Tit-for-tat (TFT) in trade policies is a common practice. It is even enshrined in Article 22.4 of the WTO's dispute settlement process within multilateral trade integration. As such, it is a well-recognized means for promoting cooperation and for enforcing compliance with a common set of rules or institutions. However, there is equally widespread concern that a strategy of TFT degenerates into a prisoner's dilemma, in particular because of special interests ill-using it as a springboard for advancing protectionist measures and beggar-thy-neighbor policies. This paper provides a novel evolutionary perspective on TFT in trade policy regimes in that it tracks the role of special interests by parameterizing their leverage on strategies. Doing so, it provides new insights on the political economy of TFT in international institutions. Accordingly, the set of parameters for which a prisoner's dilemma emerges shrinks rather than widens, even with powerful domestic interest groups sharing a stake in protection.

This paper revisits and fine-tunes a spin-off from Knight's (1921, Risk, Uncertainty and Profit) influential distinction between risk (‘probability of unknown events’) and uncertainty (‘unquantifiable randomness’): the contrast between actuarial institutions and entrepreneurship. It contends that this opposition is not exclusive and argues that the act of insurance does not automatically reduce entrepreneurial profits. To maintain this claim, the paper emphasizes hedging and, more specifically, draws on an innovative actuarial scheme – parametric (or index-based) insurance – which, unlike indemnity-based insurance, does not rely on a damage assessment but indemnifies the policyholder according to the variation of an index. This argument sheds new light on the function habitually assigned to actuarial institutions, amends the theory of entrepreneurial profits, and integrates hedging within entrepreneurial judgment.

The recent economic crisis has re-ignited the debate over the institution of fractional reserve banking (FRB) and its possible adverse economic effects. This paper brings a so far neglected aspect of the problem to the table, namely social ontology. After addressing the scope of social ontology in relation to social metaphysics, social science and FRB, a general ontological framework for money and banking is sketched and applied to the debate between Austrian opponents and proponents of FRB. It shows that the oppositions reflect metaphysical and ontological positions on the reality of powers and dispositions, namely that a realist position in the metaphysics of powers and dispositions tends to a critical position toward FRB, whereas a sceptical position on powers and dispositions leads to a favorable position toward FRB. A final section gives further examples of how these ontological presuppositions shape other arguments in the debate.

We study the impact of democratic transitions on institutional outcomes. Using an event study method and a sample of 135 countries over the period 1984–2016, we observe that democratic transitions improve institutional outcomes. The effect appears within 3 years after the transition year. The results are robust to alternative definitions of transitions, alternative codings of pre- and post-transition years, and changing the set of control variables. We also find that both full and partial democratizations improve institutional outcomes. Transitions out of military regimes or communist autocracies do not. The effect of democratization depends on GDP per capita, education, and the regularity of the transition. Finally, the evidence suggests that the effect is particularly clear on the corruption, law and order, and military in politics dimensions of the index.

The impact of trust on economic performance has been widely explored, but the reasons for its variability across countries are not well understood. We analyse the effect of the quality of government at the regional level on individual generalized trust in a multi-country context across regions in Europe. Social phenomena are often subnational and a number of public services are provided at a subnational level; the trust of individuals living in the same country may, therefore, differ by region depending also on the quality of the local government. As a proxy of the quality of institutions, we use the European Quality of Government Index, calculated at the regional level over 27 European Union (EU) countries. The analysis conducted on data extracted from the European Social Survey 2012 refers to 142 regions from 15 EU member states. Considering the clustered nature of the data, a multilevel approach is used. The findings show that living in a region with high-quality local government positively influences individual trust. This positive association survives the inclusion of several contextual regional variables.

Not only do ideas matter in economic development but so do the institutions of intellectual debates in which ideas are formed. Scholars usually point to intellectual debates whose institutions are largely exogenous to the economy (e.g. those of religion or science). I suggest that economists should also consider intellectual debates that are initiated by economic actors. I set out to understand the role of intellectual debate in the economy and, drawing on Polanyi's concept of ‘intellectual order’, the institutions that emerge endogenously to support it. Professional communities and public intellectual spheres are shown as the most important examples. Three historical cases are given as illustrations. I conclude that these intellectual orders should be included among the fundamental ‘institutions of capitalism’, along with the catallactic institutions of property and contract.

