Law and Economics

Abstract

When it is costly to transact, the role of institutions surfaces very prominently. Institutions are composed of legal regimes, rules and standards, conventions and informal traditions, and enforcement features (North, 1992). This generalized view of enforcement allows a combination of legal and informal enforcement mechanisms to establish and sustain different sets of property rights. Institutional features and property rights affect the efficiency of markets and overall economic performance. The role of law and the need for an ‘efficient’ legal system as a prerequisite for the minimization of transaction costs (TC) in modern societies deserves particular emphasis, however.