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.

The paper interrogates the argument put forward by Acemoglu and Robinson or North et al. that capitalism and democracy are supportive to each other. It analyzes the development of political and economic institutions in Germany before and after World War I. It is shown that the lack of democracy in Imperial Germany furthered a liberal economic order and gives reasons why the transition to full-scale parliamentarianism would have impaired the quality of economic institutions. This also explains why such a transition was not completed. The Weimar Republic established a modern democracy but was unable to secure the quality of economic institutions achieved before. Not only in Germany did the politicization of the economy impair the economic order. This empirical outcome helps to explain why Eucken and other liberals identified democracy as part of the economic problem during the interwar period. It also gives reasons to rethink the complex relationship between capitalism and democracy.

An increasing volume of literature has shown that human development is related to economic institutions. But previous literature has not considered that the effects of economic institutions on human development are contingent on culture. In this study, we contend that the effects of economic freedom (as an indicator of economic institutions) on human development are dependent on generalized trust (as an indicator of culture). Using panel analysis on a sample of 29 OECD countries during 1990–2015, we find that generalized trust positively moderates the relationship between economic freedom and human development. The policy implication is that free market institutions foster human development only in high trust societies, not in low trust countries.

That governance within the firm is deliberate, conscious and hierarchical, based on authority is considered almost axiomatic. Chester Barnard is cited as an early theorist of this view. In this short article we review Barnard's original theory of authority, his later work and his private correspondence with F. A. Hayek, Michael Polanyi, Bertrand de Jouvenal and others. We show that Barnard focused in his later thinking less on authority and more on ‘responsibility’ and on the spontaneous nature of coordination within the firm, argued for ‘invisible hand’ explanations of coordination within the firm and compared coordination within the firm to market coordination. We use this information to produce novel insights into the work of Chester Barnard and also to demonstrate that his insights into the inner workings of firms is still not completely understood or reflected in the literature on the firm.

It has been an enduring concern of institutional economics and critical realism to understand how individuals are able to exercise agency in the context of social structures, and to maintain appropriate connections, separations and balances between these two levels of causal power. This paper explores the contribution of Alasdair MacIntyre's neo-Aristotelian philosophy to the topic. Empirical data are provided from the career narratives of senior Scottish bankers recalled in the aftermath of the global financial crisis of 2007/8. The method of the study is interpretive, using themes drawn from MacIntyre's writings. These bankers faced moral choices as tensions developed between their own professional standards and the new corporate goals of the banks. We discuss MacIntyre's understanding of individual moral agency as a narrative quest in the context of different types of institution with different and often conflicting ideas about what constitutes good or right action. Habituation and deliberation are important in enabling action, but fully developed moral agency also depends on individuals being able to make choices in the space opened up by tensions within and between institutions.

Culture, mainly defined as values and beliefs, has recently attracted much attention in economics. Cultural practices receive less attention, as emphasized in anthropology. We argue that the notion of ‘ritual’ can enrich economic research on culture as a specific form of socially standardized interactions that create shared contexts and emotions to build mutual trust and community. China is an important case in point, because ritual is a central concern in common interpretations of traditional Chinese culture. We look at practices of Chinese entrepreneurs that activate rituals in various settings. We conclude that these phenomena can be analytically condensed in the cultural complex of a ‘ritual economy’.

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.

Definitions are crucial for institutional analysis. This article explains the nature of taxonomic definitions, with particular attention to their use in economics and other social sciences. Taxonomic definitions demarcate one species of entity from another. They are vital for the communication of meaning between scientists, who must share some basic conception of what types of entity they are investigating, to establish a division of labour over subsequent theoretical analysis and empirical investigation of the type of entity defined. Generally, taxonomic definitions build on past usage and are parsimonious: they are not meant to be explanations or descriptions. By contrast, overloaded taxonomic definitions can create square-one disagreement about what is being investigated. As illustrative examples, the paper considers different degrees of progress with attempts to define firms, markets and institutions.

We experimentally investigate whether and how individuals change formal institutions governing an organization. The focus is on formal rules prescribing individual cooperation to achieve a collective goal. Our analysis accounts for the role of social norms and individuals’ social values. We observe that prosocial individuals –who value cooperation and have a conflict between this value and existing rules allowing for low cooperation– attempt to change this rule. In line with our theoretical discussion, we also find that prosocial individuals first try to change the institutional environment by changing social norms. If this fails, these individuals change formal rules directly.

The use of information technology in healthcare has accelerated progress toward the long-term goal of a learning healthcare system, in which data from prior clinical experience provides an ever-expanding resource to guide continuous improvements in health care. Although still in its early stages, the use of data from clinical experience to supplement data from premarket testing is changing the roles of Food and Drug Administration (FDA) and public and private health insurers in healthcare innovation and technology assessment. It could change who decides what research questions to pursue, whose evidentiary standards decide what counts as actionable knowledge, and who pays the costs of research. The shape and direction of resulting changes will depend on which actors and institutions decide to step forward and claim a larger role in healthcare innovation in response to technological and regulatory change.

