AN EXTENDED THEORY OF INSTITUTIONS AND CONTRACTUAL DISCIPLINE

This paper proposes a theory of institutions in which framing effects are added to the analysis. For a modern market economy, a gain frame attenuated by relations norms (a so-called weak solidarity frame) and a legality frame (in which legitimate rules are followed habitually) are deemed essential. This combination can only be achieved by a combination of (private) property rights institutions and political democracy. Applying this theory to the transformation in Eastern Europe, one comes to the conclusion that without a combined economic and political reform, the introduction of private property will lead to relatively closed networks of strong solidarity with much opportunistic behavior between networks. This is incompatible with the contractual requirements of a modern market economy.