What are some examples of economic institutions

Infrastructure

Infrastructure capital. 1. Term: Basic equipment of an economy (a country, a region) with facilities that can be counted as part of the economic capital stock, but which have the character of intermediate consumption for private economic activity.

ClassicExamples are transport networks (roads, railways and waterways) as well as supply and disposal facilities (energy, water, communication networks), without whose existence private-sector production of goods or services would not be possible, or at least only with less efficiency (business-related infrastructure).

2. Species: a) Material infrastructure (Infrastructure i.e.S .; Social Overhead Capital): Equipping an economy with such material goods.

b) Intangible infrastructure (Infrastructure in the broader sense; personal infrastructure): One also includes the development or improvement of human capital, e.g. through education, research institutions, but also health and other social services.

c) Institutional infrastructure: This also includes the institutional framework (especially the legal, economic and social order).

3. Features: Infrastructure facilities usually have some or all of the following economic characteristics: a) Investment character: This is obvious for the components of the physical infrastructure (traffic route construction, line-bound energy supply, telecommunication networks). The investment character of spending on education or on research and development (R&D) (investment in human capital) is also largely undisputed. The institutional infrastructure (e.g. general administration, jurisdiction), on the other hand, lacks characteristics of capital goods.

b) Long service life with accordingly long capital commitment.

c) These are often large investment projects with high capital requirements.

d) The projects are typical not freely divisible. For technical reasons, a minimum size or performance is usually required. In addition, the supply volume cannot be based on the marginal unit of demand, but has to be designed with an average consumption in mind. A certain range of services is provided, regardless of whether there is a corresponding demand at any time (e.g. the scheduled public transport services).

e) External effects are also typical. Improved transport connections can increase the overall attractiveness of a region and, for example, lead to higher property values ​​(positive external effects). On the other hand, the greater volume of traffic can also lead to impairment of quality of life (negative external effects).

f) The use of the infrastructure can free of charge (in Germany e.g. attending general schools) or the Payment of a fee require (e.g. fees for public supply and disposal services). Since the costs per additional service unit are generally fall (falling average costs), special pricing rules are required (peak load pricing). In addition, there are often conditions on the provider side natural monopoly which normally require state regulation with regard to the price and quality of the services, but also the security of supply.

g) From these characteristics derives the traditional view of infrastructure as one predominant public good(Collective good) in the sense of finance. A private-sector provision of services is therefore not excluded in principle, but in practice it has so far been the exception (private schools, universities, privately operated motorways). The question of the privatization of public services is an important issue in infrastructure policy today.

See also infrastructure equipment, statistical measurement.