This paper contributes to the literature on the determinants of trust by investigating how the quality of local services influences individuals’ generalized trust and trust in local governments. Using data from Italian national statistical office (Istat) Aspects of Daily Life survey, after building a new measure for the quality of local services, we study its effect on individuals’ trust using linear regressions techniques. Our findings suggest that good local public services have a positive impact on individuals’ trust, the effect being stronger for trust in local institutions. Our results are robust to potential endogeneity issues, tested using a two-step GMM estimation procedure, and to potential omitted variables bias, according to the method proposed by Altonji et al. (2005).

This paper uses the concept of “Personnel is Policy” to extend the theory of regulatory capture to the political appointment of agency commissioners. The “Personnel is Policy” theory provides three important insights. First, it shows that whether or not an interest group benefits from a regulatory agency depends on the particular individuals appointed to run it. Second, the president plays an important role in regulatory capture by nominating individuals to be appointed to the commission. Third, regulatory capture does not follow a pre-determined path because the commissioners continually change. The theory is then used to explain the early years of a prominent regulatory agency created during the Progressive Era: the Federal Trade Commission. From the perspective of the big business “trust” interest group, their success at capturing the FTC to achieve their goals of controlling competition and blocking hostile antitrust actions was largely a result of who was appointed to the commission. The trusts were the most successful during the years of 1915–1916 and 1925–1929.

Despite its relatively small size, Belgium has historically been considered to have the most diverse array of beer varieties in the world. We explore whether Belgium's institutional history has contributed to its beer diversity. The Belgian area has experienced a heterogeneous and variable array of institutional regimes over the last millennia. In many cases institutional borders crossed through the Belgian area. We trace the historical development of many of Belgium's well-known beer varieties to specific institutional causes. We also show that the geographic production of important varieties, such as Old Brown, Red Brown, Trappist, Lambic, Saison, and Gruitbeer, continues to be influenced by Belgium's institutional past.

This article presents a theory of social protection expansion in late-developing open economies based on actors’ perceptions of complementarity. Drawing on recent theories of institutional change and political economic theories of welfare regimes, the article explains why in late-developing open economies, processes of liberalization often result in social welfare expansion. The explanation is based on the existence of institutional complementarity between the production regime and the social welfare regime. The article offers an agent-based theory of change according to which actors – state or market actors – are likely to promote welfare expansion amid their expectations of higher payoffs and/or improved performance of the liberalized economy. This theory challenges the more conventional Power Resource Theory, according to which welfare regimes are shaped primarily by the balance of power between workers and employers. To test the theory, the article analyzes the enactment of the unemployment insurance law in Israel (1972).

After an esteemed academic career as a chemist, Michael Polanyi switched to the social sciences and made significant contributions to our understanding of the nature and role of knowledge in society. Polanyi's argument concerning knowledge led him to emphasise the vital importance of decentralised mechanisms of adjustment and coordination, including markets. His article ‘Collectivist Planning’ (1940) enters into debates about the possibility (or otherwise) of centrally planning scientific and economic activity. This early article also foreshadows post-war debates within the Mont Pèlerin Socierty (formed in 1947) concerning the economic role of the state and the future of liberalism.

Because verdicts are typically the more costly resolution of legal disputes, most governments are interested in high settlement rates. In this paper, we use a unique dataset of 860 case records from a German trial court to explore which institutional factors have a significant impact on the decision to settle in civil law litigation. We find that procedural aspects and individual characteristics of the involved judge have a significant impact on in-court settlement probability. We also find that judge-specific aspects such as the judge's gender may have an impact on settlement probabilities in certain subfields of law. Based on our empirical results, we derive some conclusions for legal policies that aim at increasing settlement rates.

A central aspect of institutional development in developing economies is building tax systems capable of raising revenues from broad tax bases, i.e. fiscal capacity. While it is recognised that fiscal capacity is pivotal for state building and economic development, it is less clear what its origins are and what explains its cross-country differences. We focus on political institutions, seen as stronger systems of checks and balances on the executive. Exploiting a recent database on public sector performance in developing economies and an IV strategy, we estimate their long-run impact, distinguishing between the accountability and transparency of fiscal institutions (impartiality) and their effectiveness in extracting revenues. We find that stronger constraints on the executive foster the impartiality of tax systems. However, there is no robust evidence that they also improve its effectiveness. Our findings also suggest that the overall impact on both total tax revenues and income tax is economically relevant.

The problem of financial stability is political and institutional, rather than narrowly economic. To achieve a more resilient financial system, we need to pay attention to the incentives of actors who have the power to act discretionarily, and to the knowledge limitations of such actors in the face of substantial complexity and uncertainty. The literature on polycentric governance and institutional resilience provides key insights that the literature on financial stability has thus far neglected. We offer an analysis based on the “design principles” for robust governance institutions proposed by Nobel laureate Elinor Ostrom. We apply these principles to banking systems and explore under what conditions a banking system can be expected to discover rules that align private incentives with broader financial stability, and generate the necessary knowledge to govern such a complex system. This perspective challenges both “microprudential” and “macroprudential” approaches, which assume a monocentric financial and banking regulator.

