NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Second-Best Institutions

Dani Rodrik

NBER Working Paper No. 14050
Issued in June 2008
NBER Program(s):   EFG   PE   POL

The focus of policy reform in developing countries has moved from getting prices right to getting institutions right, and accordingly countries are increasingly being advised to move towards "best-practice" institutions. This paper argues that appropriate institutions for developing countries are instead "second-best" institutions -- those that take into account context-specific market and government failures that cannot be removed in short order. Such institutions will often diverge greatly from best practice. The argument is illustrated using examples from four areas: contract enforcement, entrepreneurship, trade openness, and macroeconomic stability.

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Document Object Identifier (DOI): 10.3386/w14050

Published: Dani Rodrik, 2008. "Second-Best Institutions," American Economic Review, American Economic Association, vol. 98(2), pages 100-104, May. citation courtesy of

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