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When Should Market-Supporting Institutions Be Established?

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  • Fleck, Robert K

Abstract

Market-supporting institutions play an essential role in successful market economies, yet much remains unanswered about when in the course of economic development those institutions should be established. This article develops a model that shows how private sector growth can depend on the time at which a country establishes institutions belonging to a specific category: those that have the potential not only to enhance efficiency, but to threaten private property rights by facilitating income redistribution (e.g., agencies to enforce regulations and tax laws). If a country has no difficulty committing to secure property rights, it is efficient to establish potentially efficiency-enhancing institutions as soon as possible. In the presence of commitment problems, however, eventually desirable institutions (even those essential for economic growth) can derail growth if established prematurely. Restricting voting rights may have positive or negative effects on growth, and there exist potential complementarities between democracy and efficiency-enhancing institutions. Copyright 2000 by Oxford University Press.

Suggested Citation

  • Fleck, Robert K, 2000. "When Should Market-Supporting Institutions Be Established?," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 16(1), pages 129-154, April.
    • Handle: RePEc:oup:jleorg:v:16:y:2000:i:1:p:129-54
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    Cited by:

    1. Robert K. Fleck & F. Andrew Hanssen, 2018. "Path dependence and transitions from tyranny to democracy: evidence from ancient Greece," Constitutional Political Economy, Springer, vol. 29(4), pages 371-388, December.
    2. Kilby, Christopher, 2005. "Aid and regulation," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(2-3), pages 325-345, May.
    3. Fleck, Robert K. & Hanssen, F. Andrew, 2013. "When voice fails: Potential exit as a constraint on government quality," International Review of Law and Economics, Elsevier, vol. 35(C), pages 26-41.
    4. Kilby, Christopher, 2005. "World Bank lending and regulation," Economic Systems, Elsevier, vol. 29(4), pages 384-407, December.
    5. Fleck, Robert K. & Hanssen, F. Andrew, 2010. "Repeated adjustment of delegated powers and the history of eminent domain," International Review of Law and Economics, Elsevier, vol. 30(2), pages 99-112, June.
    6. Rama Krishna Reddy & Frances Fabian, 2020. "Information Asymmetry and Host Country Institutions in Cross-Border Acquisitions," Management International Review, Springer, vol. 60(6), pages 909-938, December.
    7. Robert K. Fleck & F. Andrew Hanssen, 2013. "How Tyranny Paved the Way to Democracy: The Democratic Transition in Ancient Greece," Journal of Law and Economics, University of Chicago Press, vol. 56(2), pages 389-416.
    8. Benedetto, Valerio & Smith, Andrew S.J. & Nash, Chris A., 2017. "Evaluating the roles and powers of rail regulatory bodies in Europe: A survey-based approach," Transport Policy, Elsevier, vol. 59(C), pages 116-123.

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