Whither the NIE
The purpose of this paper is to communicate to economists who work primarily in the original institutional economics (OlE) tradition recent developments in new institutional NIE theories regarding transitional economies that are of both relevance and interest to the OlE.! The new institutional economics (NIE) has attempted to explain variations in economic performance among different countries and regions as a function of divergent institutional arrangements. Several questions thus confront the NIE in the study of transitional economies. These questions include why some countries adopt reforms and others do not, why growth has resumed in some countries and not others, and why overall performance in former socialist countries has been so poor. NIE approaches to these problems can be divided into two rival explanations for the existence of path dependency and structural obstacles to growth with significant differences in approaches to policy in transitional economies. I have labeled these approaches as NlEl and NIE2 for convenience.2 NlEl builds on the theory of market success, explains the persistence of negative path dependency by the lack of commitment to reform on the part of governments of former socialist countries, and does not depart in any meaningful fashion from the policy recommendations of the Washington Consensus. NIE2, in contrast, builds on the theory of market failure as an explanation for the persistence of negative path dependency and thus emphasizes the need for appropriate state action in former socialist countries to define the appropriate institutional and regulatory environment. By focusing on path dependency and structural obstacles to growth, both NIE 1 and NIE2 have strayed into the territory that had previously been the province of the OlE (Rutherford 1995; Dugger 1995). Indeed, both NIEI and NIE2 differ markedly from the standard Walrasian approach to economics, though there are still clear differences