Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 25: A Microeconomic Analysis of Institutions

Ola Olsson ()
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Ola Olsson: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Department of Economics., School of Economics and Commercial Law, Göteborg University, Box 640, SE 40530 GÖTEBORG

Abstract: This survey paper has three themes; a microeconomic analysis of institutions, an institutional analysis of microeconomics, and a discussion on the scope for an "institutional microeconomics" that takes insights from psychology and older institutional theory into account. Institutions are defined as the long-run rules of the economy that have the character of public goods and whose main function is the reduction of transaction costs. The institutional requirements for the Walrasian equilibrium and for a cooperative solution in a Prisoner’s Dilemma-like game, are thoroughly analyzed. The paper briefly surveys the main results from the OIE and NIE-schools and discusses the possibilities of an interdisciplinarily oriented institutional microeconomics.

Keywords: institutions; microeconomics; Walrasian equilibrium; game theory

JEL-codes: C72; D23; D70

24 pages, June 8, 2000

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