Since the 1990s, Sunstein, Jolls, and Thaler have questioned the perfect rationality assumption in law and economics (L&E) and introduced a behavioral approach. But Gregory Mitchell has criticized behavioral law and economics (BL&E). He argues that much of the scholarship within the field describes psychological research as if it provides general laws of thought and behavior rather than insights conditional on the setting, on the characteristics of subjects, and on the specificity of the task in hand. Human heterogeneity is not adequately included in models developed under behavioral assumptions of this kind. This paper argues that Mitchell's work contributes to develop a cognitive approach to Law closer to the cognitive theory of institutions and to the Original Institutional Economics (OIE). Mitchell's contextualist approach seeks to identify the specific conditions under which irrational behavior occurs and to understand when and how it can be remedied.

This essay reviews three prominent sociological studies of firms and markets: Neil Fligstein's The Architecture of Markets, Glenn Carroll and Michael Hannan's The Demography of Corporations, and Harrison C. White's Markets from Networks. The review essay discusses how economic sociology focuses on processes ignored by economists. However, research findings and theoretical developments are rarely reconciled or integrated with economic research. The conclusion discusses possible links between the varying schools of economic sociology and heterodox economic traditions such as contemporary institutional economics.

James M. Buchanan's politics-as-exchange retrospectively conceptualized formal institutions emerging from bilateral agreements to establish reciprocal rights and prospectively guided constitutional entrepreneurs to broker Pareto-superior reforms that had unanimous consent. Buchanan believed this conceptualization of politics-as-exchange was necessitated by his ontological–methodological individualism and would initiate a new era of consensual politics, but it is argued it led to illiberal conclusions that reflected dissonance between his Kantian individualism and Humean subjectivism. It meant, for example, that slavery was characterized as a bilateral agreement between very unequal parties and it is argued it logically implied abolition required the consent of slaveowners. But Buchanan's ontology was compatible with the introduction into his framework of a right of exit that would have differentiated between exchanges with and without the sword to produce a consistent liberal constitutionalism.

More than 30 years ago, I engaged in a debate with Oliver Williamson over the theoretical structure of transaction cost economics (TCE). This debate had its origins in our conflicting views of the labor-managed firm (LMF). Williamson believed that such firms were rare due to their inefficiency while I believed they might be rare due to market failures. Here I clarify my criticisms of TCE and contrast Williamson's view of the LMF with my own approach. I discuss empirical evidence that can distinguish between these two approaches and take up Williamson's challenge to identify policy interventions that could yield net social gains.

Several existing studies have documented a negative relationship between firm financial constraint and export activities but do not attempt to examine factors that could attenuate this relationship in Africa. In this paper, we examine the effect of financial constraint on exports in Africa and explore how the level of trust in countries where firms are located shapes this relationship. We combine the World Bank Enterprise Surveys with different measures of country-level personal and interpersonal trust computed from the Afrobarometer surveys of 19 African countries. Our results show that financial constraints negatively affect export activities. However, this negative effect is attenuated for firms that are located in trust-intensive societies. These findings are robust to different specifications. Interestingly, we find that small and medium-sized enterprises in Africa are more likely to be affected by financial constraints but also more likely to benefit from a higher level of both personal and interpersonal trust, while for larger firms only interpersonal trust matters.

This scoping paper addresses the role of financial institutions in empowering the British Industrial Revolution. Prominent economic historians have argued that investment was largely funded out of savings or profits, or by borrowing from family or friends: hence financial institutions played a minor role. But this claim sits uneasily with later evidence from other countries that effective financial institutions have mattered a great deal for economic development. How can this mismatch be explained? Despite numerous technological innovations, from 1760 to 1820 industrial growth was surprisingly low. Could the underdevelopment of financial institutions have held back growth? There is relatively little data to help evaluate this hypothesis. More research is required on the historical development of institutions that enabled finance to be raised. This would include the use of property as collateral. This paper sketches the evolution of British financial institutions before 1820 and makes suggestions for further empirical research. Research in this direction should enhance our understanding of the British Industrial Revolution and of the preconditions of economic development in other countries.

Recent work has argued for a Hayekian behavioural economics, which combines Austrian economics with behavioural economics as developed by Kahneman, Thaler, Sunstein, and others. We suggest that this hybrid is misguided because it relies on individual cognitivism. This view of cognition is incompatible with the Hayekian view of cognition which treats rationality as an emergent phenomenon of social interaction in an institutional environment. This Hayekian view, which we call epistemic institutionalism, is compatible with an alternative prominent perspective in psychology, that of the extended mind, sometimes known as 4E cognition. We demonstrate how the Hayekian perspective on individualism, the price system, and the evolution of rules can be connected to the extended mind programme, through concepts such as the coupling of the individual and their environment, cognitive off-loading, and affordances. We suggest that this alternative combination of Austrian economics and psychology provides a more fruitful way forward, especially because it foregrounds the processes of learning, error-correction, and institutional orders, rather than choice, bias, and individual rationality. To explain why Austrian economists have been receptive to behavioural economics, we distinguish epistemic institutionalism from the (radical) subjectivist approach, which shares key assumptions of individual cognitivism.

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.

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.

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.

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.

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.

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.

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.

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.

Economic experiments carried out in the computer laboratory seldom account for broader real-world contextual variables that affect humans as learning and norm-adopting individuals. The here presented ‘within-culture across-country’ design of a standard trust experiment reveals an interesting phenomenon which most probably is related to the context that people live in: South African communities expressed extremely low trust while participants from Namibia exhibited high trust, but low reciprocity, although both share the same ethnic background. The country effect between the two regions remained large even after using a matching estimator to substantiate that these differences were not driven by sample selection bias. Qualitative evidence from the study area suggests that corrupt local institutions have led to lower trust in South African communities while participants in Namibia seemingly applied a deep-rooted behavioural norm of the Nama society which they perceived to be appropriate for the exchange in the experiment.

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.

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.

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.