Payments for ecosystem services (PES) have become a popular approach to bring about improved environmental behaviors. When such programs are launched in developing countries, an additional benefit is that they are said to improve incomes for the poor. In this paper, we argue that PES schemes are not ‘market-based’. Indeed, they are not even ‘market-like’. The incentive properties said to be present in such programs are of doubtful efficacy. We suggest that PES schemes are instances of a new class of transaction – the inducing transaction – whose purpose is to make certain resource users the instruments of the desires of others. We relate the success of PES schemes to Veblenian ‘habituation’ and Peircean ‘habit breaking and habit taking’ to suggest that PES schemes face a daunting challenge if they are to bring about durable behavioral changes.

Coase always expressed dissatisfaction with neo-classical economics and advocated for a new approach. Rather than using toy mathematical models built from unrealistic, idealized assumptions, Coase preferred to study real-world contexts, including actual legal cases. He demonstrated the utility of his approach in ‘The Problem of Social Cost’. Yet almost all of Coase's contemporaries completely ignored, Coase's call for a new approach and his sustained use of legal cases to illustrate his arguments and to situate his analysis in reality. In this paper, we show that the profession interpreted Coase's seminal article exactly the opposite of what he had intended, and reduced his analytical contributions to a toy model of the exact sort he was criticizing. This ironic history of the most cited article both in law and in economics helps us understand the development of ideas within both fields and how disciplinary blinders shape intellectual progress.

This paper adds to the growing empirical evidence on the importance of habits in governing human behavior, and sheds new light on individual inertia in relation to transportation behavior. An enriched perspective rooted in Veblenian evolutionary economics (VEE) is used to construct a theoretical framework in order to analyze the processes at play in the formation and reinforcement of habits. The empirical study explores more specifically the synchronic processes strengthening the car-using habit. In addition to underlining the shortcomings of a ‘decision theory’ perspective to address urban transportation behaviors, we find that synchronic habits can have a significant effect on behavioral inertia. Our results suggest the existence of positive feedback between the development of synchronic habits, qualitative perceptions of driving times, and reinforcement of the car-using habit. The paper points out also that the diachronic dimension of habits would constitute another promising domain for further research on behavioral inertia in transportation.

Moral behavior and legal institutions coevolve. While evolutionary game theory has often analyzed the evolution of moral behavior within given institutional rules, it has not examined the coevolution of moral preferences and different institutional aspects of the decision environment. By an ‘indirect’ evolutionary approach, we analyze the coevolution of moral preferences (in the sense of trustworthiness) and legal institutions like court rulings and legal insurance. We find that preference detection capabilities crowd in morality and can thus render useless the role of courts and legal insurance as public institutions. Legal institutions become crucial for the emergence of morality, however, when information about preference types is not available. This holds true even when courts do not have superior detection capabilities than other agents.

Citizens' tax compliance should not only respond to the quality of formal institutions, but might also be culturally driven. We contribute to this literature by investigating whether tax morale, an individual's intrinsic non-pecuniary motivation to comply with taxes, is associated with the cultural values (following Hofstede's typology) held by this individual. The analysis exploits four waves of the European Values Survey (1981–2010) across 48 countries. The cultural dimensions are constructed through a polychoric principal component analysis on a set of relevant survey items consistent with Hofstede's definitions. Ordered logit estimations suggest that although values of individualism and femininity are associated with higher individual's tax morale, power distance and uncertainty avoidance are associated with lower tax morale. These results remain consistent as we increase the level of granularity of our investigation through within-region analyses and, subsequently, within-cohort analyses. We argue that these results inevitably enrich the emerging debate about cultural values and citizens' compliance with formal institutions. They also indicate that societal culture as well as individual values should be considered when designing policies aiming to improve tax compliance.

Externalities are an important concept in economic theories of market failure, aiming to justify state regulation of the economy. This paper explores the concept of externalities from a philosophical perspective. It criticizes the utilitarian nature of economic analyses of externalities, showing how they cannot take into account values like freedom and justice. It then develops the analogy between the concept of externalities and the ‘harm principle’ in political philosophy. It argues that the harm principle points to the need for a theory of basic interests to judge when a harm is imposed. Similarly, externality analyses should use such a theory of basic interests as the basis for judgments about legitimate state intervention. This proposal is defended against objections, and illustrated with a case study of the US Supreme Court's ruling on the Affordable Care Act, which shows how the judicial reasoning implicitly interprets externalities in terms of basic interests.

