Edited by John B. Davis and Wilfred Dolfsma
Chapter 15: Markets
Geoﬀrey M. Hodgson Economists have long been concerned with market prices and quantities. However, despite this ongoing preoccupation, they have until recently paid relatively little attention to the institutional structure of markets and the details of market rules and mechanisms. It is odd that for a period of time more discussion of such structures was carried on by those describing themselves as sociologists. Markets dominate the modern world economy, yet economists have had little to say about market institutions. Why? In part this is explained by a reluctance of many post-1945 economists to adopt historically speciﬁc deﬁnitions (Hodgson, 2001), especially with a concept so central as the market. Yet an adequate recognition of markets as institutions must also acknowledge that they are historically speciﬁc phenomena. This chapter ﬁrst considers the historical evolution of markets and several alternative deﬁnitions of them, involving diﬀerent degrees of historical speciﬁcity. It is proposed that developments since the 1980s point to a more nuanced view of markets, recognizing diﬀerent types of market mechanisms and institutions. These developments include work in economic sociology, experimental economics and auction theory. A deﬁnition of markets is oﬀered that is consistent with these developments. The astonishing lacuna No fewer than three Nobel Laureates have noted the paradoxical omission of discussion of markets institutions in the literature in economics. George Stigler (1967, p. 291) wrote: ‘The eﬃcacy of markets should be of great interest to the economist: Economic theory is...
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