With the beginning of the Napoleonic war at the turn of the 19th century, capitalist transformation in the German states and in the Habsburg Empire took different routes. The article analyses the political economy of both types of ‘defensive modernization’ from the viewpoint of institutional economics. We argue that initial reforms in German states gave way to a transformation process which drove a wedge between the interest of the monarchs and the landed nobility. Liberal reformers established a political bargain with the nobility which made capitalist institutions acceptable for the power holders. Later on, reformers established a ‘market preserving federalism’ which gave capitalism a further boost. By contrast, the dependence of the Austrian Emperor on the multiethnic nobility weakened the power of the central state. The transformation process in the Habsburg Empire remained dependent on the personal interests of the dominant coalition, which either delayed capitalism or sought to combine capitalism with protectionism on its own behalf. As a result, capitalist dynamics took up speed in Germany but were delayed in Austria.

This paper examines the fundamental nature of numbers as they are used in economic systems. In the framework proposed, number sequences are technological objects (‘tools’) that are constituted by both form and function. To do their job, number sequences have to have the necessary internal structure – all elements (e.g. symbols) of the sequence must be distinct from one another, and the sequence must be a progression. In addition, numerical toolkits have to have the right external structure – they must be situated in a social network of economic agents that confers on them quantitative functions (e.g. identifying set sizes). Number sequences are the product of multilevel evolutionary processes, including psychological selection that screens sequences for their learnability by human users. Number tools are a kind of capital; they are material systems that are as real as other everyday objects. Just as changing physical tools alters the structure of productive activity, so too changing number sequences alters cognitive, behavioral, and social routines.

Local administrations play a key role in delivering adaptation to climate change. To do so, they need to address collective action. Based on transaction costs economics, this paper explores the role of so-called integrative and segregative institutions in the way local administrations adapt – whether their different functional branches respond to climate change collectively rather than independently. Through a comparative analysis of 19 climate-sensitive local administrations in Germany, the paper shows that variation in the way local administrations structure their internal coordination determines the way they approach climate adaptation. Under integrative institutions, local administrations adjust prior coordination structures to accommodate adaptation. Under segregative institutions, administrations move towards integrative institutions in order to adapt, provided they already ‘feel’ climate change.

The paper focuses on a previously unexamined aspect of Marx's discussion on the 19th century English Factory Acts, and highlights its broader relevance for contemporary discussions about the role of institutions in a market economy. The capitalists' enlightened self-interest was to better husband their work force by limiting the workday and curtailing child labor, but market competition put them in a Prisoner's Dilemma creating an opportunism hazard. The ‘Factory Acts’ addressed the problem, but the state lacked the capacity to enforce them effectively. Marx held that the organized power of workers played an essential role in how the Factory Laws could gain traction at a time when state enforcement was unreliable. Organized labor's threats of sanction were credible enough to lower the expected benefit of non-compliance, enabling capitalists to commit to acting in their long-term, collective self-interest.

Our article presents an empirical investigation of the relationship between the export performance of Italian provinces and the quality of their local institutions, specifically the rule of law, over the period 2004–2016. According to the results obtained by different econometric approaches (OLS, FE, SYS-GMM), in general a secure and well-defined legal framework – by reducing transaction costs and uncertainty, facilitating capital accumulation and an increase in the firms' scale of production – is associated with better export performance. Interestingly, when the analysis is replicated at the level of the Italian macro-areas (North, Centre and South), the results indicate that the rule of law has a statistically significant and positive association with export performance only in northern provinces, thus suggesting that the effectiveness of this institutional dimension might depend on the level of development of the socioeconomic and institutional features at the local level, i.e. only when a set of suitable economic incentive mechanisms are already in place.

The agency problem at the core of corporate law stems from a chronic potential conflict of interest between directors’ self-interest and that of shareholders. Corporate law views directors’ self-interest in terms of diverting welfare to directors at the expense of shareholders. Another component of directors’ self-interest – being perceived as maximizing shareholders’ welfare – is seen not as part of the agency problem, but as part of the solution (aligning directors’ incentives with shareholders’).

This is true only if taking actions that maximize shareholders’ welfare is also the optimal manner for a director to be perceived as maximizing welfare. However, directors have more appealing ways to be positively perceived. In conducting bias arbitrage, directors identify risks that shareholders over-estimate, take action to address the risk, and then take credit for the ‘lowered’ risk (i.e., shareholders’ corrected assessment of the risk).

Bias arbitrage is more attractive as shareholders’ misperception of a risk increases. The opportunity to bias arbitrage thus leads directors to address highly misperceived risks instead of highly remediable risks.

