Most current explanations of the crisis which began in 2007/8 tend to search for scapegoats, in the format of behavioral flaws. Their treatment of ‘risk’ is an important signpost to where such theories go awry. This paper suggests a structural theory of the crisis, informed by Institutionalist themes. We insist there is an alternative to a neoclassical macroeconomics, in the guise of possible alternative heterodox microfoundations for Minsky's account of economic crises, beyond the Kaleckian markup model. The sketch is based upon elevation of some formal notions of computational complexity to pride of place, and characterization of crises as a collapse of complexity. It is an attempt to portray a market system evolving to a point of ‘inherent vice’: an endogenous development which by its very nature, cannot be tamed through conventional insurance or risk models.

This paper discusses the place of ‘tacit knowledge’ in Hayek's writings. How did Hayek understand tacit knowledge? How did his understanding change through time? I address these questions and follow the change in Hayek's works from skills and techniques of thought in the 1930s to the use of ‘tacit knowledge’ in the1960s. Hayek uses Polanyi's concept in many writings, but remains short of approving its implications. The paper emphasizes that while Hayek was quite aware of the differences between tacit knowing and knowing-how, he was not keen to stress the divergence. In the end, I offer some potential explanations for this preference.

This paper applies the principles of organization economics (an offshoot of organization theory and a cousin of the New Institutional Economics) to a variety of organizations, mainly public ones. Organization economics seeks to understand and improve the ways in which organizations overcome agency costs, information costs, and other obstacles to efficiency. The private organization discussed in the paper is the modern publicly held (that is, dispersed ownership) business corporation, and the particular problem on which I focus is excessive executive compensation as a symptom of weaknesses in corporate governance. I then discuss two public organizations involved in national security – the US intelligence ‘community’ (a kind of mega-organization) and the Federal Bureau of Investigation in its role as the nation's principal domestic intelligence service. Both exhibit significant dysfunction that organization economics can help us to understand and overcome. I then discuss two types of public organization that have been more successful in overcoming obstacles to organizational efficiency: the judiciary of common law nations, such as the United States, and the very differently structured judiciary of civil law nations, such as France, Germany, and Japan.

Skepticism prevails among a substantial number of economists over a possible connection between civil liberties and the level of economic activity. Until now, empirical research on economic growth has found mixed evidence on the influence of civil liberties. Disaggregation of the Freedom House Civil Liberties Index allows a fresh empirical look at the effect of human rights on long-term growth or economic development. Our results show that one of the four subcategories of the index outperforms all available indicators of property rights institutions in explaining long-term economic growth. This subcategory, Personal Autonomy and Individual Rights, captures the level of second generation human rights that affect the mobility of individuals with respect to housing, employment and university education, as well as the level of protection of property rights. This result is robust with respect to reverse causation, important omitted variables such as geography and human capital, as well as to a variety of sensitivity tests. We also discuss in our conceptual framework how civil liberties work as an indicator of the prevalence of the rule of law and how the latter affects growth or development as an essential public input.

Judge Posner (2010) identifies organizational economics with the principal-agent problem and offers no definition of the crucial term organization, which leads him to force the principal-agent template on social formations that are not organizations and to neglect aspects of their operation that might be illuminated by alternative conceptions of organizational economics. This response offers an explicit characterization of organizations as central planning agencies, considers Posner's examples in light of the problems of purpose, information, and control faced by all central planners, and draws upon an emerging capabilities theory of organizations to extend the scope of Posner's analysis and suggest insights beyond those that flow from the principal-agent approach.

This paper performs a systematic analysis that examines institutional fragmentation in terms of customs tariffs within states west of the Rhine from 1700 to 1815 and between states east of the Rhine from 1815 to 1871. Internal customs zones are measured in two ways: physical size and urban population. Both methods use 175 sample cities as described by De Vries (1984) in England, France, the Netherlands, and Spain as the basic unit of account. The results indicate that customs zones west of the Rhine were small prior to the French Revolution but grew dramatically from 1789 onwards. They thus provide definitive evidence of divided authority in Ancien Régime Europe. The measurement of external customs zones uses 117 sample cities in the German and Italian territories. The findings indicate a remarkable degree of institutional consolidation between states east of the Rhine over the 1800s.

