Institutional Economics, the Case for Laboratory Experimentation?

Abstract:

This article tries to emphasize potential of experimental economics to examine effects of informal institutions, which seems to play significant role. Since individuals are required to possess far more information than they are capable to absorb, informal institutions are used in order to function effectively in an environment with market failures. This reliance on implicit rules represents different type of rationality, where unconscious behaviour might lead to suboptimal outcomes on the market. Brief overview of typical experiments supports the view that institutions matter and examination of potential effects of informal institutions represents substantial value added. Small change in institutional context may have large consequences with respect to different social interactions in market versus non-market environment.