This paper aims at offering a reconstruction of the salient features of the most important formal institution introduced by European states in the Early Modern Period with the aim of recognizing and protecting the intellectual property of the inventors. Such institutions went under different names – ‘Privilegio’ in Venice, ‘Patent’ in England, ‘Privilège’ in France, ‘Cedula de privilegio de invençion’ in Spain – and, in general, took the form of the concession of a special prerogative to the inventor by the sovereign or the republic, by virtue of which he could exploit, in economic terms, his own invention through holding a monopoly. The article starts with the origins of the privileges for invention, of which the first examples are to be found in the Middle Ages, but whose official ‘genesis’ is commonly identified with the Venetian law of 1474. The fundamental characteristics of the Venetian system, which was later imitated by other European states, are analysed. In the following section, the adoption of this model by those other states – Spain, France, England, and the Netherlands – is illustrated. In fact, the majority of these would make legislation on intellectual property an instrument of mercantilist policy, under the same conditions as prevailed in Venice. Further, we will examine some of the opportunities that the diffusion of these measures offered to those involved and the way in which they – as craftsmen, merchants, and speculators – took advantage of the business of privileges. Finally, before concluding, some thoughts on the changes made in the policy of privileges given the transformations that took place in the course of the eighteenth century, in order to understand the ‘adaptive’ capacity of these institutions.

Was technological progress during and after the Industrial Revolution top-down or bottom-up? The technology that created the great inventions was driven by a combination of pathbreaking ideas and the dexterity and skills of trained artisans. While those forms of human capital were quite different, they both came out of small elites of intellectuals and craftsmen, what are rapidly becoming known as “upper-tail human capital.” I analyze the institutions that drove the incentives for both, and show that they came together to produce the Great Enrichment. These incentives were both material and social: between 1500 and 1700, the search for financial security and reputation cooperated in producing a unique institutional environment in which the elites in Western Europe produced the three legged-stool of European modernity: the Reformation, the Scientific Revolution, and the Enlightenment. Once these three movements had succeeded, the foundation for modern economic growth had been laid.

The main objective is to discuss the historical-evolutionary character of the latest work of Douglass North. His views have been lately criticized, especially as far as their historical insight is concerned, as well as the nature of the concepts and the ideas he used. Three interconnected arguments dealing with North's neoclassical roots, his individualistic point of departure and his inclination to universalistic explanations sustain this allegation, and they will be presented in the first part. In the second part, a response to these arguments is suggested. Finally, the evolutionary character of his later work is discussed and established in the last part. It is held that by introducing ‘culture’ into the heart of the analysis of institutional change, North is oriented toward context dependent and consequently historically specific explanations.

This paper investigates the relationship between judicial resources and individuals’ trust in the justice system. We argue that the justice budget is likely to have a positive and significant impact on individuals’ trust in justice, thanks to its role as a signal when individuals face uncertainty regarding the judicial environment. We test this hypothesis empirically using three different budget-related variables: the justice budget per incoming case, the number of magistrates and the intensity of legal aid. Across our three regressions, we find a positive and significant correlation between judicial resources and individuals’ declared trust in the justice system. This positive relationship is robust to the introduction of socio-demographic, cultural, institutional and economic control variables. We finally offer empirical support to the intuition that the effect of the justice budget on trust in justice is likely to be greater when individuals are more satisfied with the level of democracy in their country.

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.

We illustrate mechanisms that can give rise to path dependence in legislation. Specifically, we show how debtor-friendly bankruptcy law arose in the United States as a result of a path dependent process. The 1898 Bankruptcy Act was not regarded as debtor-friendly at the time of its enactment, but the enactment of the law gave rise to changes in interest groups, changes in beliefs about the purpose of bankruptcy law, and changes in the Democratic Party's position on bankruptcy that set the United States on a path to debtor-friendly bankruptcy law. An analysis of the path dependence of bankruptcy law produces an interpretation that is more consistent with the evidence than the conventional interpretation that debtor-friendliness in bankruptcy law began with political compromises to obtain the 1898 Bankruptcy Act.

If those with political power benefit from corrupt institutions, rulers might not adopt the rule of law so the ruling class can command a larger share of a smaller pie. An empirical analysis reveals that the size of government is larger in those countries that enforce the rule of law. If government expenditures provide some measure of the ability of the ruling class to command resources, this suggests that those with political power could benefit from imposing a fairer and more objective legal structure. Another conjecture is that those in power maintain corrupt governments to pay off their supporters and enhance their ability to remain in power. However, the rule of law is also positively associated with political stability, so better enforcement of the rule of law also enhances the ability of incumbent governments to remain in power.

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.

Coase always expressed dissatisfaction with neo-classical economics and advocated for a new approach. Rather than using toy mathematical models built from unrealistic, idealized assumptions, Coase preferred to study real-world contexts, including actual legal cases. He demonstrated the utility of his approach in ‘The Problem of Social Cost’. Yet almost all of Coase's contemporaries completely ignored, Coase's call for a new approach and his sustained use of legal cases to illustrate his arguments and to situate his analysis in reality. In this paper, we show that the profession interpreted Coase's seminal article exactly the opposite of what he had intended, and reduced his analytical contributions to a toy model of the exact sort he was criticizing. This ironic history of the most cited article both in law and in economics helps us understand the development of ideas within both fields and how disciplinary blinders shape intellectual progress.