The Swedish school system suffers from profound problems with teacher recruitment and retention, knowledge decline, and grade inflation. Absenteeism is high, and psychiatric disorders have risen sharply among Swedish pupils. In this pioneering analysis of the consequences of combining institutionalized social constructivism with an extensive marketization of education, we suggest that these problems are to no small extent a result of an unlikely combination of a postmodern view of truth and knowledge, the ensuing pedagogy of child-centered discovery, and market principles. We show how the stipulated view of truth and knowledge and the design of the system impacts on the incentives for the various agents involved: pupils, parents, teachers, principals, school owners, the municipality, the central government, and, ultimately, the general public. Our study implies that caution is necessary for countries that have a tradition of social-constructivist practices in their education systems and are considering implementing or expanding market-based school reforms.

How do firms combine a broad range of contract enforcement mechanisms into coherent governance structures? How often are distinct structures used in an economy? We develop a new empirical approach, based on latent class analysis, to answer these questions. Economy-level data from Hungary are used to derive a data-driven typology of contractual governance between firms. The joint use of law, morality, self-enforcing contracts, reputation and community norms is examined. They are shown to be combined into bilateral, third-party or comprehensive governance structures. The crucial governance choice is whether to move beyond bilateralism and, if yes, whether to use a mixture of (formal and informal) third-party mechanisms as a substitute or a complement. Complementarity is much more common. We find no instances of ‘impersonal exchange’; the law never stands alone. By implication, economic development may be best understood as a process from a narrower towards a broader set of enforcement mechanisms.

Are judges biased in their decisions? If so, what are the consequences? We propose a conceptual model that estimates the effects of judicial bias and insecurity on the trustworthiness of courts. Additionally, we empirically assess evidence of bias among justices at the Superior Court (STJ). For this purpose, we analyzed 1,412 decisions from 1998 to 2008. Results do not show consistent strong bias toward either the debtor or the creditor. We test a second hypothesis: that Brazilian courts are unpredictable, creating high levels of judicial insecurity. Empirical results corroborate this idea. Finally, we relate the empirical results found in this paper with the conceptual model initially developed, and provide evidence measured by a nationwide survey on the trustworthiness of the judiciary. As our model predicted, preliminary results indicate that citizens have lower levels of trust in the judicial system if courts and judges are biased and unpredictable.

In relation to Keynes's thought on general theorising, consumption theory and institutions, this paper closely examines Geoff Hodgson's views as set out in his magisterial work, How Economics Forgot History. While in full agreement with its advocacy of the institutionalist programme, it finds that Keynes's position has been misunderstood in all three areas, and that deep compatibilities exist between the General Theory and institutionalist analysis. Using all his available writings, it is argued that Keynes's conception of a general theory is very different from that underpinning neoclassical economics so that criticisms of the latter are irrelevant to the former, that Keynes's ‘fundamental psychological law’ was never advanced as a universal law applicable to all economies, and that Keynes expressly analysed a historically specific economic institution and its assemblage of sub-institutions. Keynes is an ally, not an enemy, of institutionalism in pursuing better economic theory.

Decades of research show that economic freedom is highly correlated with desirable economic outcomes both internationally and locally. Yet we still know little about the transition from low to high levels of economic freedom, particularly for institutions under local control. This research shows that while economic freedom in the United States is decreasing with regard to institutions under national control, it is increasing with regard to institutions under state and local control. Economic freedom increases gradually among the states, driven primarily by increasing labor market freedom. Decreases in economic freedom, on the other hand, occur sharply, often following stark changes to state fiscal policies.

This is a response to the criticism by Rod O'Donnell of the account of Keynes’ notion of a general theory in the book How Economics Forgot History (Hodgson, 2001). Several points of full agreement are noted, including the fact that Keynes’ work contains much discussion of historically specific institutions, including the financial and market institutions of modern capitalism. But it is argued here that even copious discussion of historically specific institutions is insufficient to indicate an adequate understanding or conceptual appreciation of historical periodisation or evolution, as developed in various ways by Karl Marx, the German historical school and the original American institutionalists. Keynes’ General Theory is best understood as a theory of modern capitalism. But Keynes did not have sufficient acquaintance with these historically oriented schools of thought to even define the concept of capitalism, or to make that specific historical association clear.

This article explores the challenges of redefining property rights for land, with application to monarchical Iraq from 1944 to 1958. We apply two processes in the analysis of economic institutions to study history: a puzzle-solving method at the micro level, with broader interest in the role of institutions in development and economic growth at the macro level. Thus, we explore the interaction between demanders and suppliers of land reform in the political market, focusing on the parliamentary influence of big landholders as an interest group. We conclude that despite increasing demand for land reform, politicians were able to supply quantitative change only, consisting of the allocation of newly arable land to landless cultivators, rather than the redistribution of existing assets or qualitative change. We analyse these findings in relation to our concern for the role of institutions in development. Our discussion uncovers key insights into Iraq's political economy and its institutions.