The complimentary relationship between institutional and complexity economics

Today, a growing number of interdisciplinary scholars are pushing the research program of complexity economics. However, several decades earlier, evolutionary institutionalists such as Thorstein Veblen and Gunnar Myrdal (the pioneers of institutionalist economics) already stressed the complexity of social systems, just without using the buzzword “complexity.” Thus, the emergence of the research program of complexity economics should be good news for institutionalists. Yet, there are only a few overlaps between the two research communities. This is mostly due to the different personal and disciplinary backgrounds of the researchers, a lack of an explicit meta-theory on the side of complexity economics, and a very different set of methods.

This paper shows the complementary relationship between institutionalist and complexity economics by focusing on an epistemological concept called "mechanismic explanations".

Section 1 deals with the claim that many renowned institutionalists anticipated the complexity challenge and considered the economy as a complex system. Complexity and institutional economists both share this same basic ontology.

Section 2 explains what “mechanismic explanations” are. It is a particular concept, which invites closer collaboration between institutionalists and complexity economists. In order to make further progress in the understanding of complex economic systems, scientists must seek mechanism-based explanations.

Sections 3 examines a challenge arising in the context of mechanismic explanations, namely that a meta-theoretical mean is required in order to discriminate among competing mechanismic explanations for the same observed phenomenon. Complexity economists can benefit from the deep type of explanation that comes from the philosophical framework of systemism, underlying institutionalist theory.

Section 4 examines another challenge arising in the context of mechanismic explanations, namely that forming opinions or suppositions about mechanisms that operate in the real world (without having complete information about them) and studying them empirically requires particular methods. Institutionalist economists can benefit from the toolbox of complexity economists to overcome this challenge.

Section 5 closes this essay with some remarks on the concept of a “mechanism”.

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Comment from our editors:

This paper is a good recommendation for students who have already read the "Compare"and the "Explore" section on the Exploring Economics website regarding Complexity Economics, Institutionalist Economics, and Evolutionary Economics.

This paper gives a glimpse into the history of economic thought behind these three perspectives, the challenges faced by each, as well as a way for them to come to each other’s aid and co-build something that is more than the sum of each’s parts.

Go to: The complimentary relationship between institutional and complexity economics