Institutional Economics: New

Abstract

New institutional economics (NIE) has attracted growing interest because it provides convincing explanations and predictions of how rules and laws influence individual behaviour and economic outcomes. Transaction costs and property rights are two main conceptual foci used in NIE to analyse institutions. NIE assumes that people are bounded in their cognitive capacity and rationality and live in a world with imperfect information. Therefore, transaction costs are ubiquitous and property rights are never delineated completely by formal or informal institutions. The results of a change to the rules that govern a specific kind of human transactions will depend on the value of property rights left in the public domain and the transaction costs needed to delineate them. Institutional analysis is crucial to housing studies and NIE offers powerful frameworks for analysing the collective goods problems arising when property rights over contested resources are left in the public domain. Many housing problems come down to the need to delineate these ambiguous rights. One particularly important insight from NIE is the elaboration of the traditional idea of public goods into the more realistic ideas of club goods. The concept of club goods is an important one for housing as many of the housing neighbourhood resources that are subject to contestation, congestion, and depletion can, in principle, be more efficiently allocated through club-like institutions in which co-consumers co-contribute to funding those resources. The rapid rise in popularity of gated communities, homeowners’ associations, condominiums, and other forms of co-ownership challenges the traditional boundary between government and market in housing neighbourhood management. NIE is an essential tool for understanding this apparently unstoppable global phenomenon, moving beyond twentieth-century narratives about private and public ownership to a more dynamic analysis of rights, governance, and efficient distribution of risk.