Market System in the Contemporary Mixed Ecnonomy

Abstract

There has been a rapid expansion in the realm of public activities aimed at regulating external effects beyond the reach of market mechanisms so as to protect citizens' livelihoods and social systems. The rising social costs in various fields are not fully reflected in the supply and demand facet of market transactions, thus delaying required institutional responses including legal ones.What is now required is a new interpretation of the interrelation between economic mechanisms and institutional settings, including a fundamental revision of the principles of market economy autonomy and of classic civil law, together with a redesigning of market economy rules to also incorporate the working of so-called“quasi-markets”.Supposing a market system circumscribed by institutions is an arena in which economic problems are solved through choices by individual members of society based on their own initiative, then a nonmarket system or legal system similarly circumscribed by institutions must be an arena in which individual actions are regulated based on social rules and in which social rules themselves are formed.The basic purpose of established linkages among individuals in a society is the generation of institutions and systems that (1) appropriately contain and properly restrict the area of influence of market mechanisms, while (2) reinforcing the power of decentralized market mechanisms and enlarging their area of effectiveness. It would seem that institutions must possess these two characteristics, though they appear regressive at first sight.Therefore, what is needed are two functional factors; effective regulation through institutional settings and efficient competition through market mechanisms. It may be necessary to redesign systems based on solutions for eliminating“institutional failure”and to internalize various social costs so as to provide economic incentives for engaging in equitable and efficient behavior.The central point of this postulation is that the settlement of rights, or the “distribution of rights, ”is based on sanctioned behavioral relations among persons that derive from the existence and use of goods and services. Visible costs and benefits are not the only determinants of behavior, but the right to benefits is also an important determinant. The assignment of different rights, or the redistribution of private rights, leads to various incentive systems and benefit/loss structures.Some economic analytical concepts, such as externalities, uncertainty, transaction cost, market failure, government failure, can be clearly understood in light of a concept of interconnectedness among property rights, incentives, institutional arrangements, and economic behavior in relation to the marketplace and various social settings.Recent issues regarding information, internal organization, networking, and new concepts, such as“economies of network”(introduced in this paper) can also be more clearly elucidated if viewd from the perspective of the interrelation between decision-making incentive systems and economic behavior in the contemporary market society, which has now become a technique in various fields.