Both political and economic institutions matter for economic growth and development, and are indissolubly connected: sustained economic growth requires far-reaching opening up of the economy and polity to wide participation. This review essay draws on three books which share this view of institutions, to develop an argument on which institutions matter most, and how and why they change. Like them, it uses history as laboratory. North et al. (2009) in Violence and Social Orders focus on Britain, France and the United States, in which change was generally progressive, to study such change from the medieval to the modern period. Jan van Zanden in The Long Road to the Industrial Revolution looks at Europe, 1000–1800, in particular the Netherlands and England, finding regressive as well as progressive change. Acemoglu and Robinson also examine both directions of change, in Why Nations Fail: they range widely in space, but little before the 16th century. All three offer powerful tools of analysis. All have implications for policy-makers in advanced societies who wish to promote the development of ‘inclusive’ institutions elsewhere. Two striking surprises emerge, and one prime mover – an institution with particular power to change others – the medieval Catholic church.

This paper examines two potential mechanisms – access to credit and reduction in relational risks – through which social trust can affect R&D investments. Social trust can increase R&D investments by expanding firms' access to external finance with which they can use to fund promising R&D projects. It can also increase R&D investments by reducing relational risks that expose firms to ex-ante and ex-post holdups or expropriation risks. Using industry-level data on R&D investment intensities in 20 OECD countries, I test these mechanisms by evaluating whether more external finance dependent and relational risk vulnerable industries exhibit disproportional higher R&D investment intensities in trust intensive countries. The results indicate that external finance dependent industries and relational risks vulnerable industries experience relatively higher R&D investment intensities in trust-intensive countries. Therefore, the results underline access to external finance and reduction in relational risks as causal pathways linking social trust and R&D investments.

In many modern nation states, both rich and poor, traditional law to this day plays an important role. Given the almost universal prevalence of traditional law, it is surprising how little we know about it. This is the first study that tries to take stock of traditional law from a cross-country perspective. We are also interested in the compatibility of traditional law with state-enforced law and, in particular, with the basic traits of the rule of law. Based on a sample of up to 134 countries, we find that no ‘typical’ traditional law exists, but that traditional law varies in many dimensions such as its timely enforcement, its impartiality, and its protection of basic human rights. Societies that rely extensively on traditional law score low regarding both the rule of law and per capita income. Historical and geographical factors are important predictors of the contemporaneous reliance on traditional law. State antiquity, for example, reduces the prevalence of traditional law, as does a high share of descendants from European populations.

We examine brand building from the perspective of complex adaptive systems. Brand building is a neglected engine of capital formation, innovation and institutional change in market economies. The nature of brands and the service streams they generate have been construed too narrowly. Brands are capital: entrepreneurs use brands as market-making devices that create value and capture profit, while consumers use brands to derive psychic income and lifestyle benefits. Brands are building blocks that can be combined in production to fill perceived gaps in brand architectures and capital structures. These structures are themselves complex adaptive systems. In an era of digital technological platforms, complex generative networks are the institutional locus of brand creation and brand extensions. Innovation in brand building is a socially distributed, service-intensive and interpretive process; it entails combinatorial experiments in resource integration by heterogeneous and socially connected actors, such as entrepreneur-producers, end-users and distributors. Legal brand owners never have total control over their brands – customer networks often exercise substantial de facto control rights (economic property rights) over the use and transformation of brands. Both the entire branding system (as a form of organization) and individual iconic brands can crystallize into relatively stable institutions that orient and coordinate market behaviour.

This note comments on Hindriks and Guala's ‘unified theory of institutions’. One of the components that Hindriks and Guala seek to unify, and which they claim is unsatisfactory on its own, is the analysis of conventions that derives from the work of Lewis. I argue that the Lewisian approach provides simple and powerful explanations of many regularities in the social behaviour of humans and other animals. Those explanations can be seen as good social science even if, as Hindriks and Guala argue, they do not fit with common-sense ontology.

Cooperation is one of the basic elements of social life. It is essential for emergent social phenomena, such as the formation of families, groups, and societies. However, evolutionary forces counter cooperation. The trait of supporting others is dominated by selfish behavior. In the last few decades scientists, in particular biologists, achieved extraordinary progress regarding the question of how cooperation is possible despite of evolutionary forces. This produced an enormous amount of literature. This paper identifies and reviews the known solutions explaining cooperation under evolutionary forces. Using bibliometric methods in combination with extant review articles and traditional reviewing of original literature, it is possible to isolate 11 mechanisms of cooperation under the conditions of evolution. Developing a categorization of the mechanisms according to shared characteristics establishes a fundamental framework for institutional and mechanism design activities. Implications for future research paths are identified, in particular for the mechanism of indirect reciprocity.

