Certainly types of laws and institutions shape economic behavior in market economies. In Eastern Europe, these general rules and market institutions are often nonexistent and a major problem is to create market economies while simultaneously building the supporting institutions. The author describes the type of institutions inherited from Soviet-style economies and shows institutional reforms and macroeconomic policies may have limited effects due to the interdependence and lack of complementary market institutions. Without a 'critical mass' of market institutions, the benefits of markets are slow in realization. The advantages of reforming existing but distorted institutions over building new ones is stressed. Copyright 1994 by Oxford University Press.
