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Institution-building in a decentralized, market-based economy

Author

Listed:
  • Katja Kalkschmied

    (University of Graz, Austria)

  • Joern Kleinert

    (University of Graz, Austria)

  • Manuela Mahecha-Alzate

    (University of Geneva, Switzerland)

Abstract

Institutions are pervasive and occur in many shapes. They are embodied in rules, norms, organizations and material artifacts such as money. In this paper, we analyze the most important institutions in market economies: markets and firms. We draw on Aoki's (2001) game-theoretic approach to formalize how markets and firms are built, sustained and changed in a decentralized manner by decisions of private parties. Markets and firms are therefore private-order institutions and distinctively different from pragmatic institutions which are outcomes of centralized planning by the state. Yet, the decentralized building of private-order institutions is critically influenced by the state. We discuss how legislation and specific state interventions can direct private-order institution-building in a decentralized, market-based economy. We further discuss the role of ideas for state interventions to be successful.

Suggested Citation

  • Katja Kalkschmied & Joern Kleinert & Manuela Mahecha-Alzate, 2021. "Institution-building in a decentralized, market-based economy," Graz Economics Papers 2021-10, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2021-10
    as

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    References listed on IDEAS

    as
    1. Greif,Avner, 2006. "Institutions and the Path to the Modern Economy," Cambridge Books, Cambridge University Press, number 9780521480444, Enero-Abr.
    2. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    3. Aldous, Michael & Coyle, Christopher, 2020. "The Liverpool Cotton Brokers Association and the crowning of King Cotton, 1811-1900: Examining the role of a private order institution in global trade," QUCEH Working Paper Series 2020-10, Queen's University Belfast, Queen's University Centre for Economic History.
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    Keywords

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    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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