Two evenings ago I had dinner in Madison, Wisconsin with Daniel Bromley, editor since 1974 of Land Economics, who retired in December from the UW Dept. of Agricultural and Applied Economics, agreeing that he is "the last living embodiment of the Wisconsin Old Institutionalist Tradition," which dates back in a line through John R. Commons to Richard Ely in the late 1800s, who founded both the Economics Dept. at UW and the Ameican Economic Association. Institutionalists were largely replaced in the regular econ dept. by the 1970s, with policy-oriented econometricians led by the late Arthur Goldberger taking over (and such an orientation can be seen as an extension of the empirically based policy orientation of the old institutionalists and the empirical fixations of their predecessors in the German Historical School).
It has been usually argued that the New Institutional Economics applies neoclassical optimization theory by emphasizing the Coasean idea of the minimization of transactions costs as the central key to determining institutional forms and structures, with Oliver Williamson famously arguing for this view, also supported by fellow Nobelist, Douglass North. However, Bromley and I agreed that we may be a point where a new synthesis between the two branches may be at hand. This is symbolized by the work of Williamson's co-recipient this past fall, Elinor Ostrom. She does not dismiss the matter of transactions costs, but she does not emphasize it, and focuses more on how groups can arrange themselves to cooperate, which may involve matters of trust and so on that may not be so easily covered by a pure transactions cost approach. She also slides between the competing older biases of favoring government or favoring privately owned management of the economy by urging for local community group control of activities.