Abstract

Competition, hopefully perfect, both among agents and among countries, has become the ideal in recent years. In equilibrium, it maximizes the gains from specialization and division of labour and leads to Pareto efficiency. But one knows stability to be a problem; furthermore, most markets are riddled with information asymmetries, which, among other things, cause future markets to be largely absent. In these conditions, specializing, making oneself more dependent on exchange increases one's exposure to risk. This paper argues that controlling this risk may be what hinders specialization. In many cases, agents will be sensitive not so much to "market" prices, as to the array of contractual opportunities open to them, to the fact that these opportunities will persist and to the reliability of correct fulfilment. There is an interest, not only of each agent, but of society as a whole to ensure these conditions are satisfied, an interest pursued through carefully designing social and political institutions, and ensuring they work properly, perhaps much more than through the action of market mechanisms. Increasing the number of agents in a market, making exchanges more impersonal, while it may drive towards perfect competition, can be at odds with ensuring agents against the mentioned risks.