In the population, the knowledge of the law is at best fragmentary. It takes law students years to handle the law properly. How is the law nonetheless able to govern people's lives? To find an explanation, this paper draws on neurobiology, developmental psychology, and the psychology of learning.

Typically, the law reaches its addressees indirectly. The law is not followed, it is learned. There are two learning objects. In childhood, individuals acquire normative proficiency, i.e. the ability to handle normative expectations. This procedural knowledge is gradually filled with the declarative knowledge of individual normative expectations of legal origin.

If the law changes, through secondary learning, individuals must acquire new normative expectations. To that end, some intermediary must translate the new rule into a more contextualized social mirror rule. If changes are fundamental, as after the fall of the iron curtain, individuals must also learn new ways to handle normative expectations.

The core problem of any group selection hypothesis is the possibility that pro-social individual behavior contributing to a selection advantage for the group as a whole is potentially subject to free-riding. If group behavior and, hence, the conditions for group selection change through imitation and migration between groups, as argued in Hayek's theory of societal evolution, the explanation of group selection needs to account for the individuals' cognitively reflected motivation to adopt pro-social behavior in the face of free-riding. To do so a game-theoretic model is suggested that incorporates observational learning as a mechanism of acquiring, and choosing between, strategies.

The principal claim of this paper is that liberalism and democracy are not only compatible ideals, as F.A. Hayek has suggested, but rather complementary ideals. The argument in support of this claim is based on a distinction between three different levels at which liberalism and democracy can be compared, the level of their institutional embodiment, the level of their principal ideals, and the level of their underlying normative premise. It is argued that liberalism and democracy share as their common normative foundation the principle of individual sovereignty, and that their respective core ideals, the liberal principle of private autonomy and the democratic principle of citizen sovereignty, can be best understood as applications of the ideal of individual sovereignty to the realm of the private law society on the one side and to the ‘public’ realm of collective-political choice on the other.

Hernando de Soto attributes the poor economic performance of developing countries to insecure property rights. When property rights are not well-defined individuals do not have the incentives to invest in capital, and assets cannot be used as collateral, hindering capital formation and economic growth. This paper tests de Soto's hypothesis empirically by examining how the security of property rights impacts wealth, collateral, and capital formation across nations. Using several different measures and model specifications, we find support for de Soto's conjecture. Our results suggest that better defined property rights would result in substantial improvements in capital formation and economic growth in developing countries.

Venture capitalism is a major institutional innovation based on identifying economies of scope in transactions of technological knowledge, bundled with managerial competence, reputation, screening procedures, and equity. It has paved the way to the emergence of new surrogate markets for knowledge, i.e. financial markets specialized in trading knowledge-intensive property rights. This development has important benefits in terms of risk management and hence profitability of investments in high-tech start-ups. The dynamic efficiency effects of the new institution also derive from the fact that the public at large, through its investments in knowledge-based income streams, contributes to the creation of new economically useful knowledge and capabilities.

In this paper, two models of long-run development are constructed, one for a unimodal agricultural structure and the other for a bimodal agricultural structure. The process of the evolution of state institutional capacity under these two structures is analyzed. Capacity is measured by the ability of the state to extract revenue in return for which services are provided. The development of such capacity is seen as the key factor in providing the human capital and infrastructure necessary for the shift from inward- to outward-oriented development. Latin America and East Asia are used as examples of these two modes of long-run development.

The conceptual apparatus referred to generally as agency-structure or agency-institution is central to a great deal of social science, especially Institutional Economics. Despite its centrality, this apparatus has never been able to fully explain how institutions and social structures influence agents' intentions and actions. Economist, Geoff Hodgson and Sociologist, Margaret Archer have been at the forefront of endeavours to provide such an explanation. Section 1 of this paper elaborates upon Hodgson's ideas on institutional rules, habits, habituation, and the notion of reconstitutive downward causation. Section 2 elaborates upon Archer's ideas on structures, reflexive deliberation and the notion of an internal domain of mental primacy, and ends with a critical look at Archer's (brief) comments on rules and habits. The conclusion shows how a more nuanced understanding of structures, institutions, agency, habits, and deliberation, can inform research into a specific area, namely the analysis of labour markets.

This paper aims at analyzing the interaction between both economic and sociological notions of convention. To this end, it starts by distinguishing conceptually between specific convention, i.e. an arbitrary but stable social regularity, and general convention, i.e. a principle of action prescribing how to behave in a certain class of situations. A game theoretical framework to represent the interrelation between both concepts is then introduced. Finally, this relation is studied experimentally. The main results of the experiment are: (1) general conventions have to be commonly known and adopted among subjects in order to work as guides to coordinate on specific conventions; (2) once subjects follow a general convention they are highly consistent with it in a repeated environment; (3) efficiency concerns are focal in the class of games studied in this paper.

Like other network industries, construction and maintenance of transport infrastructure have also seen a recent trend towards liberalization, deregulation, re-regulation, and sometimes privatization. With respect to institutional arrangements, this change implies that previously vertically integrated state-owned enterprises have been replaced by ‘more market’, meaning private ownership and contracts together with regulation by an independent government agency. When economists discuss institutions, this is preferably done in terms of efficiency and equilibrium. We discuss Williamson's Transaction Cost Economics (TCE) and Aoki's Comparative Institutional Analysis (CIA) as being two representative approaches of New Institutional Economics in which efficiency and equilibrium are central. What is the applicability of these two approaches to explain institutional change? The case of road management in Nordic countries provides the empirical evidence. We will draw conclusions as to the strengths and weaknesses of the two approaches and add suggestions to complement the efficiency approach, which allow for a more detailed level of analysis, in which also issues of political power are included.

