The key concerns of this course are to understand how institutions evolve in response to changes in incentives and how institutions affect economic performance over time. The course introduces the essential theories of institutional economics and the key methods applied in the field, explores historical and empirical evidence in institutional economics, explores how individuals, firms, and states respond to changes in institutions, and analyses the role of institutions in influencing economic performance and transition. The course will apply case study methods that rely on institutional theories, contextual knowledge of the situation and history, and context-specific modelling.

Learning Outcomes

Upon successful completion, students will have the knowledge and skills to:

1. Demonstrate knowledge of the key theories in institutional economics and their applications.
2. Demonstrate an understanding of the analytical approaches used to study issues relating to incentives and institutions.
3. Apply theoretical and empirical techniques to analyse institutional changes and their impacts.
4. Communicate public policy issues with respect to nurturing good institutions.
5. Conduct research on a topic explaining cross-country differences in economic growth performance due to institutional differences.

Required Resources

Institutions, Institutional Change and Economic Performance

Author: North, C. Douglass

Publisher: Cambridge University Press: Cambridge

Edition: First Edition, 1990

This is the primary textbook of the course. This book, however, will not provide the full reference of the materials covered in this course. The course material will also draw on the following books supplemented by journal articles and book chapters on the relevant issues.

Recommended Resources

North, Douglass C., 2005, Understanding the Process of Economic Change, Princeton University Press

Greif, Avner, 2006, Institutions and the Path to the Modern Economy, Cambridge University Press: Cambridge

Menard, Claude (ed.), 2000, Institutions, Contracts and Organizations, Edward Elgar: Cheltenham

Eggertsson, Trainn, 1990, Economic Behaviour and Institutions, Cambridge University Press: Cambridge

Kasper, Wolfgang and Manfred E. Streit, 1998, Institutional Economics: Social Order and Public Policy, Edward Elgar: Cheltenham

Staff Feedback

Students will be given feedback in the following forms in this course:

• Written comments
• Verbal comments
• Feedback to the whole class, to groups, to individuals, focus groups

Student Feedback

ANU is committed to the demonstration of educational excellence and regularly seeks feedback from students. Students are encouraged to offer feedback directly to their Course Convener or through their College and Course representatives (if applicable). The feedback given in these surveys is anonymous and provides the Colleges, University Education Committee and Academic Board with opportunities to recognise excellent teaching, and opportunities for improvement. The Surveys and Evaluation website provides more information on student surveys at ANU and reports on the feedback provided on ANU courses.

Other Information

CRAWFORD ACADEMIC SKILLS

The Crawford School of Public Policy has its own Academic Skills team dedicated to helping students to understand the academic expectations of studying at Crawford and succeed in their chosen program of study. Through individual appointments, course-embedded workshops and online resources, Crawford Academic Skills provides tailored advice to students keen to develop their academic reading, thinking, planning, writing, and presentation skills.

