The Theory of Institutional Change

If institutional economics is truly an "evolutionary" economics, it is because it has the capacity to explain the phenomenon of institutional change and because it incorporates the principles of that explanation in both theoretical and applied inquiry. While it cannot be argued that all that has been labeled "institutional" economics in the past rests either explicitly or implicitly on a coherent theory of institutional change, contemporary institutionalists generally agree that such a theory is, and must be, the diagnostic characteristic of the institutionalist perspective. The purpose of this article is to set forth a systematic statement of the institutionalist theory of institutional change. The theory presented is a synthetic statement of what the author understands to be (at its present state of development) the theory of institutional change that informs all analytically grounded contributions to the institutionalist literature. The classical foundations of the theory were laid by Thorstein B. Veblen, John R. Commons, John Dewey, and Clarence E. Ayres. Contemporary refinements of the theory are to be found in the works of J. Fagg Foster, William Dugger, David Hamilton, F. Gregory Hayden, Louis Junker, Philip Klein, Anne Mayhew, Walter C. Neale, Baldwin Ranson, Marc Tool, and others who have offered explicit dem-