Rules of the Game

What are institutions? Here is a great excerpt from North, Wallis, & Weingast’s working paper “A Conceptual Framework for Interpreting Recorded Human History” answering the question brilliantly:

Institutions are the “rules of the game.” Institutions are the patterns of interaction that govern and constrain the relationships of individuals. Defining the rules under which people interact in any society is extremely difficult. Institutions are hard to define precisely because the rules that apply include written laws, formal social conventions, informal norms of behavior, and shared beliefs about the world. We often think of institutions as constraints on the behavior of individuals as individuals; for example, if the speed limit is mph how fast should I drive? But it seems equally clear and often more important for explaining human behavior that institutions structure how individuals form beliefs and opinions about how other people will behave: for example, if the speed limit is 60 mph how fast will other drivers drive? This complex of questions suggests why institutions span formal laws, informal norms of behavior, and the shared beliefs that individuals hold about the world. Individuals in a common culture hold in common ideas about how other people will behave. Cultures encompass ideas about human behavior passed on to succeeding generations through education and experience. All institutions, at the formal, social, or personal level, contain an important element of abstraction: they are, in part, models about the world and the people around us. This argument also implies that institutions are extremely difficult to pin down observationally. Some components of institutions are readily observable, such as formal rules, while other components are almost impossible to observe, such as shared beliefs.



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