The aim of this course is to show students the relevance of the "institutional variable" for understanding both the decision-making process of economic agents and the aggregate functioning of the economic process. Following the traditional classification of institutional economics, the course consists of two parts and an introductory chapter that provides conceptual coverage of these two parts. The first part explains the "institutional framework", while the second part develops the private "governance models".

The subject matter is microeconomic in nature, although it departs from the traditional approach to microeconomics that students receive in the first years in three key respects. The course explains that: i) individuals form their preferences endogenously; ii) individuals have bounded rationality; and iii) the information they have is imperfect. In this way, the foundations are laid to provide students with a theoretical framework better suited to understanding the functioning of market economies. The first two constraints are particularly relevant to the first part, which explains the social norms, property rights and political rules used to design formal rules. The third constraint (imperfect information) is particularly relevant to the second part, where we aim to introduce students to the theory of contracts and the theory of the firm, in the context of the Transaction Cost Economics developed by Williamson.

On the other hand, the course incorporates concepts and theoretical frameworks from other social disciplines, such as political science and sociology. The "institutions" are presented as "rules of the game" that help to compensate for the information deficits of the agents. But these institutions, and in particular those that make up the "institutional framework" of countries, are the result of interactions that individuals carry out according to certain collective decision rules (politics). This framework, in turn, is influenced by the traditions, values and beliefs that characterize societies, or in other words, by their culture. The cultural dimension influences, on the one hand, the formation of agents' cognitive models and hence their preferences and, on the other hand, the way institutions are conceived and imagined. In short, the sociology of culture provides relevant elements for the content of this course, especially for the first part.

In short, compared to the idealized world that students receive through the theory of economic equilibrium, this course offers them a more complex and richer vision of the individual decision-making process. In other words, it is about showing students that the interactions that agents carry out through the market are conditioned by rules of the game (both public and private) that aim to avoid opportunistic behaviour, information failures or problems associated with information processing. Macroeconomic stability (not equilibrium) is then presented as a result of the stability of the parameters that guide the micro-behaviour of agents or, if preferred, the stability of the institutional rules of the game.

2.1.- Basic and general competencies (skills)

2.1.1.- General competencies (general skills)

G001.-Understand the functions of economic agents and the role of institutions in economic and social activity at different territorial levels (from local institutions to international organizations), being able to identify and analyze historical, social and institutional conditions that condition economic processes.

G002.-Apply the theoretical and practical knowledge acquired in the diagnosis and resolution of problems, using the appropriate analytical instruments to the decision making.

G003.-Know how to search, analyze and synthesize information from various sources with critical, self-critical and autonomous learning capacity, to make reasoned judgments on relevant topics of an economic, social or scientific nature.

G004.-Prepare reports and transmit ideas on any economic topic, with clarity and coherence, to both a specialized and non-specialized audience, making use of the language competence required in each case.

G005.-Understand the principles of economic analysis, from its microeconomic and macroeconomic aspects, in order to contribute to the efficient allocation of resources.

G006.-Analyze and solve economic problems applying both deductive and inductive logic using the appropriate theoretical framework for each context.

G007.-Identify the main instruments of public intervention and relate policy recommendations to the debate between positive and normative economics.

G008.-Apply the principles of economic analysis in the design and evaluation of economic policies and evaluate their effectiveness and limitations.

2.1.2.- Basic Competences (basic skills)

BC1.-That students know how to apply their knowledge to their work or vocation in a professional manner and possess the skills that are usually demonstrated through the development and defense of arguments and the resolution of problems within their area of study.

BC2.-That students have the ability to gather and interpret relevant data (normally within their area of study) to make judgments that include reflection on relevant topics of a social, scientific or ethical nature.

BC3.-That students can transmit information, ideas, problems and solutions to both a specialized and non-specialized audience

2.2.- Specific Competences (skills) and Learning Outcomes

SC1.- The student learns how to integrate into economic analysis the information problems that agents face in their decision-making process.

SC2.- The student learns how agents form their preferences, both through their individual experience and the collective experience provided by the society in which they live.

SC3.- The student learns how institutions influence our decisions. On the one hand, through the incentive structure they represent; and, on the other, because of the impact they have on the formation of preferences.

SC4.- The student learns that institutions, in part, are the result of an evolutionary process and, in part, they are also the deliberate product of human action.

SC5.- The student learns that institutions are not designed to be efficient in an economic sense, but rather express a balance of power.

