Institutions are the humanly devised constraints that structure human interaction. They are made up of formal constraints (rules, laws, constitutions), informal constraints (norms of behavior, conventions, and self imposed codes of conduct), and their enforcement characteristics.

Together they define the incentive structure of societies and specifically economies.

Institutions and the technology employed determine the transaction and transformation costs that add up to the costs of production. (Cited from: D.C. North Nobel Prize Lecture (1993)).

One role of institutions is coping with risks that are prevalent in human interactions, though this may occur at the expense of limiting the innovation space for the members of a society (see the article on systemic risk and the regulator's dilemma at financial assets and liabilities).

In Wikipedia: Institutions.