Term

Exam Question Lecture 1 - Why does Robinson Crusoe not need institutions to organize daily life?

Definition

- Institutions exist only when human cooperation and coordination are required. - Crusoe is Alone -> No interaction means no exchange, means no contracts - No information asymmetry, no uncertainty about others intensions - No transaction cost (Search, contracting, enforcement) - Institutions are collective devie

Term

Exam Question Lecture 1 - Explain the association between information asymmetries, transaction costs, and institutions.

Definition

- Information asymmetries arise when parties in an exchange have unequal or incomplete information about each others intentions. - Information asymmetries increase uncertainty in human cooperation & coordination - Uncertainty leads to higher transaction costs (search, contract, enforcement) - Institutions regulate and control transactions - Formal & informal rules/norms make transactions more predictable hence hedge the information asymmetries

Term

Exam Question Lecture 1 - If someone says: I read the laws, I know how things are going to be handled in country X. Are you convinced the person knows what he/she is talking about?

Definition

- No - Informal institutions plays a big role! - Informal norms (embeddedness level in our presented framework) lays the ground for formal institutions. - EX IKEA SAUDI - no formal rules, but informal about women in magazines.