Class Schedule

Week/Session	Summary of Activities	Assessment
1	Week 1: Institutions, institutional change and economic performance: an introductionQuestions:•Can you say what an institution is? Can you give a few specific examples of institutions and how they work?•What are the functions that institutions are meant to fulfil in a modern society?•Can you explain why institutions are important for economic growth? What role do they play in facilitating or hindering the division of labour?•In what instances, has standard mainstream economics failed to grip with economic reality?	ReadingsNorth, Douglass C., 1990, Institutions, Institutional Change and Economic Performance, Cambridge University Press: Cambridge, Chapters 1, 9, 10, 11 and 12.Menard, Claude (ed.), 2000, Institutions, Contracts and Organizations, Edward Elgar: Cheltenham, Chapters 2 and 3, pp. 7-36.North, Douglass C., 1994, "Economics Performance Through Time," American Economic Review, Vol. 84, No. 3, pp. 359-368.
2	Week 2: Institutional economics: theories and evidenceQuestions:•How do we define economic growth? How do we measure economic growth? Is the statement that ‘the economy grows because of fast capital formation’ a satisfactory and full explanation of growth? If not, why not?•Are institutions a sufficient (or only a necessary) condition for growth? Give reasons to explain your answer.•Discuss the relationship between entrepreneurial activities (institutions and incentives) and economic growth.•List the assumptions on which neoclassical mainstream economics tends to be built. Are they realistic?	ReadingsNorth, Douglas C., 1990, Institutions, Institutional Change and Economic Performance, Cambridge University Press: Cambridge, Chapters 3 and 4.Williamson, Oliver, 2000, "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, Vol. 38, pp. 595-613.Hodgson, Geoffrey M., 1998, "The Approach of Institutional Economics," Journal of Economic Literature, Vol. 36, Issue 1, pp. 166-192.
3	Week 3: Institutional approaches on economic change: methodology and applicationsQuestions:•Discuss the following statement:–The game-theoretic framework is a useful tool for institutional analysis because it captures this interplay between rules, beliefs, norms, and behavior, thereby enabling us to restrict the admissible set of institutions.•Discuss why institutional changes go through a life cycle and what the role that mental construct (cognitive, learning) plays in the process.	ReadingsHodgson, Geoffrey M., 1993, The Economics of Institutions, Edward Edgar Publishing Limited, Chapters 4, 7 and 26, pp.50-80, pp. 128-151, pp. 570-592.Chang, H., 2011, "Institutions and economic development: theory, policy and history", Journal of Institutional Economics, Vol.7, Issue 4, pp. 473-498.Aron, J., 2000, "Growth and Institutions: A Review of the Evidence", World Bank Research Observer, Vol. 15, Issue 1, pp. 99-135.
4	Week 4: Institutions in a historical perspective: the path to the modern economyQuestions:•The multilateral trading organization governing world trading activities evolves from the GATT to the WTO, showing a clear process of institutional changes which is self-reinforcing. However, the recent stalled progress in pushing for the completion of the latest round of trade negotiations implies that some forces of undermining are working.•Apply the analytical framework introduced in this lecture to explain why it is happening and discuss the implications for preserving this multilateral trading regime through further institutional changes which are reinforcing.	ReadingsNorth, Douglas C., 1990, Institutions, Institutional Change and Economic Performance, Cambridge University Press: Cambridge, Chapters 13 and 14.Greif, Avner, 2006, Institutions and the Path to the Modern Economy, Cambridge University Press: Cambridge, Chapters 6 and 7, pp. 158-216.Engerman, Stanley L. and Kenneth L. Sokoloff, 2008, "Debating the role of institutions and economic development: theory, history and findings", Annual Review of Political Sciences, Vol. 11, pp. 119-135.
5	Week 5: Firms, transaction costs and market mechanisms: information and coordinationQuestions:•How do we define transactions costs? How are transactions related to institutions? And what are the key implications of transaction costs for firms’ performance?•Discuss the positive transaction cost version of the Coase theorem and its implications for studying institutional changes (including the role of organizations for coordination) to achieve more efficient outcomes.	ReadingsNorth, Douglas C., 1990, Institutions, Institutional Change and Economic Performance, Cambridge University Press: Cambridge, Chapters 4 and 8.Coase, Ronald, 1937, “The nature of the firm”, Economica, New Series, Vol. 4, No. 16, pp. 386-405Hodgson, Geoffrey M., 1993, The Economics of Institutions, Edward Elgar, Chapters 18 and 20, pp. 369-388, pp. 417-439.
6	Week 6: Institutions, contracts and organizations: towards the institutional evolutionQuestions:•What are the contract theories (the key elements)? Why do we need contracts in the functioning of a market economy? •Define the principal-agent problem and find an example where you act as an agent for others. What are the devices that motivate you not to act opportunistically?•Discuss the importance of institutions in facilitating society’s contractual arrangements.	ReadingsNorth, Douglas C., 1990, Institutions, Institutional Change and Economic Performance, Cambridge University Press: Cambridge, Chapters 9, 10 and 11.Kingston, C. and Caballero, G., 2009, "Comparing theories of institutional change," Journal of Institutional Economics, Vol. 5, pp.151-180.Roland, G., 2004, "Understanding institutional change," Studies in Comparative International Development, Vol. 38, pp.109-131.
