Sociology of Economic Life

partners is needed, as well as institutions which assure 
agreement on exchange terms and conformity with agreed-
upon criteria. Contracts, behavioral guidelines, standardized 
scales and measures, transparency agreements, and 
enforcement by courts and authorities are examples. Private 
contract compliance may still be preferred where transaction 
costs are low. However, as commercial transactions become 
more impersonal, the role of a third party in enforcing 
prudence becomes increasingly vital (Shirley & Padgett, 
2006). 
Such institutions increase the possibility that the cost of 
participation in a financial transaction will be offset by total 
appropriation of the transaction's future benefits. This 
includes individual private property rights. Individuals are 
more willing to invest and suffer sunk costs if their property 
is secure. (Pande & Udry, 2009) show that when individual 
views of land tenure security are poor, investment in land falls 

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“Economic Systems and Institutions” 
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Ayousha Fayyaz, IJMEI Volume 08 Issue 12 December 2022 
precipitously, and productivity suffers as a result. In actuality, 
there is no change in levels of funding because security of 
tenure is assured in the few cases where land is acquired 
through contractual relationships (as opposed to the old 
informal system of land redistribution). This increases output 
and, as a consequence, economic development. 
Relationship between Economic Systems and Institutions 
The economic systems and the Institutions comprise of 
property rights, coordination and information mechanisms, 
decision-making framework, and incentives. The key parts 
are property rights and mechanisms of coordination and 
information, because the other two can be derived from these 
two. We highlighted the significance of the coordinating 
mechanism as the most important research topic in the field 
of economic systems since the degree of reliance on market 
mechanisms varies significantly, even between market 
economies. This contrasts with property rights, which do not 
vary greatly between market economies. 
Protection of property rights implies a greater role for state 
power. Groups and individuals give up some of their liberty 
in exchange for state protection; they pay charges and taxes 
to cover security costs, and the government has a monopoly 
over the use of force for public safety (Horritt & Bates, 2001). 
However, there is a risk that states with the capacity to 
enforce property rights will also expropriate property. This 
elevates the risk of business interactions rather than 
diminishing them. As a result, property rights are inadequate 
to drive economic growth and must be regulated by 
institutions that limit the extractive ability of state power. 
These are typically characterized by autonomous assemblies 
and judiciaries. Democratic institutions with political clout 
play an important part in this (Rodrik, 2001). 
As a result, institutions dictate the degree to which