Advocates for a ‘different and innovative approach’ to conceptualizing markets have argued that it is possible to reengineer markets to deliver any number of salutary public policy goals. These ‘consulting engineers for the market economy’ have supported their ambitions by referring to the participation of game theorists in the design and implementation of spectrum auctions. However, the variegated and inconsistent lessons drawn from their participation indicate that the role game theorists actually played in the auctions is not well understood. The confusion appears to stem from significant omissions in the available (mostly first-hand) accounts, which are boastful in taking credit for the performance of the auctions but strangely demure in recounting the precise measures undertaken to bring it about. In this paper, I provide an unexpurgated account of the circumstances surrounding the participation of game theorists in the most celebrated of spectrum auctions, those held under the auspices of the US Federal Communications Commission (FCC). Using the FCC's archival records, I recover the suppressed role of the commercial funding of economic research in determining both the extent and the nature of the economists' participation. This analysis emphasizes the crucial importance of the method of funding in determining how economic research is brought to bear on public policy.

This paper shows that in classical Athens, values and institutions encouraged many types of entrepreneurship. Successful entrepreneurs received social and political distinctions, and some entrepreneurial slaves gained their freedom. However, to deter extreme individualism, success in business was judged by the means used to acquire wealth, rather than simply the amount of wealth acquired. The system encouraged those entrepreneurs who were esteemed socially, to work hard, use ethical means, not to consume their wealth conspicuously but to share it with the rest of the people by undertaking public expenditures, and to abide by the laws and ordinances of the city-state.

The article discusses institutional theories in economics and sociology. The discussion adopts W. Richard Scott's classification into regulative, normative, and discursive theories. A fourth alternative, habitual institutionalism, is also presented because of the problems encountered with the other theories. Pragmatically inclined habitual institutionalism presents a consistent theory of action wherein conscious action is derived from habitual action, which is also the basis of institutionalization. In addition, habitual institutionalism portrays human rationality more extensively than economists and sociologists have traditionally done. For these reasons, the difficulties associated with other institutional theories can be avoided.

The issue of property rights in land has taken central stage in research in institutional economics regarding developing countries. In the African context, numerous studies have dealt with the individualization and commodification of customary land rights. The issue of intra-family land rights tends however to remain a black box, regarding the content of the bundle of rights and duties, the identification of the right holders and the transfers of rights within the family. Drawing from the insights of institutional economics as well as economic and legal anthropology, this paper presents a conceptual framework to rigorously explore the issue of land rights through an economic ethnography.

One of the many favourable aspects of the collapse of the USSR was the vastly increased access to the archives of Soviet institutions by historians, economists and other specialists that resulted. This led to an intense study, by specialists from the successor states of the USSR, mainly Russia (which inherited the archives of all the central Soviet institutions), and by foreign academics, of the huge mass of documents on the Soviet period accumulated in what became the archives of the successor states. One major result of this study was the publication of a large mass of archival documents. By now, not only individual volumes, but a number of series of volumes, containing original documents in a wide variety of fields, have been published. In addition, numerous articles and books utilizing archival sources have been published. Furthermore, some archival documents containing previously unknown information are now available on the web. For example, Ukrainian archivists have placed on the web numerous documents relating to the 1933 famine in their country. This new approach to the study of the USSR, and the additional knowledge resulting from it, is known as the archival revolution in the analysis of the Soviet system. Overviews of the new insights thus obtained about Stalinism have recently been published both by historians (Khlevnyuk, 2001; Litvin and Keep, 2005) and economists (Gregory, 2004; Gregory and Harrison, 2005), two journals/annuals have published special issues on the archival revolution, and there is a website devoted to political economy research in Soviet archives (http://www.warwick.ac.uk/go/persa). The purpose of this paper is to provide a survey of the new knowledge which is shorter than Gregory and Harrison's survey article, links the new knowledge to what was previously known, discusses some issues excluded from previous surveys, and considers questions likely to be of particular interest to JOIE readers.

Taking water institutions as an illustrative context, this paper attempts a quantitative analysis of the structural and functional linkages within institutional structure and indicates their performance implications and strategic importance for promoting institutional reforms. Against an overview of existing empirical works on institutions in general and water institutions in particular, the paper develops an analytical framework for specifying alternative models of institution–performance interaction within the water sector under different assumptions concerning institutional linkages and their structural properties. These models are, then, empirically estimated using the perception-based information provided by an international panel of 127 water experts from 43 countries and regions around the world. Based on the model results, the paper offers quantitative evidences for institutional linkages and their performance implications, and concludes by indicating their policy roles, especially in developing some reform design and implementation principles useful to overcome the technical and political economy constraints for institutional reforms.

Nasir ad-Din Tusi's (born 1201 in Tus in northeastern Persia; died 1274 in Baghdad), has been far more influential for his various contributions to astronomy and mathematics, including founding the Maraghah observatory (in Iranian Azerbaijan) and his brilliant reformulations of the Ptolemaic planetary model, which served as an important inspiration for Nicolaus Copernicus (1473–1543) revolutionary work than for anything else. Nonetheless, he also stands as one major figure in the medieval Islamic philosophical ethics and a profound thinker on socio-economic matters, as is attested by his masterpiece Akhlāq-i Nāsirī (The Nasirean Ethics – titled after his first name), from which the following Fragment is taken. He may be deservingly credited as an important pioneer of the science of political economy.

Although there is now a thriving subdiscipline of economics and law, so far economists working on the theory of the firm have paid relatively little attention to earlier legal doctrines. One neglected juridical school of thought is the ‘real entity’ theory developed by William Jethro Brown (1868–1930) and others. Some writers have recently suggested that this has implications for our understanding of the nature of the firm.