Institutions-Organisations and Institutional Change:

It is necessary to distinguish between institutions and organizations. Institutions are the rules in a society which impose humanly devised constraints to facilitate human interactions. They are composed of formal rules (statute law, common law, regulations, etc.) and informal constraints (conventions, norms of behavior, and self imposed codes of conduct, etc.), and the enforcement characteristics of both. Organisations, on the other hand, are the players i.e. groups of individuals bound by a common purpose to achieve specific objectives. They include political 6odies (i.e. political parties, the senate, a city council, a regulatory agency, etc.); economic bodies (firms, trade unions, family firms, cooperatives, etc.); social bodies (churches, clubs, associations, etc.); and educational bodies (schools, colleges, vocational training centers, etc.). The dynamics involved in the interplay of institutions with organizations becomes the source for institutional change over time. The essential characteristics of such a change may be identified in terms of the following:

• the interaction of institutions and organizations in the economic setting of scarcity introduces competition among them;
• competition would entail continued investments by organizations for development of skills and knowledge acquisition required to survive in the competitive environment.
• the kinds of skills and knowledge individuals and their organizations acquire will shape evolving perceptions about opportunities and hence
• choices that will incrementally alter institutions. The institutional framework dictates the kinds of skills and knowledge perceived to have the maximum pay-off;
• perceptions in respect of the above are derived from the mental constructs of the players involved. Those organizations which lack the resources and/or decision making ability to invest in skills advancement will wither away to become inefficient/obsolete institutions ; and
• economies of scope, complementarities, and network externalities of an institutional matrix make institutional change overwhelmingly incremental and path dependent.