Much of socially relevant behaviour does not originate in isolated individuals. It is embedded in institutional arrangements. Embeddedness can be so pronounced that outsiders no longer focus on the judgement and decision making of individuals contributing to the course of action. Instead, they ascribe the behaviour to the institution, which they refer to as a corporate actor. This social practice makes it meaningful to compare isolated individuals and corporate actors undertaking the same tasks. This paper surveys the empirical literature on the question from experimental economics, social psychology, and organization science.

This paper examines the fundamental nature of numbers as they are used in economic systems. In the framework proposed, number sequences are technological objects (‘tools’) that are constituted by both form and function. To do their job, number sequences have to have the necessary internal structure – all elements (e.g. symbols) of the sequence must be distinct from one another, and the sequence must be a progression. In addition, numerical toolkits have to have the right external structure – they must be situated in a social network of economic agents that confers on them quantitative functions (e.g. identifying set sizes). Number sequences are the product of multilevel evolutionary processes, including psychological selection that screens sequences for their learnability by human users. Number tools are a kind of capital; they are material systems that are as real as other everyday objects. Just as changing physical tools alters the structure of productive activity, so too changing number sequences alters cognitive, behavioral, and social routines.

The agency problem at the core of corporate law stems from a chronic potential conflict of interest between directors’ self-interest and that of shareholders. Corporate law views directors’ self-interest in terms of diverting welfare to directors at the expense of shareholders. Another component of directors’ self-interest – being perceived as maximizing shareholders’ welfare – is seen not as part of the agency problem, but as part of the solution (aligning directors’ incentives with shareholders’).

This is true only if taking actions that maximize shareholders’ welfare is also the optimal manner for a director to be perceived as maximizing welfare. However, directors have more appealing ways to be positively perceived. In conducting bias arbitrage, directors identify risks that shareholders over-estimate, take action to address the risk, and then take credit for the ‘lowered’ risk (i.e., shareholders’ corrected assessment of the risk).

Bias arbitrage is more attractive as shareholders’ misperception of a risk increases. The opportunity to bias arbitrage thus leads directors to address highly misperceived risks instead of highly remediable risks.

This essay asks what firms are, whether they are ‘real’ social actors, and whether their actions can be traced without remainder to the actions of living people or whether there is some irreducible aspect of their existence or operation that must be attributed to the organization itself. It describes firms as ongoing, multilateral relational contracts from whose operation – that is, from performance over time by specific individuals in the roles and relationships defined by the contract – emerge the firm's idiosyncratic routines and capabilities. It emphasizes the role of entrepreneurs in the creation of firms and the close dependence of organizational capabilities on human performance, and argues that this account is consistent with a reasonable individualism that allows for social outcomes to be determined by the actions and interaction of individuals. It then proposes that firms are nonetheless institutional facts and thus ontologically subjective but epistemically objective components of reality, and concludes with directions for future work.

This article deals with the contribution of organization theory to transaction cost economics from an examination of Williamson's theory of the firm. Borrowing and applying some conclusions of organization theory, Williamson rightly differs from other theories of the firm, particularly in his analysis of hierarchical authority, intra-firm conflicts, organizational atmosphere, and the farsighted contracting. Having shed light on the complementary and divergent thoughts of these two different disciplinary approaches to the firm, the article recalls Williamson's project of building a ‘science of organization’.

In this paper, we offer an empirical investigation of the relationship between social capital and human development across European countries for the post-war period. We argue that social organizations contribute directly to broader welfare aspects of development as part of the third sector of the economy, which undertakes the provision of public goods, such as health and education, in synergy with state institutions. This is counter to views that associate social organizations with anti-growth rent-seeking and lobbying activities. We begin with a multivariate regression analysis, which reveals that membership in social organizations is positively associated with human development, along with state institutions of public expenditure and the quality of governance. We then conduct a case study analysis to explore further the historical and cultural contextual factors of European welfare systems that determine the capacity of third sector organizations to enhance generalized co-operation, synergistic relations and social welfare against particularist interests.

We analyze development trajectories of early civilizations where population size and technology are endogenous, and derive conditions under which such societies optimally ‘switch’ from anarchy to hierarchy – when it is optimal to elect and support a ruler. The ruler provides an efficient level of law and order, but creams off part of society's surplus for his own consumption. Switching to hierarchy occurs if the state of technology exceeds a threshold value, but societies may also be ‘trapped’ at lower levels of technology, perpetuating conditions of anarchy. We present empirical evidence based on the Standard Cross Cultural Sample that support the model's main predictions.

