Sunday, August 15, 2010

Institutions and Choices

If you read this blog regularly, you know one of my areas of interest is institutions. The rules and organizations that are put in place, either formally or informally, have a significant impact on our decisions. Whether they arise from legislation, commercial agreement or voluntary action, once they are accepted and become part of a regular mindset, they influence our choices. The incentives may be financial, temporal, or even imaginary. Nevertheless, they shape our decisions.

A couple weeks ago, Richard Posner and Gary Becker had an informative discussion in their blog about the role of institutions in the current U.S. economy. Specifically, they discussed the impact of unions. (You can read Posner's post here and Becker's post here.) Both agreed that the institutions were shaping both policy choices and business choices, and both felt there was an impact on the current economy, in some cases negative.

In an article in today's edition of The Washington Post, we get another view of institutions and the role they play in shaping choices. But unlike the institutions of discussed in the Posner-Becker discussion, these are much older. These institutions date back to Han Dynasty of China, some 2,000 years ago. And the institutions are largely geographical in nature. Yet they have an impact on the choices available to many citizens - providing positive and negative incentives for activities and opportunities.

I found all of these informative. And they can be used a number of ways. They could be used to augment discussion the role of institutions in shaping an economy in macro, or the role of government regulation in the marketplace in micro. In either case, students can discuss both the intent of the institution and its result or consequence. I would think the article from The Post could even be used in a world history class when discussing Ancient China.

I welcome your thoughts.

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