SC6.- The student learns how the development of countries is related to the institutional frameworks that favor transactions through the market

SC7.- The student learns that there is no optimal institutional framework that guarantees development, but that each country must find its own framework

SC8.- The student learns that every transaction through the market requires an appropriate regulatory framework.

SC9.- The student learns that the regulatory framework is not always a sufficient condition for transactions to occur.

SC10.- The student learns the relevance of contracts to mediate transactions in the presence of asymmetric information

SC11.- The student learns that in the presence of uncertainty the contract does not necessarily guarantee the coverage of a transaction through the market.

SC12.- The student learns the importance of hierarchy (versus the market) to allocate resources.

Learning Outcomes

LO1.- The student learns that economics is a discipline of study that needs to be complemented with the knowledge provided by other disciplines, such as sociology, history, political science or psychology.

LO2.- The student learns that the economic dynamics themselves contribute to “aging” the rules of the game, forcing institutional changes to be made.

LO3.- The student exercises in learning the complex process that characterizes institutional change, as well as the introduction of regulations that condition the behavior of agents.

LO4.- The student learns about the limits of the market to allocate resources, without such limits necessarily having to be understood as market failures that require public intervention.

3.1.- Theoretical Contents

Topic 1.-Introduction

1.1.- The equilibrium model

1.2.- Exogenous preferences vs. endogenous preferences

1.3.- Instrumental rationality vs. Bounded Rationality

1.4.- Perfect Information vs. Imperfect Information

1.5.- Transaction Costs

Topic 2.- The Institutional Framework

2.1.- What are institutions?

2.2.- The Institutional Framework

2.3.- Institutions and political decisions

2.4.- Institutional Change

2.5.- Institutions and Economic Development

Topic 3.- Private Governance Structures

3.1.- The market

3.2.- Complete contracts

3.3.- Incomplete contracts

3.4.- Vertical integration



3.2.- Seminars



3.2.1.- Herbert Simon and the concept of “Bounded Rationality”.

3.2.2.- On the Concepts of: “Asymmetric Information”, “Risk” and “Uncertainty”.

3.2.3.- Does culture affect economic results?.

3.2.4.- D. North and the Institutional Framework.

3.2.5. How do we measure institutions ?.

3.2.6.- Economic Development and Institutions.

3.2.7.-Williamson and the Transaction Cost Economics.

The teaching method combines lectures and seminars

Lectures present the theoretical content of the topics, while seminars explore the basic concepts and content of each chapter in more detail.

Each seminar will focus on a series of articles to be presented by the student. The articles are provided by the lecturer in order to ensure a correct correspondence between the lectures and the seminars.

Each seminar will focus on a series of articles to be presented by the student. The articles are provided by the professor in order to ensure a correct correspondence between the lectures and the seminars.



Each topic is planned to be lectured in three weeks (12 hours). The seminars corresponding to each topic have a variable weight and length:

- The seminars linked to Topic 1 are assigned 2 weeks (8H),

- The seminars linked to Topic 2 are assigned 3 weeks (12 hours),

- The seminars linked to Topic 3 are assigned 1 week (4 hours).

In short, lecturing classes occupies 60% of the class hours and seminars the remaining 40%.

• Continuous Assessment System
• Final Assessment System
• Tools and qualification percentages:
  • Written test to be taken (%): 70
  • Exhibition of works, readings ... (%): 30

i) Presentation of work in seminars (30%). The items that are assessed are: Understanding of the work; Synthesis capacity; Explanation of content; and Answers to questions that classmates or the teacher may ask.

ii) Final exam (70%)



5.1.2. IN THE CASE OF STUDENTS WHO HAVE THE FINAL EVALUATION RECOGNIZED:

i) Final exam (100%)

Take a final exam (100%)

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Basic bibliography

-A) BASIC TEXTBOOKS

- Ménard, C. and Shirley, M. (2022): New Institutional Economics, Edward Elgar.

- Stefan Voigt (2019): Institutional Economics: An Introduction, Cambridge University Press.

- Alston, E.; Alston, L.; Mueller, B. and Nonnenmacher, T. (2018): Institutional and Organizational Analysis, Cambrisge University Press.

- Groenewegen, J.; Spithoven, A. and Van den Berg, A. (2010): Institutional Economics. An Introduction, Palgrave Macmillan.

In-depth bibliography

-- Furubont, E. and Richter, E. (1997): Institutions and Economic Theory, University of Michigan Press.
- Douglass C. North (1990): Institutions, Institutional Change and Economic Performance, Cambridge University Press.
- Williamson, Oliver (1985): The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting, New York: The Free Press.

Journals

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Web addresses

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