Taking inspiration from the work of Douglass North, much institutional research attempts a distinction between ‘formal’ and ‘informal’ institutions. North often associated ‘formal institutions’ with rules enforced through a legal system. It is suggested here that this lead should be followed and refined. In which case ‘legal system’ and ‘law’ require definitions. An alternative claim, that ‘formal’ basically means ‘written down’, is arguably less useful. Stressing the importance of clear definitions in this area, this paper considers a case where slight modifications yield strikingly different results. Some options concerning the meanings of ‘culture’ and their relation to institutions are briefly noted. Changes in, and interactions between, ‘formal’ and ‘informal’ institutions are considered, with illustrative examples. Contrary to some authors, informal institutions can sometimes change rapidly, in some cases in response to state legislation.

National innovation systems (NISs) have been important in the literature since the 1990s for highlighting the institutional performance of economies and promoting economic development. Inclusion in systemic innovation activities is an emerging area of research. However, the definition of inclusion within innovative activities remains unclear and is associated with numerous forms and characteristics depending on the context visited. Our work highlights the conceptual gap that exists around the notion of inclusive innovation by characterising three forms of inclusion in relation to innovation activities. We thus set out, in the form of a typology, three distinct framings which enable us to identify three different levels associated with specific institutional mechanisms and forms of inclusion. This typology makes it possible to identify appropriate innovation policies, depending on how inclusive innovation is characterised (low, medium, and high). It also helps to clarify the inclusive nature of innovation in NIS approaches.

This paper examines the effects of state capacity on the reported Covid-19 infection (and mortality) rate and its policy implications. We analyse two dimensions of state capacity which were critical during the pandemic. The healthcare capacity acted to contain the virus outbreak (an effect we call containment). The information capacity acted to detect contagious yet asymptomatic cases (an effect we call detection). We argue that containment pushes down the reported infection rate. In contrast, detection pushes it up, thus generating a non-linear combined effect that we estimate systematically using Colombian municipality-level as well as country-level data, different data sources, and various empirical strategies. Our findings indicate that the infection (and mortality) rates were likely under-reported, especially in areas with a low state capacity level, due to their poor capabilities to detect the virus. Our study put the emphasis on the many facets of state capacity, each affecting in complex ways our understanding of important phenomena, such as the Covid-19 outbreak.

This paper derives career lessons for economists by examining the unusual career of Brian J. Loasby in terms of Loasby’s own key ideas. Loasby’s early career ran into difficulties after he chose to become a postgraduate for lifestyle rather than career reasons, with his insufficiently ambitious reference standards resulting in unduly narrow search for both options and new connections. His eventual success came because of a path-dependent process whereby he developed an organizing framework that was conducive to finding problems and making intellectual connections. It was a process in which making personal connections also had a key role, though some intellectual connections that he earlier failed to make resulted from trusting other people. In the market for contributions to knowledge, his way of branding and positioning his work in relation to management decision-making and the growth of knowledge gave it a wider appeal than would have been the case if he had aligned himself with a particular school of thought or ‘heterodox economics’ in general.

This paper examines the concept of decentralised autonomous organisations (DAOs), blockchain-based entities intended to operate without central authority or management hierarchy, through the lens of organisational economics. It compares DAOs with conventional organisational forms and explores whether DAOs represent a novel organisational form. The paper investigates DAOs in the context of the electronic markets hypothesis and applies theories from Demsetz, Jensen and Meckling, and Williamson to understand their potential long-term viability. A key finding is that for DAOs to function as claimed, they must effectively suppress agency costs through smart contracts and internal contestable markets. The paper also highlights the challenges DAOs face in maintaining adaptive integrity and fostering cooperative adaptation. While DAOs show promise in reducing certain transaction and information costs, their long-term viability depends on overcoming significant governance and participation hurdles.

Crises constitute a fascinating context in which to investigate the resilience of institutional arrangements, or their breakdown and change, and to shed light on the interplay between formal and informal institutions in this process. The papers in this symposium focus on crises from political power grab to economic shock and natural disasters. They focus on the differing impact of different crises or investigate the specific impact of one form of crises on formal and informal institutions or the negotiation process that allow them to coexist. Bringing them under one roof emphasises the diversity of lenses through which institutions can be conceptualised and operationalised. It also highlights some of the issues preventing meaningful comparisons across frameworks. Importantly, it also allows us to trace an agenda for research towards improving our understanding of when and how crises lead to change. We argue that an often under-studied aspect that could help to move towards a clearer taxonomy is to articulate more explicitly the agency of actors and the distribution of power within society and social groups.

Marginal utility (MU) theories of consumer demand assume that consumers try to maximise a generic benefit (‘utility’) by selecting purchases giving equal MU per unit of cost, from which are predicted the observed relationships between price changes and quantities of demanded consumer goods. Attempts to remedy the explanatory shortcomings of MU theory usually supplement it with additional assumptions. This paper proposes taking that approach to its logical conclusion by using consumer and psychological research findings not to supplement but to replace the concept of utility entirely with realistic explanations of consumer behaviour.

