Markets, Crises and Policies
Abstract: To analyze how states influence the building of institutional frameworks, we contrast behavior establishing institutions (BEI) with rights establishing institutions (REI). The former prescribe agents’ behaviors, while the later allows them to make decisions. REI are economically superior to BEI because they decrease the cost of innovation and of organization. However, they can lead to critical discrepancies between observed distribution of wealth and power and expected one, which ends up in a crisis: a socially non acceptable result. State intervention can be called either for correcting the distribution of wealth, or for redesigning components of the institutional framework to get a more acceptable result. We highlight a cumulative process where BEI and REI develop successively: a phase of liberalization generating processes of regulation and vice versa. This allows understanding why open access societies combine open competition with a considerable body of regulation and a high level state intervention. Our framework also points out possibilities of bifurcations due to the choices made when disequilibria and crises occur. We then propose explanations for the emergence and evolution of alternative socio-political models.
