Economic Analysis of Institutions: Nominalism and Definition by Effect

Neo-institutional economics covers various subject areas that are not the traditional domain of economics, while still employing the tools of economic analysis such as: rational choice theory and equilibrium theory. Many fields of study, including law, firms, property, etc., are characterised as efficient institutions. It is a flawed approach, because neo-institutionalism portrays past events, what Karl Mittermaier called ex-post facts, as if they were structural facts, or ex-ante facts. In Samuelson’s revealed preference theory, choices (ex-post facts), are assigned a new name, viz. revealed preferences (ex-ante facts), and preferences are reduced to their effects. Neo-institutionalism follows Samuelson in this regard, defining things by their effect: defining institutions as constraints, property as property rights, firms as contracts, etc. In doing so, neoinstitutionalism eliminates the distinctions between concepts; the effect can stand as the primary aspect of the institution, and institution becomes a name for a constraint. This mixes up two orders of fact, giving past events (ex-post facts) a name associated with greater permanence (ex-ante facts). These theoretical moves belong to a nominalist Weltanschauung, one already proposed by Pareto, who called himself the most nominalist of nominalists.