We propose a framework for institutional change in the ‘rules-in-equilibrium’ tradition and introduce the term institutional incompleteness. Institutions are incomplete when their constituent rules fail to induce behavioural beliefs about the strategies of others and hence fail to achieve an equilibrium. Even with deliberate preparation ex-ante, there will always be unanticipated situations not covered by the rules that can only be settled ex-post, especially in a complex and changing environment. At this crux, people creatively invoke focal point generating ideas. Ideas act as guides for coordination where rules cannot. If no focal points can form, further institutional collapse occurs. To understand which ideas guide better, economists will have to investigate an idea’s content. Our theory offers a way to look at institutional change due to incompleteness while also allowing the requisite room for ideas in explaining the patterned yet indeterminate trajectory of humanity.

This paper addresses the conceptual gap between the expected benefits of federalism in managing ethnicity-based conflict and its actual governance outcomes in the African context. One of the main reasons for this gap is the conflation of federalism with decentralization. In response, we develop and configure polycentric federalism as a praxis-oriented framework with three institutional parameters, administrative devolution, peaceful competition among governance units, and individual choice of alternating governance structures. Through this framework, we analyse federal institutional design in Nigeria and Ethiopia to illustrate why federalism fails to effectively manage ethnicity-based conflict in African states. Despite the varying approaches to federalism in the two cases, institutional design falls far short of achieving the parameters of polycentric federalism, a necessary condition for effectively managing diversity through federalism. Beyond the policy implications, our analysis contributes to institutional economics by illustrating how federal institutional design affects identity-based group dynamics in conflict-ridden multiethnic polities.

In the Hellenistic era, there was widespread convergence to the Attic standard and a similar narrowing of coin types in terms of aesthetics. The competition between issuers resulted in an equilibrium in which improvements to the consistency and quality of money were sought after. This institutional foundation resulted in the creation of an incentive structure that fortified adherence to international monetary standards and discouraged entropy due to debasement and the pursuit of short-sighted fiscal gains. This paper explores the role of reputational incentives faced by issuers when determining coinage standards and aesthetic types, as well as the benefits that the attainment of reputational value conferred to both the issuers and users of coinage. I argue that the economic openness and competitive nature of coin issuance in the period created a framework in which the imputation of fiduciary value to coinage stemmed from the generation of reputational quality.

Drawing inspiration from Oliver Williamson’s work, we employ a ‘discriminating alignment’ approach to explain how established organizations select and govern external sources of innovation. Our framework integrates ‘standard’ governance mechanisms, such as licensing and joint ventures, with ‘emerging’ mechanisms, such as hackathons and accelerators. First, we classify governance mechanisms into three types – market scanning, opportunity support, and opportunity control – based on four attributes: the degree of reallocation of decision rights, the degree of pooling of property rights, set-up costs, and ex post adaptation costs. We then argue that two key variables – uncertainty and technological distance – jointly help determine the choice of the appropriate mechanism for transactions involving entrepreneurial opportunities. By developing a comprehensive taxonomy of arrangements linked to the governance of external innovations, this study offers propositions that identify the drivers of ‘efficient alignment’ between transactions attributes and organizational choices in entrepreneurial contexts.

Research shows that meritocratic recruitment (MR) in public administration is positively related to improved government performance and developmental outcomes. However, the mechanisms behind these improvements remain understudied theoretically and empirically. This paper addresses this gap by theorising and testing two simultaneous pathways through which MR influences development outcomes. First, by prioritising competence over nepotism or political expedience, MR enhances the epistemic quality of bureaucratic personnel (the competence mechanism). Second, by creating incentive misalignment between bureaucrats and politicians, it enables bureaucrats to resist undue political influence, prioritise public interests in governance, and ultimately contribute to development (the impartiality mechanism). Applying mediation analysis to fourteen years of cross-national data, we examine whether changes in recruitment systems are associated with competence- and impartiality-laden indicators of government performance and developmental outcomes. The findings provide robust empirical support for these mechanisms, advancing theoretical understanding and empirical insights into the effects of MR.

Prominent scholars have complained of inadequate clarity and agreement on what transactions are, and how their costs are measured. This two-part article explores this topic and suggests an alternative approach. This part examines different meanings of transaction cost used by leading scholars in this area, including John R. Commons, Ronald H. Coase, Oliver E. Williamson, Douglas C. North, Douglas W. Allen, and Yoram Barzel. It reveals prominent usages of the term that differ in several important respects. A sharper approach might focus on legal contracts and exchanges of legal titles, as suggested by Harold Demsetz. That option is explored further in Part II.

