Payments for ecosystem services (PES) have become a popular approach to bring about improved environmental behaviors. When such programs are launched in developing countries, an additional benefit is that they are said to improve incomes for the poor. In this paper, we argue that PES schemes are not ‘market-based’. Indeed, they are not even ‘market-like’. The incentive properties said to be present in such programs are of doubtful efficacy. We suggest that PES schemes are instances of a new class of transaction – the inducing transaction – whose purpose is to make certain resource users the instruments of the desires of others. We relate the success of PES schemes to Veblenian ‘habituation’ and Peircean ‘habit breaking and habit taking’ to suggest that PES schemes face a daunting challenge if they are to bring about durable behavioral changes.

A revised application of Ostrom's (Ostrom, 2007) Social-Ecological System (SES) framework to Hardin's ‘tragedy of the commons’ (Hardin, G. (1968), Science, 162(3859): 1243–1248) demonstrates that its institutional structure is more complex than either Hardin or Ostrom had imagined. The ‘tragedy’ arises from several interacting resources and institutions. If the grass on the pasture was not subject to appropriation, the cattle were not privately owned, or property- and contract-enforcement institutions supporting market exchange were absent, then the ‘tragedy of the commons’ would not have arisen regardless of the open-access pasture. This paper highlights the utility of the SES framework and the care required to apply it precisely to specific social-ecological situations.

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.

This special issue of the Journal of Institutional Economics on the future of institutional and evolutionary economics consists of this introduction, four full essays, and two sizeable comments. Ménard and Shirley (2014) and Ménard (2014) discuss the future of the new institutional economics, and their two essays are followed by a reflection by Hodgson. Winter (2014) and Witt (2014) discuss the future of evolutionary economics, and their essays are followed by a comment by Stoelhorst. Here, we introduce these essays and comments by putting them in a broader historical perspective. In particular, we trace the common origins of modern institutional and evolutionary economics, particularly in the work of Veblen, as well as important additional influences such as Schumpeter and Simon. We highlight how the two approaches became disconnected, and signal the possibility of, and need for, re-establishing closer connections between them. Possible elements of a future overlapping research programme are outlined.

Little is known of why institutional transfers have been largely disappointing. Berkowitz et al. (2001) have argued that because of what they call the transplant effect, imported law lacks effectiveness unless there is an initial level of familiarity or the imported law is successfully adapted to local legal norms. Yet, history shows that institutional transfers are possible: Why have some countries been more successful than others in importing foreign institutions? The paper introduces a framework for the analysis of the transplant effect, which is based on institutional economics. In the second part, we investigate the case of Borno State in northeastern Nigerian where institutions transferred during colonial rule and upon independence have been largely ineffective. In the case of Borno, the lack of a European educated bureaucratic class, low commitment of the political leadership, generally low levels of education and urbanization contributed to the low effectiveness of imported institutions.

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.

In this paper, we investigate the relationships between informal institutions – proxied for by measures of religiosity – and levels of entrepreneurial activity, both productive and unproductive, using cross-section US state-level data. In doing so, we evaluate Baumol's (1990) conjectures on the role of institutions in determining whether entrepreneurs will channel their efforts toward wealth-generating activities or toward zero- or negative-sum rent-seeking. We distinguish between measures of both the belief (e.g., the frequency of prayer) and belonging (e.g., church attendance) that have been stressed by authors such as Barro and McCleary (2003). We find that several religious variables significantly and negatively correlate with a state's productive entrepreneurship score. Alternatively, most religious variables in our data do not correlate significantly with unproductive entrepreneurship. We also find that the percent of individuals reporting as atheist/agnostic is positively associated with productive entrepreneurship.

The trajectory of institutional economics changed in the 1970s when new institutional economics (NIE) began to take shape around some relative vague intuitions which eventually developed into powerful conceptual and analytical tools. The emergence of NIE is a success story by many measures: four Nobel laureates in less than 20 years, increasing penetration of mainstream journals, and significant impacts on major policy debates. This rapid acceptance is remarkable when we consider that it was divided from birth into distinct schools of thought. What will be the future of NIE? Will it be quietly absorbed by mainstream theory, or will it radically transform neoclassical economics into a new paradigm that includes institutions? To address these questions, we follow the sometimes-bumpy road to NIE's current successes and ponder the challenges that lie ahead.