Integrating organization theory, organizational economics, and organizational law considerations, it is argued that the ‘nature of the firm’ can be more completely understood if it is considered a complete society-establishing contract, including constitutional pacts on procedures for the selection of actions, rather than a nexus of incomplete transactional contracts complemented by authority, power, or relational norms. The explanation is more general since firm-establishing contracts are a sub-set of those society-establishing contracts that are capable of regulating any venture in condition of high uncertainty and potential conflict, and because the constitutional regime adopted (authority-based, democratic, or other) becomes a specification of particular types of firms rather than part of the explanation of the firm. Evidence from published studies, as well as from newly gathered data on firm-founding contracts and other partnership establishing contracts (500 record database on large multi-party projects), document that actual contracts under uncertainty do fit the hypothesized pattern.

This paper explores the institutional and economic development in ancient Athens from around 600 BC into the fourth century, a period during which the Athenians experienced oligarchy, tyranny, a gradually evolving but eventually far-reaching male democracy, followed by a return to more influence for the elite. Concomitantly, economic life changed qualitatively and quantitatively. Self-sufficient farming gradually gave way to market relationships and there was substantial economic growth. This analysis of institutional changes in Athens emphasizes the importance of credible commitments from those in power to other groups in society. It is furthermore likely that the increasing reliance on market relationships gradually transformed individual behaviour and individual beliefs, leading to changes in the formal and informal rules in society. Taxation played an important role: it pushed people into market relationships, illustrated the need for credible commitments, and helps to explain why foreigners were so prominent in trade in ancient Athens.

The intellectual roots of law and economics, institutional economics, and the possible science of organization economics are here explored for a better understanding of what Posner is pushing for. The purpose is, of course, to gain better acceptance of his proposal. As it turns out, organization economics comes close to what has come to be called ‘the science of State’, i.e. treating law, economics, sociology, and political science as approaches to one and the same subject always to be taken together.

In Socialism after Hayek, Theodore Burczak uses Hayekian insights to argue in favor of a socialist society with real markets, but also with wealth redistribution and prohibition of wage labor. In so doing, he offers not only a socialist vision but also asks questions that may challenge Hayekian liberals to reformulate their institutional analyses. A critical assessment that combines Austrian and institutional theories leads to the conclusion that some redistributive policies may enhance the knowledge-disseminating function of markets, but that a market order that is limited to worker-managed firms diminishes the knowledge dissemination properties of the market process.

Britain's Glorious Revolution of 1688 is one of the most widely studied cases of institutional change. Recent institutional analyses of the Glorious Revolution, however, have failed to address one of the central issues in political science: control of the state's comparative advantage in violence. This paper examines this issue through analysis of the standing army debates of the late 1690s. Participants in the debates disputed whether a standing army or a militia would be the most effective institutional arrangement to guard against threats from abroad and tyranny at home. Both sides of the debate analyzed the effects of a standing army in terms of the incentives that it created for soldiers, citizens, the monarch, and foreign governments.

Posner's economics of organization yields an unconventional view that private organizations operating in the market, the publicly held US business corporation, despite the profit motive, ends up being inefficient, paying excessive compensation to CEOs, while some public organizations, the US federal judicial system (and the judicial system of Continental Europe and Japan), despite the insulation of judges from most of incentives and the near complete autonomy afforded to them, works reasonably well. Unfortunately, Posner does not state clearly the criteria by which he judges one ‘excessive’ and the others ‘works reasonably well’, nor does he explain well why professional norms of judges that play a crucial role in public organizations are not a factor in business organizations.

Ex-ante impact assessment of agricultural, environmental, and rural policies has become an integral part of political decision-making processes in the European Union. While a variety of agri-environmental modelling tools exists, ex-ante policy assessment tools capturing the institutional dimension are rare and need to be improved. In this paper, we introduce a standardized procedure for ex-ante modelling institutional aspects for policy implementation: the ‘Procedure for Institutional Compatibility Assessment’ (PICA). PICA has been designed as an explorative and flexible, yet formalized methodology that enables policy-makers to identify, at an early stage, potential institutional incompatibilities. After relating PICA to relevant approaches for policy assessment, we elaborate on its four distinct steps, use a core element of the EU Nitrate Directive to illustrate its function, and then provide model validation by means of a test case.