Thursday, January 17, 2013

Institutions defines an Institution as:

An established method or way of performing an activity that is widely accepted throughout society. Institutions provide the rules, guidelines, and structure needed to carry out day-to-day economic activities, such as production, consumption, and exchange.
You can change the door to the institution, but you can't change the institution.  Gerry Spence

The free market distributes production based on the ability to pay, consumer preferences, imperfect competition, and imperfect information.  I was wondering how an economist would use economic models to predict price and output when individuals use an institution for their own gain.  For example, in the television series, The Wire, the police use their institutional power for individual gain.  This distorts the allocation of resources and impedes the working of the market mechanism. 

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