ABSTRACT
A theory of institutional change is essential for further progress in the social sciences in general and economics in particular. Institutions consist of formal rules, informal constraints and the enforcement characteristics of both. Institutions affect economic performance by determining transaction and transformation costs. The new institutional economics has produced a substantial literature dealing with institutions and organizations. Deliberate institutional change will come about as a result of the demands of entrepreneurs in the context of the perceived costs of altering the institutional framework at various margins. The political and economic organizations that have come into existence in consequence of the institutional matrix typically have a stake in perpetuating the existing framework. Information processing by the actors as a result of the costliness of transacting underlies the formation of institutions. The basic institutional framework of the American colonies that had been carried over from England provided a hospitable environment for economic growth.