There is considerable interest in the proper management of public lands in the United States, but questions arise over what institutional arrangements may ensure proper land stewardship. Recently, the trust doctrine has been heralded as a way to motivate prudent decision making by land managers. School trust lands, which are managed to generate revenues for public schools, represent a long-standing example of the trust doctrine at work. We examine Mississippi school trust leases and show that the trustees, who are elected officials, maintain multiple conflicting objectives, which ultimately undermine the trust relationship. However, we find that a recent institutional change that made the Boards of Education (the fund recipients) the trustees, caused revenues to increase dramatically.

In this contribution, we address the introduction of private property rights and market trades in the use of the radio frequency spectrum. We discuss the UK case being inspired by the ideas of Coase. We discuss how an appropriate design of property rights and a secondary market would look like and how the developments after the introduction of property rights could be interpreted. Subsequently we present the alternative perspective of Commons to illuminate the implications of a Coasean perspective. It is shown how Coase's focus is on efficiency, whereas in the world of Commons, the societal value is central. We discuss how the two perspectives can contribute to the understanding of the governance of the radio spectrum and conclude with policy recommendations.

In this comment I discuss the excellent contribution of Koppl et al. (2014) to our understanding of the role of institutions in the economic system. Much that is offered by them reinforces and extends previous analysis by institutional and evolutionary economists. However, I argue that there are areas of evolutionary economics and complex economic system analysis that need to be integrated into their evolutionary economic perspective to make it more complete. Also, I argue that they are too kind to mainstream economists who purport to deal with institutions and complexity and that they should consider where the boundaries of science should lie in economics.

Inspired by comments made by Allen (2017), Lueck (2017), Ménard (2017) and Smith (2017), this response clarifies and deepens the analysis in Arruñada (2017a). Its main argument is that to deal with the complexity of property we must abstract secondary elements, such as the physical dimensions of some types of assets, and focus on the interaction between transactions. This sequential-exchange framework captures the main problem of property in the current environment of impersonal markets. It also provides criteria to compare private and public ordering, as well as to organize public solutions that enable new forms of private ordering. The analysis applies the lessons in Coase (1960) to property by not only comparing realities but also maintaining his separate definition of property rights and transaction costs. However, it replaces his contractual, single-exchange, framework for one in which contracts interact, causing exchange externalities.

Academic freedom is a cornerstone of modern academic life. It is not only implied by basic liberal principles but also contributes to scientific progress and economic growth. It is therefore important to better understand what affects how free scholarly pursuits are, and to that end, we ask whether economic freedom can help explain variation in academic freedom across countries. In our case, relating the Economic Freedom of the World index and its five areas to V-Dem's index of academic freedom and its five areas reveals that the rule of law is positively and robustly related to academic freedom in all its forms. This suggests that the rule of law, in its general and broad sense, can arguably serve as a guarantor of academic freedom. Where the rule of law is weakened, academic freedom can be at risk. There are some indications that regulatory freedom is similarly related to academic freedom, but less robustly so, maybe indicating that interventionism in one policy area (economics) can breed interventionism in another (academia).

This paper analyzes the Peruvian highland tradition of Takanakuy, a public brawling ritual occurring each Christmas to resolve conflicts between local community members. We argue that Takanakuy provides an effective way for locals to resolve disputes that Peru's formal judicial system is unable or unwilling to settle. Using insights from ethnographic fieldwork, journalistic articles, reports, and academic sources, we find that brawling during Takanakuy encourages social cooperation by preventing potential violence and offering community members a credible mechanism of law enforcement in an orderly fashion with social acceptance.

This paper draws on macroeconomics, the economics of institutions and the economics of trust to explain private savings at the national level for 33 OECD (mostly European) countries from 2002 to 2012. More specifically, it raises two questions: (i) is it the quality of institutions or trust in institutions that drives private savings? (ii) if trust matters, what is the appropriate institutional level at which it operates? To answer these questions, we add to the usual explanatory variables of private savings three measures of institutional quality and six measures of institutional trust, distributed between the following institutional levels, presented in assumed hierarchical order: political, legal, financial and social. We find that trust in political institutions is the most significant driver of private savings. This contributes to the literature underlining the importance of subjectivity in social and economic phenomena and suggests, for private bank savings in countries having highly regulated banking systems, the existence of a hierarchy of trust in which trust in the highest-ranking institutions (political – and to a lesser extent legal – institutions) acts as a substitute for trust in every lower-ranking institution (financial institutions and social trust).

