Many institutions, large or small, make their decisions through some process of deliberation. Nonetheless, deliberating institutions often fail, in the sense that they make judgments that are false or that fail to take advantage of the information that their members have. Micro mistakes can lead to macro blunders or even catastrophes. There are four such failures; all of them have implication for large-scale institutions as well as small ones. (1) Sometimes the predeliberation errors of an institution's members are amplified, not merely propagated, as a result of deliberation. (2) Institutions fall victim to cascade effects, as the initial speakers or actors are followed by their successors, who do not disclose what they know. Non-disclosure, on the part of those successors, may be a product of either informational or reputational cascades. (3) As a result of group polarization, deliberating institutions sometimes end up in a more extreme position in line with their predeliberation tendencies. Sometimes group polarization leads in desirable directions, but there is no assurance to this effect. (4) In deliberating institutions, shared information often dominates or crowds out unshared information, ensuring that institutions do not learn what their members know. Informational signals and reputational pressure help to explain all four errors. The results can be harmful to numerous institutions, including large ones, and to societies as a whole. Markets are able to correct some of these problems, but cascade effects occur there as well.

Did colonial policies in India deliver excessive returns to British investors? We answer this question using annual data on Indian securities trading on the London Stock Exchange. We present new series on market capitalization, capital gains, dividend yields, and total returns of railway securities from 1880 to 1929. The average annual total return on the largest and most important Indian railway securities was 3.7%. These returns were not excessive by any financial standard. Indeed, they were lower than the return on railway securities in North America, Latin America, and Asia. We also undertake an event study analysis to assess whether Indian railways significantly benefited British investors. When the Government of India purchased large positions in the private railway companies between 1880 and 1910, there were opportunities for profit making. However, we find no evidence of abnormal investor returns in the years leading to the purchase of railway companies. Broadly our findings call into question the extractive nature of colonial railway policy.

After an esteemed academic career as a chemist, Michael Polanyi switched to the social sciences and made significant contributions to our understanding of the nature and role of knowledge in society. Polanyi's argument concerning knowledge led him to emphasise the vital importance of decentralised mechanisms of adjustment and coordination, including markets. His article ‘Collectivist Planning’ (1940) enters into debates about the possibility (or otherwise) of centrally planning scientific and economic activity. This early article also foreshadows post-war debates within the Mont Pèlerin Socierty (formed in 1947) concerning the economic role of the state and the future of liberalism.

Heterodox economic approaches such as Austrian economics and market process analysis rely upon a less formalistic approach to rationality than neoclassical frameworks. We argue such looser formalism provides a unique opportunity for interdisciplinary engagement to investigating and understanding social institutions, outcomes and complex phenomenon. This introduction briefly summarizes the contents of this invited issue as effective examples of such interdisciplinarity.

This article combines cross-national statistical analysis and in-depth historical case studies of Argentina and Chile to explore the relationship between two crucial dimensions of state capacity. We show that information capacity contributes to the development of fiscal capacity. When states have accurate information about their subject populations, territories, and economies, they are more effective at mobilizing revenues. In developing this argument this article makes three broader contributions. First, while existing scholarship either treats distinct dimensions of state capacity as separate entities, or simply assumes that they complement each other, our findings urge scholars to treat state development as sequential and to further investigate how multiple dimensions of state capacity are interrelated. Second, the paper suggests a broader underlying set of mechanisms – economies of scope – which connect these dimensions, and explores them in the specific context of how information capacity facilitates fiscal capacity. Third, we join the scholarship on the importance of societal compliance in the creation of the fiscal state, but with a focus on elite cooperation with the state's information collection efforts, which we show to be crucial to tax state development.

New institutional economics (NIE) studies institutions and how they emerge, operate, and evolve. They also include organizational arrangements, intended as modes of governing economic transactions. Universities offer an exciting ground for testing the role of different institutional arrangements (governance forms) in coordinating (academic) transactions. In a context of contractual incompleteness where production is characterized by a highly specialized nature and requires the cooperation among co-essential figures, we argue that shared governance models (versus models with more concentrated authority) foster idiosyncratic investments in human capital and promotes performance. From the evolutionary viewpoint, we explain why institutions based on shared governance have developed within universities. The normative question of how universities should be governed is a debated issue in the literature. Since the 1980s, the new public management paradigm provides a theoretical framework that suggests analyzing university like firms. It is based on the firm's archetypical conception as top-down hierarchical organizations and as a descending sequence of principal–agent problems. We advance a different interpretation of the university–firm analogy leveraging on the NIE and its developments. To empirically analyze our hypothesis, we collected original data from Italian universities in 2015. We find that more shared decision-making processes are correlated with better research performance.

