INTRODUCTION TO MARKET ECONOMIES
Vanessa Fry
Autumn, 1995
Department of Economics
CENTRAL EUROPEAN UNIVERSITY



Course Description

This course examines the economic institutions and organisations of market economies: how they function, how well they function and the role of government in a market economy. We begin by looking at some fundamental features of institutions and their relation to economic performance. We then go on to examine institutions in practice. We look in turn at the economic role and activity of governments, the functions and organisation of financial markets, the market for corporate control and the structure of labour markets, drawing on examples from European Union countries and the USA. We then analyse the origins and consequences of the failure of economic institutions; we look at the extent and measurement of the shadow economy - economic activity that takes place outside the formal framework of legal regulation and taxation - and the criminal economy "protection", corruption and organised crime, drawing on examples from Italy and Latin America. Finally we examine the role of international organisations for economic cooperation, including trade structures, the IMF and World Bank and the European Union.

Course Objectives

Students who successfully complete the course will have achieved an understanding of some of the fundamental features of a market economy and the characteristics that contribute to its success or failure. They will have gained an insight into the role of both national and international economic institutions and formed their own assessment of their relationship to economic performance.

Assessment

Assessment will be based on a mid-term test, a take-home assignment and a final examination. Dates for these are:

mid-term test - Friday 10th November 1995 (week 5 )
assignment - due Friday 1st December 1995 (week 8)
final exam - Friday 19th January 1996 (week 1 1 )

Assignments must be handed in to the CEU office, 5B.205, by 12 noon on the day of the deadline. The mid-term test and final exam will be held at the regular Friday lecture time (11 am) in LTB8. The final mark for the course is a weighted average of course work and examination marks. The weights are:

mid-term test: 40% assignment: 20% final exam: 40%

Course Outline

There is no set textbook for the course; a list of readings is given below which we may add to as we go along.

1. The Importance of Economic Institutions.
Competition and cooperation in a market economy; the roles of property rights, information; agency issues.

D. North (1990), Institutions, Institutional Change and Economic Performance, Cambridge: Cambridge University Press, chapters 1, 12.

2. The Role of Government.
The functions of government in a market economy; alternative conceptions - the minimal state, the welfare state; comparison of the size and composition of state sector in selected OECD countries.

A. Isachsen, C. Hamilton and T. Gylfason (1992), Understanding the Market Economy, Oxford: Oxford University Press, chapter 11.

J. Stiglitz (1989), The Economic Role of the State, Oxford: Blackwell.

3 Organisation and Structure of Financial Markets.
The functions of financial assets and financial markets; information and financial markets; financial intermediation.

A. Isachsen, C Hamilton and T. Gylfason ( 1992), Understanding the Market Economy, Oxford: Oxford University Press, chapter 13.

T. Campbell (1988), Money and Capital Markets, Harper Collins, chapters 3-5, 12.

4. Regulation of Financial Markets.
Why financial markets are among the most heavily regulated in market economies; the Wall St Crash of 1929 and the US Securities and Banking Acts; reform and deregulation in the 1 1980s.

T. Campbell (1988), Money and Capital Markets, Harper Collins, chapters 13-15, 17.

5 The Market for Corporate Control.
Joint stock companies: the separation of ownership and management; the role of shareholders; mergers and takeovers; preventing the abuse of monopoly power: competition policy in the US and EU.

A. Isachsen, C. Hamilton and T. Gylfason (1992), Understanding the Market Economy, Oxford: Oxford University Press, chapter 13. ,

A. Hughes and A. Singh (1989), Takeovers and the stock market, in J. Eatwell (ed), The New Palgrave: Finance, pp 252-264.

6. Labour Market Institutions.
Trade unions and wage bargaining; strike activity in the US and EU countries in the 1980s and 1990s; employment rights and minimum wages.

A. Isachsen, C. Hamilton and T. Gylfason (1992), Understanding the Market Economy, Oxford: Oxford University Press, chapter 14.

R. Freeman (1989), "The effects of unions on the economy", in R. Freeman, Labour Markets in Action: Essays in Empirical Economics, Harvester Wheatsheaf.

7. Institutional failures: the Shadow Economy.
The concept of the shadow or black economy; tax evasion, smuggling and irregular activity; measurement methods and problems.

J. Thomas (1992), The Informal Economy, Harvester Wheatsheaf, chapters 6,10.

H. de Soto (1989), The Other Path, London: Tauris, chapters 1, 5.

8. Institutional Failure: the Criminal Economy.
Organised crime, "protection" and corruption: its origins in economic institutions and its consequences for economic performance.

J. Thomas (1992), The Informal Economy, Harvester Wheatsheaf, chapters 11, 12.

D. Gambetta (1993), The Sicilian Mafia, Cambridge: Harvard University Press, pp 1-24 and and 245-257.

9. International economic cooperation: the post-war economic order.
Economic organisations of the post-was settlement: the GATT/WTO, Bretton Woods, the IMF and the World Bank, the OECD.

A. Isachsen, C. Hamilton and T. Gylfason (1992), Understanding the Market Economy, Oxford: Oxford University Press, chapter 15.

J. Foreman-Peck (1995), A History of the World Economy: International Economic Relations since 1850 (second edition), Harvester-Wheatsheaf, chapter 12.

10 International economic co-operation: the EU.
The origins and aims of the EU; growth and convergence; the single market; the future paths of economic integration and widening membership.

N. Healey (1995), "From the Treaty of Rome to Maastricht: the theory and practice of European integration ', in N.Healey (ed), The Economics of the New Europe, London: Routledge, pp 1-41.

V. Lintner (1995), "The economic implications of enlarging the European Union", in N.Healey (ed), The Economics of the New Europe, London: Routledge, pp 170-187.



CRC-Curriculum Resource Center
CEU Budapest, Hungary
Modified: May, 1996

Fry_Int.Mark.F95Econ.v3

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