In the past decade, Australia has begun to privatize its irrigation system. Two general models have emerged: a single and a dual ownership structure. This paper examines the trade-offs, costs and benefits, and the attendant efficiencies regarding costs of ownership. In particular, we examine member capital investment incentives and resultant risk-bearing costs related to capital formation. The paper concludes that the dual ownership structure system has significant economic advantages relative to its single-structured counterpart.

In his article ‘Institutions and Economic Development: Theory, Policy and History’, Ha-Joon Chang rightly argues that historical evidence does not irrefutably suggest that countries characterized by free markets perform better than those in which the state plays a much more prominent role. However, his method of substantiating his claims by means of examples from different sources and periods does not convince. A more systematic and theoretically founded approach is needed. This comment focuses on the cross-section versus time-series approach and the relation between culture, institutions and economic development.

The current paper explores the municipal debt crisis that resulted from the panic of 1873, which caused a significant number of local governments in the United States to default on their debt obligations. The aftermath of that episode was one of constitutional change meant to constrain municipal governments from pursuing similar activities in the future. This paper empirically investigates the impact that these restrictions had on municipal borrowing costs, analyzed from bond yield data taken from several major US financial markets, so as to evaluate how binding and significant markets actually perceived these constraints to be. Overall, the results suggest that borrowing costs were lower for municipal governments that faced more stringent creditor guarantees regarding the issuing and repayment of debt, hard budget constraints, and also strict debt limits, while tax limits generally increased borrowing costs. These results not only conform too much of the current literature regarding the political economy of institutional constraints on public finance, they also add several important insights, especially when comparing defaulting to non-defaulting municipalities.

If those with political power benefit from corrupt institutions, rulers might not adopt the rule of law so the ruling class can command a larger share of a smaller pie. An empirical analysis reveals that the size of government is larger in those countries that enforce the rule of law. If government expenditures provide some measure of the ability of the ruling class to command resources, this suggests that those with political power could benefit from imposing a fairer and more objective legal structure. Another conjecture is that those in power maintain corrupt governments to pay off their supporters and enhance their ability to remain in power. However, the rule of law is also positively associated with political stability, so better enforcement of the rule of law also enhances the ability of incumbent governments to remain in power.

We investigate whether and how economic integration increases state capacity. This important relationship has not been studied in detail so far. We put together a conceptual framework that highlights what we call the Montesquieu, Weber and Smith channels to guide our analysis. Each of these corresponds to a series of mechanisms in three distinct institutional arenas: judiciary, bureaucracy and competition policy. To test our framework, we introduce a new panel of institutional reform measures that allow us to investigate how changes in these three arenas interact with each other and what sequence of changes yields increases in state capacity. The yearly data set covers all the 17 candidate countries to join the European Union (EU) after the 1995 enlargement. Deep integration, we find, can induce broad institutional change by providing incentives for simultaneous change in core state institutions. Bureaucratic independence and judicial capacity seem to be the key engine of the process engendered by the prospect of EU membership. Yet early and abrupt removal of external anchors might generate significant backsliding, or reversals, in domestic institutional change.

This paper offers an increasing returns model of the evolution of exchange institutions building on Smith's dictum that ‘the division of labor is limited by the extent of the market’. Exchange institutions are characterized by a tradeoff between fixed and marginal costs: the effort necessary to execute an exchange may be economized by up-front ‘investment’ in strategies to facilitate the publication and accounting of trading histories. Increases in the size of the exchange network select for higher-fixed-cost exchange institutions, beginning with autarky, through various intermediate stages, and finally to mass monetary exchange. By identifying the relevant fixed costs of money and its institutional substitutes across time, the paper both accounts for the persistence of pre-monetary exchange institutions, despite the ‘inevitability’ of monetary exchange that seems to be a feature of traditional models of the origin of money, and illuminates the forces driving the transition from one to another.

I reply to amiable criticisms by Greif, Mokyr, Langlois, Lawson, and Tabellini of my own criticism of neo-institutionalism. They say that ‘culture’ is included in neo-institutionalism – which is mistaken on any serious definition of culture, such as those involving ethics, rhetoric, ideology, and ideas. They also say that neo-institutionalism has advanced beyond Max U and Samuelsonian economics. That's also mistaken. They do not attend to the humanities, which as ‘humanomics’ can indeed acknowledge ‘culture’ and non-Max U. Their particular historical examples show the opposite of what they think is shown. Ideas, rhetoric, ethics changed, and had to change, before institutions mattered.