This paper shows that the revolving door generates inequality of influence between financial firms and creates economic distortions. We first develop a theoretical model, introducing the notion of “bureaucratic capital” and stressing how the revolving door generates inequality in bureaucratic capital leading to inequality in profits. Then this prediction is tested, using a new database that tracks the revolving door process involving the 20 biggest US “diversified banks.” We show that regulators who supply a large stock of bureaucratic capital are more likely to be hired by the top five banks. We also develop indices of the inequality of influence between banks. We show that banks in the top revenue quintile concentrate around 80% of revolving door movements. Goldman Sachs appears as the prime beneficiary of this process, capturing approximately 30% of the total stock of bureaucratic capital.

Institutional reforms in developing countries often involve copying institutions from developed countries. Such institutional copying is likely to fail, if formal institutions alone are copied without the informal institutions on which they rest in the originating country. This paper investigates the role of human actors in copying informal institutions. At independence, all British African colonies imported the same institution intended to safeguard the political neutrality of their civil services. While the necessary formal provisions were copied into the constitutions of all African colonies, the extent to which they were put into practice varies. The paper investigates the connection between the variation in the legal practice and the presence of British colonial officers after independence. A natural experiment around compensation payments to British officers explains the variation in the number of officers who remained in service after independence. Interviews with retired officers suggest that the extended presence of British personnel promoted the acceptance of imported British institutions among local colleagues.

Financial institutions in developing economies fail to provide entrepreneurs with access to finance to grow their businesses. This severely hampers economic development in these countries. We seek to explain why and develop an argument and model based on Knight's theory, which we augment in two ways. First, by describing problems embedded in financial institutions of developing economies, for which we use the Schumpeterian view that creative destruction requires new credit to fund entrepreneurial disruption and de Soto's finding that undocumented assets possessed by entrepreneurs in developing economies cannot be leveraged as collateral to access finance. Second, we use Williamson's hierarchical institutional model to distinguish vertical interactions. The model is illustrated using the case of Uganda, a developing country in Eastern Africa. Our analysis finds that Uganda suffers from intertwined and misaligned formal and informal institutions, limited extent of codified property, and sparse access to finance. The findings prompt policymakers in developing economies to consider problems with and within financial institutions.

Our goal is to develop a theory that combines the best insights of philosophical and scientific theories of institutions. We are not committed a priori to save the commonsense notion of institution, or the thesis of human exceptionalism. We think that human cognition is important, but we do not claim that common knowledge or collective intentions are necessary for coordination. Like most of our commentators, we believe that there is continuity between simple rules of precedence and sophisticated institutions like property, marriage, or money. Finally, we argue that a satisfactory account of institutions must be compatible with different theories of normativity, specifying the social and psychological mechanisms that make it possible to override selfish desires.

This paper devises a simulation model that combines insights from the evolutionary perspective on the division of labor with ideas from the labor process literature. It characterizes technical change and the development of a near-decomposable production process as the outcome of technological search and of organizational problem solving, where the conflict between workers and firms over the organization of work plays a central role. It is argued that a near-decomposable organization of the production process also allows management to tighten its control over workers. Consequently, more extensive divisions of labor within a firm develop where the power of workers to oppose decisions by the management is low. In these scenarios the performance of firms is also highest. The model is used to interpret historical evidence about different development paths in technical change in the UK and the US at the beginning of the twentieth century.

A property right, the standard view maintains, is a proper subset of the most complete and comprehensive set of incidents for full ownership of a thing. The subsidiary assumption is that the pieces that are property rights compose the whole that is ownership or property, i.e., that property rights explain property. In reversing the standard view I argue that (1) a custom of intelligent and meaningful human action explains property and that (2) as a custom, property is a historical process of selecting actions conditional on the context. My task is to explain how a physical world of human bodies with minds that feel, think, know, and want gives rise to a custom of property with meaning and purpose. Property is primary because ideas are primary.

This short commentary basically supports the unified approach to institutions of Hindriks and Guala (2014). First, using a flow diagram over the two-by-two boxes in the space spanned by the collective-individual dimension and the behavior (play)-cognitive (belief) dimension, it argues that the classical game theory and the so-called institution-as-rule theory are both incomplete and that they should be regarded as complementary for an integrated theory of institution as a process. However, the substantive forms of institutions ought to be linguistic representations (i.e. rules and ideas) that summarize equilibrium states of play of the societal game so as to mediate them to be incorporated into minds of players as collective intentionality (i.e. shared beliefs). From this perspective this note also supports the authors’ argument to unpack the ‘Y’ term in Searle's notion of constitutive rule (that is, the regulative rule) and submit it to be based on a neo-Hegelian notion of mutual recognition (i.e. equilibrium).

