Stanford University



Stanford University Office: Econ. Rm. 261.

Department of Economics Office hours: Wed. 11 - 12

228. Fall 2005-6. and by appointment 5-8936

Institutions and Organizations in Historical Perspective

Avner Greif

This course reviews various approaches to the study of institutions, their economic implications, and evaluations and extensions through historical analysis. It does so by examining the institutional foundations and implications of the Rise of the West over the last millennium. Its main focus, therefore is on the puzzle implied by this ascension. The class is conducted mainly through discussion and you are expected to read all papers marked REQUIRED. The notation (JA) indicates a paper that can be accessed through Jackson Library e-journals and (JS) indicates a paper in JSTOR. Many of the readings can be directly downloaded (DD). You can find an original to copy at Debbie Johnston’s office (Landu 260). The main text used in the course is Greif, Avner. 2005. Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. Forthcoming, Cambridge University Press.

Class participation accounts for 25 percent of the final grade (and, unfortunately, about 100 percent of what you will learn in class). The other requirement for the class is a written "research project" that can take several forms: a critical summary and evaluation of a relevant paper or book; a proposed research agenda; or a term paper. I strongly advise you to write a paper since the lack of practice in defining and conducting a research agenda is one of the main factors for delaying graduation. Practice helps. You have to decide on your research project prior to the end of the quarter and get my approval. The last date to complete the project is the end of next August. Feel free to consult with me regarding possible projects. I will be happy to assist you. A list of possible projects will be circulated. If the class will be bigger than 25 students, I will consider adding additional requirements such as randomly assigned short presentations.

General Readings:

For surveys and contributions to institutionalism in economics as developed by circa 1990, see

C Williamson, Oliver E. 1985. The Economic Institutions of Capitalism. New York: The Free Press.

C Eggertsson, Thrainn. 1990. Economic Behavior and Institutions. Cambridge: Cambridge University Press.

C North, Douglass C. 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.

C Alston, J. Lee, Thrainn Eggertsson, and Douglass C. North. 1996. Empirical Studies in Institutional Change. Cambridge: Cambridge University Press.

The analytical focus is how individualistic economic optimization, economic efficiency, political decision making, and political power determine institutions.

For surveys and contributions to institutionalism in economics post 1990 see

C Furubotn, Eirik G. and Rudolf Richter. 1997. Institutions and Economic Theory. Ann Arbor: The University of Michigan Press.

C Bates, Robert H. Avner Greif, Margaret Levi, Jean-Laurent Rosenthal and Barry R. Weingast. 1998. Analytical Narratives. Princeton University Press.

C Hodgson, Geoffrey M. 1998. “The Approach of Institutional Economics.” Journal of Economic Literature 36 (1): 166-92.

C Aoki, Masahiko. 2001. Toward a Comparative Institutional Analysis. Cambridge: MIT Press.

C Greif, Avner. 2005. Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. Forthcoming, Cambridge University Press.

The analytical focus is on using advanced micro-economic theory to study institutions. As such these analyses incorporate such factors as strategic considerations, asymmetric information, and limited cognition to examine the efficiency attributes and dynamics of institutions. Most of these analyses emphasize the importance of history in studying institutions as equilibrium phenomena.

For reviews and contributions of institutional analysis in sociology:

C Powell W. and P. DiMaggio (eds.). 1991. The New Institutionalism in Organizational Analysis, Chicago: University of Chicago Press.

C Scott, W. Richard. 1995. Institutions and Organizations. Thousand Oaks, CA: Sage Publications.

C Brinton, Mary and Victor Nee (eds.). 1998. The New Institutionalism in Sociology. New York: Russell Sage Foundation.

C Granovetter. Mark S. 2005. The Impact of Social Structure on Economic Outcomes. Journal of Economic Perspectives 19 (1, Winter): 33-50.

For reviews and contributions to institutional analysis in political science:

C Hall, Peter A., and Rosemary C.R. Taylor. 1996. "Political Science and the Three New Institutionalisms." Political Studies 44 (4): 936-57.

C Weingast, Barry R. 1996. “Political Institutions: Rational Choice Perspectives.” In Robert Goodin and Hans-Dieter Klingemann (eds.), A New Handbook of Political Science,167-90. New York: Oxford University Press.

