Africa has seen a steady rise in democracy since the end of the Cold War. This paper investigates two possible implications of democratization in African countries: better economic growth through improved institutions and less civil conflict through increased political participation. Instrumental variables regressions are estimated with the spatial lag of democracy. This instrument varies over time, allowing for consideration of country fixed effects in IV regressions. Large positive impacts of institutions on economic growth and of political participation on reducing civil conflict are found in IV regressions with fixed effects. Further estimates show that both growth and civil violence effects may be driven by civil liberties.

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.

Economic history has recently emphasised the impact of economic shrinking on long-term economic growth, but economic theories do not provide explanations for how and why some countries avoid economic shrinking. In this case study of institutional change in post-independence Indonesia, we examine how the country managed to reduce the frequency of shrinking during the authoritarian regime and beyond. We argue that the state's autonomy, measured by macroeconomic policymaking, and accountability, measured by food security, were two key social capabilities that enabled Indonesia to reduce the frequency of economic shrinking. During this period, the ‘doorstep conditions’ for the transition into a democracy and stable economic growth emerged. More specifically, Indonesia managed to diversify its revenue base and make public resources more available for the broader common good. Loosening the connection between macroeconomic policymaking and elites opened up greater opportunities for the emergence of private enterprises. However, to date, the country is still far from a full-fledged open access society.

This special issue, devoted to the analysis of colonial institutions in the economic performance of countries both pre- and post-colonialism Africa, aims to be a contribution, in the vein of North (2005), to the field of colonial studies in comparative institutional perspective. The papers in this issue combine the history of economic thought, econometrics, economic history, cliometrics and the analysis of colonial institutions. These approaches shed a new light on the question of path-dependence and historical dynamics. They suggest that as former African colonial countries move away from the colonial period, the shadow of colonial institutions is less marked and is now rivalled in importance by the extent of democracy, which now plays a crucial role in their economic development.

How do firms combine a broad range of contract enforcement mechanisms into coherent governance structures? How often are distinct structures used in an economy? We develop a new empirical approach, based on latent class analysis, to answer these questions. Economy-level data from Hungary are used to derive a data-driven typology of contractual governance between firms. The joint use of law, morality, self-enforcing contracts, reputation and community norms is examined. They are shown to be combined into bilateral, third-party or comprehensive governance structures. The crucial governance choice is whether to move beyond bilateralism and, if yes, whether to use a mixture of (formal and informal) third-party mechanisms as a substitute or a complement. Complementarity is much more common. We find no instances of ‘impersonal exchange’; the law never stands alone. By implication, economic development may be best understood as a process from a narrower towards a broader set of enforcement mechanisms.

Ha-Joon Chang (2011), in his article ‘Institutions and Economic Development: Theory, Policy and History’, argues that economists place too much faith in ‘liberalized’ institutions. Institutions matter for growth, he contends, but not the way institutional economists think they do. In this article, we offer a defense of the hypothesis that ‘institutions matter’ for economic growth and present several objections to Chang's arguments.

Economics as a social science is about exchange and the institutions within which exchange relationships are formed and transactions are executed. Yoram Barzel's contribution to economics and political economy reflect this focus on exchange and institutions. In this paper, I will sketch a theory of real-existing socialist economies from a property rights/public choice perspective. Then I present the puzzles in political economy that such a system confronted in attempting to create a prosperous, regenerating and competitive economic system. I then conclude with a short discussion of the future for a progressive research program in political economy that takes institutional change seriously.

The different role played by case law and the historical and conceptual differences between the doctrines of precedent in common law and civil law traditions are important determinants of judicial creativity. In this article, we consider a hybrid version of stare decisis, called by the French name of jurisprudence constante, adopted by mixed jurisdictions. Unlike stare decisis, which allows a single precedent to establish case law, the doctrine of jurisprudence constante links the recognition of a judge-made rule to the existence of a consecutive line of decisions affirming the same legal principle. We develop a model to consider the effects of this doctrine on the social costs arising from judicial error and uncertainty in case law. We further consider the effects of these alternative doctrines of precedent on judicial creativity and ideological bias in judge-made law.

