Institutionalism

- An approach that highlights the role of

institutions,both formal and informal, in affecting
social behavior.

- Theory that views institutions as humanly

devised constraints that structure political,
economic, and social interactions.
 According to Lace Professor Douglas North

Institutions- are often referred to as the “rules of the game”.

-a way of minimizing transaction costs or the
costs of relations between people.

Example:
The government constrains human behavior by imposing
laws which must be obeyed by its citizens.
Through institutions people are not free to do
everything they want to do since there are sanctions
awaiting them for not abiding by the norms being
imposed by institutions.

When classified according to degree of formality,they

may be divided into formal and informal institutions.
Informal institutions- refer to rules governing behavior
outside official channels (or formal institutions such as the
government and the church),which may have constitutive
and regulative effects on human behavior.
Constitutive effects- refer to aspects of culture that affect
economic behavior.
Regulative effects- refer to the ways in which values and
beliefs of a society are manifested through social norms
and behaviors which regulate behavior.
Example of informal institutions:

Cultural practices concerning courtship and

marriage, which may vary from one society to
another. (Soysa & Jutting 2014).
Formal institutions- refer to those officially
established,often by governments.They are legally
introduced and enforced by the state.

Example of formal institutions:

Governments laws,business organizations,religious groups,
and educational institutions.
Institutions, whether formal or informal provide
the rules, guidelines and structure needed to
carry our daily economic activities.
 INSTITUTIONS
Humanly devised constraints that affect
human behavior

Formal Institutions Informal Institutions

Legally introduced & enforced types of institutions Rules outside
by the state Official channels

Money Dowry

Traffic rules Arranged Marriages

Holidays Tipping Food Servers

Labor Unions Filial Piety

 According to Geoffrey Hodgson

• A researcher professor in business studies at University of

Hertfordshire.
- Formal and informal institutions not only constrains but
also enable human behavior. Rules imposed by institutions
imply constraints, but they can also enable choices and
actions that otherwise would not exist without these rules.

An example would be language rules which enable people

to communicate.
 Answer the following questions:
1. Institution is classified according to degree of
formality.Which of the following best decribe Informal
institutions?
a. refers to those officially established often by
governments.
b. refers to rules governing behavior outside official
channels.
c. refers to apects of culture that affects economic
behavior.
2. According to Lace Professor Douglas North it is
referred as the “rules of the game”.What is he
pertains of?

a. laws
b. constitution
c. institution
3. Informal institutions has an effects on human
behavior.Which of the following statement refers to
constitutive effects?
a. refers to aspects of culture that affect economic
behavior.
b. refers to the ways in which values and beliefs of a
society
c. refers to officially established by government.
4. Another institution degree of formality is formal
institution.Which of the following idea is best
describe?
a. refers to those officially established often by
governments.
b. refers to rules governing behavior outside official
channels.
c. refers to apects of culture that affects economic
behavior.
5. Informal institution is concern about cultural
practices. Which of the following is best example for
this?

a. courtship
b. government laws
c. economic activities