A New Institutional Economics Perspective of the Chaebol
Chapter 5: The Role of Institutions and Government in the Evolution of Chaebols
1. INTRODUCTION This chapter analyzes the economic and political environment under which the chaebols emerged, as well as their effect on the behavioral and business pattern of the chaebol. Here, we also provide a glimpse of the future prospects for their structural change. Discussions in this chapter should shed more light on the nature of the first stage decision-making process of chaebol formation as well as the second stage decision-making process of chaebol behavior described in the previous chapter. Throughout the chapter, it is important to bear in mind that a capitalist free market economy is, simply, an economic system where the spontaneous market order guides resource allocation under the given institutional framework in place. Hence the efficiency of market determination will depend largely on the characteristics of such institutions that constrain the way the market order evolves endogenously. Economic institutions in a broad sense include rules and conventions that regulate the behavior and decision-making processes of economic agents. It is a recognized fact among economists that one of the most important institutions in the market economies is the property rights system. Market efficiency greatly hinges on the nature of the property rights system in place because it constrains the workings of the market system. Recently, new-institutionalism1 has emerged as an important new perspective in the field of economics. This new and exciting economic school of thought re-examines the importance of economic institutions and emphasizes institutional problems as fundamental and deserving of economists’ urgent attention and analyses. Coase (1937, 1960,...
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