This introduction to the Kornai 90 Symposium briefly overviews János Kornai's rich scholarship with the aim of highlighting those features of Kornai's work that are of particular interest to institutional economists. Above all, the introduction browses through some of his main works, such as Overcentralization, Anti-Equilibrium, and Economics of Shortage, with a special emphasis on the soft budget constraint, The Socialist System, and Kornai's latest writings on Hungary's U-turn. We invoke the political contexts of these works to suggest their impact on Kornai's diverse questions, changing methods, and the constraint they put on his conclusions as well as on the reception of the research results. In the end, we underline that Kornai was an independent scholar with an interest in a variety of methods and approaches, who nevertheless, or maybe consequently, had a remarkable impact on the thinking of social scientists and practitioners alike. The four papers presented in the symposium are testimonies to the living impact of Kornai's oeuvre on institutionalist analysis today.

This paper explores the role of artificial intelligence (AI) within economic institutions, focusing on bounded rationality as understood by Herbert Simon. Artificial Intelligence can do many things in the economy, such as increasing productivity, enhancing innovation, creating new sectors and jobs, and improving living standards. One of the ways that AI can disrupt the economy is by reducing the problem of bounded rationality. AI can help overcome this problem by processing large amounts of data, finding patterns and insights, and making predictions and recommendations. This insight raises the question: can AI overcome planning problems – could it be that central planning is now a viable option for economic organisation? This paper argues that AI does not make central planning viable at either the nation-state level or the firm level, simply because AI cannot resolve the knowledge problem as described by Ludwig von Mises and Friedrich Hayek.

Recent writings by Richard Posner in this Journal and elsewhere appear to mark a departure from the Chicago price theory tradition with which Posner long has been associated. This paper picks up on one facet of this: the similarity of Posner's views of the corporation, and of executive compensation in particular, to the perspective laid out by Adolf Berle and Gardiner Means in The Modern Corporation and Private Property – a perspective that has for decades been harshly rejected by the Chicago school.

Left-leaning and right-leaning governments hold opposing views on economic policy, resulting in disparities in economic behaviours and outcomes. Given this context, we explore the effect of political ideology on domestic credit using an unbalanced panel data of 29 countries from 1960 to 2014. Our empirical analysis shows that left-leaning governments reduce total domestic credit allocations. Also, we find that right-leaning governments provide more credit to the private sector, while left-leaning governments prefer to boost domestic credit to the public sector. In a further analysis, we show that political parties and their domestic credit strategies remain unchanged even during electoral periods. Our novel insights, that are robust to alternative measures, samples, and a set of econometric identifications, contribute to the literature on partisan politics and lending behaviour.

This article presents a theory of social protection expansion in late-developing open economies based on actors’ perceptions of complementarity. Drawing on recent theories of institutional change and political economic theories of welfare regimes, the article explains why in late-developing open economies, processes of liberalization often result in social welfare expansion. The explanation is based on the existence of institutional complementarity between the production regime and the social welfare regime. The article offers an agent-based theory of change according to which actors – state or market actors – are likely to promote welfare expansion amid their expectations of higher payoffs and/or improved performance of the liberalized economy. This theory challenges the more conventional Power Resource Theory, according to which welfare regimes are shaped primarily by the balance of power between workers and employers. To test the theory, the article analyzes the enactment of the unemployment insurance law in Israel (1972).

Bart Wilson suggests that economists interested in property rights have it all backwards when they define ownership as a bundle of rights. Rather he argues that ownership comes first in the form of an abstract concept. I claim there is a small element of truth to this, but the bulk of what he argues is already understood through the concept of economic property rights. Wilson's consternation is mostly the result of a failure to appreciate this latter concept.

Repugnant innovation is a form of evasive entrepreneurship that occurs in repugnant markets. Repugnance is an informal institution – controlled by long-lived norms, attitudes, customs and traditions – and repugnant innovation acts to shift institutions at the lowest level of the institutional stack. The paper considers three examples of repugnant innovation: e-cigarettes, online gambling, and webcam modelling. Each repugnant innovation challenges the complex mixture of material and moral concerns that contributes to repugnance in their respective markets. The paper adds to and expands on a body of evidence about innovation in apparently unsupportive institutional environments.