This is a short reply to the comments by James Robinson and Mary Shirley on my paper ‘How (not) to measure institutions’.

The problem of institutional transplantation is an important issue. In Jeremy Bentham's work, we find practical as well as theoretical proposals regarding this problem. Here, we view his work as an invitation to reflect on the overall nature of the question of institutional design and transplantation. The transfer of institutions requires knowledge of ‘place and time’ that will allow for an accommodation of the transferred institutions to their new soil. However, an awareness of this type of knowledge and thus relying on its actually being available is not viable from a practical point of view. This is due to the fact that the core of informal institutions is tacit, which imposes a fundamental constraint on the process of institutional transplantation; informal norms must co-exist with formal rules, and such merging requires some accommodation of both types of rules.

The hypothesis that institutional factors affect real economic growth has received support in both the theoretical and empirical literature. Globalization has also, though not unanimously, been found to affect growth outcomes. Bridging the gap between the two strands of the literature, this paper investigates the existence and strength of the interaction between institutional quality and globalization on real economic growth using a panel dataset covering 82 countries and spanning 25 years (1986–2010). Dimensionality reduction techniques are employed to identify key components of ‘institutional quality’: the rule of law, civil liberties and political rights. The empirical results reveal that while ‘institutional quality’ robustly and positively affects growth, the direct effect of economic globalization is not significant and the interaction effects, perhaps as a consequence, are muted over the review period. Direct and interaction effects of institutional quality and economic globalization on growth are, however, observed for the sub-sample of developing countries.

In the present paper we trace the development of property rights during the Hellenistic period (3rd–2nd centuries bce), focusing on Athens, the democratic Hellenistic federations and the Ptolemaic Kingdom in Egypt. Property rights had been already well developed and protected by courts and state laws during the previous Classical period in ancient Greece, but we argue that they further evolved during the Hellenistic period due to the introduction of a series of new political and economic institutions. We found that there was a causal relationship between the evolution of property rights and the further development of economic institutions in Hellenistic Athens and the Hellenistic federations. We finally argue that the development and adoption of market-oriented economic institutions by the Ptolemaic Kingdom should be attributed to the great influence that these institutions had in the entire Hellenistic world, which resulted in their diffusion from the democratic states to kingdoms.

This essay asks what firms are, whether they are ‘real’ social actors, and whether their actions can be traced without remainder to the actions of living people or whether there is some irreducible aspect of their existence or operation that must be attributed to the organization itself. It describes firms as ongoing, multilateral relational contracts from whose operation – that is, from performance over time by specific individuals in the roles and relationships defined by the contract – emerge the firm's idiosyncratic routines and capabilities. It emphasizes the role of entrepreneurs in the creation of firms and the close dependence of organizational capabilities on human performance, and argues that this account is consistent with a reasonable individualism that allows for social outcomes to be determined by the actions and interaction of individuals. It then proposes that firms are nonetheless institutional facts and thus ontologically subjective but epistemically objective components of reality, and concludes with directions for future work.

Institutions, the rules that govern interactions between people, evolve over time. This special issue presents a number of detailed case studies of human–environment interactions during a significant historical period. With social-ecological systems we mean a set of people, their natural and human-made resources, and the relationships among them (Anderies et al., 2004, Janssen et al., 2005).

Using an extensive dataset covering 187 countries during 1993–2011, this paper explores the impact of media freedom from government control on women's rights. To measure women's rights, we consider economic, political and social rights that capture the extent of government's respect for these rights at country level over time. A free press improves government's accountability to the society and leads to better governance. In the context of women's rights, a free press can enhance positive rights by helping women raise voices and gain recognition, and thereby making the government create a more conducive environment for women's empowerment. Further, higher press freedom can reduce the infringement of negative rights by calling for greater public accountability. Yet, a free media, while necessary, may not be sufficient in enhancing such rights, and other institutional factors related to a country's development might be essential to reap the benefit of a free media. Our estimated marginal impacts show that greater access of media (in the form of internet and mobile users) and countries with greater democratic capital enhance the impact of media freedom on women's economic and social rights, with little effect on political rights.