C Thelen, Kathleen. 1999. "Historical Institutionalism in Comparative Politics." Annual Review of Political Science (2): 369-404.

For a classical analysis of the relationships between institutions (defined as allocations of property rights) and the Rise of the West see:

C North, Douglass C. and Robert P. Thomas. 1973. The Rise of the Western World. Cambridge: Cambridge University Press.

For (relatively) short surveys of European economic history, see

C Rosenberg. Nathan and L.E. Birdzell, Jr. 1986. How the West Grew Rich. New York: Basic Books

C Cameron, Rondo E. (and Larry Neal.) 2003 A Concise Economic History of the World : From Paleolithic Times to the Present. New York: Oxford University Press. (Read only the chapters regarding Europe.)

C An easy way to get a birds-eye view of European economic history is to consult a historical atlas. I particularly like the Times Atlas of World History and the Hammond Atlas of World History.

Topics

I. Introduction; European Economic History Time Line

II. Do Institutions Matter?

Sachs, Jeffery D. and Andrew M. Warner. 2001. The Curse of Natural Resources. European Economic Review. 45: 827-838.

Sokoloff Kl, Engerman Sl. 2000. History Lessons - Institutions, Factor Endowments, and Paths of Development in the New World. Journal of Economic Perspectives 14 (3): 217-232

(Required) Rodrik, Dani, Arvind Subramanian, and Francesco Trebbi. 2002. “Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development.” Memo, Harvard University. DD and . or

et al 2002 Institutions Rule.pdf

Bardhan, Pranab, "Institutions Matter, But Which Ones?" Economics of Transition, Vol. 13, No. 3, pp. 499-532, July 2005

III. The Neo-classical Economics Approach

The NCE approach: Institutions as responses to market failure:

Coase, Ronald H. 1937. “The Nature of the Firm.” Economica N.S., (4, Nov.), 386-405.

Coase, R.H. 1960. “The Problem of Social Cost.” Journal of Law and Economics 3: 1-44.

(Required) Williamson, Oliver E. 1989. “Transaction Cost Economics.” In the Handbook of Industrial Organization, edited by Richard Schmalensee and Robert Willig. Chapter 3. New York: North Holland.

For two applications to economic history, see

Fenoaltea, S.. 1976. “Risk, Transaction Costs, and the Organization of Medieval Agriculture.” Explorations in Economic History, 13: 129-51.

Fishback, P. 1992. “The Economics of Company Housing: Historical Perspectives from the Coal Fields.” Journal of Law Economics and Organization vol. 8 (no. 2)

IV. Toiling the Land: Agriculture

North, Douglass C. and Robert Paul Thomas. 1971. The Rise and Fall of the Manorial System: A Theoretical Model. The Journal of Economic History, Vol. 31 (4, Dec.): 777-803.

(Required) McCloskey, D. N. 1976. “English Open Fields as Behavior Towards Risk.” Research in Economics, 1: 124-170.

Federico, Giovanni and Paolo Malanima. 2004. Progress, decline, growth: product and productivity in Italian Agriculture, 1000-2000. Economic History Review, LVII(3): 437-64. (DD)

Ackerberg Daniel and Maristella Botticini. 2002. Endogenous Matching and the Empirical Determinants of Contract Form. Journal of Political Economy 110 (Jun., 3): 564-591.

V. The Political Economy approach: Property Rights and Political Processes

Barzel, Y. 1989. Economic Analysis of Property Rights. Cambridge University Press

North, Douglass C. 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.

Olson, Mancur. 1982. The Rise and Decline of Nations. New Haven: Yale University Press.

Weingast, Barry. 1996. “Political Institutions: Rational Choice Perspectives,” in A New Handbook of Political Science. Edited by Robert Goodin and Hans-Dieter Klingemann. Oxford University Press.

Persson, Torsten and Guido Tabellini. 2005. The Economic Effects of Constitutions. MIT press.

Libecap, Gary. 1993. Contracting for Property Rights. CUP.

