Definition
Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behavior. Its original focus lay in Thorstein Veblen's instinct-oriented dichotomy between technology on the one side and the "ceremonial" sphere of society on the other. Its name and core elements trace back to a 1919 American Economic Review article by Walton H. Hamilton. Institutional economics emphasizes a broader study of institutions and views markets as a result of the complex interaction of these various institutions. In general, the distinction of Institutional Economics is that, while Classical Economics focused on exchange between actors in markets or through macro level income flows and factors of production, Institution Economists placed their focused within productive units as organizations composed of people in societies. This gave Institutional Economics a broad purview within the social sciences, and an empirical focus on real world interactions to explain things abstract models based on homo economicus did not. The earlier tradition continues today as a leading heterodox approach to economics. Institutional Economics, particularly New Institutional Economics, also continues to contribute to a wide variety of disciplines, including Industrial Relations, Organizational Theory, Management Studies and Public Administration, among others.
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