Markets, Institutions, and Transaction Costs: The Endogeneity of Governance
Much of the literature contrasts the dynamics of free markets with the ‘political’ dynamics of governance. The distinction portrays the process of ‘economic’ competition as separate from the deployment of private political resources to affect the terms of competition in line with agent preferences. This yields a distorted view of the ways in which real-world economic agents compete with each other, and the market-governance/state-market dichotomy creates more confusion than it clarifies, failing to account for the empirical observation that complex market systems and institutions of governance cannot be found apart. Even as an analytical distinction, the dichotomy blinds us to the ways in which states are active constituents of the market place, and the ways in which market actors and their constituencies are part of the wider process of governance shaping the terms of competition. This paper will extend the transaction cost approach and the insights of institutional economics to demonstrate in theoretical terms that the emergence of the institutions of governance is endogenous to the utility-maximising behaviour of economic agents. Utility-maximising behaviour and conflict over the terms of competition in the market generate both the formal and informal institutions and processes of governance such as regulation and dispute settlement. The paper then presents a conceptual model for understanding the essential integration of market and governance processes, the ‘state-market condominium’, in which markets are not just about what firms do in competition with each other, but are conceptualized as an ensemble of regulatory authority operating simultaneously through policy processes and the competitive interaction of firms. Contrasting forms of market correspond to political compromises based on the preferences of interacting agents. The model hypothesises reflexively that conflict over the terms of competition in markets generates changes in actor preferences concerning regulation and governance, and that the outcome of conflict over divergent actor preferences concerning governance and regulation generates changes in market structures. Changes in preferences concerning governance therefore are intimately bound up with preferences concerning market structure. This approach brings the work of economists and political scientists closer together.
|Date of creation:||Jun 2007|
|Contact details of provider:|| Postal: Malet St, London WC1E 7HX|
Web page: http://www.worldeconomyandfinance.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Keohane, Robert O., 1982. "The demand for international regimes," International Organization, Cambridge University Press, vol. 36(02), pages 325-355, March.
- Daron Acemoglu & Simon Johnson & James Robinson, 2004.
"Institutions as the Fundamental Cause of Long-Run Growth,"
NBER Working Papers
10481, National Bureau of Economic Research, Inc.
- Acemoglu, Daron & Johnson, Simon & Robinson, James A, 2004. "Institutions as the Fundamental Cause of Long-Run Growth," CEPR Discussion Papers 4458, C.E.P.R. Discussion Papers.
- Daron Acemoglu & Simon Johnson & James Robinson, 2004. "Institutions As The Fundamental Cause Of Long-Run Growth," DOCUMENTOS CEDE 002889, UNIVERSIDAD DE LOS ANDES-CEDE.
- Acemoglu, Daron, 2005. "Politics and economics in weak and strong states," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1199-1226, October.
- Coase, R H, 1992.
"The Institutional Structure of Production,"
American Economic Review,
American Economic Association, vol. 82(4), pages 713-719, September.
- Bernard Yeung & Randall Morck & Daniel Wolfenzon, 2004.
"Corporate Governance, Economic Entrenchment and Growth,"
04-21, New York University, Leonard N. Stern School of Business, Department of Economics.
- Randall Morck & Daniel Wolfenzon & Bernard Yeung, 2004. "Corporate Governance, Economic Entrenchment and Growth," NBER Working Papers 10692, National Bureau of Economic Research, Inc.
- Gourevitch, Peter, 1978. "The second image reversed: the international sources of domestic politics," International Organization, Cambridge University Press, vol. 32(04), pages 881-912, September.
- Erik Berglöf & Stijn Claessens, 2006. "Enforcement and Good Corporate Governance in Developing Countries and Transition Economies," World Bank Research Observer, World Bank Group, vol. 21(1), pages 123-150.
When requesting a correction, please mention this item's handle: RePEc:wef:wpaper:0025. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tim Byne)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.