (1), 269. https://doi.org/10.1086/345578
  • Economic behavior and institutions, Eggertsson T., 1997
  • Furubotn, E. G., & Richter, R. (2005). Institutions and Economic Theory : The Contribution of the New Institutional Economics (Vol. 2nd ed). Ann Arbor: University of Michigan Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=469024
  • Georgellis, Y., Iossa, E., & Tabvuma, V. (2011). Crowding Out Intrinsic Motivation in the Public Sector. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.522D2DA6
  • Guiso, L., Sapienza, P., & Zingales, L. (2006). Does Culture Affect Economic Outcomes? Journal of Economic Perspectives, 20(2), 23–48. https://doi.org/10.1257/jep.20.2.23
  • Hendrikse, G., Hippmann, P., & Windsperger, J. (2015). Trust, transaction costs and contractual incompleteness in franchising. Small Business Economics, 44(4), 867–888. https://doi.org/10.1007/s11187-014-9626-9
  • Johnson, N. D., & Nye, J. V. C. (2011). Does fortune favor dragons? Journal of Economic Behavior & Organization, (1), 85. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.eee.jeborg.v78y2011i1p85.97
  • North, D. C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=510978
  • Polterovich, V. (1999). Институциональные Ловушки И Экономические Реформы[Institutional Traps and Economic Reforms]. MPRA Paper. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.pra.mprapa.27257
  • Property rights for the poor: effects of land titling. (2010). Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.F39178F5
  • Raymond Fisman, & Shang-Jin Wei. (2009). The Smuggling of Art, and the Art of Smuggling: Uncovering the Illicit Trade in Cultural Property and Antiques. American Economic Journal: Applied Economics, (3), 82. https://doi.org/10.1257/app.1.3.82
  • Steven Tadelis. (2016). Reputation and Feedback Systems in Online Platform Markets. Annual Review of Economics, (1), 321. https://doi.org/10.1146/annurev-economics-080315-015325
  • Sümeyra Atmaca, Koen Schoors, & Marijn Verschelde. (2016). Bank Loyalty, Social Networks And Crisis. Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.rug.rugwps.16.923

Recommended Additional Bibliography

  • Bolton, P. (DE-588)128734906, (DE-576)170475301. (2005). Contract theory / Patrick Bolton and Mathias Dewatripont. Cambridge, Mass. [u.a.]: MIT Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edswao&AN=edswao.114696918
  • Camerer, C. F., & Fehr, E. (2006). When Does “Economic Man” Dominate Social Behavior? Science, 311(5757), 47–52. https://doi.org/10.1126/science.1110600
  • Demsetz, H. (1967). Toward a Theory of Property Rights. American Economic Review, 57(2), 347. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=bsu&AN=4493727
  • Dixit Avinash K. (2010). Democracy, Autocracy and Bureaucracy. Journal of Globalization and Development, (1), 1. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.bpj.globdv.v1y2010i1n1
  • Dixit, A. (1997). Power of Incentives in Private versus Public Organizations. American Economic Review, (2), 378. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.aea.aecrev.v87y1997i2p378.82
  • Frye, T. (2004). Credible Commitment and Property Rights: Evidence from Russia. American Political Science Review, (03), 453. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.cup.apsrev.v98y2004i03p453.466.00