How to design institutional frameworks for markets

Abstract

The key role of institutions for economic performance has recently been acknowledged in the economic policy debate. This paper aims at pointing out the main policy lessons and the recommendations to be drawn from New Institutional Economics (NIE), when considering the organization of markets. We examine, first, the domains – namely the establishment of property rights, the management of externalities and the maintenance of the competitive process – on which NIE identifies the potential impact of institutional tools on market performance. Second, we highlight the tradeoffs identified in the literature regarding the organization of an institutional system. This leads us to consider the respective virtues and drawbacks of hierarchical vs. transactional, public vs. private, centralized vs. decentralized and formal vs. informal ordering. Finally, we conclude by showing how NIE draws attention to the difficulties faced by political or economic decision-makers when they attempt to enhance market efficiency by reforming institutional frameworks.

Towards the Economics of Comparative Law: The Doing Business Debate

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Stock market institutional and regulatory framework in the Baltic States

“…Some markets are riskier than others, and authors emphasize that the institutional and regulatory system can mitigate in part that risk and make some markets attractive to the issuers -the companies willing to get listed and to the investors, who are looking to invest their money by legislation and strong and established institutional system and laws. According to E. Brousseau and A. Nicita (2010) "recent debates over global financial crises have further renewed the role of institutional setting and legal standards as "genetic" features of well-performing markets". The institutional and regulatory system needs to protect investors and companies from corruption, fraud and market abuse and to set equal operation field for involved stakeholders.…”