Topic: Institutions

Quotes

Edward Glaeser & Joshua Gottlieb, “The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States” (2009)

• Outside of stable democracies there is a large return to firms in being close to the corridors of power. Those returns then attract people and firms, and help explain why capital cities are so much larger in unstable or dictatorial nations.#

Barry Weingast, “Adam Smith’s Theory of Violence and the Political Economics of Development” (2017)

• Property rights in land, the most valuable asset in medieval times, were designed to promote security and other military goals, not economic efficiency.#

Ronald Heiner, “The Origin of Predictable Behavior” (1983)

• In general, further evolution toward social interdependence will require institutions that permit agents to know about successively smaller fractions of the larger social environment. That is, institutions must evolve which enable each agent in the society to know less and less about the behavior of other agents and about the complex interdependencies generated by their interaction.#
• Institutions are regularities in the interaction between agents that arise because of uncertainty in deciphering the complex interdependencies created by these interactions.#

Kenneth Boulding, “Economics as a Moral Science” (1969)

• It has been the precise weakness of the institutions that we think primarily of as economic, that is, associated with exchange. . . . that they easily lose their legitimacy if they are not supported by other elements and institutions in the society which can sustain them as integral parts of a larger community.#Quoted in Erwin Dekker, The Viennese Students of Civilization (2016)

Sam Bowles & Herbert Gintis, A Cooperative Species (2011)

• Institutions affect the rewards and penalties associated with particular behaviors, often favoring the adoption of cooperative actions over others, so that even the self-regarding are often induced to act in the interest of the group.#

Jiang Quing, “From Mind Confucianism to Political Confucianism” (2011)

• In traditional society, organizations were comparatively simple and people were relatively isolated from each other. As a result, traditional evils primarily manifested in individuals’ bad behaviors, which could be remedied through individuals’ self-reflection or religious practice. In contrast, modern society is highly organized and specialized, and evils manifest themselves primarily in highly organized or collective forms that cannot be readily cured by ordinary religious beliefs. Such modern evils can only be dealt with through institutional solutions, since only institutions have sufficient power to cope with organized evils.#

Doug North, Understanding the Process of Economic Change (2005)

• It should be emphasized that the institutions that have emerged in the Western world, such as property rights and judicial systems, do not have to be faithfully copied in developing countries. The key is the incentive structure that is created, not the slavish imitation of western institutions. Starting with the household responsibility system, the Chinese developed an incentive structure which managed to produce rapid economic development without any of the standard recipes of the West. However, down the road the Chinese must embed the incentive system in the political/economic structure if they are to continue their rapid development and that will probably require institutions that come much closer to having the adaptively efficient features of western societies.#
• [The institution of] trade will make the individual better off only if the increased uncertainty due to specialization is more than compensated for by the reduction in uncertainty resulting from the availability of wider variety.#
• When economic markets are so structured that the players compete via price and quality rather than at non-productive margins then the Smithian result [division of labor and increasing returns] ensues.#
• A polity (in which the players operate on the basis of rational self-interest) that is strong enough to specify and enforce economic rules of the game is strong enough to allow factions (to use Madison’s felicitous term) to use the polity to pursue their own narrow self-interest at the expense of the general welfare. The elusive key to improved political ordering is the creation of credible commitment on the part of the players. While Madison’s checks and balances take us part way to resolving the problem it requires, in addition, informal constraints that will redirect behavior to more felicitous outcomes.#
• Different experiences of societies through time will produce different perceptions of the way the world works and therefore require different institutions to provide the same incentives.#
• While individuals are the actors it is typically individuals in their capacities as part of organizations that make the decisions that alter the rules of the game.#
• The richer the artifactual structure, the wider the range of routine decisions that can be made. . . . Modern western societies like the United States embody a rich cultural heritage which has led to the immensely complex artifactual structure that not only gives us command over nature in an unparallelled fashion but equally extends our range of “easy” decision making over space and time in ways that would be beyond the comprehension of our ancestors. In effect this artifactual structure has converted uncertainty into certainty or at least risk over an ever wider domain of human activity.#

James Buchanan, Cost and Choice (1969)

• Only if costs can be objectified can they be divorced from choice, and only if they are divorced from choice can the institutional-organizational setting that the chooser inhabits have no influence on costs.#
• Nonmarket choice cannot, by its very nature, be made to duplicate market choice until and unless the ownership-responsibility pattern in the former fully matches that in the latter, an achievement that would, of course, eliminate all institutional differences between the two.#

Steven Solnick, Stealing the State (1998)

• In effect, Soviet institutions were victimized by the organizational equivalent of a colossal “bank run” in which local officials rushed to claim their assets before the bureaucratic doors shut for good. As in a bank run, the loss of confidence in the institutions makes its demise a self-fulfilling prophecy.#Quoted in Doug North, Understanding the Process of Economic Change (2005)

Peter Lewin, Capital in Disequilibrium (1999)

• For measuring the (contribution to) output, there is no avoiding certain elements of convention (judgment). What the institution of the firm does (together with the institutions of money and accounting) is to provide these conventions.#

