Introduction

From its inception, new institutional economics (NIE) has been characterized by its emphasis on empirical research. This is not to say that NIE is hostile or even ambivalent toward formal theory; quite the contrary. Rather, it is to say that NIE places a premium on realism that is absent in much of traditional neoclassical economic theory. Indeed, NIE is frequently defined in terms of its relaxation of certain restrictive assumptions in neoclassical theory, most notably the existence of positive transaction costs, the role and influence of the institutional environment, and the limited rational abilities of economic actors. Consequently, empirical observation and analysis play a central role in the development of NIE.

The real-world orientation and focus of NIE on empirical research have expanded the scope of economics research by broadening the focus from price and quantity analysis to the existence and structure of economic systems. Nowhere is this broader scope more evident than in micro-economic theories of firms and markets. NIE has led researchers not only to crack open the black box of production known as the firm, but also the market itself, examining the structures of individual transactions and their implications for firm and market performance. The result is a burgeoning field of research on the causes and consequences of different modes for governing the allocation and coordination of resources in an economy. Oliver Williamson (2000, p. 610) characterizes new institutional economics as “a boiling cauldron of ideas.