Institutions matter for postdisaster recovery. Conversely, natural disasters can also alter a society's institutions. Using the synthetic control method, this study examines the effects that Hurricane Katrina (2005) had on the formal and informal institutions in Louisiana. As measures of formal institutions, we employ two economic freedom scores corresponding to government employment (GE) (as a share of total employment at the state-level) and property tax (PT). These measures serve as proxies for the level of governmental interference into the economy and the protection of private property rights respectively. To assess the impact on informal institutions, we use state-level social capital data. We find that Hurricane Katrina had lasting impacts on Louisiana's formal institutions. In the post-Katrina period, we find that actual Louisiana had persistently higher economic freedom scores for both GE and PT than the synthetic Louisiana that did not experience the hurricane. These findings imply that the hurricane led to a reduction in both PTs and GE, which indicates a decrease in the relative size of the public sector as a share of the state's economy. On the other hand, we find no impact on our chosen measure of informal institution.

This paper discusses a research agenda for post-Northian institutional economics, which focuses on economic cognitive institutions and minds–institutions interactions. Douglass North introduced the ‘shared mental models’ and ‘shared beliefs’ concepts, which were considered the cutting edge of cognitive science at that time, the so-called first wave of extended mind theory. Subsequently, two more waves arose, but they went unnoticed by institutional economists who mostly continue to use internalist and reductionist approaches to cognition. Post-Northian institutional economics offers a deeper understanding of the relationship between cognition and institutions in the spirit of third-wave extended mind theory. The research agenda emphasizes a focus on socially extended cognition and the conception of cognitive institutions as shared mental processes (Petracca and Gallagher, 2020). I propose an alternative definition of cognitive institutions as interactively and polycentrically co-produced cognitive norms; this approach highlights normativity, co-production, and distributed active agency in extended cognitive processes. I propose two domains in which this third-wave framework can be used: ecological rationality and cognitive–cultural niche construction. This paper encourages a discussion on the prospects of a third-wave enactivist turn in institutional economics.

This paper shows how the literature on identity can enhance the so-far underdeveloped appreciation of social context in the theory of the firm. While taking context into account, I explain why the literatures overlap in significant ways and I propose an analytical map which relies on and matches the three central questions of both literatures. The three central questions on identity – identification, individuation and multiple social identities – are coupled respectively with the three central questions on the firm – the nature of the firm, internal organization and firm boundaries. This identity-based extension of the economics of the firm contributes to the organization of the literature by extending the analysis of identity to questions that go beyond the primary question of identification. In doing so, it identifies two key research agendas: the role of internal organization in enabling individuation and the role of firm boundaries in enabling collective intentions.

The organization of information production is undergoing a deep transformation. Alongside corporations, which have been for long time the predominant institutions of information production, new organizational forms have emerged, e.g. free software communities, open-content on-line wikis, and collective blogs. The paper investigates the factors that favoured the emergence of these alternative systems, called peer production. Different from the previous literature, the paper considers technology as an endogenous variable in the process of organizational design. On this basis, the paper argues that the diffusion of digital technology is a necessary but not sufficient condition to explain the emergence of peer production. A similarly important role has been played by the set of ethics that motivated the early adherents to the free software movement. Such an ethics indeed operated as a ‘cultural subsidy’ that helped to overcome the complementarities existing among distinct institutional domains, and let a new organizational species to emerge.

This article aims to address the lack of transaction costs economics (TCE) studies in health economics. It provides a content analysis of ObamaCare and 25 lawsuits that challenge the 2010 reform. It shows that the cultural environment determines the strength of features of governance structures and in line with this the strength of their instruments. Following Williamson's TCE model of governance structures, the zero transaction costs criterion is supplanted by the remediableness criterion. Assuming that ObamaCare might be ruled to be constitutional, the regulation of healthcare is found to be a comparative efficient governance structure in addressing adverse selection. However, the TCE analysis also reveals that ObamaCare itself is subject to some flaws in efficiency and effectiveness, namely: unbalanced adaptation mechanisms, unbalanced incentives and weak enforcement devices.

János Kornai's pioneering scholarship examined the mechanisms of the socialist system. Following the collapse of the Soviet Union, Kornai's main focus was on the transition process in former socialist countries in central Eastern Europe. This paper builds on Kornai's work on the socialist system by analyzing horizontal bargaining within every political branch in contemporary China. I argue that this horizontal bargaining within the party is enhanced by the vertical bargaining. Incorporating Kornai's work on socialism, the “party chief and mayor” template extends the bargaining model from one key figure and one group in the “king and council” template to two key figures and their respective confidants. In addition, it incorporates institutional constraints into the graphical model. It also defines a “collective decision probability function,” which shows how the party chief and mayor model reaches “checks and balances” that limit the policy space, regardless of whether the policy is exogenous or endogenous.

