State reform and the theory of institutional policy

Vol. 19 No. 2 (1999)

Apr-Jun / 1999
Published April 1, 1999

How to Cite

Eggertsson, Thráinn. 1999. “State Reform and the Theory of Institutional Policy”. Brazilian Journal of Political Economy 19 (2):291-306.

State reform and the theory of institutional policy

Thráinn Eggertsson
Professor of Economics at the Max Planck Institute for Research into Economic Systems, Germany.
Brazilian Journal of Political Economy, Vol. 19 No. 2 (1999), Apr-Jun / 1999, Pages 291-306


A theory of institutional reforms must recognize what policy instruments are
available, how politics restrains the choice sets of reformers, and whether spontaneous counter-
policy by ordinary actors is likely to undermine reforms. A discussion of the so-called
Determinacy Paradox concludes that it is not a practical issue. Insights suggested by the new
institutionalism include measures to reduce political risks, increase the durability of reforms,
and reduce transaction. The main weakness of NIE as a guide to policy is its limited understanding
of the role of norms in undermining reforms and of long-term internal dynamics of
social systems.

JEL Classification: B25; H11; D72.

Keywords: New institutional economics determinacy paradox public policies political economy