J. Bradford DeLong and Andrei Shleifer (1993), "Princes and Merchants: City Growth

Before the Industrial Revolution," Journal of Law and Economics 36. (DD)

Moser, Petra. 2003. How Do Patent Laws Influence Innovations? Evidence from Nineteenth- Century World Fairs. Forthcoming, American Economic Review. (DD.)

For an interesting application to American economic history that focuses on the state as a mediator enabling interest groups to commit to each other see:

Kantor, S. 1991. “Razorback, Ticky Cows, and the Closing of the Georgia Open Range: The Dynamic of Institutional Change Uncovered.” Journal of Economic History (4). (JS)

VI. Some Other Important Perspectives on Institutions

Old Institutionalism

Dugger, William M..1990. “The New Insitutionalism: New But Not Insitutionalist.” Journal of Economic Issues. v24(2), pp. 423-31.44.

Hodgson, Geoffrey M. 1998. “The Approach of Institutional Economics.” Journal of Economic Literature, 36(1), March, pp. 166-92.

Sociology

Granovetter. Mark S. 1985. "Economic Action, Social Structure, and Embeddedness." American Journal of Sociology 91 (3): 481-510.

DiMaggio, P. and W. Powell 1991. Introduction. In W. Powell and P. DiMaggio (eds.), The New Institutionalism in Organizational Analysis,1-40. Chicago: University of Chicago Press.

VII. Defining Institutions

(Required) North, Douglass C., 1991. "Institutions," Journal of Economic Perspectives, 5 (2), 97-112. (JS)

(Required) Greif, Avner. 2005. Chapters 1, 2. Institutions and the Path to the Modern Economy. (DD). (chapter 1), (chapter 2)

Schotter, Andrew. 1981. The Economic Theory of Social Institutions. Cambridge: Cambridge University Press.

Calvert, Randall L. 1995. “Rational Actors, Equilibrium, and Social Institutions.” In Explaining Social Institutions. Edited by Jack Knight and Itai Sened. Chapter 3, pp. 57-93. Ann Arbor: University of Michigan Press.

VIII. Late Medieval Trade: Contract Enforcement in Personal Exchange. (1)

(Required) Read the file: “historical documents regarding early trade.”

(Required) Lacker, Jeffrey M. and John A. Weinberg. 1989. “Optimal Contracts Under Costly State Falsification.” Journal of Political Economy 97(6), 1345-63. (DD; JA)

IX. Late Medieval Trade: Contract Enforcement in Personal Exchange (2)

(Required) Greif, Avner. 1993 (June). “Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders' Coalition.” American Economic Review, Vol. 83, No. 3. (JS and JA) or Chapter 3 in Greif. Institutions and the Path to the Modern Economy. (DD).

(Required) Sugden, Robert. 1989. “Spontaneous Order.” Journal of Economic Perspective 3 (4): 85-97. (DD; JS)

This work touches upon the substantive issue of the latter paper is Business or Social networks and Social Norms. On these issues, see also:

Kandori, Michihiro. 1992 (January). "Social Norms and Community Enforcement," The Review of Economic Studies, 59 (1), 63-80. (JS)

Ellickson, Robert C. 1987 (January). “A Critique of Economic and Sociological Theories of Social Control.” Journal of Legal Studies XVI, 67-99.

Kranton R. E. 1996 (Sept.) “Reciprocal Exchange: A Self-sustaining System.” American Economic Review 86 (4), 830-851. (JS)

Clay, K. 1997 (April). “Trade without Law: Private-order Institutions in Mexican California.” Journal of Law Economics & Organization.13 (1), 202-231. (JA)

McMillan, John and Christopher Woodruff. 1999 (Dec.). “Interfirm Relationships and Informal Credit in Vietnam.” Quarterly Journal of Economics 114, 1285-1320. (JS)

X. Late Medieval Trade: The Security of Property Rights

(Required) Greif, A., Paul Milgrom, and Barry Weingast. 1994 (August). “Coordination, Commitment and Enforcement: The Case of the Merchant Gild." The Journal of Political Economy, 102, (4). (JA and JA) or Chapter 4 in Greif, “Institutions ...:

Conklin, James. 1998. “The Theory of Sovereign Debt and Spain under Philip II.” Journal of Political Economy, 106(3), pp. 483-513. (JS)

Bates, Robert H. 2004. On “The Politics of Property Rights” by Haber, Razo, and Maurer. Journal of Economic Literature. Vol. 42 (June, 2.)

