Law, Informal Rules and Economic Performance

Law, Informal Rules and Economic Performance

The Case for Common Law

Svetozar Pejovich and Enrico Colombatto

Capitalism has outperformed all other systems and maintained a positive growth rate since it began. Svetozar Pejovich makes the case within this book that a major reason for the success of capitalism lies in the efficiency-friendly incentives of its basic institutions, which continuously adjust the rules of the game to the requirements of economic progress. The analysis throughout is consistent and is supported by evidence. Key components of the proposed theory are the rule of law, the market for institutions, the interaction thesis, the carriers of change, and the process of changing formal and informal institutions.

Chapter 1: The Game and the Rules of the Game

Svetozar Pejovich and Enrico Colombatto

Subjects: economics and finance, institutional economics, law and economics, public choice theory, law - academic, law and economics, politics and public policy, public choice

Extract

Economic life involves two levels of social activity: the development and maintenance of institutions, or the rules of the game; and exchange within the prevailing institutional framework, or the game itself. This chapter discusses some basic and well known principles of economic life at both levels of social activity. While discussion is elementary, it is also necessary for better understanding of the rest of this book. The Game: Some Fundamental Economic Concepts No matter how affluent or poor we are as individuals or as a nation, what we want exceeds what is available. Ask yourself if there is something that you would like to have but have not been able to afford. You can ask others. They will probably say they have many desires that are yet to be satisfied. A high school teacher might believe that wealthy corporate CEOs have satisfied all their wants. Before speaking, however, the teacher should ask the CEOs if they really have everything they want. On the issues of tastes, wants, desires and feelings, we can only speak for ourselves. And speaking for ourselves, we know that we have unsatisfied wants. The fiasco in the Garden of Eden, the mercilessness of nature, too many people, and many other causes have been blamed for giving us fewer goods than we believe we should have. Whatever or whoever might be causally responsible for this sad but indisputable fact of life, the gap between what we want and what is available does exist. The desire for more...

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