Part I of this article reviews major differences in definitions of the transaction concept by leading authors and some of the difficulties involved in its usage. Part II takes steps towards a new approach, starting with the legal notion of a contract. This identifies a narrower and more specific type of transaction, empowered by both legal forces and non-legal or cultural norms or rules. The sharper and more specific concept of contracting cost is derived. Contracting costs are the costs of obtaining, formulating, negotiating, and administering legal contracts. They do not include the costs of the work and other inputs required to fulfil a specific contractual agreement. Legal contracts are historically specific phenomena, applying only to modern societies with developed legal institutions. By making the analysis more specific, we emphasise factors of greater relevance in modern market economies. In addition to legal sanctions, the law engenders other forms of motivation based on what is perceived to be legitimate legal authority.

This study examines the association between firm-level investments in automation technologies and employment outcomes, drawing on a panel dataset of approximately 10,450 Italian firms. We focus on the proliferation of non-standard labour contracts introduced by labour market reforms in the 2000s, which facilitated external labour flexibility. Our findings reveal a positive relationship between automation investments and the adoption of these flexible labour arrangements. Guided by a conceptual framework, we interpret this result as evidence of complementarity between automation technologies – viewed as flexible capital – and non-standard contractual arrangements – viewed as flexible labour. This complementarity is essential for enhancing operational flexibility, a critical driver of firm performance in competitive market environments. From a policy perspective, our analysis highlights the importance of measures that protect labour without undermining the efficiency gains enabled by automation.

Over the last three decades, Central and Eastern European Countries (CEEC) have undergone profound institutional reforms to transition from centrally planned to market economies. Full EU membership began two decades ago, marking another significant milestone. The paper seeks to examine how the regulations and other institutions, as measured by the economic freedom indicator and its components, shape the economic growth and development of CEEC. Two research questions are posed. Data spanning from 1996 to 2021 for 11 countries are examined. We employ hierarchical clustering to identify homogeneous groups of countries and utilize panel cointegration tests and the AutoRegressive Distributed Lags model to find long- and short-term relationships. The study identifies four groups of countries according to the EF indicator. Two long-run statistical relationships are identified between GDP per capita and economic freedom and between the Human Development Index (HDI) and economic freedom. Granger causality test shows that in the short-run, GDP per capita and HDI preceded economic freedom, except for business freedom, which was a precursor to GDP per capita, and property rights, which preceded HDI. That underscores the role of institutional order in creating an environment conducive to growth and development.

State capacity is critical for development. Yet, the question of how states learn – that is, how they acquire and incorporate information to improve performance over time – has received little attention. In this paper, we draw from organizational theory and the political economy of knowledge and innovation to study the components of effective learning in states as organizations. We focus on three functionally simple, but well-documented early states in ancient Greece: Sparta, Athens, and Macedon. We argue that Macedon’s superior performance relied on a learning model capable of integrating both experiential and experimental knowledge within existing structures. By directing our attention away from the early modern period, where much work in economic history and historical political economy is concentrated, our account challenges the focus of the existing literature on processes of centralization. Instead, we highlight organizational factors that may promote capacity-enhancing learning even in the context of weak centralization.

This study examines the heterogeneous effects of economic freedom on human capital accumulation across 83 developing countries between 2000 and 2018. Employing a range of econometric techniques including quantiles via moments regression, the analysis explores both average and distributional impacts of economic freedom on human capital, disaggregated by gender and employment status. The findings reveal that economic freedom positively influences human capital development, with stronger effects in countries with lower human capital levels. Among the five dimensions of economic freedom, freedom to trade internationally, legal systems, and property rights are most strongly associated with human capital accumulation. The results also indicate that women and employed individuals benefit more from economic freedom, highlighting its potential to reduce gender disparities and enhance labour productivity. These findings underscore the importance of institutional reforms promoting economic freedom as a pathway to human capital development in developing economies.

The emergence of large language models (LLMs) has made it increasingly difficult to protect and enforce intellectual property (IP) rights in a digital landscape where content can be easily accessed and utilized without clear authorization. First, we explain why LLMs make it uniquely difficult to protect and enforce IP, creating a ‘tragedy of the commons.’ Second, drawing on theories of polycentric governance, we argue that non-fungible tokens (NFTs) could be effective tools for addressing the complexities of digital IP rights. Third, we provide an illustrative case study that shows how NFTs can facilitate dispute resolution of IP on the blockchain.

Endogenous public health responses include the individual behaviours, community-based organizational responses, and informal rules that resolve economic problems during public health crises. We explore the relevance of endogenous responses in Orthodox Jewish communities during the COVID-19 pandemic. We analyse Orthodox newspapers in New York City and find that (a) rabbis advised their communities on how to stay healthy and observant to their religious beliefs; (b) rabbinical councils and advisory boards provided private, public health guidance; (c) private, Jewish ambulatory services provided religiously sensitive healthcare; (d) Orthodox Jewish schools privately provided public health services; and (e) community members altered religious rules, rituals, and traditions to mitigate the spread of the virus. While these responses did not occur seamlessly or without conflict, the Orthodox community worked diligently to provide public health services to remain healthy while also observing religious traditions. Our paper provides shows how communities develop endogenous public health responses during crises.