ABSTRACT
The historical laboratory in which transition experiments are taking place has revealed that liberalization, stabilization, and privatization may be necessary but are by no means sufficient conditions for creating 'market economies'. The New Institutional Economics is acknowledged to be an indispensable intellectual framework for understanding economic development and economies in transition. North suggests that the outcomes of revolutionary changes will depend on 'the ongoing tension between informal constraints and the new formal rules'. In 1986, Macaulay observed that 'theories about the state or society tend to overlook the remarkable ability of individuals to cope with attempted regulation by evasion, manipulation, conscious ignorance of the law, and bargaining'. In 1997, Eggertsson points out that 'the primary weakness of the economics of institutions is its limited understanding of the amalgam of formal and informal rules and their attendant enforcement mechanisms'. There is a growing literature expressing concern about the prevalence of illegal activities and their corrosive effects.
