Governance Institutions and Outcomes
New Directions in Modern Economics series
Edited by Mehmet Ugur and David Sunderland
Chapter 2: Governance and Asymmetric Power
1 Korkut Alp Ertürk INTRODUCTION Recent developments that broadly go under the heading ‘Post Walrasian or neo-Institutionalist Economics’ have carried contract and property right enforcement to the very centre of economic analysis. Enforcement issues that emanate from rational behaviour under less than ideal conditions, where the government can be counted on to enforce effectively neither property rights nor contractual obligations, have had increasing real-world relevance in recent decades as well. Think of issues that gained currency with globalization. Whether it is the much talked about weakening of the nation state, market reform chipping away at the developmental or welfare state as the case might be, or the shock therapy that transition economies had to go through, or, yet, the proliferation of failed states and the wars of pre-emption, in all, efficient government enforcement (along with provisioning of public goods) could hardly be taken for granted. At the level of abstract theory, renewed interest in enforcement issues poses anew the intriguing question as to what would rational behaviour and market exchange entail in the absence of effective and costless enforcement of property rights and contractual obligations of individuals towards one another. What would give order to a Hobbesian ‘state of nature’ with a Leviathan who has fallen asleep? For instance, would peaceable exchange result from the interaction of self-seeking individuals who have to rely on their own devices to enforce contracts and protect their claims on property?2 Under such conditions, how would market relations affect asymmetric power and be...
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