This paper adds to the growing empirical evidence on the importance of habits in governing human behavior, and sheds new light on individual inertia in relation to transportation behavior. An enriched perspective rooted in Veblenian evolutionary economics (VEE) is used to construct a theoretical framework in order to analyze the processes at play in the formation and reinforcement of habits. The empirical study explores more specifically the synchronic processes strengthening the car-using habit. In addition to underlining the shortcomings of a ‘decision theory’ perspective to address urban transportation behaviors, we find that synchronic habits can have a significant effect on behavioral inertia. Our results suggest the existence of positive feedback between the development of synchronic habits, qualitative perceptions of driving times, and reinforcement of the car-using habit. The paper points out also that the diachronic dimension of habits would constitute another promising domain for further research on behavioral inertia in transportation.

Income inequality is often attributed to declines in income mobility following the Great Gatsby curve, but this relationship is of secondary importance in determining the factors of income mobility if one considers that changing rules is more important than changing outcomes under defined rules. Rather, improvements in institutional quality are hypothesized to increase income mobility by allowing entrepreneurs the freedom to pursue their dreams. This paper is the first to empirically analyze the institutional determinants behind entrepreneurship, and their effect on income mobility. The findings from a cross-country analysis suggest that secure property rights and less corruption are associated with less income persistence, leading to higher income mobility, independent of the Great Gatsby effect. This suggests that reducing corruption and protection of property rights increase income mobility through the channels of entrepreneurship.

Notwithstanding its major contributions, the ‘Williamsonian’ branch of New Institutional Economics suffers from black holes that recent developments have pinpointed. Rather than taking stock, this paper capitalizes on some of these developments to look ahead. Section 2 provides a reminder of the hard core of transaction cost economics (TCE) with an emphasis on problems that TCE has allowed to identify, particularly the richness of organizational arrangements, an issue that needs further investigation. Section 3 discusses how to better understand the embedment of organizational arrangements in their institutional environment. The concept of ‘meso-institutions’ is introduced as a mean to capture mechanisms providing the needed interface. Section 4 considers another neglected dimension that requires renewed attention: the interactions of organizational arrangements with technologies that partially define their setting. This paper proposes a roadmap to explore this issue, based on an ongoing research developed around the key concept of ‘criticality’. Section 5 concludes.

The issue of firm ownership is an ongoing debate. For several decades, contractarian theory has undoubtedly shaped the academic debate in both law and economics. Proponents of this approach suggest that shareholders can legitimately be considered the owners of a firm because they hold shares. This approach, though attractive, is legally incorrect. Legal scholars have noted that a corporation cannot legally belong to shareholders or other stakeholders; no one owns the firm (and a corporation). The question of firm ownership masks the following crucial issue: Who should govern the firm? In this article, after returning to the theoretical debate on firm ownership and explaining why a firm cannot be owned, we shall analyze power as the core of firm governance. This approach is a potentially relevant and accurate way to address the problems of specific human investment, collective creation and productive (consummate) cooperation in modern firms.

The current paper explores the municipal debt crisis that resulted from the panic of 1873, which caused a significant number of local governments in the United States to default on their debt obligations. The aftermath of that episode was one of constitutional change meant to constrain municipal governments from pursuing similar activities in the future. This paper empirically investigates the impact that these restrictions had on municipal borrowing costs, analyzed from bond yield data taken from several major US financial markets, so as to evaluate how binding and significant markets actually perceived these constraints to be. Overall, the results suggest that borrowing costs were lower for municipal governments that faced more stringent creditor guarantees regarding the issuing and repayment of debt, hard budget constraints, and also strict debt limits, while tax limits generally increased borrowing costs. These results not only conform too much of the current literature regarding the political economy of institutional constraints on public finance, they also add several important insights, especially when comparing defaulting to non-defaulting municipalities.

