Institutional Competition

Institutional Competition

New Thinking in Political Economy series

Edited by Andreas Bergh and Rolf Höijer

Why is competition between institutions usually viewed in a negative light, when competition is considered positive in most other economic contexts? The contributors to this volume introduce new perspectives on this issue, analytically and empirically exploring reasons for this perception.

Chapter 1: The Concept of Institutional Competition

Rolf Höijer

Subjects: economics and finance, austrian economics, institutional economics


Rolf Höijer 1.1 INTRODUCTION Increased international trade and globalization have recently focused attention on institutional competition. In contemporary discussions such ‘institutional competition’ is often understood as competition between governments over tax revenues, and it is argued that institutional competition results in the depletion of the finances necessary to sustain welfare states. While these are interesting arguments they skip several important questions. For example, are governments the only institutions whose competition might be interesting, or can institutions be discussed more generally? And before discussing what consequences might result from institutional competition; is it not worth discussing what attributes ‘institutional competition’ in itself (that is, as an independent variable) might have? For these reasons it may be worthwhile to discuss institutional competition from a conceptual point of view, before other chapters in this volume progress to discuss the consequences of competition between governments. ‘Institutional competition’ is a composite phrase, consisting of two concepts: ‘institution’ and ‘competition’. This chapter briefly discusses each of these. The chapter, however, is far from exhaustive; many conceptual questions regarding institutions are certainly left untouched.1 In Section 1.2 I discuss the concept of ‘institution’ and different categories of institutions. I suggest that more or less extensive conceptions of ‘institutions’ may be proposed (but personally favour a view that emphasizes the importance of sanctions). In Section 1.3 I discuss institutional ‘competition’ and suggest that this most importantly means a competition between systems of coordinating rules and is best analysed in standard ways of understanding competition. In...

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