THE NEW INSTITUTIONALISM AND THE GERMAN ORDNUNGSTHEORIE

Our analytical focus in this and the following chapter will be on how the institutions, formal and informal, affect the market processes. Which role do institutions play when individuals pursue their problem-solving activities in the market? In this chapter, our primary purpose will be to show on an aggregate level that institutions can be best understood as the rules of the market game that channel the market process in a certain direction. In the next chapter, this contention will be underpinned by providing an individualistic basis of this phenomenon by employing the theory presented in Part I of the study.

Before proceeding to our main issue, a question should be mentioned that we will not address further, though it is very important. We have defined institutions as normative social rules, that is, as the rules of the game in a society, enforced either through law or by other mechanisms of social control that shape human interaction (Section 6.1). The notion of “human interaction” involves normally two aspects: (a) a process of voluntary exchange between individuals or (b) the voluntary pooling of resources by individuals for a common use. These two kinds of human interaction are commonly called “market” and “organization.”