| In a perfect market, prices convey information from households to firms concerning what consumers want, and from firms to households about the resource cost associated with consuming each commodity (Stiglitz, J.E. 1994 Whither Socialism? MIT Press, Massachusetts, p. 8 ). However, most markets and firms operate under highly imperfect circumstances in developing countries. One of the major constraints which hampers their functioning is imperfect information on the opportunities a market offers. This characteristic of bounded information constrains especially the development of economies in transition, as institutions, that could accommodate many imperfections, are deficient. The upshot is that agents have to manage risky situations which hamper economic development. The studies focus on the functioning of markets and enterprises and, in particular, on the institutions (rules) that govern transactions. In most economic theories the organisation of markets and enterprises is taken as a black box . Often, rough simplifications are made about their functioning. In line with this view, the debate on economic development and structural adjustment during the 80 s stressed the importance of liberalisation and getting the prices right . However, experiences have shown that economic development policies need a broader scope. Not only the prices, but also the institutions should be right. Existing governance structures constrain economic development of firms and markets. Research on the respective black boxes could shed some light on how transactions are shaped and how new institutions could contribute to the further development of markets and firms. |
