The Implications of New institutionalism for Islamic Economics in Dealing with Externalities

@Mohammad Hosein Karami / Assistant Professor, Hawza and University Research Center
                                                                                                                                  mhkarami@rihu.ac.ir

Sa’eed Goodarzi / MA, Hawza and University Research Center       saeed.goodarzy@yahoo.com

Received: 2018/10/31 - Accepted: 2019/03/02

Abstract

The adherents of new institutionalism have considered exchange costs as the factor behind the formation of Externalities, and with an emphasis on the bilateral nature of Externalities, have criticized the traditional approach to economy. Some argue that institutionalism can have implications for Islamic economics, especially in terms of the method of analyzing economic behaviors and phenomena. Using an "analytical" method, this research examines the implication of the "new institutional approach for dealing with externalities" in Islamic economics. The results of the research indicate that the above-mentioned approach does not have obvious implications for Islamic economics at least for three reasons: 1. Contrary to the institutional view, exchange costs is not the only factor in the occurrence of externalities in Islamic economics; 2. In the face of externalities in Islamic economics, in addition to maximizing the entire product (which is the goal of the new institutionalists), other goals, such as pursuit of the interests of society are also considered; 3. New institutionalists, with the criterion of economic cost-benefit, make a special decision in each case; While in Islamic economics, firstly ,the only criterion for decision-making is not economic cost-benefit; secondly, sometimes the strategy for coping with externalities is determined and unchangeable.

Keywords: externalities, New institutional economics, Islamic economics, Exchange costs, Property rights.

JEL: D62, H23, P4.