Institutional capital as a factor of sustainable development

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New Institutional Economics (NIE) often focuses on how institutions and the level of transaction costs influence economic activity and efficiency, argues, income, GNP or productive efficiency become means for development which serve different goals for development. Economic development is a broader than economic growth, as it includes the distribution of income, access to educational and health services, new productive resources, freedom of choice or freedom from oppression.

The choice of set for future individuals should be equal to our larger than the current choice set, for which manufactures capital, ecological capital, human capital and social capital are essential.

New Institutional Economics

In general, the focal point in NIE is the incentives for economic activity (performance) provided by the institutional environment, consisting of institutions, and institutional governance. Institutions, then, become defined as the rules of the game in society. These rules provide incentives or disincentives for economic activity and determine which types of governance structures are most efficient from the economic point of view.

Joost Platje

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