Does ‘inner competition’ – rivalry among network members – worsen performance in a network of cooperative banks? By weakening the functionality of the network, inner competition might, in fact, endanger network-dependent scale economies. Testing our hypothesis on Italy's network of mutual cooperative banks (Banche di Credito Cooperativo – BCCs), we find a worsening of performance of both incumbents and (even more) aggressors when BCCs compete among themselves. However, the worsening is mild when BCCs compete with comparable non-mutual banks external to the BCC network. We conclude that inner competition among cooperative banks is a negative sum game and, thus, limiting it would be desirable to preserve the stability of cooperative banking networks.

The article provides an overview on the emergence of dispute resolution institutions in society and market, their pivotal role and their impact on the human activities. It introduces then recent researches conducted by a pool of scholars in order to advance the understanding of modern judicial institutions which represent the aims of this journal issue.

Ha-Joon Chang effectively criticizes the mainstream approach to the institutions of development, on theoretical, empirical and historical grounds. He also creates an opening for a different kind of discussion about institutions and development, between heterodox institutional and Marxian economics. But he overlooks the opportunity to analyze the relationship between class and the institutions of development.

Judge Posner (2010) has identified an important lacuna in law and economics, namely a tendency to ignore organization theory. I will apply the tools of organization theory to an area almost completely neglected in law and economics, forensic science. Posner points us to tools we should make use of; I am pointing to an application we have neglected. Forensic science today is characterized by a twofold monopoly. First, evidence is typically examined by one crime lab only. Second, that same lab will normally be the only one to offer an interpretation of the results of the examination it performs. Crime labs today are typically organized under law enforcement agencies, which may create conscious and unconscious biases in favor of police and prosecution. These organizational features of forensic science today encourage errors and wrongful convictions.

We examine the effect of corruption control on efficiency and its implications for efficiency spillovers by a stochastic frontier model. Our dataset covers 102 countries from 1996 to 2014. We find a positive relationship between corruption control and efficiency. If neighboring countries have difficulty in handling corruption, the country would be negatively affected by its neighbors' corruption through efficiency spillovers. We then compare the efficiency differences across countries for three time periods: 1996–2002, 2002–2008, and 2008–2014. On average, technical efficiencies slightly increased in the second period compared to the first period. In the third period, the efficiencies declined, particularly in China.

This paper examines the effect of frontier academic research on technological development and the way institutional quality influences this impact. Using a dataset that covers 18 OECD countries over the 2003–2017 period, we find that frontier academic research exerts an important influence on total factor productivity. First, frontier academic research induces technological change by directly enhancing production processes and management methods. Second, frontier academic research stimulates industrial innovations, which in turn improves productivity. Regarding the moderating effect of institutional variables on these relationships, we find that positive moderation only exists for some, not all, of the institutional variables. In that case, a higher level of these variables is found to strengthen the way countries reap benefits from frontier academic research and industrial innovation. However, the moderation of institutions is much less clear with the process that turns frontier academic research into industrial innovations.

Most American police departments claim to practice community-oriented policing (COP). The stated goals are to build partnerships between the police and the community, maintain order and quality of life, and solve problems that contribute to crime and fear of crime. However, researchers have noted how most departments attempting to implement COP have fallen short in successfully adopting the recommended reforms. This paper argues that the institutional setting in which American public policing operates leads to this result. By contrast, the institutional features of private security make its operation more conducive to achieving the goals of COP. These institutional differences include whether economic calculation is possible, the domain that is policed, and which rules are enforced.

Benito Arrunãda's paper on the transaction cost problems involved with land, provides an excellent explanation of land legal institutions. This explanation revolves around the fact that land exists through time, and that various exchanges made with respect to land at one time affect exchanges in other times. Arrunãda refers to this as ‘sequential exchange’, and he argues that sequential exchange provides the explanation for state involvement in titling and the default nature of in rem rights. Unfortunately, Arrunãda frames his argument with an inappropriate notion of transaction costs. This creates a confusing language, and a faulty interpretation of Coasean logic. Reframing the first sections of his paper using the ‘property rights’ definition of transaction costs brings brevity and clarity to the ultimate point he is trying to make.

