![]() ![]() ![]() Institutions provide the incentive structure of an economy as that structure evolves, it shapes the direction of economic change towards growth, stagnation, or decline. They evolve incrementally, connecting the past with the present and the future history in consequence is largely a story of institutional evolution in which the historical performance of economies can only be understood as a part of a sequential story. Together with the standard constraints of economics they define the choice set and therefore determine transaction and production costs and hence the profitability and feasibility of engaging in economic activity. Throughout history, institutions have been devised by human beings to create order and reduce uncertainty in exchange. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights). Institutions are the humanly devised constraints that structure political, economic, and social interaction. ![]()
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