We test the effect of institutional quality on capital structure in the microfinance setting. In doing this, we rely on data from 532 microfinance institutions (MFIs) located in 73 countries dotted across the six microfinance regions in the world. We observe that institutional quality exhibits a robust negative and statistically significant relationship with capital structure in both the short and long run, implying that MFIs in countries with a better institutional environment are less likely to utilize more debt. Our moderation analysis furnishes us with evidence that the presence of women on the board of an MFI significantly moderates the relationship between institutional quality and its capital structure. We show that in the presence of more female representation on the boards of MFIs, the tendency of MFIs using less debt is higher.

The economic literature is clear that transparent and impartial rule of law is crucial for successful economic outcomes. However, how does one guarantee rule of law? This paper uses the idea of ‘self-reinforcing’ institutions to show how political institutions may derail rule of law if associated judicial institutions are not self-reinforcing. We illustrate this using the contrasting examples of Estonia and Poland to frame the importance of institutional context in determining both rule of law and the path of legal institutions. Although starting tabula rasa for a legal system is difficult, it worked well for rule of law in Estonia in the post-communist transition. Alternately, Poland pursued a much more gradualist strategy of reform of formal legal institutions; this approach meant that justice institutions, slow to shed their legacy and connection with the past, were relatively weak and susceptible to attack from more powerful (political) ones. We conclude that legal institutions can protect the rule of law but only if they are in line with political institutions, using their self-reinforcing nature as a shield from political whims of the day.

The politics of financial governance under conditions of uncertainty has re-emerged as a significant issue for scholars of International Political Economy and related fields, not least because of the fallout from the 2007-2008 financial crisis. In this article I assess the legacy of Frank H. Knight's Risk, Uncertainty, and Profit for debates about reconceptualising financial governance and fostering financial stability. I argue Knight's book is productive in assisting understanding of the fallacies of the ‘risk-based’ economic theory tending to underpin financial governance, in particular drawing attention to the limitations of social scientific knowledge that reduce governance capacity and increase uncertainty in financial markets. I further argue, after Knight's deliberately paradoxical approach, that uncertainty in finance might be beyond regulation but at the same time there is still a societal need to attempt to achieve a politics of uncertainty that can cope with ignorance of the future through experimental governmental efforts.

The Zollverein, the outcome of sequential negotiations between Prussia and other sovereign German states in 1834, was the first international customs union, the template for modern ones such as the European Union. This paper applies a bargaining model to analyse the logic behind the creation of this novel institutional form and the choice of sequential rather than multilateral negotiations. The existence of negative coalition externalities, the effects of new coalitions on non-participants, led the agenda setter, Prussia, to choose sequential over multilateral negotiations as that lowered the membership reservation prices of the other states involved. Institutionally, the features of a customs union structure provided a higher payoff for the agenda setter than capturing the welfare gains from the differential tariff setting in a free trade agreement, explaining the emergence of this novel institutional structure on an international scale.

In this study, we examine disparities in financial development at the regional level in India. The major research questions of the study are: how do we measure the level of financial development at the sub-national level? How unequal is financial development across the states? Does it vary by ownership of financial institutions? To explore these research questions, our study develops a composite banking development index at the sub-national level for three different bank groups – public, private and foreign for 25 Indian states covering 1996–2015. Our findings suggest that despite reforms, banking development is significantly higher in the leading high income and more developed regions compared to lagging ones. Furthermore, we find that all bank groups including public banks are concentrated more in the developed regions. Overall, over the years the position of top three and bottom three states in the aggregate banking index have remained unchanged reflecting lop-sidedness of regional development. We also note improvement in the ranking of some north-eastern states during the period 2009–15.

Based on the concept of limited and open access orders (LAO/OAO), this paper explains what appears to be a paradox: how was it possible that a former civil war country, Mozambique, which had been extremely successful in attracting foreign direct investment (FDI) and which the International Monetary Fund praised as a great Sub-Sahara African success story in 2007, only a few years later found itself on the brink of a new civil war? We argue that the destabilization of the country was the result of a toxic mix of domestic politics and a massive inflow of FDI. FDI provided rents to an increasingly dominant state party, FRELIMO, which could be appropriated one-sidedly. It then used these rents to oppress RENAMO, its previous civil war enemy and currently its main opposition party, to monopolize power. This strategy seemed to be successful until RENAMO, faced with the risk of being politically marginalized (and of losing its rents accordingly), returned to armed conflict in 2013. By analyzing the links between the macro-level of national politics and the micro-level of an enterprise and by embedding the interplay between polity and economy into an international context, the paper also makes a theoretical contribution to the LAO/OAO concept.

