Institutional determinants of firm behaviour: In uence on firm-level productivity changes

Abstract

The neoclassical assumptions of instrumental rationality and complete information, when relaxed along the lines of new institutional economics provides considerable insights to economic theory beyond the paradigm of Walrasian optimization. In a world of positive transaction costs, North (1992) avers that institutions matter and "a set of political and economic institutions that provide low-cost transacting makes possible the efficient factor and product markets underlying economic growth". Theoretical analysis of the relations governing institutions and its influence on firm, its internal structure and processes is in early stages of development and scholars in the field emphasize on extensive and detailed empirical studies at this stage to guide theory development (Coase, 2005).