The paper explores how elites can develop capacity for collective agency through coordination.. The challenge for elites is to simultaneously deter the state from abusing power while at the same time relying on it to discipline defectors in their midst..The basic insight holds that the credibility of the state's threats depends on the cost of carrying them out, which elites can control. The elites can coordinate by being compliant when the ruler's threats serve their collective interest, which by reducing the cost of carrying them out make them more credible. On the other hand, their coordinated non-compliance has the opposite effect...

The Swedish school system suffers from profound problems with teacher recruitment and retention, knowledge decline, and grade inflation. Absenteeism is high, and psychiatric disorders have risen sharply among Swedish pupils. In this pioneering analysis of the consequences of combining institutionalized social constructivism with an extensive marketization of education, we suggest that these problems are to no small extent a result of an unlikely combination of a postmodern view of truth and knowledge, the ensuing pedagogy of child-centered discovery, and market principles. We show how the stipulated view of truth and knowledge and the design of the system impacts on the incentives for the various agents involved: pupils, parents, teachers, principals, school owners, the municipality, the central government, and, ultimately, the general public. Our study implies that caution is necessary for countries that have a tradition of social-constructivist practices in their education systems and are considering implementing or expanding market-based school reforms.

The question of the impact of institutional arrangements on the nature of goods is insufficiently addressed in the literature. By the nature of goods, we refer to the economic taxonomy of goods, meaning their privateness is defined according to their degrees of excludability and subtractability. This paper aims to fill this research gap by examining whether institutional arrangements developed for the management of private goods can reduce the degrees of excludability of these goods. To this end, we analyse four collective farmland management projects in the Isère department in France. We adapt the tool of property as a bundle of rights in order to characterize the impact of these projects on the nature of farmland. Our results show that the distribution of land rights, as well as the rules designed to define land rights, influence the degree of excludability of farmland. We discuss the impact of these findings on public policy-making.

This study examines the relative importance of local institutions and external finance on small business investment. Utilising the institutional theory, we argue that local institutions and external finance have heterogeneous effects on firm investment. More importantly, they may interact and moderate each other. Analysing a set of 1.3 million observations of small businesses operating in Vietnam (2006–2016) obtained from the Annual Enterprise Survey data from the Vietnam Statistics Office, we find that local institutional settings and external finance are important determinants of firm investment. Moreover, local institutions are able to moderate the effects of external finance on firm investment. As such, this study asserts that conventional models cannot discern whether institutions or external finance are more important to firm investment. Rather, the relative importance of institutions and external finance should be investigated from the perspective of their interaction.

This paper aims to evaluate the impact of Italy's unification on its economic growth from 1861 to the outbreak of World War II. This historical analysis attempts to prove that the process of legislative harmonization intrinsic to the unification had a positive effect on Italy's GDP because legislative uniformity facilitates economic transactions. Moreover a uniform and more effective legislation would have caused less litigation and therefore favoured economic growth, thanks to smoother relations between economic agents.

In Risk, Uncertainty and Profit (RUP), Knight (1921) develops a theory of the firm that stresses the important role of entrepreneurial judgment for a firm's success. For Knight, entrepreneurial judgment is first and foremost the selection of ‘proxy entrepreneurs’ who are capable of making good judgments under uncertainty. In this sense, entrepreneurial judgment is essentially ‘judgment of judgment’. An overlooked implication of Knight's position is the fact that it leads to an endorsement of distributed entrepreneurship and responsibility. We deem this a very modern idea that challenges a completely hierarchical understanding of the firm. Knight himself does not thoroughly examine the institutional implications of the analytical framework he sets up in RUP. In this paper, we summarize the ‘philosophical vision’ of Knight's framework and illustrate his rationale behind the distribution of entrepreneurship. We conclude the paper with a discussion of potential institutional implications by referring to the danger of monocultures, the additional value created by cognitively diverse teams, and the effectiveness of venture capitalists.

It is often argued that governments take advantage of extreme events to expand their power to the detriment of the political opposition and citizens at large. Violations of constitutional constraints are a clear indication of such opportunistic behaviour. We study whether natural disasters, conflicts and other extreme events systematically diminish governments' compliance with constitutional constraints. Our results indicate that governments are most likely to overstep their competences or disregard their responsibilities during civil conflicts, at the onset of international sanctions or following successful coups d’état. Interestingly, Cold War interventions by the United States that installed or supported a political leader led to a decrease in constitutional compliance in the target country, whereas Soviet interventions had no such effect. In contrast, banking crises and natural disasters, which threaten societies at large, but not necessarily the political elite, do not cause a significant decline in constitutional compliance.