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Second-Best Institutions

Dani Rodrik

No 6764, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The focus of policy reform in developing countries has moved from getting prices right to getting institutions right, and accordingly countries are increasingly being advised to move towards "best-practice" institutions. This paper argues that appropriate institutions for developing countries are instead "second-best" institutions - those that take into account context-specific market and government failures that cannot be removed in short order. Such institutions will often diverge greatly from best practice. The argument is illustrated using examples from four areas: contract enforcement, entrepreneurship, trade openness, and macroeconomic stability.

Keywords: Economic development; Governance (search for similar items in EconPapers)
JEL-codes: O1 (search for similar items in EconPapers)
Date: 2008-03
New Economics Papers: this item is included in nep-cwa, nep-dev, nep-ent and nep-pke
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