Understanding Institutions and Revisiting the Theories of Institutional Change

Abstract

Human interactions are the key to development and are ubiquitous, and due to this feature, they need structuring and give rise to the foundation of Institutions. Institutions foster consistency and institutions (rules of the game) shape human interactions; Institutions shape individual and collective actions in economic, social, and political dimensions. The famous Greek philosopher, “Heraclitus” said “change is the only constant in life,” and the Institutions are not immune by this phenomena. It is noteworthy that apart from Political and Sociological approach, Institution and Institutional Change theories have gained much popularity in Economics and Empirical Research. This chapter is a theoretical perspective and review framework for comprehending the foundation of Institution, Causes of Institution Change, and analysis of significant theories of Institutional Change in the context of economics. The chapter is a Doctrinal study and primarily proposes the basic idea behind the formation of Institution, which will lead the readers of varying disciplines to fathom the realm of Institution. Secondly, the chapter conveys the causes of Institutional change like functionality, technological efficiency, diffusion, conflict, and power struggle and finally focuses on the design-based, evolutionary, and equilibrium theories sheathing the Institutional Change followed by the conclusion.