This paper contributes to the debate on domestic revenue mobilization and state-building in the Global South by exploring the concept of fiscal states and the common assumption that such states are present in sub-Saharan Africa. We systematically review the diverse understandings of the fiscal state across relevant literatures to revisit its conceptualization. On that basis, we define the fiscal state as a state whose public revenue base is dominated by tax revenue and loans, and where the relationship between taxation and external and domestic borrowing is balanced and thereby sustainable and characterized by interdependence. We distinguish the fiscal state conceptually from the tax, debt, and rentier states and present a typology of these ideal state types, discussing illustrative empirical examples of different states in sub-Saharan Africa. These illustrate that not all sub-Saharan states can be categorized as fiscal states. This is important because when African states are regarded as fiscal states, assumptions are made about their economic structures; yet, to the extent that these are absent, fiscal policy reforms are unlikely to carry long-term positive effects.

Much agreement exists among economic historians that an institutional structure which allows for broad participation in a country's economy is conducive to growth. With respect to England's institutional structure, changes that followed the Glorious Revolution of 1688 are given pride of place in recent literature. This article contributes to this literature by highlighting and explaining regulatory change that removed barriers to entry into the country's most vital industry, textiles, in the years between 1550 and 1640. However, although economic historians have tended to explain England's growth-facilitating institutions as arising abruptly through political revolution that placed constraints on the Crown, this article will elucidate change that was protracted, accretive, peaceful, and came through royal institutions. More specifically, this article argues that restrictive regulations, which were widely supported, were removed because Crown and Council, in consultation with local officials, recognized that enforcement would come at the cost of the greater priority of employment preservation.

Discovering individuals' internal motivations for paying taxes is essential to a tax system since the basic assumption of any tax system is that most of the population pays their taxes voluntarily. This article examines the existence of a social aversion towards tax offenders in Israel as well as the variables that affect tax law compliance and increase tax payments. In this respect, the article presents quantitative questionnaire data collected by the author, which is based on a sample of 189 participants from Israel. The study shows that the social response to tax evaders exerts a greater impact on increasing tax law compliance than the fear of punishment per se and clarifies the importance of education for paying taxes.

This study revisits the question of what impact Japanese colonialism had on the long-term economic development of North and South Korea. Factor endowments, economic activity and economic performance are compared between the regions that later became parts of North and South Korea, respectively. The study finds that important elements of the economic history of the peninsula have not been sufficiently acknowledged in much of the influential literature that uses Korea as an illustration of theoretical claims of the root causes of development. In particular, the fact that the economic divergence of northern and southern regions could be traced back to different colonial treatments – especially after mid-1920s – has often been overlooked when analysing the divergent post-partition development trajectories. The study suggests, based on a sectoral similarities analysis, that the initial dissimilar economic performance of North and South can at least partially be found in differences in political economy and economic trajectories preceding the partition.

Technology is a complex adaptive system that is both shaped by, and shapes, institutional arrangements. This critical insight, developed in depth by W. Brian Arthur – the father of complexity economics – is relevant to researchers interested in institutions. Arthur provides a method for capturing the underlying dynamics. He offers conceptual tools centred on the concept of increasing returns to make sense of some crucial challenges. He also suggests technical tools, including agent-based modelling, to tackle ill-defined economic, legal, and institutional problems. This article explores his body of work and derives some institutional insights from it.

John Searle has developed a strong theory of how speech acts and agreements generate institutions. How is the general theory specified for political institutions? He, like Max Weber, suggests that a government monopoly of soldiers is a condition for the existence of political institutions. However, governments' wielding of force is only political if those attacked consider the attack a responsible and a morally acceptable act. All political power in Searle's theory is deontic. It is assigned as a right, an obligation or the like, as a status function. If power wielding by a government is not assigned, it is beyond the political; it is only brute force. My contention is that this distinction limits the power of Searle's theory in the analysis of politics. From the idea of political institutions as ultimate institutions in a specific, bordered territory it is the strong idea of deonticity that is misleading. Ultimate institutions cannot by definition have externally assigned status. Leaders of other ultimate institutions can accept their existence, but then mainly because they have the military power to defend their borders. Nation states, demanding territorial sovereignty, therefore logically demand a monopoly of soldiers. This sovereignty seen over time suggests an evolutionary first principle of political institutions.

In this paper, we develop a framework to analyze the relationship between evidence and policy. Postulating a normative criterion based on cost–benefit analysis and the value of a piece of information, as well as a topology of the policy space defined by three characteristics (epistemic uncertainty, interests, and the degree of value conflicts), we identify the (Nash) equilibria of an interaction between experts and citizens in providing information to a decision maker. In this setup, we study three institutional arrangements (evidence-based policy, deliberative governance, and negotiated conflict) that differ in terms of reliance on experts and citizens for providing information. We show that different degrees of uncertainty, interests, and value-relevance surrounding the issue at stake result in vastly different arrangement performances; hence, to foster efficiency, rules should be contingent.