(Required) Greif, A. Institutions and the Path to the Modern Economy. Chapter 5, appendix 2.

XI. Institutional Dynamics

The Functionalist Approach

(Required) Williamson, Oliver E. 2000 (September). "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, 38, 595-613. (JS)

Knight, Jack. 1992. Institutions and Social Conflict. Cambridge: Cambridge University Press. Pp. 84-122.

Path Dependence

(Required) North, Douglass C. 1990. Institutions, Institutional Change and Economic Performance. Pp. 83-104. Cambridge: Cambridge University Press.

David, Paul A. 1994. "Why Are Institutions the 'Carriers of History'?: Path-Dependence and the Evolution of Conventions, Organizations and Institutions," Structural Change and Economic Dynamics, 5(2), 205-20.

Evolutionary Processes

Kandori, Michihiro, George Mailath and R. Rob. 1993 (January). "Learning, Mutation, and Long-Run Equilibria in Games." Econometrica 61(1), 29-56. (JS)

Young, H. Peyton. 1998. Individual Strategy and Social Structure. Princeton: Princeton University Press.

Institutional Dynamics as a Historical Process

(Required) Greif, Avner. 2005. Institutions and the Path..., Chapters 6 and 7. (DD)

XII. The Contractual State and Institutional Dynamics

Hardin, Russell. 1997. "Economic Theories of the State.” In Dennis C. Mueller (ed.), Perspectiveson Public Choice: A Handbook, 21-34. Cambridge: Cambridge University Press.

(Required) Greif, Avner. 2005. Institutions and the Path..., Chapter 8. (DD)

Green, Edward J. 1993 (Winter). “On the Emergence of Parliamentary Government. The Role of Private Information.” Quarterly Review: Federal Reserve Bank of Minneapolis, 2-16.

Henley, David. 2004. Conflict, Justice, and the Stranger-King Indigenous Roots of Colonial Rule in Indonesia and Elsewhere. Modern Asian Studies 38(1): 85-144. (DD)

Collins, Katheleen. 2004. The Logic of Clan Politics: Evidence from the Central Asian Trajectories. World Politics 56 (Jan. 2): 224-261. (DD).

XIII. Institutions and Culture

(Required) Greif, Avner. 2005. Institutions and the Path..., Chapter 8. (DD)

(Required) Richardson, Gary. 2005. Craft Guilds and Christianity in Late Medieval England: A Rational Choice Analysis. Rationality and Society, 17 (May), 139-189. (DD)

Guiso, Luigi, Paola Spaienza, and Luigi Zingales. 2005. Does Culture Affect Economic Outcomes? Draft. Northwestern University. (DD).

Tabellini, Guido. 2005. Culture and Institutions: Economic Development in Regions of Europe. CESifo Working paper no. 1492. (DD; SSRN)

Fehr, E. and K. Schmidt. 2002. Theories of Fairness and Reciprocity - Evidence and Economic Applications. In M. Dewatripont, L. Hansen and St. Turnovsky (Eds.), Advances in Economics and Econometrics - 8th World Congress, Econometric Society Monographs, Cambridge, Cambridge University Press. Download from:

Akerlof GA, Kranton RE. 2000. Economics and Identity. Quarterly Journal of Economics 115 (3, Aug): 715-753. (DD)

Höllander, Heinz. 1990. “A Social Exchange Approach to Voluntary Cooperation.” American Economic Review, 80(5), 1157-67. (JA; JS)

XIV. Institutions and Impersonal Exchange

(Required) Milgrom, P.R., D.C. North and B.R. Weingast. 1991. “The Role of Institutions in the Revival of Trade: The Law Merchant, Private Judges, and the Champagne Fairs.” Economics & Politics, 2(19), 1-23. (DD, JA)

Benson, Bruce L. 1989. “The Spontaneous Evolution of Commercial Law.” Southern Economic Journal 55(3): 644-61.

(Required) Greif, Avner. 2005. Institutions and Impersonal Exchange: the European Experience. Working paper. Stanford University. (DD, SSRN).

