Methodological Problems and Prospects of Modern Institutionalism

Abstract

The purpose of the study is to identify the main methodological problems of the functioning of modern institutional theory in order to determine the main limitations in its application and describe the key directions for improving the apparatus of this theory in the future. Methodologically, this study relies on generally accepted provisions of institutional theory, retrospective and comparative analysis, taxonomy and generalization method. These methods are used to identify the stages and types of diversification of institutional analysis, its possible causes and their impact on the analytical capabilities of the old and new institutional schools. Thus, the problem of diversification of institutionalism is outlined in relation to methodology of institutional analysis and economic theory. One of the key problems in this respect is associated with the immanent limitations inherent in the formation of the transmission mechanism of macroeconomic policy. This topic also holds much potential for further scrutiny as an independent area within the field of institutional macroeconomics. Approaches to assessing the quality of institutions are described and it is shown that the quality of institutions can significantly affect economic development, although different types of institutions may not be comparable in terms of quality assessment criteria as well as in terms of transaction costs. Measurement of the dysfunction of an institution by looking at the number of non-performing functions can be used to assess institution quality. Together with the assessment of institutional efficiency depending on the number of functions per unit of transaction costs, the above-described method provides relevant parameters that can be taken into account to decide whether a new institution should be introduced or an old one replaced. Contradistinction of the goal of saving transaction costs to the goal of maximizing the value of institutions cannot constitute a point of change in institutional analysis, since the functions of loss and welfare are used simultaneously in economics and no major objections are raised to their application to the analysis of institutions. The article brings to light the problem stemming from the expansion of institutional analysis or the «effect of exceeding complexity», which means that the theoretical constructions and models turn out to be inadequate to the observed economic changes. The analytical potential of institutionalism thus resides in the fact that it can be used to clarify the influence of certain institutional factors on economic changes in the light of specific applied tasks.