INSTITUTIONAL TRANSITION AND TRANSITION COST: A METHODOLOGICAL CONSIDERATION

Jang-Sup Shin
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Jang-Sup Shin: National University of Singapore, Postal: Department of Economics, National University of Singapore, Tel: (65) 7735174, Fax: (65) 7752646, , ecssjs@nus.edu.sg ,

No 160, EIJS Working Paper Series from Stockholm School of Economics, The European Institute of Japanese Studies

Abstract: This paper attempts to explain why institutional changes, whose direction look obvious at the beginning, arouse controversies and, more often than not, face ‘setbacks’. It starts from critically assessing North’s (1981; 1990) analysis of relating transaction cost and economic performance and argues for considering ‘transition cost’, separately from transaction cost, in designing institutional change. The ‘reformers’ are often interested in possible transaction cost reducing effect of institutional transition. But an institutional transition can be justified only if the reduction in transaction cost more than compensates for transition cost involved. It seems that many institutional reforms face problems because they ignore or underestimate the aspect of transition cost, the size of which is specific to institutions concerned.

Keywords: Institutional change; transaction cost; transition cost; economic reform (search for similar items in EconPapers)
JEL-codes: L50 O10 O53 P00 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2002-10-01
New Economics Papers: this item is included in nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:eijswp:0160

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