XV. Institutional Empirics and the Path to the Modern Economy

(Required) Greif, Avner. 2005. Institutions and the Path of the Modern Economy, chapters 11, 12. (DD)

Friedman, M. 1953. The Methodology of Positive Economics. In his Essays on Positive Economics. Chicago: Chicago University Press. (DD)

King, Gary, Robert Keohane, and Sidney Verba. 1994. Designing Social Inquiry. Princeton: PUP.

Bates, et. al. 1998. Analytical Narratives. Introduction.

Elster, Jon. 2000. “Rational Choice History: A Case of Excessive Ambition.” American Political Science Review 94 (3): 685-95.

North, Douglass C. and Robert P. Thomas. 1973. The Rise of the Western World. Cambridge: Cambridge University Press.

Landes, David. 1999. The Wealth and Poverty of Nations. UK: Time Warner Books.

XVI. The Development of Technology and Science: Believers, Scholars, and Producers

Gimpel, Jean. 1976. The Medieval Machine : the Industrial Revolution of the Middle Ages. New York: Holt Rinehart and Winston.

White, Lynn Townsend. 1978. Medieval Religion and Technology: Collected Essays. Center for Medieval and Renaissance Studies, UCLA, Vol. 13. Berkeley: UCP.

Rashdal, Hastings. The Universities of Europe in the Middle Ages. Vol. I, edited by F.M. Powicke and A.B. Emden. Oxford: Oxford University Press, 1936.

Mokyr, Joel. 1990. The Lever of Riches. Technological Creativity and Economic Progress. Oxford: Oxford University Press. Chapter 3.

Götlind, Anna. 1990. The Messengers of Medieval Technology?: Cistercians and Technology in Medieval Scandinavia. Occasional Papers on Medieval Topics 4. Alingsås, Sweden: Viktoria Bokförlag.

Huff, Toby E. 1993. The Rise of Early Modern Science. Islam, China, and the West. Cambridge: CUP.

XVII. The Strength and Weakness of the Church: Why Not a European Theocracy?

Head, Thomas F. and Richard Landes. (Eds). 1992. The Peace of God: Social Violence and Religious Response in France Around the Year 1000. Cornell U. Press, Ithaca.

An Economic Model of the Medieval Church: Usury as a Form of Rent Seeking. Ekelund, Robert B. Jr.; Robert F. Hebert; Robert D. Tollison. 1989. Journal of Law, Economics, & Organization, Vol. 5, No. 2. (Autumn), pp. 307-331. (DD, JS)

Glaeser, E. L., and J. A. Scheinkman. "Neither a Borrower nor Lender be: An Economic Analysis of Interest Restrictions and Usury Laws." Journal of Law and Economics (1998). (DD, JS)

Platteau, Jean-Philippe. 1994. "Behind the Market Stage Where Real Societies Exist. Part II: The Role of Moral Norms," Journal of Development Studies 30 (3): 753-817.

An Economic Analysis of the Protestant Reformation. By: Ekelund, Jr., Robert B.; Hébert, Robert F., Tollison, Robert D. Journal of Political Economy, Jun 2002, Vol. 110 Issue 3.

XVIII. The Coercive State and Market Development

(Required) North D.C., and B. R. Weingast. 1989 (December). “Constitutions and Commitment: Evolution of Institutions Governing Public Choice.” Journal of Economic History XLIX, 803-32. (DD, JS)

(Required) Greif, Avner. 2005. “Commitment, Coercion, and Markets: The Nature and Dynamics of Institutions Supporting Exchange.” In the Handbook for New Institutional Economics. Edited by Claude Menard and Mary M. Shirley. Norwell MA: Kluwer Academic Publishers. Chapter 28. (DD)

Olson, Mancur. 1993. "Dictatorship, Democracy, and Development." American Political Science Review 87 (3): 567-76. (DD, JS)

Olson. M and Martin C. McGuire, Jr. 1996. The Economics of Autocracy and Majority Rule: The Invisible Hand and the Use of Force. The Journal of Economic Literature, 34 (1, Mar.): 72-96. (JS)

Bates, Robert, Avner Greif and Smita Singh. 2002. “Organizing Violence.” The Journal of Conflict Resolution, 46(5, Oct.): 599-628. (DD)

Clark, Gregory. 1996 (Spring). “The Political Foundations of Modern Economic Growth: England, 1540-1800.” Journal of Interdisciplinary History, XXVI: (4) 563-588.

