By Arnold Kling
Henry Farrell argues against the view that institutions must reduce transactions costs in order to survive.
there are an awful lot of institutional arrangements out there that demonstrably have very little to do with efficiency or transaction cost reduction, and an awful lot to do with furthering the interests of social elites. Just look at the pervasiveness of corruption in various societies in the developing and developed world, at the practices of authoritarian regimes, and so on. Or, if you want to be tendentious (and I do), you could point to the Bush administration’s eagerness to push tax cuts that disproportionately favour the rich, and don’t do very much to improve economic growth in general, if they in fact do anything at all.
Economists might find Farrell’s arguments persuasive for political institutions without finding them persuasive for private-sector institutions. An inefficient corporation that suits the needs of an elite should ultimately lose out to a more efficient corporation.
(I found the link to Farrell’s post from Stephen Karlson)
For Discussion. Do you believe that for political institutions there is a natural evolutionary tendency for one type of institution to drive out another?