Economic Analysis of Institutions and Systems

234 Pages·1995·11.728 MB·English

by  Svetozar Pejovich (auth.)

- ECONOMIC ANALYSIS OF INSTITUTIONS AND SYSTEMS
International Studies in Economics and Econometrics
VOLUME 33
The titles published in this series are listed at theeod oUhis volume.
Economic Analysis of
In stitutions and Systems
Svetozar Pejovich
Department of Economics,
Texas A&M University,
College Station, Texas
KLUWER ACADEMIC PUBLISHERS
DORDRECHT / BOSTON / LONDON
Library of Congress Cataloging-in-Publication Data
Pejovich. Svetozar.
Economic analysis of institutions and systems I by Svetozar
Pejovich.
p. em. -- (International studies in economies and
econometrics)
Inc 1u des index.
1. Institutional economies. 2. Right of property. 3. Capital ism.
4. Social ism. I. Title. II. Series.
HB99.5.P45 1995
330--dc20 94-40239
ISBN-13: 978-94-011-6485-6 e-ISBN-13: 978-94-011-6483-2
DOl: 10.1007/978-94-011-6483-2
Published by Kluwer Academic Publishers,
P.O. Box 17, 3300 AA Dordrecht, The Netherlands.
Kluwer Academic Publishers incorporates
the publishing programmes of
D. Reidel, Martinus Nijhoff, Dr W. Junk and MTP Press.
Sold and distributed in the U.S.A. and Canada
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In all other countries, sold and distributed
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All Rights Reserved
© 1995 Kluwer Academic Publishers
Softcover reprint of the hardcover 1s t edition 1995
No part of the material protected by this copyright notice may be reproduced or
utilized in any form or by any means, electronic or mechanical,
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retrieval system, without written permission from the copyright owner.
To my parents
TABLE OF CONTENTS
Preface ~
PART ONE: INSTITUTIONS AND PROPERTY 1
RIGHTS
Chapter 1 The Nature of Economics 3
Chapter 2 The Rise of Capitalism and Socialism 7
Chapter 3 Institutions 29
Chapter 4 Law and Institutions 45
Chapter 5 Property Rights 65
PART TWO: PROPERTY RIGHTS, EXCHANGE, 77
AND PRODUCTION
Chapter 6 The Coase Theorem and 79
Transaction Costs
Chapter 7 Private Property Rights, 91
Exchange, and Production
Chapter 8 Restrictions on Private Property 121
Rights, Exchange, and Production
Chapter 9 Non-Private Property Rights, 137
Exchange, and Production
Chapter 10 Institutions and Economic 155
Development
vii
Vlll
PART THREE: THE FIRM 169
Chapter 11 The Firm and Contracts 171
Chapter 12 Capitalist Firms 189
Chapter 13 Socialist Firms 209
Index of Names 229
PREFACE
The cold-war years (1945-1989) had two interrelated effects on
teaching and research in comparative economic systems. First,
Economic systems were perceived a contest between capitalism and
socialism. Second, teaching and research during cold war years
emphasized macroeconomics, economic growth and all sorts of
statistical comparisons between the United States and Western Europe
on the one hand, and (mostly) the Soviet Union and Yugoslavia on the
other.
In the late 1980s, East Europeans crossed the threshold of
fear and forced their leaders to abandon both Marxism as a state
religion and communism as a hazy vision of things to come. With the
theory of history dead and buried, the cost of IIbuildingll socialism has
increased relative to the present value of its expected future benefits.
It is perhaps time to say: Economic Systems are Dead; Long Live
Economic Systems.
TIle purpose of this book is to redirect study of what we used
to call comparative economic systems toward analysis of the history
and development of institutions, and the effects of altemative
institutional arrangements on economic behavior. To this end. the
book internalizes into a theoretical framework: (i) the effects of
alternative institutions on the costs of transactions and incentive
structures, (ii) the effects of the costs of transactions and incentives
on economic behavior, and (iii) the evidence for refutable implications
of those effects. In the process, it provides the logical premises for
various institutions from which refutable implications can be deduced.
TIle book reveals my academic debt to a number of scholars,
but especially to Armen Alchian. James Buchanan. Douglass North.
and Richard Posner. I only hope that the book does not misrepresent
(by much) their research.
Over a long period of time, the Earhart Foundation has
supported my research, and, most importantly, helped me to fonnulate
ix
x
and stay on my own research-path. I couldn't have done it without the
Foundation's support. I am also grateful to the Lynde and Harry
Bradley Foundation for the financial support of my research on this
book. An opportunity to spend several months at the International
Centre for Economic Research in Turin, Italy gave me much needed
time to plan this project.
I want to thank Enrico Colombatto from the University of
Turin for his support and encouragement in writing this book, Angelo
Petroni from the University of Bologna for teaching me that
economists could gain a lot from listening to philosophers of science,
and to my dear friend loze l\iencinger from the University of
Ljubljana for so many useful discussions during our long walks and
even longer dinners in Turin. Special thanks to lohn Moore from
George Mason University for inviting me to several conferences
dealing with issues important to this book.
Sally Antrobus provided valuable editorial assistance, Susan
Dederich-Pejovich, my wife, provided "on-site" technical support for
my computer, and my whole family let me work in peace, while giving
loving support and understanding.
Svetozar Pejovich
College Station, Texas
Summer 1994
PART ONE
INSTITUTIONS AND PROPERTY
RIGHTS