From Critiques Of Libertarianism
The idea that institutions play an import role in explaining the economic behavior of buyers and sellers, bosses and workers, investors and managers, public officials, and citizens. A leading heterodox approach.
See also Institutions.
- Countervailing Power (1 link)
- Stability and productivity are often a product of countervailing powers. For example, the three branches of US government checking and balancing each other. Market competition preventing monopoly is also an example. Important countervailing powers frequently opposed by libertarians include democracy, unionization and government regulation.
- Where Private Investment Fails [More...]
- Institutional economics. "[...] under rather common circumstances it is efficient (maximizing of profits, minimizing of long run average costs) for explicit rules, regulations, commands, organization charts, and social contracts to replace the invisible hand.
Williamson borrowed from Coase the concept of "transactions costs" the idea that the market price in any transaction may fail to incorporate the full costs to the seller or buyer because of the very conditions of exchange. In particular, whenever there is uncertainty or the need for long-term relationships, the parties to a transaction are unlikely to be able to write contracts complete enough to cover all the contingencies or hidden costs. Furthermore, incomplete contracts encourage one or the other party to behave opportunistically, deliberately withholding information or broadcasting disinformation to get a better deal. In such cases, the transaction is likely to occur under a single roof, inside a "hierarchy" (that is, firm). This solution "internalizes" or reveals to the decision makers those otherwise hidden costs. Williamson showed that there are, even in pure theory, situations in which the inefficiencies of bureaucratic organization are offset by the greater predictability of the outcome. This is showing quite a lot, at least to academic economists. It says that under rather common circumstances it is efficient (maximizing of profits, minimizing of long run average costs) for explicit rules, regulations, commands, organization charts, and social contracts to replace the invisible hand.
Bennett Harrison, "Where Private Investment Fails"