Abstract:

The Great Recession, which began at the start of 2008, revealed many weaknesses in the modern economy. Two crises are closely related to this recession: the sub-prime mortgage crisis and the global financial crisis of 2007-2008. On the one hand, economists try to describe the mechanism of the emergence of these crises and recession and to reach their core, and on the other hand, to find a recipe for not having similar situations in the future. In explaining these phenomena, two main currents of economic thought clash: one that blames market failure and inadequate or inappropriate regulation as the cause, and the other that blames government failure, both active, over- or inadequate regulation, and passive, being the result of omission. This paper aims to draw attention to how institutional economics can help in the description and diagnosis of the phenomena mentioned above. The economy can be presented as a network of contracts between many entities. Instead of referring to the concepts of market and government failure, the author postulates the introduction of a new concept: institutional failure, which will allow a multidimensional explication of crises and recession.