For a market to function well, [1] you must be able to trust most of the people most of the time [to live up to contractual obligations]; [2] you must be secure from having your property expropriated; [3] information about what is available where at what quality must flow smoothly; [4] any side effects of third parties must be curtailed; and [5] competition must be at work.
So concludes John McMillan in his magisterial and highly engaging 2002 book on institutions and markets, Reinventing the Bazaar: A Natural History of Markets (amazon). McMillan provides fantastic examples from across time and around the world on how formal and informal institutions have served in meeting these five conditions. Examples range from produce vendors in the Makola market in Accra to bidders for public construction contracts in Tokyo.
I was reading this while traveling through the DRCongo the past two weeks. Helped to open my eyes about the various third party roles that state, armed group, and traditional elites play in market exchange there.
