ORGANIZATIONS VERSUS INSTITUTIONS

The paper draws a sharp distinction between organizations and institut ions. Organizations are agents like households, firms, and states that have preferences and objectives. Institutions are formal and informal social constraints (rules, habits, constitutions, laws, conventions) which apparently reduce the total scarce resources available. Economis ts debate whether organizations are individuals with their own objecti ves, or whether they are artificial things created ultimately to serve the objectives of their members. In contrast, economists debate wheth er institutions are real schemes which define the cognitive ability of the agent, or whether they are the subject of optimization rationalit y and, hence, are nominal social constraints.