Some economic analysis concludes that capitalist institutions tend to produce growing income inequality. Piketty (2014 Capital in the Twenty-First Century., Cambridge: Harvard University Press) is a recent example. This paper uses two different datasets on income shares of the top 10% to analyze the effect of market institutions on income inequality. The same empirical specifications give different results for the two datasets. This empirical investigation suggests that whether market institutions generate income inequality is an open question.

The history of England's institutions has long informed research on comparative economic development. Yet to date, there exists no quantitative evidence on a core aspect of England's institutional evolution, that embodied in the accumulated decisions of English courts. Focusing on the two centuries before the Industrial Revolution, we generate and analyze the first quantitative estimates of the development of English caselaw and its associated legal ideas. We achieve this in two companion papers. In this, the first of the pair, we build a comprehensive corpus of 52,949 reports of cases heard in England's high courts before 1765. Estimating a 100-topic structural topic model, we name and interpret all topics, each of which reflects a distinctive aspect of English legal thought. We produce time series of the estimated topic prevalences. To interpret the topic timelines, we develop a tractable model of the evolution of legal-cultural ideas and their prominence in case reports. In the companion paper, we will illustrate with multiple applications the usefulness of the large amount of new information generated by our approach.

One of the main contributions of Ronald H. Coase was to demonstrate how mainstream economics was based on a contradictory amalgam of costly physical inputs and free institutional resources, and to give origin to the economics of institutions: each institution is a mode of allocation and organization of economic resources that is to be investigated. In particular, none of the institutions (including the market) is a free lunch. The Coasian approach regards institutions as costly substitutes and provides a fundamental starting point for comparative institutional analysis. However, Coase neglected two issues deriving from the observation that institutions are not cost-free. First, when institutions are costly, one should not only consider their possible substitutes but also how complementary institutions affect their costs, as well as the costs of the possible institutional substitutes. Second, the economic analysis should also take into account that the transition from one institutional setup to another cannot occur in costless meta-institutions. The initial conditions may substantially affect the final institutional arrangements. Both the novelty of Coase's approach and its limits were grossly undervalued. In particular, the costly institutions assumption requires a view of economics as a historical discipline.

Hackerspaces are community-operated physical places where individuals get together to build things. While the organization itself is private, the ‘space’ that is created for individuals to work has elements of a common pool resource (CPR). The previous literature finds technology to be important in effective CPR management. Through an ethnographic study of a hackerspace, we show how technology is crucial for management of the ‘space’. In addition, we highlight how technology is used in hackerspaces to satisfy three of Ostrom's design principles for stable CPR management.

This essay presents a cross-sectoral analysis of innovation in some types of services, namely air traffic control, retail banking, and health care. The provision of such services is organized in network structures whose development relies on competences and activities that cut across traditional sectoral and industrial boundaries. The conceptual background provided by the recent synthesis approach explains these features by elaborating a new concept of system of innovation. In so doing, this approach paves the way for new understanding of innovation in services as the endogenous outcome of knowledge growth within and across technologies, organizations, and institutions.

The Chettiar banking system evolved and functioned in the absence of a government sponsored central bank in 19th-century India. I find that the underlying common social institution of caste was crucial for the workings of the banking system and effectively acted as a club. Exclusion was achieved by restricting membership by birth and the practice of endogamy. These mechanisms created the necessary incentives to provide meaningful rules as well as their enforcement. I describe and analyze the privately provided self-regulatory mechanisms of clearinghouses, inter-bank lending and information sharing. The Chettiar banking system thus adds to existing instances of self-regulated banking as well as points to the economic underpinnings of caste as an institution.

In this paper, we investigate the relationships between informal institutions – proxied for by measures of religiosity – and levels of entrepreneurial activity, both productive and unproductive, using cross-section US state-level data. In doing so, we evaluate Baumol's (1990) conjectures on the role of institutions in determining whether entrepreneurs will channel their efforts toward wealth-generating activities or toward zero- or negative-sum rent-seeking. We distinguish between measures of both the belief (e.g., the frequency of prayer) and belonging (e.g., church attendance) that have been stressed by authors such as Barro and McCleary (2003). We find that several religious variables significantly and negatively correlate with a state's productive entrepreneurship score. Alternatively, most religious variables in our data do not correlate significantly with unproductive entrepreneurship. We also find that the percent of individuals reporting as atheist/agnostic is positively associated with productive entrepreneurship.

