Rules and Institutions

Rules and Institutions addresses the sociological “Problem of Order” from the economist’s perspective. It asks whether Homo economicus could himself be the creator of those social institutions like property rights, which are assumed to be part of the world he inhabits, or whether instead the existence of those institutions is incompatible with the theory of rational individual behavior. The answer given is that they are compatible, but only if we consider rationality as pertaining to rules of action rather than simply to actions themselves.   Following an introductory chapter that poses the problem, chapter two presents a general statement and defense of the proposed answer. Chapter three examines the rationality of following a rule of action in relation to the “time-inconsistency problem.” Chapter four shows how the institution of private property rights might arise from a Hobbesian “State of Nature.” Chapter five criticizes the Functionalist thesis that social institutions are efficient. Chapter six shows how conflicts, like wars and strikes, can be understood as the consequence of the very rules needed to preserve consensus. Chapter seven concludes by showing that the economist’s perspective and the rationality of rules need not assume pure selfishness, merely that altruism is imperfect.  Rules and Institutions breaks new ground and will be of fundamental interest to economists, political scientists, and sociologists.