INSTITUTIONS &
ORGANIZATIONS
The Concepts of Institution,
Organization and Market
Definition:
Institutions as systems of
established and prevalent social rules that structure social interactions.
Language, money, law, systems of weights and measures, table manners, and firms
(and other organizations) are thus all institutions (Hodgson M, 2006).
In other words
institution is either a type of formal
organization or practices and behavior pattern of a society. For instance Technical universities, industrial research institute, R&D
departments in large firms, consulting agencies, patent offices, technological
service institutes, R&D departments in large firms, consulting agencies,
patent offices, technological service institute are institutions.
‘Sociological’ meaning of institutions as the things that pattern
behaviour, e.g. routines, norms, shared expectations, morals, etc- including
ground rules for economic behaviour often referred to as property rights.
‘Institutional Economists’ usually adopt the ‘sociological’ meaning of
institutions as the things that pattern behaviour, e.g. routines, norms, shared
expectations, morals, etc. – including certain ground rules for economic behaviour
often referred to as property rights.
Veblen (1919) defined institution as ‘Settled habits of thought common to
the generality of man’ or ‘Institutions are an outgrowth of habit’
Institutions are the rules of the game in society or, more formally, are
the humanly devised constraints that shape human interaction. In consequence
they structure incentives in human exchange, whether political, social or
economic. Institutional change shapes the way societies evolve through time and
hence is the key to understanding historical change (Nelson, 1990)
In Schotter’s theory institutions are organizers of information. ‘Institutions are sets of common habits,
routines, established practices, rules or laws that regulate the relations and
interactions between individuals and groups’.
Definition of Organization
Hecht (1980) “organized or cohesive group of
people working together to achieve commonly agreed goals and objectives”.
Members of an organization usually share a
common vision, mission, values and strategic goals. The vision is how
the individuals imagine the goals of the organization being accomplished. Each
person will have a particular way he or she sees the organization functioning.
As long as the organization is working according to their vision, people perceive
the organization as going well. The mission is the overall purpose of
the organization and is used to help describe organizations to those outside of
them, such as community members.
Institutions and Organizations
What are the relations
between institutions and organizations?
•
They are used as synonyms
•
Organizations are, according to North, partly formed by the institutional
framework and are, at the same time, vehicles for their change
•
In the context of INNOVATION
•
Firms,
universities and schools are considered to be organizations – important engines
of technical change.
Difference
b/w Institutions & Organizations
Ex: WHO, NGO etc.
|
1.
Institutions
may develop spontaneously.
2.
Institution is governed by customs and values.
3.
Often not
characterized by a specific purpose.
4.
Institution refers to both abstract and concrete entities.
5.
Institution is a broad term.
Ex:
Religious, Judicial, Research, Health etc.
|
Institutions and Markets
•
Markets are
institutions that exist to facilitate exchange, that is, they exist in order to
reduce the cost of carrying out exchange transactions
•
Exchange will
always be supported by a web of routines, rules, norms, and laws, i.e., by
institutional set-up
•
Institutions not
only support market exchange but also protect markets from self destruction
•
Markets are
organized and institutionalized exchange
•
In the context of
INNOVATION
–
Institutional
Specification of Market
–
Pure Market,
i.e., Markets in which sellers and buyers only communicate with the help of
prices and quantities
–
Innovation
require qualitative communication through which technical possibilities and
user needs can be confronted and matched
–
Communication is
supported by institutions
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