This paper analyzes the relation of culture, institutions and economic development using the example of Indonesia. The success of economic catch-up development depends essentially on the interconnection between pre-existing informal constraints on the one hand and novel, imported institutions on the other. Hence culture, understood as the interplay between legal rules and non-legal constraints, has to be considered as an important determinant of economic development and growth. In order to adapt economic policies and thereby prevent institutional traps, which may otherwise hinder economic reforms, it is essential to understand culture and the ways in which different cultural factors support or constrain the functioning of formal institutional settings. Applying a cultural approach to economics in the case of Indonesia's economic development allows for the inclusion of complex cultural conditionality of economic behavior and puts special emphasis on the role of politicians as public and cultural entrepreneurs. Altogether, the example of Indonesia demonstrates once more the necessity to apply a cultural approach to the study of catch-up development in a globalized world.

This paper performs a systematic analysis that examines institutional fragmentation in terms of customs tariffs within states west of the Rhine from 1700 to 1815 and between states east of the Rhine from 1815 to 1871. Internal customs zones are measured in two ways: physical size and urban population. Both methods use 175 sample cities as described by De Vries (1984) in England, France, the Netherlands, and Spain as the basic unit of account. The results indicate that customs zones west of the Rhine were small prior to the French Revolution but grew dramatically from 1789 onwards. They thus provide definitive evidence of divided authority in Ancien Régime Europe. The measurement of external customs zones uses 117 sample cities in the German and Italian territories. The findings indicate a remarkable degree of institutional consolidation between states east of the Rhine over the 1800s.

This paper seeks to quantify the impact of transaction costs on cross-country economic growth. Our evidence from a cross-country panel data regression analysis reveals a persistent and robust negative effect of increasing transaction costs on the path of economic growth. The growth-enhancing effects of lower transaction costs are confirmed after controlling for the set of conditioning variables and further demonstrated in a cross-country growth model calibration. The results provide evidence that transaction costs might indeed be central to the study of cross-country productivity differences, suggest the importance of contractual relations and indicate their significant impact on cross-country economic performance over time.

While trust and group size in socio-economic processes have been well investigated separately, approaches to synergize them have been rare. After addressing basic conditions for institutionalized cooperation, the agency capability of preferential mixing is introduced in order to determine the carrier group of an institution of cooperation. That platform typically assumes a meso-size smaller than the initial arena. Habituation and generalization within and across overlapping platforms then may lead to first contextual trust. This has to be carried over from individual platforms into the larger public of the whole economy to constitute general trust. The practical relevance of this analysis is illustrated through the fact that even superficially similar economies show different socio-economic performance and trajectories. Our results suggest investigating their inner deep structure of overlapping meso-sized platforms as a critical factor.

The problem of financial stability is political and institutional, rather than narrowly economic. To achieve a more resilient financial system, we need to pay attention to the incentives of actors who have the power to act discretionarily, and to the knowledge limitations of such actors in the face of substantial complexity and uncertainty. The literature on polycentric governance and institutional resilience provides key insights that the literature on financial stability has thus far neglected. We offer an analysis based on the “design principles” for robust governance institutions proposed by Nobel laureate Elinor Ostrom. We apply these principles to banking systems and explore under what conditions a banking system can be expected to discover rules that align private incentives with broader financial stability, and generate the necessary knowledge to govern such a complex system. This perspective challenges both “microprudential” and “macroprudential” approaches, which assume a monocentric financial and banking regulator.

This paper focuses on understanding rule systems by documenting existing rules and their development in irrigation management in Nepal. We analyze the rule formation of a sample of irrigation systems based on the ADICO syntax (Crawford & Ostrom, 1995; Ostrom, 2005). Farmer-managed irrigation systems generally are autonomous in devising their own rules based on local context considering the ideas, norms and beliefs shared within the community. Rule formation in agency-managed irrigation systems, however, is mostly done by external officials. Strong rule enforcement mechanisms were found in farmer-managed systems compared with agency-managed systems. Better rule enforcement created favorable conditions for collective action among the users and ensured better performance of the irrigation systems. Results imply that the formation of new rules should fully consider biophysical attributes as well as community beliefs and ideas.

