Institutions Flashcards
Definition of institutions>
The humanly devised constraints that shape social interaction.
The rules of the game.
2 functions of institutions?
- Facilitating cooperation between private actors, gains from trade
- Restraining powerful actors, especially predatory governments
Solution 1) Legal (Impose a fine)
Solution 2: Repetition.
tit-for-tat strategy
Promise of doing business with another eternally until the other one deviates, then never again. BUT: only works if an infinite game.
If end-game? What about a finite game?
Backward reasoning tells us this doesn’t work: no matter what you play, the other should play D at the last round. Knowing this, you always play D.
Solution 3?
Reputation?
- Problems, you need:
- group membership stable and well defined.
- Speed and accuracy of information transmission (not usually great)
Sophisticated geography hypothesis
- geography determines the technology available to a society.
- Differences in geography, climate and natural resources lead to different rates of societal development. These are the “ultimate” causes of inequality.
- Differences in ultimate causes lead to differences in proximate causes: guns, germs, stel, writing, societal complexity, technology etc. These are the “proximate” causes of inequality
Fertile crescent
West Asia, Europe (mediterranean zone), North Africa
- wheat, barley, pea, lentil, chickpea, flax
Germs
- close contact with animal+high densities (thanks to productive agriculture): crowd diseases
- immune system developed to fight these crowd diseases
Spread of food packages
- eurasia (straight line; easier)
- the americas (diagonal and upwards?)
Superiority of farming over hunting-gathering
productive agriculture fed armies bureaucrats, inventors, writing?
Guns, germs and steel first in …
Eurasia.
Fertile crescent underwent major ecological overexploitation (desert today)
-
China
- China (very homogenous, no natural barriers)
- Favoured a unified, centralised empire
- subject to arbitrary decisions by leaders
- in 15th century, largest fleet on earth
- but a power struggle stoppe oceangoing shipping
Europe
- very heterogenenous (mountains, languages, societies…)
- christpher columbus
explains why Europe colonised the rest of the world, and not the opposite
Implications of sophisticated geography hypothesis
- the world is explained by geography and history in a deterministic way
- impossible to change now the course of history
Problems with regression in analysing impact of institutions on GDP?
- reverse causality: richer countries are able to build better institutions in the first place, therefore not sure institutions leads to more growth
- OVB: may be geography?