Can markets be expected to prevent themselves from self-destruction?
Article first published online: 31 MAR 2011
© 2011 Blackwell Publishing Asia Pty Ltd
Regulation & Governance
Volume 5, Issue 4, pages 387–404, December 2011
How to Cite
Rothstein, B. (2011), Can markets be expected to prevent themselves from self-destruction?. Regulation & Governance, 5: 387–404. doi: 10.1111/j.1748-5991.2011.01108.x
- Issue published online: 2 DEC 2011
- Article first published online: 31 MAR 2011
- Accepted for publication 22 February 2011.
- economic crisis;
- efficient institution;
- social trap;
- social trust
Even if competitive markets have shown themselves to be the most efficient organizational form for creating economic efficiency, the question of how they can avoid destructive influence from agents with opportunistic motives remains unresolved. Different institutional approaches have argued that to be efficient, markets need to be embedded in a set of formal and informal institutions. Because such institutions will in the long run make all market agents better off, they are labeled efficient institutions. Contrary to what is argued in neoclassical economics, it is unlikely that such institutions will be created endogenously by market agents because the institutions are to be understood as genuine public goods. Moreover, if such institutions have been established, we should expect market agents to face a collective action problem when sustaining them, leading to the destruction of the institutions. The conclusion is that if left to themselves, markets should be understood as inherently self-destructive.