Keith Crocker & Scott Masten, ” Regulation and Administered Contracts Revisited: Lessons from Transaction-Cost Economics for Public Utility Regulation” (1996)

• Although, in principle, a newly integrated firm should be able to operate at least as efficiently as the two independent firms from which it was formed simply by allowing each division of the combined firm to operate independently as it had before and only intervening where net benefits were likely to be realized, the management of the combined enterprise will be unable, given the law governing internal transactions, to commit to intervening only in such a selective fashion#

Anthony De Jasay, The State (1985)

• There is some reason to hold that the more civilization advances, the more viable becomes the state of nature.#

Elinor Ostrom, Governing the Commons (1990)

• Institutional analysis that simply posits an external, zero-cost enforcer has not addressed the possibility that the rules devised by appropriators may themselves have a major effect on the costs, and therefore the efficiency, of monitoring by internal or external enforcers.#
• A previously unrecognized “private” benefit of monitoring in settings in which information is costly is that one obtains the information necessary to adopt a contingent strategy.#

Ludwig Von Mises, Liberalism in the Classical Tradition (1962)

• Everything that serves to preserve the social order is moral; everything that is detrimental to it is immoral. Accordingly, when we reach the conclusion that an institution is beneficial to society, one can no longer object that it is immoral. There may possibly be a difference of opinion about whether a particular institution is socially beneficial or harmful. But once it has been judged beneficial, one can no longer contend that, for some inexplicable reason, it must be condemned as immoral. #

Michael Mann, “The Autonomous Power of the State: Its Origins, Mechanisms, and Results” (1984)

• Where stateless societies conquer ones with states, they either themselves develop a state or they induce social regress in the conquered society.#
• [Besides the state,] only three alternative bases for order exist: force, exchange, and custom, and none of these are sufficient in the long-run. At some point new exigencies arise for which custom is inadequate; at some point to bargain about everything in exchange relations is inefficient and disintegrating; while force alone, as Parsons emphasized, will soon ‘deflate’. In the long-run normally taken for granted, but enforceable, rules are necessary to bind together strangers or semi-strangers.#

Adam Przeworski, Democracy and the Market (1991)

• Successful democracies are those in which the institutions make it difficult to fortify a temporary advantage. Unless the increasing returns to power are institutionally mitigated, losers must fight the first time they lose, for waiting makes it less likely that they will ever succeed.#Quoted in Barry Weingast, “The Political Foundations of Democracy and the Rule of Law” (1997)

Barry Weingast, “The Political Foundations of Democracy and the Rule of Law” (1997)

• Maintaining limits on the state requires that citizens oppose a violation even if they potentially benefit from it. . . . [C]itizens in stable democracies not only must value democracy but also must be willing to take costly action to defend democratic institutions against potential violations.#

Peter Boettke, Calculation and Coordination (2000)

• Where Hayek differs from the extreme public choice interpretation of the incentives within politics is how ideas (by changing the social infrastructure) can change the incentives that officials face in policy decisions. In this regard, Hayek blends ideas and interests together in a more subtle manner than is available in the textbook treatments of public choice theory, and he does so in a manner akin to Buchanan’s important distinction between pre- and post-constitutional levels of analysis.#
• Markets do not need a de jure sanction to exist, but, for market activity to serve as the basis of general economic prosperity in a given society, they must exist within a body of law. Political institutions and the structure of law provide the framework for economic behavior.#
• Despite the formal similarity of the choice problem across time and place, the fact remains that the institutional context of choice changes the margins on which economic decisions are based.#

John Rawls, “Two Concepts of Rules” (1955)

• The decision whether or not to use law rather than some other mechanism of social control, and the decision as to what laws to have and what penalties to assign, may be settled by utilitarian arguments; but if one decides to have laws then one has decided on something whose working in particular cases is retributive in form.#
• The judge and the legislator stand in different positions and look in different directions: one to the past, the other to the future. The justification of what the judge does, qua judge, sounds like the retributive view [of punishment]; the justification of what the (ideal) legislator does, qua legislator, sounds like the utilitarian view. . . . One’s initial confusion disappears once one sees that these views apply to persons holding different offices with different duties, and situated differently with respect to the system of rules that make up the criminal law.#
• An institution which is set up to “punish” the innocent, is likely to have about as much point as a price system (if one may call it that) where the prices of things change at random from day to day and one learns the price of something after one has agreed to buy it.#
• Utilitarian (or aesthetic) reasons might properly be given in arguing that the game of chess, or baseball, is satisfactory just as it is, or in arguing that it should be changed in various respects, but a player in a game cannot properly appeal to such considerations as reasons for his making one move rather than another.#
• If one holds an office defined by a practice then questions regarding one’s actions in this office are settled by reference to the rules which define the practice. If one seeks to question these rules, then one’s office undergoes a fundamental change: one then assumes the office of one empowered to change and criticize the rules, or the office of a reformer, and so on.#

Ludwig Lachmann, The Legacy of Max Weber (1971)