The need of further research on the interlink between culture and institutions has been strongly advocated by economists and institutionalists alike. However, bringing together culture and institutions within an organic framework, though, is a non-trivial operation. This is due to the complexity of the synergies between cultural aspects and institutional devices. This special issue attempts to start filling this gap and to build an ad-hoc systemic platform for disseminating such a debate. To this purpose, it brings together an organic collection of contributions in well-established conceptualisations of both culture and institutions, supported by robust and consistent methodological applications. The essays presented in this work provide consistent evidence and conceptual perspectives supporting the idea that the synergies between cultural and institutional aspects are of paramount importance to understand human behaviour, individuals' choices and societies' patterns. They also improve the theoretical, empirical and methodological understanding of the role of institutions and culture in different geopolitical and socio-economic realms. By doing so, these contributions place this special issue as prelude to further research on the co-evolution of culture and institutions and on its possible implications on different societal aspects, human development and well-being.

Recent work has argued for a Hayekian behavioural economics, which combines Austrian economics with behavioural economics as developed by Kahneman, Thaler, Sunstein, and others. We suggest that this hybrid is misguided because it relies on individual cognitivism. This view of cognition is incompatible with the Hayekian view of cognition which treats rationality as an emergent phenomenon of social interaction in an institutional environment. This Hayekian view, which we call epistemic institutionalism, is compatible with an alternative prominent perspective in psychology, that of the extended mind, sometimes known as 4E cognition. We demonstrate how the Hayekian perspective on individualism, the price system, and the evolution of rules can be connected to the extended mind programme, through concepts such as the coupling of the individual and their environment, cognitive off-loading, and affordances. We suggest that this alternative combination of Austrian economics and psychology provides a more fruitful way forward, especially because it foregrounds the processes of learning, error-correction, and institutional orders, rather than choice, bias, and individual rationality. To explain why Austrian economists have been receptive to behavioural economics, we distinguish epistemic institutionalism from the (radical) subjectivist approach, which shares key assumptions of individual cognitivism.

The Coase theorem, circa the 1970s, had no settled meaning or content; instead, that meaning and content was created – and in differing ways – by the modeling choices of scholars who attempted to grapple with and assess the proposition that Coase had laid out in 1960. These modeling decisions included both the theoretical frameworks laid onto the theorem and the assumptions (including meanings ascribed thereto) said to underlie it. The present article illustrates this using the 1960s and 1970s extortion debate as a backdrop, showing how conclusions reached regarding the theorem's validity hinged on the Coase theorem worlds created by the authors involved.

Most American police departments claim to practice community-oriented policing (COP). The stated goals are to build partnerships between the police and the community, maintain order and quality of life, and solve problems that contribute to crime and fear of crime. However, researchers have noted how most departments attempting to implement COP have fallen short in successfully adopting the recommended reforms. This paper argues that the institutional setting in which American public policing operates leads to this result. By contrast, the institutional features of private security make its operation more conducive to achieving the goals of COP. These institutional differences include whether economic calculation is possible, the domain that is policed, and which rules are enforced.

Does ‘inner competition’ – rivalry among network members – worsen performance in a network of cooperative banks? By weakening the functionality of the network, inner competition might, in fact, endanger network-dependent scale economies. Testing our hypothesis on Italy's network of mutual cooperative banks (Banche di Credito Cooperativo – BCCs), we find a worsening of performance of both incumbents and (even more) aggressors when BCCs compete among themselves. However, the worsening is mild when BCCs compete with comparable non-mutual banks external to the BCC network. We conclude that inner competition among cooperative banks is a negative sum game and, thus, limiting it would be desirable to preserve the stability of cooperative banking networks.

In recent years, there have been major advances in the empirical analysis of the link between institutions and development. However, a number of methodological problems – both theoretical and empirical – remain unresolved and have been well articulated by Ha-Joon Chang in his article ‘Institutions and Economic Development: Theory, Policy and History’. These problems raise valid concerns about the policy relevance of the evidence arising from the studies. A more reliable approach to study the link between institutions and development and overcome the inherent problems of cross-country empirical analysis is to direct focus to microeconomic analysis of institutions. Such an approach avoids ideologically driven normative judgments about the superiority of particular institutional arrangements and also offers a more credible and tractable avenue to investigate institutional change.