Although in the Schumpeterian process of entrepreneurial innovations money and financial markets are assumed to affect economic development, Schumpeter does not explicitly study financial evolution and its effects on real dynamics. In order to fill this gap, this article suggests a Minsky-inspired interpretation of Schumpeterian institutional dynamics in monetary terms. It then develops a specific Schumpeterian analysis of the evolution of financial institutions and regulatory mechanisms in the wake of the 2007–08 crisis and points to major consequences of financial innovations on economic stability. It appears that unlike the creative destruction process of entrepreneurial innovations, in a liberalised/deregulated environment financial innovations move banks from their crucial role of financing long-term economic evolution and lead to reckless finance. Thus, financial market dynamics put economies on a destructive path. Such an evolution calls for active and tight rational regulation in order to shape capitalist finance towards more stable and welfare-enhancing strategies.

These reflections are prompted by the papers by Ménard (2014) and Ménard and Shirley (2014). Their essays centre on the path-breaking contributions to the ‘new institutional economics’ (NIE) by Ronald Coase, Douglass North and Oliver Williamson. In response, while recognising their substantial achievements, it is pointed out that these three thinkers had contrasting views on key points. Furthermore, Ménard's and Shirley's three ‘golden triangle’ NIE concepts – transaction costs, property rights and contracts – are themselves disputed. Once all this is acknowledged, differences of view appear within the NIE, raising interesting questions concerning its identity and boundaries, including its differences with the original institutionalism. There are sizeable overlaps between the two traditions. It is argued here that the NIE can learn from the original institutionalism, particularly when elaborating more dynamic analyses, and developing more nuanced, psychologically-grounded and empirically viable theories of human motivation.

The objective of this paper is to study the relationship between economic growth and civil liberty across the globe in the long run. To fulfill this aim, we use an unbalanced panel of 149 countries for the period 1850–2010 with data on gross domestic product (GDP) from Maddison, and data on civil liberties from Polity IV. The dynamics of both variables are investigated. Once country and time effects are accounted for in a dynamic panel data model, our results show that movements toward higher levels of civil liberty are associated with higher economic growth rates. Therefore, we find that civil liberties are a relevant factor to explain economic growth. We perform some sensitivity tests that confirm the robustness of our results.

Do those who prefer economic freedom behave differently than those who prefer government intervention? Experiments of the Dictator and Trust games are studied. A survey elicits preference for private solutions to potential market failures. Trust and reciprocation are highest for those who score both high and low on the assessment. In the Dictator Game, there is a strong inverse relationship between one's preference for economic freedom and giving. Thus, the results can be interpreted as those with a strong preference for government intervention altruistically give, while those with a preference for economic freedom give primarily in response to wealth-generating investments.

While trust and group size in socio-economic processes have been well investigated separately, approaches to synergize them have been rare. After addressing basic conditions for institutionalized cooperation, the agency capability of preferential mixing is introduced in order to determine the carrier group of an institution of cooperation. That platform typically assumes a meso-size smaller than the initial arena. Habituation and generalization within and across overlapping platforms then may lead to first contextual trust. This has to be carried over from individual platforms into the larger public of the whole economy to constitute general trust. The practical relevance of this analysis is illustrated through the fact that even superficially similar economies show different socio-economic performance and trajectories. Our results suggest investigating their inner deep structure of overlapping meso-sized platforms as a critical factor.

We use the Economic Freedom Index to characterize the institutions of the Athenian city-state in the fourth century BCE. It has been shown that ancient Greece witnessed improved living conditions for an extended period of time. Athens in the fourth century appears to have fared particularly well. We find that economic freedom in ancient Athens is on level with the highest ranked modern economies such as Hong Kong and Singapore. With the exception of the position of women and slaves, Athens scores high in almost every dimension of economic freedom. Trade is probably highly important even by current standards. As studies of contemporary societies suggest that institutional quality is probably an important determinant of economic growth, it may also have been one factor in the relative material success of the Athenians.

This essay contemplates the possible futures of evolutionary economics in terms of two contrasting images. In the first, the primary research emphasis of the future will continue to be on the topics that have interested evolutionary economists in the past, such as technological change, business behavior, and the role of institutions. Research contributions in these focal areas and in some related areas are briefly characterized. In the second image, there is a breakout from this ‘beachhead’ and a broader conflict with the reigning paradigm, neoclassical economics. Thomas Kuhn's theory of scientific revolutions provides a framework and stimulus for thinking about the latter case, and the 20th century paradigm conflict in physics provides a baseline for thinking about it. The core strengths of evolutionary economics in the paradigm conflict are noted, and the evolutionary role of intentionality is examined No definitive prediction about the future is offered.