At the end of the course Institutional Economics, the student is able:
- To describe the underlying assumptions and criticisms regarding neoclassical economics;
- To relate and recognize different institutional economic theories within given economic problems;
- To describe and compare different theoretical visions and empirical studies on the role of institutions in economic development;
- To develop competences by solving practical problems using institutional economics methods and theories;
- To develop analyzing and synthesizing skills through open questions, by making relations between the different concepts of the course.
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Since the institutionalist, Douglass C. North, received the Nobel Prize in 1993, the saying ‘Institutions matter’ has become well-known. The way in which the logic of efficiency of free-market mechanisms has been incorporated into neoclassical economic theory throughout the twentieth century has caused the market to become but a locus of exchanges, which would lead to the solution for the most relevant economic problems, including those related to growth. We will go further with institutional economics, beyond market mechanisms. In reality, all economic activity is embedded in a framework of institutions including both formal laws and contracts, and informal norms and conventions.
The increasing number of studies in Economics based on institutional approaches since the late twentieth century demonstrates the need to consider the importance of institutions in economic development. How to explain the need for institutions? What are institutions? How to explain the emergence of firms, states, and other forms of cooperation? How to deal with externalities and market failures? How to explain individuals may behave very differently and deviate from the perfect rationality? How to align agents with varied interests? Why can we observe such disparities between countries’ performance? How to decide between private or public provision of certain goods and services?
During this course we will show that in the world where all transactions are connected with costs, it is important to create rules and make people follow these rules. Institutions are vitally important for the prosperity of countries as well as for making the simplest transactions between citizens possible. Trust plays an important role here. Thus, the aim of this course is to introduce students to key ideas and concepts from the field of institutional economics and their application to analyze a range of issues concerning economic exchange, the organization of economic activities and the behavior of economic actors. The central learning objective for this course is for students to gain insight on the role of institutions and governance mechanisms in the functioning of the economy and to apply the learned insights to study areas in which institutions are likely to affect economic behavior and outcomes. We will talk about institutions, organizations, development, property rights, transaction costs, contracts, bounded rationality, the interaction between politics and economics, etc.
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An introductory course to economics.
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The final exam will cover the entire course and will be a combination of MCQs and open questions.
In addition, group assignments will be realized and graded along the course. Bonus points from the group assignments remain valid
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The course includes the following topics:
Property rights and contracts
Contracts and principal-agent theory
Incentive alignment and individual rationality
Transaction costs and the firm
Emergence and dynamics of institutions
Effects of institutions on economies
Effects of institutions on firms and individuals
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