The institutional tradition is the question the marginalist mainstream brackets, asked first in a method the discipline rejected, asked again in a method the discipline accepted, asked a third time when the discipline was forced to confront what it had bracketed. The chapter walks the question across its waves and asks why it keeps returning.
Veblen’s first major book is widely read as social satire. Read that way, it is mediocre satire and bad economics. Read as the analytical move it actually was, it is the founding statement of a tradition the discipline has spent a century re-discovering.
Three figures in the United States between 1899 and 1940 produced a body of work historians of economics group together as old institutionalism. Thorstein Veblen, John R. Commons, and Wesley Clair Mitchell did not share a doctrine; their books read nothing alike. What they shared was a method. Economic outcomes, on the institutionalist account, are inseparable from the institutions within which exchange occurs. Habits of thought, legal arrangements, organizational forms, the courts that enforce contracts, the legislatures that write them, the customary practices that make them intelligible: these are not background conditions outside the analysis but constitutive of what the analysis is about. The marginalist toolkit took preferences, technology, and property rights as given, and asked what allocations followed. The institutionalists asked how those givens had come to be the way they were, and they took that question to be the economic one. The two methods were not arguing about the same thing.
A working definition of institution for this chapter follows Douglass North: the rules of the game that structure repeated interaction, including formal rules (laws, constitutions, contracts) and informal norms (conventions, customs, codes of conduct), distinct from organizations, the players who follow or modify those rules. Veblen used the word more loosely (including habits of thought); Commons used it differently again (the transaction as its unit). North’s narrower definition is the chapter’s working currency. Institutional thinking is older than Veblen. The Arthashastra (c. 300 BCE) codified a system of adhyaksha (market superintendents, quality inspectors, regulated guilds) that constituted economic governance two millennia before Western mercantilism — the earliest known institutional-economics precursor, taken up as a contextual precedent where this book reaches the eras it bears on. Closer to the chapter’s lineage, Marx had treated the institutional embeddedness of capital as central to political economy a generation before Veblen; Veblen had read Marx through William Graham Sumner at Yale, and inherited from him the institutional-determinism-of-class sensibility that informs his account of pecuniary culture. The full Marx project lives in ch. 4. Veblen, Commons, and Mitchell did not invent institutional analysis. They proposed a method.
Veblen wrote The Theory of the Leisure Class in 1899 against the marginalist mainstream that had taken over American academic economics. (The framework he was reacting against, the Jevons-Menger-Walras revolution and Marshall’s synthesis, lives in ch. 5.) The book’s most-quoted concept, conspicuous consumption, is widely treated as social satire of the American rich. The reading misses the analytical move. Conspicuous consumption, in Veblen’s usage, is consumption whose social function is the display of pecuniary capacity, distinct from consumption serving subsistence or productive ends. The category identifies behavior that is rational only within an institutional configuration that rewards pecuniary display, where the configuration is itself the explanandum. Marginalism takes preferences as exogenous: a consumer wants what the consumer wants. Veblen treats the wanting itself as the analytical object. A man buys a silver-mounted cane not because the marginal utility of the cane exceeds its price but because in a society organized around pecuniary emulation, the cane displays standing, and standing has consequences for marriage, business, and social access. Strip the institutional configuration away, and the consumption pattern becomes unintelligible. The cane is rational behavior inside a system that rewards display, and the system is the thing the analysis has to account for. This is what the institutional method does. It treats as analyzable what marginalism takes as given.
The category is structurally simple. The work it does is to make a class of behavior the marginalist framework cannot reach (status-driven consumption, emulation up the social hierarchy, the wastefulness that signals capacity precisely because it is wasteful) tractable as economic analysis. Conspicuous leisure (the gentleman’s deliberate avoidance of productive work) is its companion category; conspicuous waste (the destruction of value to demonstrate that one can afford to destroy it) generalizes both. The Veblenian household allocates resources not to maximize utility from goods consumed but to maintain a position in the pecuniary ranking the institutional configuration enforces. The Theory of Business Enterprise (1904) extended the move with a distinction between the instinct of workmanship, the disposition to produce serviceable things efficiently, and the pecuniary culture of business enterprise, oriented to financial gain rather than to production. The two are in chronic tension; modern industry runs on the first while modern finance runs on the second. The methodological move is the one from 1899: treat the categories of want and the structure of incentive not as exogenous but as institutional artifacts whose history can be told and whose consequences can be analyzed. Veblen was orthogonal to the marginalist mainstream, not behind it. (His relational position is at the veblen node on the timeline. His relationship to Smith’s productive/unproductive labor distinction — Veblen inherits the framing but inverts the moral valence — is treated in ch. 3.)
John R. Commons came to economics through labor reform and legal scholarship. He spent the 1910s building the institutional infrastructure of Wisconsin’s progressive reforms (workers’ compensation, public utilities regulation, labor-relations law); Institutional Economics (1934) is the framework his applied work had been operating with. The organizing concept is the transaction: not exchange between abstract agents, but the legally constituted unit by which property rights move. A transaction is a transfer of legal control over a future stream of services, performed under rules the courts will enforce, between parties whose mutual obligations are determined by those rules. Going concerns are the organizational vehicles (firms, unions, governments, families) that conduct transactions across the changes of their members. Futurity names the temporal structure: nearly all economically important transactions involve commitments about future performance, which makes contract enforcement load-bearing. Working rules are the institutional patterns (legislative, judicial, customary) that determine which transactions can occur, on what terms, with what remedies if performance fails. The market, on this account, does not pre-exist the legal order; the legal order constitutes it. A change in the working rules — a court decision on yellow-dog contracts, a legislative act on minimum wages, a doctrine on patent scope — changes which transactions are economically possible. Commons’s public-utility commission was the framework in operation: a natural monopoly is “efficient” only relative to a regulatory regime that determines what monopolists can charge, and the choice of regime is a choice over which transactions count as economically permissible.