Property institutions should ideally provide economic actors with certainty that their local choices about investment will not be unsettled by shifting political economic equilibria. We argue that for this to occur, political autonomy, administrative and enforcement capacity, political constraints, and accessible legal institutions are each necessary. A comparison of the evolution of property rights for settlers and American Indians in the United States shows how political and legal forces shape the evolution of property institutions. American Indians, who had property institutions before Europeans arrived, could not defend their land from Europeans and later Americans due to lacking military capacity. Settlers' property rights were relatively secure because the government had sufficient autonomy and capacity to broadly define and enforce their rights, political institutions constrained the government from expropriating settlers' property, and legal institutions provided a forum for settlers to adjudicate and defend their rights in court. Native Americans, in contrast, had systematically inconsistent and often expropriative policy treatment by the government. Although tribes have technically been sovereign since the 1970s, tribal governments continue to lack sufficient political and legal autonomy and capacity to define and enforce property institutions in response to evolving local conditions.

Louisiana consistently ranks as one of the most corrupt states in the nation. In fact, the Pelican State is the most corrupt state when looking at the most common indicator of corruption: corruption convictions per 100,000. What is less clear about Louisiana is how the state became corrupt. This paper seeks to provide the missing link. I argue that the high levels of corruption in the state can be explained by its origins in French civil law. This historical influence has perverse and persistent effects on the state, despite occurring over 200 years ago. Through these origins in civil law, corruption in Louisiana impacts its economic institutions. These institutions then lead to a variety of other bad outcomes in the state such as a high dependency on oil and low incomes. This argument implies that resource dependency is bad for development only when institutional quality is low. By linking legal origins to corruption, institutions, and economic outcomes, I seek to offer a clearer explanation for why Louisiana sets itself apart from other states in its politically corrupt environment.

Financial institutions in developing economies fail to provide entrepreneurs with access to finance to grow their businesses. This severely hampers economic development in these countries. We seek to explain why and develop an argument and model based on Knight's theory, which we augment in two ways. First, by describing problems embedded in financial institutions of developing economies, for which we use the Schumpeterian view that creative destruction requires new credit to fund entrepreneurial disruption and de Soto's finding that undocumented assets possessed by entrepreneurs in developing economies cannot be leveraged as collateral to access finance. Second, we use Williamson's hierarchical institutional model to distinguish vertical interactions. The model is illustrated using the case of Uganda, a developing country in Eastern Africa. Our analysis finds that Uganda suffers from intertwined and misaligned formal and informal institutions, limited extent of codified property, and sparse access to finance. The findings prompt policymakers in developing economies to consider problems with and within financial institutions.

Intrapreneurs, entrepreneurial employees, constitute an important force behind innovations in the economy. Yet, what factors that promote intrapreneurship at the country level are an underdeveloped research area. This paper provides an important contribution regarding the methodological approach and the broad set of potential explanatory factors studied. Based on machine-learning techniques (Least Absolute Shrinkage and Selection Operator (LASSO) and Extreme Bounds Analysis (EBA)), we investigate the influence of over 60 factors capturing institutional, demographic, cultural, and developmental factors. We find that the quality of government measured as impartiality, i.e. that the public institutions treat the citizens in a non-discriminatory fashion and do not favor some groups or individuals, and the level of human capital, measured as the average years of schooling, are the most important factors predicting the level of intrapreneurship across countries. Instrumental variable results support a causal interpretation. The findings emphasize the importance of policy to establish well-functioning and impartial institutions as well as to promote higher education.

All law is relatively coarse after its initial implementation as the legislature cannot foresee all contingencies that can arise in the actual application of the law. Therefore, decisions need to be made by street-level administrators as novel and particular circumstances arise. Economists have largely ignored the political science literature on street-level bureaucrats, such as policemen, welfare case managers, or regulatory agents. I present a case study in the context of market entry regulation in Germany. Qualitative and quantitative evidence suggests that bureaucratic discretion exists, that is, administrative actions can be found on different ends of a decision space, and that its effects are potentially large. Administrators do not apply legislation in a uniform manner and we observe a systematically different application of rules across subnational jurisdictions.

