Institutional Trap

Abstract

One of the main obstacles for successful economic development is the formation of institutional traps, inefficient yet stable norms of behaviour. Domination of barter exchange, arrears, corruption and black market activities are examples of institutional traps that have hampered reforms in transition economies. Institutional traps are supported by mechanisms of coordination, learning, linkage and cultural inertia. The acceleration of economic growth, systemic crisis, the evolution of some cultural characteristics and the development of civil society may result in breaking out of institutional traps. Examples from the history of the United States and Russia are considered.

Keywords: arrears, barter, civic culture, civil society, coordination failures, corruption, institutional trap, multiple equilibria, path dependence, rent seeking, reputation, systemic crises, transaction costs, transformation costs, transitional rent, trust

JEL Classification: O1