A different kind of institution, clearly defined and enforced property rights, is essential to a market economy. Describe the roles of various economic institutions. I nstitutions play a number of roles in a market economy.
Property rights help insure that people bear the costs and reap the benefits of their decisions.
Property rights and contract enforcement encourage investment by assuring investors that they will reap the rewards of deferring consumption and assuming risk if these investments perform well. Limiting individual liability and allowing people to pool their investment resources through joint stock corporations also increases investment and future income. Other institutions lower the costs buyers and sellers incur in their efforts to find each other in different kinds of markets. Many institutions work to promote the goals of certain interest groups. Labor union, for example, increase the negotiating power of workers in their dealings with employers.