Adam Smith (1982) undertook a momentous project in The Theory of Moral Sentiments (TMS): He wanted to debunk the Cartesian dichotomy between the emotions (body) and rationality (mind). The debunking of the body/mind dichotomy is a major aim of many modern neuroscientists and neuroeconomists (e.g., Damasio, 1994; Glimcher, 2004; Rustichini, 2005). Smith also wanted to demonstrate that morality is grounded on the emotions – as the title of his book indicates. So for Smith, the twin pillars of what thinkers consider to be distinguishably human, namely, rationality and morality, are actually rooted in the emotions (body). More specifically, while rationality and morality are based on the emotions, Smith showed that the emotions are rather refined and sophisticated sentiments adopted by agents in light of how they judge the actions of others and, in turn, how they should judge their own actions. Such judgments are nothing but the determination of what is the rational (optimal) solution. So, sentiments are not hurdles in the pathway of rational decisions. They are rather the building blocks of such decisions.

In 2014, the State Council of the Chinese Communist Party announced the institution of a social credit system by 2020, a follow-up to a similar statement on the creation of a social credit system issued by the State Council in 2007. Social credit ratings of the type being developed by the State Council in partnership with Chinese companies go beyond existing financial credit ratings in an attempt to project less-tangible personal characteristics like trustworthiness, criminal tendencies, and group loyalty onto a single scale. The emergence of personal credit ratings is enabled by Big Data, automated decision-making processes, machine learning, and facial recognition technology. It is quite likely that various kinds of personal and social credit ratings shall become reality in the near future. We explore China's version of its social credit system so far, compare the welfare and epistemological qualities of an ecology of personal ratings emanating from polycentric sources versus a social credit rating, and discuss whether a social credit system in an ideologically driven state is less a tool to maximize social welfare through trustworthiness provision and more a method of preventing and punishing deviance from a set of party-held ideological values.

This paper identifies political property rights and jurisdictional rivalry as two important mechanisms that drive political and economic development. After developing a general framework to explain relative performance in the ‘market for governance’, we argue that Western Europe during the High Middle Ages presented initial conditions conducive to the development of effective states. We extend the framework by analyzing city-state governance in Renaissance Italy, as well as public finance practices in early modern Germany. We conclude by discussing the implications of our argument for the literature on state capacity and economic development. The takeaway is that well-aligned political property rights and competition in the provision of governance services can promote the protective and productive state while forestalling the predatory state.

Buchanan's first writings about federalism and fiscal justice were “'Federalism’: One Barrier to Labor Mobility” and “A Theory of Financial Balance in a Federal State,” two term papers that he wrote before his dissertation and that have never been discussed before. Studying them allows us to complete the recent literature on the origins of Buchanan's fiscal federalism. We show that most of Buchanan's ideas about fiscal equity were already in these works, and also that Buchanan made other claims and used other arguments – about mobility, for instance – that were absent from the dissertation but remained important to him for a long time. We also analyze these essays in the context in which Buchanan was at that time, namely the economics department of the University of Chicago. We show how Buchanan fed on, not to say was influenced by, the courses for which he wrote these essays. This allows us to shed new light on the role Theodore Schultz, D. Gale Johnson, Henry Simons, and Roy Blough, played at the beginning of Buchanan's career.

In response to Paniagua and Rayamajhee's (2021) proposal for a polycentric approach for pandemic governance, Frolov (2022) notes that their paper focuses on preventive measures, and neglects the deeper, cognitive dimension of coproduction. In this essay, we extend the notion of coproduction to analyze the cognitive institutions that underlie social behavior during a pandemic. We analyze the role of coproduction and polycentricity in the emergence and persistence of shared mental models, including counterproductive models such as virus skepticism, conspiracy theory beliefs, and antivaccine narratives.

In ‘Max U versus Humanomics: a Critique of Neoinstitutionalism’, Deirdre McCloskey tells us that culture matters – maybe more than do institutions – in explaining the Great Enrichment that some parts of the world have enjoyed over the past 200 years. But it is entrepreneurship, not culture or institutions, that is the proximate cause of economic growth. Entrepreneurship is not a hothouse flower that blooms only in a culture supportive of commercial activity; it is more like kudzu, which grows invasively unless it is cut back by culture and institutions. McCloskey needs to tell us more about the structure of the relationship among culture, institutions, and entrepreneurship, and thus to continue the grand project begun by Schumpeter.