The Bloomington School and American Institutionalism

Introduction

In this article I will make an attempt to connect the Bloomington School, i.e. the work of Vincent and Elinor Ostrom, to the philosophy and theories of American institutionalism. In the first section I will characterize American institutionalism with a brief description of the work of Thorstein Veblen and John R. Commons. American institutionalism is also referred to as Old, or Original Institutional Economics (OIE). ¹ In order to get a sharper picture I will contrast their work with the New Institutional Economics (NIE), of which Oliver Williamson, the other 2009 Nobel laureate, is a good representative. In the second section I will elaborate the philosophical underpinnings of OIE in pragmatism, the foundation of which was laid by Charles S. Peirce. I will discuss the more recent ideas within OIE by means of an explication of "the instrumental value theory," which is based on insights of Veblen and John Dewey. Aft er having characterized OIE, I will discuss in the third section the Bloomington School based on the work of Paul Aligica and Peter Boettke. I will close with a few remarks on the similarities between the Bloomington School and American Institutionalism and discuss some implications concerning the methodology of doing institutional analysis.

Institutions and Different Schools of Thought

Central in the work of institutionalists is the question how behavior of human actors is directed by their environment and how the environment is created, or influenced by human actors. The behavior of actors is constrained and enabled by their environment, of which technology, natural resources and institutions are important parts. Institutions may be broadly defined as values, norms, rules and structures that constrain and enable behavior of human actors. All kinds of more specific definitions and subdivisions exist depending on the questions the theory aims to answer. ² In some cases the focus is on "habits of thought" as in OIE and in other cases on the "institutional environment" and "institutional arrangements" as in the worlds of Douglass North and Oliver Williamson. ³ Institutions are for our purpose defined as systems of social rules that structure individual behavior and that coordinate the interaction between actors. ⁴ We consider values, norms, formal rules like laws and regulations, but also organizations like firms and ministries, all as examples of institutions. Very broadly speaking: institutions structure human action and choice and coordinate human behavior, they can be informal and formal in nature, and can be purposefully designed, as well as the result of a spontaneous process of evolution.

The two schools of institutional thought I discuss in this paragraph, the OIE and the NIE, treat the broad range of institutions differently as endogenous and exogenous variables. The schools also differ in the way they model the actors and their relationship with the institutional environment. The NIE methodology has more of an individualistic nature: the actors are the building block of the theory and have constant and given characteristics like bounded rationality, opportunistic behavior, and the application of the rule of cost minimalization. In this analysis the characteristics of actors and their preferences are exogenous: the interaction of the natural, technological and institutional environment with the attributes of the actors is abstracted. OIE methodology is different: the actors are not only more complex in the sense that habits and power play a role, but the evolution of the economic system is a result of a process in which actors and structures interact. ⁵

Both approaches have relevancy for answering different questions under different conditions. Both approaches develop very different frameworks, theories and models and have different philosophical underpinnings. Below I will discuss the characteristics of the two schools in more detail, which will help us later to better characterize the Bloomington School in relation to institutional economics. Note that both the NIE and the OIE have many nuances and sub-divisions such that variations of the one come close to variations of the other. Although Rutherford analyzed the two schools along different criteria, recent scholarship on Ronald Coase and Douglass North, both proponents of NIE, have shown how close these two Nobel laureates are to the world...