economics argues that differences in economic behaviour, both of firms and of regions, are primarily
related to differences in institutions. These institutional differences can be present among firms (such as
routines and business cultures) and among regions or countries (legal frameworks, informal rules, policies,
values and norms). In essence, comparative analysis between the units comprising institutions (between
firms or regions) in terms of their institutions can then be related to differences in economic outcomes,
like profit, growth, income distribution or conflicts.
It should be noted that this definition of institutional economics, although present in some key
contributions (Hodgson 1988), is only partial. One can distinguish between under and oversocialised
accounts related to putting primacy to institutions and social class regulating individual behaviour or
individuals whose rational actions result in institutions (Granovetter 1985). The ‘old’ institutional
economics (Hodgson 1988, 1998) corresponds largely to the oversocialised account, while the ‘new’
institutional economics (Williamson 1985) is in line with the undersocialised account (and, in this respect,
is closer to neoclassical economics). Our characterisation of institutional economics above deals primarily
with the over-socialised account. In economics, however, a relatively small group of scholars adhere to the
over-socialised notion of the economy as consisting of agents. By contrast, a large part of economic
geography research can fairly be characterised as being closer to the oversocialised account, putting
primacy at institutions rather than individual action (Gertler 1997; Amin and Thrift 1994).
Still, it must be recognised that the division between the two accounts is no longer as sharp as before.
In many cases, institutional analyses do no longer explain economic behaviour from institutions alone. In
fact, we will argue below that the interesting developments in economics and geography take place
exactly on the interfaces between different approaches, for example, on the institutional/evolutionary
interface. Still, we find it useful to characterise institutional economics as an oversocialised account as a
heuristic device. Our definition stresses the central idea (or bias, if you like) that institutions determine the
larger part of economic behaviour, and, consequently, differences in economic behaviour and performance
can be related more or less directly to differences in institutions. We thus aim to define institutional
economics as an archetype way of reasoning, rather than a coherent school of thought (which it is not).
Finally, it should also be noted that institutional economists actually have two quite different
explananda. Apart from explaining differences in economic behaviour and performance, the change in
institutions as such is also a topic regularly addressed (Hodgson 1988). As such, institutional economics is
close to sociology, and is sometimes labelled as or linked to the field of economic sociology (Granovetter
and Swedberg 1992).
2.3 Evolutionary economics
As with the two theoretical frameworks mentioned previously, it is far from easy to determine what is
the essence of evolutionary economics. As Hodgson (1999) has put it, “there is no established consensus
on what ‘evolutionary economics’ should mean. ... a curious aspect of ‘evolutionary economics’ is that
many people use the term as if it required little further explanation and assume that everyone knows what
it means” (p. 129). It is Hodgson (1993, 1999) himself who has done a serious effort to define what
evolutionary economics is all about next to other contribution including Nelson (1995) and Saviotti
(1996). According to Hodgson, the object of study is novelty, or, as Saviotti puts it, qualitative change as
opposed to quantitative change central to neoclassical growth theory.
A comfortable starting point is to claim that, contrary to neoclassical economics, decision-making