Externalities are an important concept in economic theories of market failure, aiming to justify state regulation of the economy. This paper explores the concept of externalities from a philosophical perspective. It criticizes the utilitarian nature of economic analyses of externalities, showing how they cannot take into account values like freedom and justice. It then develops the analogy between the concept of externalities and the ‘harm principle’ in political philosophy. It argues that the harm principle points to the need for a theory of basic interests to judge when a harm is imposed. Similarly, externality analyses should use such a theory of basic interests as the basis for judgments about legitimate state intervention. This proposal is defended against objections, and illustrated with a case study of the US Supreme Court's ruling on the Affordable Care Act, which shows how the judicial reasoning implicitly interprets externalities in terms of basic interests.

Moral behavior and legal institutions coevolve. While evolutionary game theory has often analyzed the evolution of moral behavior within given institutional rules, it has not examined the coevolution of moral preferences and different institutional aspects of the decision environment. By an ‘indirect’ evolutionary approach, we analyze the coevolution of moral preferences (in the sense of trustworthiness) and legal institutions like court rulings and legal insurance. We find that preference detection capabilities crowd in morality and can thus render useless the role of courts and legal insurance as public institutions. Legal institutions become crucial for the emergence of morality, however, when information about preference types is not available. This holds true even when courts do not have superior detection capabilities than other agents.

This is the second of two papers that generate and analyze quantitative estimates of the development of English caselaw and associated legal ideas before the Industrial Revolution. In the first paper, we estimated a 100-topic structural topic model, named the topics, and showed how to interpret topic-prevalence timelines. Here, we provide examples of new insights that can be gained from these estimates. We first provide a bird's-eye view, aggregating the topics into 15 themes. Procedure is the highest-prevalence theme, but by the mid-18th century attention to procedure decreases sharply, indicating solidification of court institutions. Important ideas on real-property were substantially settled by the mid-17th century and on contracts and torts by the mid-18th century. Thus, crucial elements of caselaw developed before the Industrial Revolution. We then examine the legal ideas associated with England's financial revolution. Many new legal ideas relevant to finance were well accepted before the Glorious Revolution. Finally, we examine the sources of law used in the courts. Emphasis on precedent-based reasoning increases by 1650, but diffusion was gradual, with pertinent ideas solidifying only after 1700. Ideas on statute applicability were accepted by the mid-16th century but debates on legislative intent were still occurring in 1750.

We look at the institutional determinants of both within- and across-country variations in US foreign direct investment (FDI) flows over time. The strength of our approach is that in contrast to the previous work that has focused on average FDI flows across countries, we are able to explain both the variations in FDI flows across and within countries for a given year. Our core hypothesis is that in countries with high quality of contract enforcement, multinationals are more likely to invest in the industries, where by their very nature investments are relationship specific. Conversely, in countries with low quality of contract enforcement, multinationals are more likely to invest in industries where investments to a large degree are not relationship specific. Using-three dimensional panel data for US FDI flows to 50 countries and 6 sectors for the period 1984–2010, we find strong support for our hypothesis. Our findings suggest that countries that want to attract US FDI in sectors that are highly intensive in technology and institutions such as transportation and electronics should improve their property rights and contracting environment.

Part of the debate fueled by cryptocurrencies has revolved around the question of what we call money. This paper identifies two traditions in monetary theory that have tried to answer that question. On the one hand, the money or non-money view follows a strategy proposed by a version of philosophical essentialism, in which there is a set of defining characteristics of money that make it categorically different from other things used in transactions. On the other hand, the liquidity degree view emphasizes that the multiple objects that circulate as a means of payment differ in their degree of acceptability. Since there is no absolute standard of liquidity, a precise dividing line between money and non-money cannot be drawn. We challenge the money or non-money view, arguing that there is nothing in the nature of money that can be interpreted as a natural kind essence by which money can be categorically separated from non-money.

In the past decade, Australia has begun to privatize its irrigation system. Two general models have emerged: a single and a dual ownership structure. This paper examines the trade-offs, costs and benefits, and the attendant efficiencies regarding costs of ownership. In particular, we examine member capital investment incentives and resultant risk-bearing costs related to capital formation. The paper concludes that the dual ownership structure system has significant economic advantages relative to its single-structured counterpart.

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.

In his article ‘Institutions and Economic Development: Theory, Policy and History’, Ha-Joon Chang rightly argues that historical evidence does not irrefutably suggest that countries characterized by free markets perform better than those in which the state plays a much more prominent role. However, his method of substantiating his claims by means of examples from different sources and periods does not convince. A more systematic and theoretically founded approach is needed. This comment focuses on the cross-section versus time-series approach and the relation between culture, institutions and economic development.

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.

I reply to amiable criticisms by Greif, Mokyr, Langlois, Lawson, and Tabellini of my own criticism of neo-institutionalism. They say that ‘culture’ is included in neo-institutionalism – which is mistaken on any serious definition of culture, such as those involving ethics, rhetoric, ideology, and ideas. They also say that neo-institutionalism has advanced beyond Max U and Samuelsonian economics. That's also mistaken. They do not attend to the humanities, which as ‘humanomics’ can indeed acknowledge ‘culture’ and non-Max U. Their particular historical examples show the opposite of what they think is shown. Ideas, rhetoric, ethics changed, and had to change, before institutions mattered.

This is a short reply to the comments by James Robinson and Mary Shirley on my paper ‘How (not) to measure institutions’.