Notes on the State and on the market
Abstract
This paper discusses the reform of the State under two aspects: “what the
State must do” and “what kind of State will provide only what must be done”. First it
revises the history of the State and economy relationship, evidencing the repercussion of the
theory of incomplete markets and incomplete information. Following, the paper analyses
three groups of relations of the “principal-agent” kind: between governments and private
economic agents (regulation), politicians and bureaucrats (oversight), and citizens and
governments (accountability). The conclusion is that the performance of the State depends
on the institutional structure of all these mechanisms, and that well-structured institutions
will permit and induce government to intervene in the economy in a superior way than a
non-interventionist State.
JEL Classification: H11; H61.
Keywords: State reform structure of government public expenditure