In developing countries, lack of formal contract enforcement mechanisms is compensated by informal governance enforced through trust, kinship, reputation, etc. This paper focuses on one such setting in India's urban informal economy: the ‘day labour’ market for casual labour. We survey seven such markets in Navi Mumbai (a city on the outskirts of Mumbai), and find considerable incidence of contract enforcement problems in the form of employers reneging on wage payments to labourers. We find that payments to labourers with access to social networks and a record of work done are less likely to be reneged. Further, consistent with the literature on the limits of informal enforcement, we find that labourers in large markets, with greater linguistic and caste-based diversity, are more likely to be reneged. We argue that interventions aimed at facilitating access to formal mechanisms might help overcome some of the limitations with informal enforcement.

Theories of competitive federalism generally focus on exit as the principal mechanism for making governments responsive to the interests of those who are subject to their powers. This paper draws attention to the fact that democratic governments act in two distinguishable roles, as ‘territorial enterprises’ and as ‘club enterprises’. As territorial enterprises they define and enforce the rules and terms that apply to everybody, whether citizen or alien, who resides and/or operates within their jurisdictional boundaries. As club enterprises, they define and enforce the rules and terms of membership in the respective polity. The focus of this paper is on the implications of the fact that ‘exit’ means something different when one looks at governments’ role as territorial enterprises (exit = leaving the territory) in contrast to their role as club enterprises (exit = giving up one's membership status/citizenship).

How can we account for the persistence of inefficient policies? To answer that question, this paper focuses on the issue of food and energy subsidies in Egypt. In 2012, over 13 percent of Egyptian GDP – roughly one-third of the overall government spending – was allocated to subsidies of prices of consumer goods including fuels and food. This paper offers an explanation of the resilience of commodity subsidies to reform, which relies on the inability of the government to credibly commit to a reform path. As a dictatorship, Egypt had a small number of veto players, making policy reversals easy. When opened to a competitive political process after 2011, Egypt lacked political groups that could make credible promises about policy changes. The paper provides a discussion of how appropriately designed reforms can mitigate the lack of credibility.

Gas sector liberalization is based on opening networks to different players, so they become common pool resources. Different players using the same resources can give rise to “commons’ dilemmas”. To avoid them, rules must be established to constrain players’ use of the network. We build on the concept of common's pool resources to analyze the logic for and consequences of different institutional settings governing the use of gas pipelines. We show that rules based on regulation imply ex ante decisions that preclude players to choose the preferred output. This limitation may be removed by rules designed by market players. We also show that the mechanism to define the rules is based on the definition of network use property rights. The practical implications of our approach are stressed by comparing the US mechanism (negotiated rules) and the EU mechanism (regulated rules).

The incremental reform hypothesis implies that constitutions are rarely adopted whole cloth but instead emerge gradually from a series of reforms. The starting point, scope for bargaining, and number of reforms thus jointly determine the trajectory of constitutional history. We test the relevance of this theory for Africa by analysing the formation and reform of the independence constitutions negotiated and adopted during the 1950s and early 1960s. We provide historical evidence that independence occurred in a manner consistent with the incremental reform hypothesis. After independence, constitutional bargaining continued, although the alignment of interests inside and outside government initially favoured illiberal reforms. Liberal trends re-emerged a few decades later. We provide statistical evidence of incremental reform during both post-independence sub-periods. In general, the African countries that experienced the fewest constitutional moments and the narrowest domain of bargaining in the first decades of independence tend to have better contemporary institutions than states that began with less restrictive constitutional rules and experienced more constitutional moments.

This paper engages in a comparative-institutional analysis of the private and public risk-management programs of the drug isotretinoin, which are designed to prevent the undesired effects isotretinoin has on fetal development. This case study sheds light on the comparative effectiveness of private and public regulation in the pharmaceutical and healthcare markets. A range of evidence indicates that the private risk management program successful in reducing pregnancies and educating patients about the harmful effects isotretinoin can have on a fetus. These findings challenge a consensus found in the medical literature that the private program needed to be supplanted and contain implications for future risk-management policy in healthcare.