Many countries have undertaken central-bank independence reforms, but the years of implementation differ. What explains such differences in timing? This is of interest more broadly, as it sheds light on factors that matter for the speed at which economic reforms come about. We study a rich set of potential determinants, both economic and political, but put special focus on a cultural factor, i.e. social trust. We find empirical support for an inverse u-shape: Countries with low and high social trust implemented their reforms earlier than countries with intermediate levels. We make use of two factors to explain this pattern: the need to undertake reform (which is more urgent in countries with low social trust) and the ability to undertake reform (which is greater in countries with high social trust). Overall, our findings imply that culture matters for institutional change.

Much of socially relevant behaviour does not originate in isolated individuals. It is embedded in institutional arrangements. Embeddedness can be so pronounced that outsiders no longer focus on the judgement and decision making of individuals contributing to the course of action. Instead, they ascribe the behaviour to the institution, which they refer to as a corporate actor. This social practice makes it meaningful to compare isolated individuals and corporate actors undertaking the same tasks. This paper surveys the empirical literature on the question from experimental economics, social psychology, and organization science.

The recent wave of subdivision of Maasai group ranches is not an isolated event, but rather part of a broader, historical process of transformation in land relations and policy development in Maasailand. Maasai have over time supported land privatization, first by formalizing collective rights in group ranches and more recently by individualizing collective land holdings. Privatization is perceived to be an effective strategy for safeguarding Maasai land claims against appropriation by non-Maasai, the government and elite Maasai. Construction of the Uganda railway in early twentieth century and the subsequent influx of European settlers who were granted individual title to secure their investments are events that began the institutional path of privatization. The persistence and dominance of individualized arrangements regardless of other more optimal property rights options is a result of the dominance of elite interests (supported by state institutions) even as state imposed institutions replaced Maasai customary systems of land allocation.

Behavioral (e.g., consumption) patterns of boundedly rational agents can lead these agents into learning dynamics that appear to be ‘wasteful’ in terms of well-being or welfare. Within settings displaying preference endogeneity, it is however still unclear how to conceptualize well-being. This paper contributes to the discussion by suggesting a formal model of preference learning that can inform the construction of non-standard notions of dynamic well-being. Based on the assumption that interacting agents are subject to two biases that make them systematically prefer some cultural variants over others, we develop a procedural notion of well-being, based on the idea that policy should modify institutional conditions that generate dynamic instability in preference trajectories, while leaving individual choice sets unrestricted.

This contribution aims at an original comparison of development analysis with Elinor Ostrom and Esther Duflo from a methodological standpoint, scrutinising their relationship to theory and their operative research strategies. Both perspectives are investigated as case studies for a broader discussion about significant trends in economics and social sciences. Duflo and the J-PAL's approach illustrates – in its own way – new trends and some blind alleys in contemporary forms of mainstream economics, whereas Ostrom and the Bloomington school point towards the marked theoretical and methodological reflexivity of institutionalism, its sensitivity to historical diversity and openness towards social sciences. Distinct social philosophies and episteme are at stake displaying a great divide between two brands of realism and pragmatism, two relationships to development, expertise and knowledge. The paper also contrasts Duflo's methodological monism and mechanistic piecemeal analysis with Ostrom's methodological pluralism and adaptive complex systems analysis.

Individualistic values are often presented as promoting economic development; however, their links to relevant behaviour and preferences at the micro-level remain under-explored. Here we investigate the relationship between individualistic values and personal attitudes towards reporting corruption. Unlike much of the previous research which focuses on attitudes towards corruption, we analyse the micro-level mechanisms relating to one's willingness to escape the status quo and act against corruption. We also focus on a region associated with persistently high levels of perceived corruption. Our findings indicate that individualism is associated with a greater likelihood to act against corruption. The effect estimated is small but highly significant and robust to changes in estimators and specifications. We also find evidence that institutional trust and individualism strengthen each other to generate greater willingness to report corruption.

Institutional economists have analyzed permissionless blockchains as a novel institutional building block for voluntary economic exchange and distributed governance, with their unique protocol features such as automated contract execution, high levels of network and process transparency, and uniquely distributed governance. But such institutional analysis needs to be complemented by polycentric analysis of how blockchains change. We characterize such change as resulting from internal sources and external sources. Internal sources include constitutional (protocol) design and collective-choice processes for updating protocols, which help coordinate network participants and users. External sources include competitive pressure from other cryptocurrency networks. By studying two leading networks, Bitcoin and Ethereum, we illustrate how conceptualizing blockchains as competing and constitutional polycentric enterprises clarifies their processes of change.