Jan F Qvigstad: On institutions - fundamentals of confidence and trust (original) (raw)

The concept institution has many meanings. For example, there is an important distinction between its meaning as an abstract concept and as a concrete one. The judicial system in Norway is an institution in an abstract sense, while the Supreme Court is concrete. The Norwegian Opera & Ballet is a concrete cultural institution within our more abstract cultural heritage. In my own field, the monetary system is abstract whereas Norges Bank is concrete. I would like to speak about the role institutions can play in the economic advancement of a nation and use the central bank as an example. 1 My co-speakers will view the issue from different perspectives and the ensuing debate will bring forth yet further aspects. 2 Good institutions provide sound frameworks that increase confidence and promote economic progress. This is so in relation to minor, everyday situations as well as to major life choices. At the fishmonger's, the Norwegian Metrology Service ensures that you pay for the actual weight of your cod fillet. When you buy a home, clarity about ownership and encumbrances is ensured by the land register. 3 The Norwegian Industrial Property Office grants patents so that entrepreneurs can make profits on their innovations. In the absence of such institutions, each of us would have had to spend more time on taking precautions and fewer investments would have been profitable. 4 1 Among the many who have shed light on the role of institutions from this perspective is Douglass C. North, a 1993 Nobel laureate in economics together with Robert W. Vogel. In his work, he refers to institutions as: "Institutions are the rules of the game of a society and in consequence provide the framework of incentives that shape economic, political, and social organization. Institutions are composed of formal rules (laws, constitutions, rules), informal constraints (conventions, codes of conduct, norms of behaviour), and the effectiveness of their enforcement. Enforcement is carried out by third parties (law enforcement, social ostracism), by second parties (retaliation), or by the first party (self-imposed codes of conduct). Institutions affect economic performance by determining, together with technology employed, the transaction and transformation (production) costs that make up the total costs of production." See North, Douglass (1997) in Drobak, J. N. (Ed.