MARKET AND GOVERNMENT FAILURES IN HISTORICAL INSTITUTIONAL ANALYSIS BY DOUGLASS C. NORTH AND AVNER GREIF

Abstract

Economic historians Douglass C. North and Avner Greif use the tools on the New Institutional Economics and Game Theory and draw the attention of economists to the fact that both markets and governments are institutional constructs created by opportunistic individuals and groups with different interests. They show how exceptionally many are the social and cultural conditions of credible commitment are necessary for the emergence of efficient markets and government. In contrast with standard economic approaches, from the historical-institutional point of view it is the efficiency of some markets and governments should be treated as “deviations” from a norm and states of “failure” – as a starting points in analyses of markets and governments. This observation bears important implications both for contemporary institutional engineering and for economic theory, and even for teaching economics.