Institutions are sets of rules that govern human interaction. The main purpose of many institutions
is to facilitate production and exchange. Examples of institutions that affect human prosperity
by enabling production and exchange include laws, business organizations and political
government. Economic governance research seeks to understand the nature of such institutions
in light of the underlying economic problems they handle.
One important class of institutions is the legal rules and enforcement mechanisms that protect
property rights and enable the trade of property, that is, the rules of the market. Another class of
institutions supports production and exchange outside markets. For example, many transactions
take place inside business firms. Likewise, governments frequently play a major role in funding
pure public goods, such as national defense and maintenance of public spaces. Key questions
are therefore: which mode of governance is best suited for what type of transaction, and to what
extent can the modes of governance that we observe be explained by their relative efficiency?
This year’s prize is awarded to two scholars who have made major contributions to our understanding
of economic governance, Elinor Ostrom and Oliver Williamson.
More...
NB: this post does not imply that I subscribe to the notion of "pure public goods" :)
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