This chapter assesses New Institutional Economics (NIE). It begins by describing the author’s own understanding of the New Private Law (NPL). The chapter then provides a brief introduction to NIE and its intersection with the study of legal doctrines and institutions. NIE’s roots extend—at least—to Ronald Coase’s famous 1937 article, “The Nature of the Firm,” and more likely to the writings of nineteenth- and early twentieth-century political economists. These intellectual traditions have shaped what is now known as NIE into two distinct branches. The first branch examines institutions as “humanly designed constraints that structure political, social, and economic interactions.” The second branch of NIE focuses on more micro-level behavior. Called “the governance branch” and operationalized by transaction cost economics, the foundational idea is to describe firms not in neoclassical terms as production functions, but in organizational terms as governance structures. The chapter explains how both NPL and NIE exhibit the hallmarks of interdisciplinary, scholarly pluralism, and an inquisitive focus on real-world, tractable problems. It concludes with some thoughts about the future of NPL and, in particular, the lessons it can take from NIE’s successes.
Firms' Choice of Regulatory Instruments to Reduce Pollution: A Transaction Cost Approach
