In and Out of Institutions
Institutions, including a society’s structure from kinship to kingship, exist for a purpose. That purpose, as Douglass North points out, is often to lower transaction costs. In other words, they make it easier for people to get together to act. (At least, that is what they are supposed to do; sometimes they make it harder.) Usually they are created to make it easier to do something that people were doing already, but often they are created to satisfy a whole new want. By “institutions,” writers like North understand the rules of society, written or unwritten. The actual organizations are specific instances of institutions informing people and situations; the general principles and laws behind the organizations are the institutions. Other writers, of course, use the word “institutions” to include actual organizations, such as prisons and colleges. The discussion that follows is general enough to avoid conflicts over definitions. It is not intended to provide an adequate account of institutions or of environmental economics. It is intended solely to extend my comments on human information processing, and thereby raise some questions about our current economic interpretations. These questions follow from this book’s central premise that humans are emotional, and that emotion often displaces rational calculation. This is, of course, the point classically made by Max Weber; it keeps being rediscovered by institutional economists like Douglas North. The success of a given society at building institutions thus is related to its success at ecological management. This is obvious when the institutions in question are related to conservation. It is not so obvious, but actually more important, when the institutions are more general in scope and purpose, serving the society at large. The most extreme and spectacular case is that of highly centralized, authoritarian polities. It is safe to say that such polities are always a catastrophe for the environment. The farther control gets from the local people who actually benefit or lose by resource management, and the more control is vested in people remote from the scene, the worse the management. These people are decoupled from the results of their actions.