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doing so and also using the oligopolies, the design of the product and the product
differentiation, the advertising and by using other ways of non-price competition.
These forms are being recognized by the orthodox economic conception also. ” 23
2. Institutions as Carriers of the New Institutional Economics
Development, Routledge, 1995, p 18.
38
2.1. What the Institutions Are
There are more approaches when it comes to defining the institutions. For
example, institutions can be defined as formal and informal rules for managing the
human relationships. Further, as institutions could be defined different
organizational entities, procedures and regulatory frameworks. One of the most
used definitions of institutions is the one that insists that the institutions are
connected with the extent to which the property rights are being protected, the level
of law implementation and the scope of corruption display. 24 In this sense, Douglas
North, states that one of the main objectives for the purpose of which the
institutions are formed is the objective to lower the insecurity regarding trade
between humans. 25
From the aspect of analyzing the connection between economic development
and development of institutions, the institutions could be classified into four sub
groups:
• Institutions responsible for the actual creation of market economy – in this
case it is a matter of institutions which are directly involved in the property
rights protection and that ensure contracts implementation. If these
institutions do not function well, then it is something that is reflected
through the absence of market system or through the existence of a market
system but a bad one. This group consists of judicial institutions i.e. the
entire judicial system.
• Institutions responsible for regulation – this group consists of the
institutions for government regulation in the spheres of market failure, such
as the externalities, the natural monopolies, the asymmetric information
and others. In these domains the market operates badly and therefore there
is a necessity to have government regulation. In this group we can point out
as examples the regulatory agencies in the fields of telecommunications,
transport, financial services etc.
• Institutions responsible for market stabilization – these institutions are
23
J. K. Galbraith, The Economics of Innocent Fraud, Penguin Books, 2005, p. 10.
24
Taki Fiti, Institutions and the Economic Development, Macedonian Academy of Sciences and Arts,
Skopje, 2004, p. 88.
25
John Harris, Janet Hunter, Colin M. Lewis, The New Institutional Economics and Third World