XIX. Discoveries, Mercantilism, and Colonialism

Ekelund, Robert B., and Robert D. Tollison. 1980. “Mercantilism as a Rent-Seeking Society.” In Toward a Theory of the Rent Seeking Society. Edited by James M. Buchanan, Robert D. Tollison and Gordon Tullock, pp. 235-68. College Station: Texas A&M University Press. (DD).

(Required) Acemoglu, Daron, Simon Johnson, and James A. Robinson. 2001. The Colonial Origins of Comparative Development: An Empirical Investigation. American Economic Review, 91: 1369-1401. (JS) (

Coornaert, E.L.J. 1967. “European Economic Institutions and the New World: the Chartered Companies.” In Cambridge Economic History of Europe Vol. IV, 221-74.

Irwin, Douglas, A. 1991 (Dec.). “Mercantilism as Strategic Trade Policy: The Anglo-Dutch Rivalry for the East India Trade.” Journal of Political Economy, 99(6): 1296-1314. (JS)

Anderson, Gary M., Robert E. McCormick, and Robert D. Tollison. 1983. “The Economic Organization of the English East India Company.” Journal of Economic Behavior and Organization 4: 221-38.

Carlos, Ann M. and Stephen Nicholas. 1990 (Dec.). “Agency Problems in Early Chartered Companies: The Case of the Hudson's Bay Company.” The Journal of Economic History. Vol. L. (4), 853-75. (JA)

XX. Looking ahead.

A. The Organization of Production.

Mendels, F.F. 1972. “Proto-industrialization: The First Phase of the Industrialization Process.” Journal of Economic History 32(4), 241-61. (JS)

Marglin. S. 1976. “What Do Bosses Do?” in André Gorz. ed. The Division of Labour: The Labour Process and the Class Struggle ... pp. 13-54.

Williamson. O.S. 1980. “The Organization of Work.” Journal of Economic Behavior and Organization 1(1), 5-38.

Jones, S.R.H. 1982. “The Organization of Work. A Historical Dimension.” Journal of Economic Behavior and Organization 3, 117-37.

Szostak, Rick 1989. “The Organization of Work, The Emergence of the Factory Revisited.” Journal of Economic Behavior and Organization 11, 343-58.

Landes. D.S. 1986 (September). “What Do Bosses Really Do?” Journal of Economic History 46 (3) . (JA)

B. Economic Analysis of Democracy

Acemoglu, Daron and James A. Robinson. 2000. Why Did the West Extend the Franchise? Democracy, Inequality, and Growth in Historical Perspective. Quarterly Journal of Economics, 115(4, Nov): 1167-1199. (DD, and )

C. Some Self-enforcing Institutions in the Modern Economy

Kroszner, Randall S. 1998. “Derivatives Clearing Houses: Historical Development, Over-the-Counter Innovations, and Implications for Public versus Private Regulations of the Payment System.” Working Paper. University of Chicago Business School.

Marin, Dalia and Monika Schnitzer. 1995 (Dec.). “Tying Trade Flows: A Theory of Countertrade with Evidence.” American Economic Review 85 (5):1047-64. (JS)

Ingram, Paul. 1996. “Organizational Forms as a Solution to the Problem of Credible Commitment: The Evolution of Naming Strategies among U.S. Hotel Chains, 1896-1980.” Strategic Management Journal, 17: 85-98. (JA)

Bernstein, Lisa. 1996. “Merchant Law in a Merchant Court: Rethinking the Code’s Search for Immanent Business Norms.” University of Pennsylvania Law Review 144(5).

Banner, Stuart. 1998. (January) “The Origin of the New York Stock Exchange, 1791-1860: A Study in Self-Regulation.” Journal of Legal Studies XXVII, 113-40.

McMillan J, and C. Woodruff. 1999. “Interfirm Relationships and Informal Credit in Vietnam.” Quarterly Journal of Economics 114 (4): 1285-1320.

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