• It is impossible for all institutions to change at the same rate, and . . . the relative immutability of some institutions is always a necessary prerequisite for the relative flexibility of the rest.#
• May not the struggle for power among political leaders, even irrespective of their personal qualities, gradually lead to an erosion of those fundamental institutions which circumscribe and limit the exercise of political power? Will not the leaders in the course of the political struggle have to make promises to the electorate which cannot be redeemed without whittling away some of the very institutions on which the democratic process rests?#
• The central problem of the institutional order hinges on the contrast between coherence and flexibility, between the necessarily durable nature of the institutional order as a whole and the requisite flexibility of the individual institution. In other words, this central problem does not become apparent until we come to view the institutional order in the perspective of time.#

Bruno Leoni, Freedom and the Law (1961)

• International trade could not emerge as a simple consequence of the theorem of comparative costs, but required some kind of international legal organization to ward off the enemies of international free trade, who, to a certain extent, are comparable to such enemies of the free market within a nation as robbers or thieves.#
• I cannot, in fact, conceive of a market actually free if it is not rooted in its turn in a legal system that is free from the arbitrary (that is, abrupt and unpredictable) interference of the authorities or of any other person in the world.#
• The free market was at its height in the English-speaking countries when the common law was practically the only law of the land relating to private life and business. On the other hand, such phenomena as the present acts of governmental interference with the market are always connected with an increase in statutory law and with what has been called in England the “officialization” of judiciary powers, as contemporary history proves beyond doubt.#
• The “golden rule” has only a negative meaning, since its function is not that of organizing society, but that of avoiding as far as possible the suppression of individual freedom in organized societies.#

Bruno Leoni, The Law and Politics (1964)

• In the market choice the individual is the choosing entity as well as the entity for which the choices are made; whereas in voting . . . while the individual is the acting or choosing entity, the collectivity of all the other individuals is the entity for which the choices are made.#
• The voter under unanimity rule is in a position which may be closely related to that of a discriminating monopolist who can realize the whole benefit of the exchange of the commodities or of the services he is able to sell, and can therefore acquire the whole, or almost the whole, of the so-called consumer’s surplus.#

Steven Horwitz, “Monetary Exchange as an Extra-Linguistic Social Communication Process” (1992)

• We can either observe the behavior of others, judge its success and choose to imitate it, or we can enter a verbal or textual conversation with others and rely on the persuasive powers of their articulate thoughts to provide us with knowledge. Mises argues that imitation is, in general, a more plausible way to communicate the benefits of social institutions than is articulate persuasion.#

F.A. Hayek, Individualism and Economic Order (1949)

• To admit the possibility of changes in the legal framework is not to admit the possibility of a further type of planning in the sense in which we have used the word so far. There is an essential distinction here which must not be overlooked: the distinction between a permanent legal framework so devised as to provide all the necessary incentives to private initiative to bring about the adaptations required by any change and a system where such adaptations are bro’ught about by central direction.#
• To assume that it is possible to create conditions of full competition without making those who are responsible for the decisions pay for their mistakes seems to be pure illusion.#

Milton Friedman, “Lerner on the Economics of Control” (1947)

• The most that can be expected [of an institutional arrangement] is a reasonable approximation to the economic optimum. They must, therefore, be judged in part by (1) the practical administrative problems entailed in so operating them as to approximate the economic optimum and (2) as a corollary, the extent to which they lend themselves to abuse, i.e., the ease with which they can be used for objectives other than the general welfare.#

Daron Acemoglu, “Why Not a Political Coase Theorem?” (2003)

• Underlying the Coase theorem is the ability to write enforceable contracts. Therefore, any enforcement problem potentially limits the applicability of the Coase theorem.#

F.A. Hayek, Denationalisation of Money (1976)

• In a world governed by the pressure of organised interests, the important truth to keep in mind is that we cannot count on intelligence or understanding but only on sheer self-interest to give us the institutions we need.#

Terry Anderson & Peter Hill, “Privatizing the Commons: An Improvement?” (1983)

• Under certain institutional arrangements, the establishment of private rights to resources can leave a society no better off than when rights were held in common. In other words, the “tragedy of the commons” may be no worse than the rent dissipation that can result in the process of private property establishment.#
• When the methods of defining and enforcing private rights are devised through residual claimant action there is a greater incentive to conserve on resources used in the process than when that process is imposed exogenously by non-claimants.#
• As the potential rents from resources rise, as the value of the resource increases, more efforts will be devoted to definition and enforcement activity. The worth of perfectly defined and enforced rights is represented by the net present value of the rents and individuals would be willing to spend up to that amount to obtain these rights. If the rents can be obtained for less than this amount, net rents will be positive and society’s output will be greater.#
• While private property rights are a necessary condition for efficient market allocation, they are not a sufficient condition. The definition and enforcement process can simply shift the inefficient allocation of resources from the resource commons to the property rights commons.#

Terry Anderson & Peter Hill, “The Evolution of Property Rights: A Study of the American West” (1975)

• Establishing and protecting property rights is very much a productive activity toward which resources can be devoted.#Quoted in Terry Anderson & Peter Hill, “Privatizing the Commons: An Improvement?” (1983)