Modern theory identifies several sources of economic growth, such as capital accumulation, new techniques, secure property rights and contracts, and absence of rent seeking. This paper introduces new social technologies as yet another source of growth and emphasizes our incomplete knowledge of social systems. I introduce a framework for analyzing institutional policy and use the case of modern biotechnology to explain how uncertainty about social technologies, persuasion, and competing beliefs influence the evolution of property rights.

This article compares a variety of theoretical approaches to conceptualizing institutional change. Our goal is neither to discover the ‘best’ theory, nor to attempt to build a new one. Rather, we wish to compare how the theories we consider agree or differ with respect to the causes, process, and outcomes of institutional change. Some of the theories we discuss emphasize the deliberate creation of institutions through the political process, while others emphasize the spontaneous emergence of institutions through evolutionary processes. Still others combine elements of evolution and design. We differentiate a variety of approaches to conceptualizing the interaction between formal and informal rules. We discuss recent theories based on the ‘Equilibrium View’ of institutions, and theories emphasizing the role of habit, learning, and bounded rationality. We also consider theoretical explanations for institutional inertia and path-dependence.

The development of the American economy was accompanied by significant spatial income inequalities between the northern and southern regions. While many factors contributed to northern industrialization and southern stagnation, an important factor was differences in the region's institutions. In the North, a democratic institution fostered growth whereas in the South, oligarchic institutions favored status quo. To gain insights on the nature and causes of this divergence, this paper examines the development of political and legal institutions in Massachusetts and Virginia, the two leading states in the North and the South.

This paper uses an augmented Feldstein–Horioka savings–investment methodology to examine the impact of institutional quality on the degree of capital mobility in developing countries. A high correlation between domestic investment and domestic savings can arise from the presence of institutional rigidities restricting the movement of capital across borders. We find that including different aspects of institutional quality raises the coefficient of the savings rate, implying lower capital mobility. However, the improvement in institutional quality that strengthens the legal system, reduces investment risks, and ensures democratic accountability, increases capital mobility in developing countries. Inclusion of foreign aid also has a positive impact on the coefficient of the savings rate.

Coase originally formulated his conjecture about intertemporal price competition in an example of land monopoly, but it has been applied almost exclusively to non-spatial markets. This paper revisits the Coase conjecture and compares four institutional arrangements based on the combination of land tenure options and local governance forms: private/rental, public/rental, private/owner, and public/owner. The two-period model developed in this paper shows that homeownership may result in more land development than leasehold. Numeric examples suggest (1) public/owner is efficient for uniform distribution of consumer; (2) rentals can be desirable for ‘poor’ communities; (3) private/owner is more efficient for ‘rich’ communities; (4) restrictive zoning reduces social surplus. These results can help explain why public institutions are dominant in the urban area and why most private communities are small, located in the suburbs, and for middle-upper class.

Adam Smith (1982) undertook a momentous project in The Theory of Moral Sentiments (TMS): He wanted to debunk the Cartesian dichotomy between the emotions (body) and rationality (mind). The debunking of the body/mind dichotomy is a major aim of many modern neuroscientists and neuroeconomists (e.g., Damasio, 1994; Glimcher, 2004; Rustichini, 2005). Smith also wanted to demonstrate that morality is grounded on the emotions – as the title of his book indicates. So for Smith, the twin pillars of what thinkers consider to be distinguishably human, namely, rationality and morality, are actually rooted in the emotions (body). More specifically, while rationality and morality are based on the emotions, Smith showed that the emotions are rather refined and sophisticated sentiments adopted by agents in light of how they judge the actions of others and, in turn, how they should judge their own actions. Such judgments are nothing but the determination of what is the rational (optimal) solution. So, sentiments are not hurdles in the pathway of rational decisions. They are rather the building blocks of such decisions.