ABSTRACT
Former Communist countries have embarked on a mission to transform their planned economies into market economies. The task is immense for contrary to what some economists may believe, markets do not just happen.1 In order for anything but primitive non-simultaneous exchange to take place, in particular for international exchange and exchange in intermediate product markets, the traders must have some assurance that each side of the transaction will uphold its side of the contract. The assurance is given by the formal and informal institutions in an economy. Institutions are constraints on behavior that influence the costs of exchange and production.