This paper investigates the organizational structure of the Xiang Army, one of the best-known regional armies in the late Qing dynasty. The army developed an organizational form to overcome problems that plagued the imperial army of the central government, namely, the poor recruitment and training of soldiers, the lack of incentives to fight in battles, and the coordination failure. This organizational structure, I argue, played a central role in the rise of the Xiang Army in the Qing dynasty.

In his recent book on Property, Power and Politics, Jean-Philippe Robé makes a strong case for the need to understand the legal foundations of modern capitalism. He also insists that it is important to distinguish between firms and corporations. We agree. But Robé criticizes our definition of firms in terms of legally recognized capacities on the grounds that it does not take the distinction seriously enough. He argues that firms are not legally recognized as such, as the law only knows corporations. This argument, which is capable of different interpretations, leads to the bizarre result that corporations are not firms. Using etymological and other evidence, we show that firms are treated as legally constituted business entities in both common parlance and legal discourse. The way the law defines firms and corporations, while the product of a discourse which is in many ways distinct from everyday language, has such profound implications for the way firms operate in practice that no institutional theory of the firm worthy of the name can afford to ignore it.

This is a review essay of Markets without Limits by Jason Brennan and Peter M. Jaworski and of The Invisible Hand? by Bas van Bavel. From different perspectives, both books focus on the moral or practical limits to markets in modern society. While both works make major contributions, there are theoretical flaws. Brennan and Jarworski powerfully countered some criticisms of commodification. But they downplayed the possibility that the transition from gift to contract or market exchange may raise moral issues that are additional to those intrinsic to the goods or services being traded. Van Bavel investigated cycles of growth, inequality and decline in several market economies over the last 1,500 years. But his argument is built on a confusion between finance and capital goods. Nevertheless, much that is positive remains in both books after their flaws are corrected.

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.

Markets without Limits defends the claim that there are no inherent limits to markets, in the sense that if something may permissibly be given away or exchanged outside of market or for free, then there is some realistic and plausible way of structuring a market that makes it morally permissible to exchange it for money. This paper reviews the basic strategy of the book, and then responds to criticisms from Geoffrey Hodgson's recent review. Hodgson claims to have identified counterexamples to our main thesis, which we dispute.

In his seminal 1921 book, Risk, Uncertainty, and Profit, Frank Knight distinguished uncertainty and risk. This paper applies Knight's concept of uncertainty to knowledge generated in incumbent organizations to explain the inherent difficulty in assessing potential innovations along with the key role played by knowledge spillover entrepreneurship as a conduit for transforming new knowledge created by an incumbent organization but ultimately commercialized through the creation of a new firm and innovation. Knowledge is inherently uncertain and constitutes what is characterized as the knowledge filter impeding innovative activity in the context of incumbent firms and organizations. The organizational and institutional context and market uncertainty can either facilitate or impede the spillover of knowledge from the firm where it was created to the entrepreneurial startup where it is transformed into innovation. The empirical evidence based on a large, unbalanced panel of 9,126 UK firms constructed from six consecutive waves of a community innovation survey and annual business registry survey during 2002–2014. Implications for managers, scholars, and policymakers are provided.

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.

There is a broad consensus that state capacity is central to economic and institutional development. But while the concept originated as a tool for macro-historical and comparative analysis, its success has led the term ‘capacity’ to become a default metaphor for discussing the quality of government bureaucracies. This paper discusses the limitations to conceiving of narrower questions of bureaucratic performance and policy implementation through the lens of the broad, aggregate concept of capacity. Whereas capacity refers to bureaucracies' hypothetical potential, this usually differs from their actual actions due to internal information and incentive problems created by bureaucracies' collective nature, and the constraints and uncertainty imposed by their multiple political principals. Capacity is a convenient shorthand term and is appropriate for some purposes, but it achieves this convenience by abstracting away from the mechanisms that determine bureaucratic performance and policy implementation. To advance the study of bureaucratic quality, researchers should seek to understand the implications of bureaucracies' collective nature, engage with contextual specificity and contingency in policy implementation, and focus measurement and reform efforts more towards actual performance than hypothetical capacity.