Disorganization or self-organization?

The transition from plan to market provides a rare opportunity for insight into the endogenous development of economic institutions. Economic activities during the Soviet regime were coordinated by a central authority. These coordinating mechanisms were disrupted during the transition period, leading to an increase in the transaction costs for firms. Many researchers emphasize the negative impact of this 'disorganization' on output behavior at the beginning of transition. This paper examines one of the key institutions that have emerged spontaneously in an environment characterized by widespread 'disorganization'. It documents the emergence of business associations at the beginning of transition and provides evidence that these new coordinating institutions mitigated the initial output decline.