Bounded Rationality, Institutionalism and the Diversity of Economic Institutions

Abstract

In many respects Veblen's theory and New Institutional Economics lie at different poles. While the Veblenian theory can be considered as an early "strong version" of the theory of bounded rationality, New Institutional Economics "mild version" of bounded rationality extends economising behaviour to bounded rationality itself. Moreover, while New Institutional Analysis emphasises efficiency explanations based on the assumption of given preferences, the Veblenian explanation considers the role of inefficient path-dependent behaviour due to the endogenous formation and resilience to change of the preferences of individuals. However the two approaches share an undesirable feature: the idea of a "unilinear" unfolding of history does not allow an adequate understanding of the diversity of paths taken by different societies. In this respect the comparative analysis of institutions must go beyond both the New Institutional and the Veblenian approaches.

JEL Classification: B0, B3,B4, L2