Sunday, September 13, 2009

Transactional Insitutions

Markets are institutions organized around economic and financial transactions. This is true for the markets like the Bolivian vegetable market shown above and stock markets, but also for labor markets, financial markets, and markets within a specific industry in intermediate goods and services.

It occurs to me that there are other institutions organized around other kinds of transactions. Let me give an example.

Some years ago I was consulting in Mexico where the World Bank was financing the creation of a number of firms that would help improve the interface between government financed technological centers and the industrial firms that might utilize their technologies and technological services. I suggest that the small consulting industry could be regarded as a mechanism to improve information for the institution connecting the sources and users of the technology. If the firms paid for the technology, that institution could have been regarded as a market, but it would be no less an institution organized around transactions were it to be tax-financed provision of public goods to industry.

I suggest that there might be a lot of institutions organized around transactions that have similarities to markets, but are not traditional markets. For example, think of the World Wide Web as an institution that allows transfer of information from those with the knowledge to those seeking that knowledge, and Google and Wikipedia as means to improve the functioning of the World Wide Web by helping seekers to find the information that they desire, all without money changing hands nor an explicit return from the consumer of the information to its source. Another example might be the institutions that help non-profit organizations and volunteers find each other.

Lets go further, and consider mariage, and the way in which partners find each other to marry. In some cultures there remain marriage brokers. In Ireland. each year in Lisdoonvarna there is a Matchmaking Festival in which aspiring grooms and brides go to find partners. In India, people have been surprised by the rapid evolution of community Internet centers as nodes in regional networks for matchmaking. I would suggest that contracting marriage is a transaction and that the evolving institutions allowing prospective brides and grooms to find each other are "transactional institutions."

The extension of economics to improve the understanding of non-market transactional institutions might be very helpful to development planners. Indeed, simply recognizing that institutionalizing new sets of relationships for non-market transactions is the creation of new "transactional institutions" might be helpful in many development contexts.

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