9 - Institutions

Question 1

Three important features of institutions:

Answer 1

1. They are “humanly devised” (in contrast to geographic factors)
2. They are “the rules of the game” setting “constraints” on human behavior.
3. Their major effect will be through incentives.

Question 2

Levels of institutions:

Answer 2

1. Social or cultural foundations - highest level which is hardest to change.
2. Basic formal institutions - the rules of the game, lika laws, political system etc.
3. Institutions governance - the play of the game, i.e. market and the actual functioning.

Question 3

Ex on how level 1 can constraint level 2 of institutions:

Answer 3

Ex. if no tradition of private property cannot expect to adopt modern capitalism over a night. Neither into a democratic system if always been a dictatorship.

Question 4

Changes in institutional levels:

Answer 4

The change in level 1 will be most slow because they are most embedded in the institutions and also in the peoples’ values and perceptions. If these at level 1 are slower than usual, it may make it hard to change things fast at level 1 and 2….

Question 5

Good institution =

Answer 5

An institutions that encourages development including growth, freedom and standard of living.

Question 6

Order of beliefs:

Answer 6

First-order believe is what you think is acceptable whereas second-order believe is what you think other recognize as acceptable. Not good if these differ. Ex in Saudi, men think it’s ok if their women work, but they don’t think other believe so - trap!

Question 7

Do institutions matter for economic development?

Answer 7

Yes, because they influence people’s behaviour and determine how a society organises itself. Ex incentives to invest, distribution of resources etc.

Question 8

Ex of a natural experiment that shows how institutions matter:

Answer 8

Korea! South Korea implemented good institutions that allowed for growth and democratization while North did exactly the opposite. The differences in GDP today are immense.

Question 9

How could European settlements affect current performance in the former colonies?

Answer 9

Settler mortality –> settlements –> early institutions –> current institutions –> current performance.

Question 10

How can informal institutions affect economic performance?

Answer 10

Through norms and values, for ex if corruption is socially accepted, if there is cultural fractionalisation that could cause conflicts, attitudes towards education, etc..

Question 11

What determines institutions in the first place?

Answer 11

According to a scheme set up by some authors, there is two things determining the institutions and its persistency: political institutions (through de jure political power) and distribution of resources (through de facto political power).

Question 12

Do the framework of determining institution allow for chocks to change it?

Answer 12

Yes, this is actually the only way for achieving better institutions, a chock must take place so that the de facto political power shifts and use their power right (ex Glorious revolution in GB 1688) –> change the political institutions –> change economic institutions –> economic performance.

Question 13

Policy failures and institutions:

Answer 13

Reason why institutions have become so important: bc policies are implmeneted worldwide bc they happened to work out well in some cases, BUT must look carefully at each context. Cannot set up schools on level 2 if the problem is on level 1 (people don’t value education enough).
–> must look at the cause of the problem, not the symptoms!!

Question 14

Best way to change informal institutions?

Answer 14

Often through learning and information. Ex information campaign on how to reduce water consumption in Aus, still today use less.

Question 15

The issue with trying to change informal institutions?

Answer 15

That it doesn’t matter if you only manage to change some people’s norms, must change the majority.