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Failing Institutions Are at the Core of the U.S. Financial Crisis

  • Yochanan Shachmurove

    ()

    (Department of Economics and Business, The City College of The City University of New York,and Department of Economics, The University of Pennsylvania)

This paper uses the structure of institutional economics to provide an explanation of the recent U.S. financial crisis. Institutional theory suggests that a county’s political, legal, social, and cultural institutions determine and characterize its economy. An institutional perspective of financial crises therefore incorporates unquantifiable aspects of the real world. Different institutions interacted to ignite and fuel the global crisis. A thorough understanding of all of the legal, political, and cultural institution that encompass a society, as well as their role in the market, is needed to explain and avoid the reoccurrences of financial crises.

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File URL: http://economics.sas.upenn.edu/sites/economics.sas.upenn.edu/files/12-040_0.pdf
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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 12-040.

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Length: 18 pages
Date of creation: 16 Oct 2012
Date of revision:
Handle: RePEc:pen:papers:12-040
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  1. North, Douglass C., 1993. "Economic Performance through Time," Nobel Prize in Economics documents 1993-2, Nobel Prize Committee.
  2. Daron Acemoglu & James A. Robinson, 2008. "Persistence of Power, Elites, and Institutions," American Economic Review, American Economic Association, vol. 98(1), pages 267-93, March.
  3. Douglass C. North, 2005. "Introduction to Understanding the Process of Economic Change
    [Understanding the Process of Economic Change]
    ," Introductory Chapters, Princeton University Press.
  4. North, Douglass C., 1989. "Institutions and economic growth: An historical introduction," World Development, Elsevier, vol. 17(9), pages 1319-1332, September.
  5. Oliver E. Williamson, 2003. "Examining economic organization through the lens of contract," Industrial and Corporate Change, Oxford University Press, vol. 12(4), pages 917-942, August.
  6. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
  7. Robert J. Shiller, 2006. "Tools for Financial Innovation: Neoclassical versus Behavioral Finance," The Financial Review, Eastern Finance Association, vol. 41(1), pages 1-8, 02.
  8. Polterovich, Victor, 2007. "Institutional Trap," MPRA Paper 20595, University Library of Munich, Germany.
  9. Simon, Herbert A., 1984. "On the behavioral and rational foundations of economic dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 5(1), pages 35-55, March.
  10. Alberto Manconi & Massimo Massa & Ayako Yasuda, 2010. "The Behavior of Intoxicated Investors: The role of institutional investors in propagating the crisis of 2007-2008," NBER Working Papers 16191, National Bureau of Economic Research, Inc.
  11. Jeffrey D. Sachs, 2003. "Institutions Don't Rule: Direct Effects of Geography on Per Capita Income," NBER Working Papers 9490, National Bureau of Economic Research, Inc.
  12. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
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