Second-Best Institutions

14 Pages Posted: 9 Jun 2008 Last revised: 10 Jun 2008

See all articles by Dani Rodrik

Dani Rodrik

Harvard University - Harvard Kennedy School (HKS); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Date Written: June 2008

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.

Suggested Citation

Rodrik, Dani, Second-Best Institutions (June 2008). NBER Working Paper No. w14050. Available at SSRN: https://ssrn.com/abstract=1142222

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Harvard University - Harvard Kennedy School (HKS) ( email )

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