Difference between New Institutional Economics
The Neoclassical economics is characterized by several assumptions common to many schools of economic thought. There is not a complete agreement on what is meant by neoclassical economics, and the result is a wide range of neoclassical approaches to various problem areas and domains ranging from neoclassical theories of labor to neoclassical theories of demographic changes. Neoclassical economics rests on three assumptions, although certain branches of neoclassical theory may have different approaches.
They are I) People have rational preferences among outcomes that can be identified and associated with a value. It) Individuals maximize utility and firms maximize profits. Iii) People act independently on the basis of full and relevant information. From these three assumptions, neoclassical economists have built a structure to understand the allocation of scarce resources among alternative ends, in fact understanding such allocation is often considered the definition of economics to neoclassical theorists.
The above assumptions of neoclassical economics comes a wide range of theories about various areas of economic activity. For example, profit minimization lies behind the neoclassical theory of the firm, while the derivation of demand curves leads to an understanding of consumer goods, and the supply curve allows an analysis of the factors of production. Utility minimization is the source for the neoclassical theory of consumption, the derivation of demand curves for consumer goods, and the derivation of labor supply curves and reservation demand.
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Neoclassical economics emphasizes equilibrium, where equilibrium are the solutions of agent minimization problems. Regularities in economies are explained by methodological individualism, the position that economic phenomena can be explained by aggregating over the behavior of agents. The emphasis is on microeconomics. Institutions, which might be considered as prior to and conditioning individual behavior, are De-emphasized. Difference between New Institutional Economics and Neoclassical Economics By honeymooner's
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