7	Week 7: Institutions and the role of the state: enforcement issuesQuestions:•Are market forces all we need to accomplish the task of managing the conflicting objectives of stability and structural transformation?•Define the concept of market failure in the context of institutionalist perspective. When does the market fail? How much does market failure matter?•What is the appropriate role of the state which can be examined from both institutionalist and evolutionary perspective?	ReadingsNorth, Douglas C., 1990, Institutions, Institutional Change and Economic Performance, Cambridge University Press: Cambridge, Chapters 6.Burlamaqui, Castro and Chang (eds.), 2000, Institutions and the Role of the State, Edward Elgar Publishing Limited, UK and Edward Elgar Publishing, Inc. USA. , Chapters 1 and 2, pp. 3-26, pp. 27-52.Alston, L.J. and Mueller, B., 2005, “Property rights and the state,' in The Handbook of New Institutional Economics (edited by C. Menard and M.M. Shirley). Norwell, MA: Kluwer Academic Publishers.
8	Week 8: Competition, incentives and regulations: formal versus informal constraintsQuestions:•What are the central elements in regulation theory (definition, nature, purpose, and mode of regulation)?•What is the relationship between (various kinds of) crises and the formation of regulation theory? •Discuss the rational for inserting economic policy in regulation theory.	ReadingsNorth, Douglas C., 1990, Institutions, Institutional Change and Economic Performance, Cambridge University Press: Cambridge, Chapters 5 and 6.Kasper, Wolfgang and Manfred E. Streit, 1998, Institutional Economics: Social Order and Public Policy, Edward Elgar: Cheltenham, Chapter 8, pp. 220-255.Helmke, G. and Steven Levitsky, 2004, "Informal institutions and comparative politics: a research agenda", Perspectives on Politics, Vol. 2, Issue 4, pp. 725-740.
9	Week 9: Entrepreneurship, innovation and technological progress: adaptive versus allocative efficiencyQuestions:•Discuss the relationship between the rules of the games and entrepreneurial activities; and discuss the ways in which changes in the rules of the games could alter the allocation of entrepreneurial activities.•How does Schumpeter define innovations? Why has the list of innovation activities by Schumpeter to be expanded in order to be more precise in studying the allocation of entrepreneurial resources and its impact?•Use some examples or cases in a modern world to illustrate how changes in the rules of the games lead to productive or unproductive and even destructive entrepreneurial activities and discuss the policy implications for each case.	ReadingsBaumol, W. J., 1990, “Entrepreneurship: productive, unproductive and destructive", Journal of Political Economy, Vol. 98 (5), pp. 893-921Kasper, Wolfgang and Manfred E. Streit, 1998, Institutional Economics: Social Order and Public Policy, Edward Elgar: Cheltenham, Chapter 7, pp. 173-203.Hodgson, Geoffrey M. 1988, Economics and Institutions: a Manifesto for a Modern Institutional Economics, Polity Press, Chapter 11, pp. 262-274.
10	Week 10: Institutions in economic transition: the comparative incentive features of different institutional regimesQuestions:•What are the main differences between a planned and market economy from an institutional point of view?•In what ways by which we could misunderstand the market principles in applying them to explain the process of economic transition?•What are the fundamentals in determining the reform outcomes? •What lessons with respect to institution-building have we learned from the Chinese reform experiences?	ReadingsKasper, Wolfgang and Manfred E. Streit, 1998, Institutional Economics: Social Order and Public Policy, Edward Elgar: Cheltenham, Chapters 13 and 14, pp. 410-415, pp. 451-469.Lin, Justin Yifu and Jeffrey B. Nugent, 1995, "Institutions and economic development," in Behrman, J. and Srinivasan, T.N. (eds), Handbook of Development Economics, Vol. 3, pp. 2303-2370.Xu, Chenggang, 2011, "The Fundamental Institutions of China's Reforms and Development," Journal of Economic Literature, Vol. 49, Issue 4, pp.1076-1151.Burlamaqui, Castro and Chang (eds.), 2000, Institutions and the Role of the State, Edward Elgar Publishing Limited, UK and Edward Elgar Publishing, Inc. USA., Chapter 11, pp. 267-280.
11	Week 11: Ethical values and the working of institutions: a missing link?Questions:•How do we define the concept of moral competence?•What are institutional logics? How do these logics cause the emergence of ethical or moral problems?•Use the case of the global financial crisis (GFC) to illustrate the institutional sources of ethical issues.•Does competition destroy ethical behavior?•Do you agree that competition is likely to promote ethical behavior in the long run?	ReadingsKasper, Wolfgang and Manfred E. Streit, 1998, Institutional Economics: Social Order and Public Policy, Edward Elgar: Cheltenham, Chapters 4 and 12, pp. 70-91, pp. 390-394.Nielsen, R.P. and Felipe G. Massa, 2013, "Reintegrating Ethics and Institutional Theories", Journal of Business Ethics, Vol. 115, No. 1, pp. 135-147.Shleifer, Andrei, 2004, "Does competition destroy ethical behavior?" American Economic Review, Vol. 94, No. 2, pp. 414-418.
12	Week 12: Institutions, history and development: a summaryQuestions:•What have I learned from this course?•Are they (knowledge learned) useful (in terms of both the conceptual insights and practical policy analysis)?•Has my perspective on the role of incentives and institutions in economic development changed after undertaking this course?•Will the course form the basis for my further learning in institutional economics and other subjects related to social sciences?	ReadingsNorth, Douglas C., 1990, Institutions, Institutional Change and Economic Performance, Cambridge University Press: Cambridge, Chapter 14.Greif, Avner, 2006, Institutions and the Path to the Modern Economy, Cambridge University Press: Cambridge, Chapter 12, pp. 379-405.

