The Changing Determinants of Economic Performance in the World Economy
New Horizons in Institutional and Evolutionary Economics series
Chapter 17: Private, public and third sector porganizational solutions for overcoming specific market failures
17. Private, public and third sector organizational solutions for overcoming specific market failures This chapter uses the theoretical framework laid out in the previous chapter to discuss different organizational arrangements that have been used to overcome specific market failures (governance problems) over time. Our discussion shows that there are usually many potential alternatives in the organization of specific market failures (see also Foldvary 1994). We also analyze how the recent changes in the world economy have influenced the division of labor between the different organizational arrangements. As before we take one category of market failures at a time: institutional, macroeconomic, transaction and coordination costs, structural, public goods, uncertainty, externalities, scale, scope and learning economies and structural adjustment rigidities. Institutional market imperfections Almost all modern activities of governments have also been undertaken by firms in the past (Coase 1972). This includes the provision of institutional framework for markets. Coase provides an example of the regulation of local markets in medieval England: The provision of markets is an entrepreneurial activity and has a long history. In the medieval period in England, fairs and markets were organized by individuals under a franchise from the King. They not only provided the physical facilities for the fair or market but were also responsible for security (important in such unsettled times with a relatively weak government) and administered a court for settling disputes (Coase 1990, p. 8). Also cooperatively provided private institutions were common in medieval Europe. Trade partnerships, guilds and merchant leagues provided security for...
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