Robert Neild (born 1924) has made a major contribution to economics and to peace studies. This paper provides a brief sketch of Neild's life and work. While noting his research in economic policy and peace studies, this essay devotes more attention to his largely unnoticed contributions to institutional and evolutionary economics since 1984. These are important in their own right, but they are especially notable because Cambridge heterodox economists have been devoted mainly to other approaches, including Marxism and post-Keynesianism. Neild's distinctive contribution is partly explained by his closeness to both Nicholas Kaldor and Gunnar Myrdal. Myrdal made explicit his adherence to the original American institutionalism: Neild extended that link to Cambridge.

The rise of large business corporations in the late 19th century compelled many American observers to admit that the nature of the corporation had yet to be understood. Published in this context, Ernst Freund's little-known The Legal Nature of Corporations (1897) was an original attempt to come to terms with a new legal and economic reality. But it can also be described, to paraphrase Oliver Wendell Holmes, as the earliest example of the rational study of corporate law. The paper shows that Freund had the intuitions of an institutional economist, and engaged in what today would be called comparative institutional analysis. Remarkably, his argument that the corporate form secures property against insider defection and against outsiders anticipated recent work on entity shielding and capital lock-in, and can be read as an early contribution to what today would be called the theory of the firm.

This paper investigates the claim that colonial history has left an enduring imprint on Africa's institutional and economic development. The literature following Acemoglu, Johnson and Robinson (2001) and Sokoloff and Engerman (2000) maintains that different types of colonialism affected the institutional environment differently, and that path-dependence subsequently ensures that these institutional differences and their impact on economic performance are persistent over time. By tracing the impact of colonial institutions on contemporary institutions over time, I show that – in contrast to claims in this literature – the relevance of colonial legacies to institutional quality and to per capita income is rapidly disappearing in Africa. Differences in institutional quality or income are explained less and less by colonial legacy, while there is some evidence that precolonial social and geographical circumstances are becoming more important. I conclude that while colonialism has affected African institutional and economic development significantly, this impact is not persistent. Rather, the evidence suggests that colonialism has created a large but very temporary institutional shock, after which a long-run equilibrium is being restored.

Although firms use various strategies to try to influence government policy, with lobbying and corruption chiefly among them, and political institutions play an important role in determining policy choices, very little research has been devoted to these topics. This paper tries to fill this gap. Using cross-country enterprise-level data, it investigates (1) the effect of a key political institution, namely electoral rules, on the probability that a firm engages in lobbying activities and (2) the impact of lobbying on influence, accounting for corruption and political institutions. The main conclusion is that lobbying is a significantly more effective way of generating political influence than corruption, and that electoral rules are a key mediating political institution. Our baseline estimate is that the probability of influencing government policy is 16% higher for firms that are members of lobbying groups than for those firms that are not.

Using data from 1972 to 2011 on 109 countries, this paper empirically studies the impact of economic freedom on human capital investment. Enrollment in secondary education is used as a proxy for such investments. Controlling for a large number of other determinants of education, it finds that, over the sample period, economic freedom had a substantial positive effect. This is probably because more economic freedom increases the return on investing in human capital, enables people to keep a larger share of the return, and, by facilitating the operation of credit markets, makes it easier for them to undertake such investments in the first place.

In a seminal 1989 article, Douglass North and Barry Weingast argued that by making the monarch more answerable to Parliament, the Glorious Revolution of 1688 helped to secure property rights in England and stimulate the rise of capitalism. Similarly, Daron Acemoglu, Simon Johnson, and James Robinson later wrote that in the English Middle Ages there was a ‘lack of property rights for landowners, merchants and proto-industrialists’ and the ‘strengthening’ of property rights in the late 17th century ‘spurred a process of financial and commercial expansion’. There are several problems with these arguments. Property rights in England were relatively secure from the 13th century. A major developmental problem was not the security of rights but their feudal nature, including widespread ‘entails’ and ‘strict settlements’. 1688 had no obvious direct effect on property rights. Given these criticisms, what changes promoted the rise of capitalism? A more plausible answer is found by addressing the post-1688 Financial and Administrative Revolutions, which were pressured by the enhanced needs of war and Britain's expanding global role. Guided by a more powerful Parliament, this new financial system stimulated reforms to landed property rights, the growth of collateralizable property and saleable debt, and thus enabled the Industrial Revolution.

In ‘Violence and Social Orders’, North, Wallis and Weingast highlight the need of societies to control large-scale violence. In response to this need, a variety of social orders has emerged with differing institutional, political and economic characteristics. One of these social orders is the limited access order that was prevalent in most of history and still is nowadays. Taking the conceptual framework of North et al. as a starting point, we make three advances to their analysis of limited access orders. First, we analyse the incentive structure of actors involved, using a formal model of the main interactions in a limited access order. Second, we decompose organizations into two types and analyse their respective roles. Third, we use insights from historical research to scrutinize the chronology of the rise of organizations. Jointly, this allows us to refine and substantiate the insights gained by North et al., highlight the role of organizations and place the start of relevant developments earlier in time.

The claim that institutions matter for economic growth and development has so far received a more extensive theoretical treatment than an empirical or methodological one. Basing our approach on a coevolutionary conception of relations between law and the economy, we link theory to method and explore three techniques for analysing legal institutions empirically: ‘leximetric’ measurement of legal rules, time-series econometrics and interview-based fieldwork. We argue that while robust measurement of institutions is possible, quantitative techniques have their limits, and should be combined with fieldwork in a multiple-methods approach.