Assessment Summary

Assessment task	Value	Due Date	Return of assessment	Learning Outcomes
Reflection Paper 1 (20%)	20 %	16/03/2026	30/04/2026	1,2,4
Reflection Paper 2 (20%)	20 %	11/05/2026	25/05/2026	1,2,4
Research Essay (40%)	40 %	29/05/2026	03/07/2026	1,2,3,4,5
Oral Presentations (20%)	20 %	27/05/2026	03/07/2026	1,2,3,4

* If the Due Date and Return of Assessment date are blank, see the Assessment Tab for specific Assessment Task details

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ANU has educational policies, procedures and guidelines, which are designed to ensure that staff and students are aware of the University’s academic standards, and implement them. Students are expected to have read the Academic Misconduct Rule before the commencement of their course. Other key policies and guidelines include:

• Student Assessment (Coursework) Policy and Procedure
• Special Assessment Consideration Policy and General Information
• Student Surveys and Evaluations
• Deferred Examinations
• Student Complaint Resolution Policy and Procedure

Assessment Requirements

The ANU is using Turnitin to enhance student citation and referencing techniques, and to assess assignment submissions as a component of the University's approach to managing Academic Integrity. For additional information regarding Turnitin please visit the ANU Online website Students may choose not to submit assessment items through Turnitin. In this instance you will be required to submit, alongside the assessment item itself, hard copies of all references included in the assessment item.

Moderation of Assessment

Marks that are allocated during Semester are to be considered provisional until formalised by the College examiners meeting at the end of each Semester. If appropriate, some moderation of marks might be applied prior to final results being released.

Assessment Task 1

Reflection Paper 1 (20%)

A short reflection paper (1,500 words) to reflect on your understanding of the role of institutions in economic growth is required, and the topic is given below.

Due date: Monday 16 March 2026, 11:55pm

The topic: How do we define economic growth? How do we measure economic growth? Is the statement that ‘the economy grows because of fast capital formation’ a satisfactory and full explanation of growth? If not, why not?

The Crawford School of Public Policy's word limit and penalty guidelines apply to this assessment item. 

Assessment Task 2

Reflection Paper 2 (20%)

A second reflection paper (1,500 words) to reflect on your understanding of the role of institutions in enhancing entrepreneurial activities is required, and the topic is given below.

Due date: Monday 11 May 2026, 11:55pm

The topic: Use some examples or cases in a modern world to illustrate how changes in the rules of the games lead to productive or unproductive and even destructive entrepreneurial activities and discuss the policy implications for each of the cases.

The Crawford School of Public Policy's word limit and penalty guidelines apply to this assessment item. 

Assessment Task 3

Research Essay (40%)

An essay of 2,500 words is required, and the essay topics will be provided on Canvas at the beginning of the semester. Students are required to consult with the lecturer about choosing a particular topic for writing. Students are also encouraged in consultation with the lecturer to come up with their own topics relating to the course contents. The essay, which is due on 29 May has a return date of 3 July.

Due date: Friday 29 May 2026, 11:55pm

The Crawford School of Public Policy's word limit and penalty guidelines apply to this assessment item. 

Assessment Task 4

Oral Presentations (20%)

Students are required, in Week 12, to make an oral presentation for SEVEN minutes (four minutes for presentation and three minutes for Q&As) based on the research essays they have written. Presentations are assessed for clarity, coherence, consistency, and insights which students will derive from their writing and for the ways in which they handle Q&As. Students are encouraged to attend all the presentations to learn from each other.

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For some forms of assessment (hand written assignments, art works, laboratory notes, etc.) hard copy submission is appropriate when approved by the Associate Dean (Education). Hard copy submissions must utilise the Assignment Cover Sheet. Please keep a copy of tasks completed for your records.

Late Submission

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Accepted academic practice for referencing sources that you use in presentations can be found via the links on the Wattle site, under the file named “ANU and College Policies, Program Information, Student Support Services and Assessment”. Alternatively, you can seek help through the Students Learning Development website.

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