A Theory of Change and a Framework for Analysis

Abstract

The main point to be taken from the survey in Chapter Two is that we do not understand as much as we could about economic and institutional change in banking in the United States. The theoretical literature in economics and political science attributes reform to economic change that disrupts the political “equilibrium”, which leads to interest group competition and legislative change. Case studies of regulatory change in a variety of industries including banking, attribute the stimulus for interest group competition and legislative reform to a variety of factors including changes in economic and political conditions, technological innovation, policy failure, new ideas, and political entrepreneur ship. However, the precise connection between these factors and the motivation to pursue specific types of institutional change has not been fully developed either theoretically or empirically. While scholarship in institutional political economy emphasizes the role of transaction costs and a broader range of institutional change processes than interest group competition and legislative activity, these theories have not been applied to explain banking reform in the late 20th century in the United States. In short, the linkages between economic change and institutional change have not been fully specified and the role of other governance processes has not been considered.