Global Economic Institutions

Global Economic Institutions

Global Economic Institutions

Global Economic Institutions


This book explains how global public goods should be defined, how global economic institutions work, and looks at the effect major organizations such as WTO, IMF, etc. have on finance, the environment and transport.


The good functioning of the economy is dependent on the quality of its institutions. The previous chapters have illustrated this with a number of examples. They have also made clear that the global institutional system has been able to find solutions to a number of problems, while leaving unsolved a number of others. It triggers the question why some things have worked out fine, while others have not. In other words: 'Which conditions need to be fulfilled to make institutional solutions effective?'

To answer these questions we need a clearer definition of the concepts (the tool kit) and the dynamics (the practices for using the tools). We deal with the tool kit first. The most basic tools (concepts) are property rights and transaction cost; their definition determines to a large extent the forms of production and allocation in the economy. Equally important is the concept of public good. We will present the specific characteristics of public goods in comparison with other types of goods. We will highlight in particular the international aspects of the various types, notably global public goods.

Next, we will deal with the dynamics of institution building. Questions such as: Who should take action? What would motivate actors? What forms of action are likely to be chosen? etc. Essential here is the collective character of the action. To get to a better understanding of this aspect we will describe the logic of group formation, the way groups tend to be formed and the likelihood of their being of limited size and of specialist nature.

Finally, we will describe the strategic games the major actors tend to play while seeing to the safeguarding of their interest. We will focus on the way in which they deal with transaction cost, both internal and external to the organization. Examples of such methods are commitment, delegation and incentive, and fine schemes.

We will round off the chapter with a short summary of the main findings.

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