Abstract
There has been a quiet revolution in economic theory, led by the New Institutionalists. Pioneered by Douglass C. North, this group argues that institutions are the main determinants of economic performance, yet neoclassical economics has no role for institutions. Contrary to many misconceptions, this theory of institutions can be integrated with neoclassical economics, leaving mainstream economic theory in tact, but broader and more relevant. The purpose of this article is twofold. First, the main arguments of the New Institutionalists are summarized. Second, the bridge between institutions and social economics is explored. The article concludes by arguing that the New Institutional approach is fruitful, and that the theory will gradually be integrated with neoclassical economics, until the two merge into a single body of theory.
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