Wesley Clair Mitchell came to the institutional method through a different door. Trained at Chicago under Veblen, he made his career as an empiricist of the business cycle. Business Cycles (1913) argued the cycle was not a deviation from a frictionless equilibrium but a regular institutional feature of a money-and-credit economy. Understanding it required studying its anatomy: the timing of price movements, the lead and lag of credit relative to output, the institutional channels by which bank credit translated into investment and back into demand. In 1920, Mitchell co-founded the National Bureau of Economic Research and led it for two decades. The NBER’s program was systematic measurement: monthly time series, seasonal and trend separation, the construction of reference cycles against which individual series could be compared, the cataloguing of leading and lagging indicators. Measuring Business Cycles (1946, with Arthur Burns) was the program’s most famous output and the prompt for the methodological battle of the next decade. The contribution was real; the discipline still uses business-cycle dating committees that descend directly from Mitchell’s template. The vulnerability was real too. Measurement, in Mitchell’s program, was not a service to a prior theory; it was the path by which theory was supposed to emerge from the data. Setting the question aside until the empirical regularities were established was the institutional method’s patience. The discipline that absorbed marginalism would lose patience.
What unified Veblen, Commons, and Mitchell was the institutional method: the conviction that economic outcomes are constituted by institutional configurations whose history matters, that those configurations are not given, and that the analytical work of economics is to study them. The substantive claims they made differed in subject and in style. The method was the same. The discipline that emerged after them would dismiss the question for half a century. The dismissal had reasons.
You just met the old institutionalists who read the corporation as a legal-institutional creature, not a production function. The antitrust revival has that lineage as its intellectual ancestor.
The antitrust revival has an intellectual ancestor. Before Lina Khan and Tim Wu, Veblen, Commons, and Mitchell read the corporation as a legal-institutional creature rather than a production function — and Commons argued the state and the courts constitute markets rather than merely refereeing them. The neo-Brandeisian case for structural antitrust is a revival of that old-institutionalist reading: market power is an institutional artifact, not a natural reward to efficiency, and the rules that permit it are themselves the policy lever.
Three things happened at once. The first was that economics became cumulative in a way old institutionalism was not.
By the early 1940s, the marginalist toolkit had been working on the same problems for two generations and had been getting better at them. The first wave (Jevons, Menger, Walras) had supplied the marginal-utility intuition; Marshall had built the supply-and-demand framework around it; Pigou and the Cambridge welfare economists had developed the apparatus of consumer surplus and externalities; Hicks and Allen had recast the consumer’s problem in indifference-curve terms a calculus textbook could handle. Paul Samuelson’s Foundations of Economic Analysis (1947) made the cumulation visible. The book was a systematic exposition of how the same mathematical structure (constrained optimization, comparative statics, equilibrium correspondence) could organize consumer theory, producer theory, welfare economics, and dynamic stability under one roof. The substantive work in any one of those areas had been done before Samuelson; what Foundations showed was that the work composed. A graduate student in 1948 could pick up where Hicks had left off, apply the comparative-static technique Samuelson had codified, and produce a contribution that built on its predecessors and could be built on in turn.
Old institutionalism did not compose like that. Veblen’s evolutionary critique, Commons’s legal-institutional analysis, and Mitchell’s business-cycle empiricism were three projects sharing a method but not a common analytical apparatus a successor could pick up where one had set down. A graduate student attracted to the institutional method had to choose a strand and reconstruct it largely from primary texts; what got passed forward was the spirit of the inquiry rather than a portable analytical machinery. The marginalist program had a textbook structure that scaled with the discipline. The institutional program had three traditions and a vocabulary. Cumulation favors the framework that scales. By the late 1940s, the comparative cumulation rate was visible to graduate students choosing what to work on.
The second thing that happened was the Keynesian revolution. The General Theory (1936) and the postwar synthesis that followed put a different framework into the macroeconomic policy ground the institutionalists had occupied at the NBER. Mitchell’s business-cycle program had been the discipline’s answer to “where do depressions come from and what should be done about them.” The Keynesian answer (deficient aggregate demand; multiplier-driven feedback loops; fiscal stabilization as the policy lever) was theoretically tractable, mathematically formalized in the IS-LM apparatus Hicks introduced, and recommended a clear policy instrument. The empirical regularities Mitchell had documented could be reinterpreted in Keynesian terms; the policy authority that had attended NBER measurement migrated to the new framework, which had more to say about what to do. (The Keynesian capture of macroeconomic policy ground is the subject of ch. 8; relational position at the keynes node.) Mitchell’s NBER survived; its policy authority on the business cycle did not.
The third thing was the methodological battle, and this is the one the section calls decisive. In 1947, Tjalling Koopmans, working at the Cowles Commission, published “Measurement Without Theory” in the Review of Economics and Statistics. The target was Burns and Mitchell’s Measuring Business Cycles. The argument: empirical regularities documented without an underlying theoretical structure are not yet knowledge of economic mechanisms. The reference cycles Burns and Mitchell had constructed described what had happened; they did not say why; without a model that specified the structural relationships among the variables, the documented regularities could not be interpreted causally. To use them for policy — to predict what would happen to output if monetary policy did this or that — required precisely the theoretical structure the NBER program had postponed in favor of measurement. Rutledge Vining defended the NBER in a sharp reply: theory in economics, he argued, was at a stage where premature formalization risked imposing artificial structure on phenomena whose features were not yet understood. The exchange ran through 1949.
Koopmans won the discipline. The Cowles Commission’s “measurement with theory” standard — specify a structural model, identify it from data, estimate it under the model’s identifying restrictions, draw inferences whose validity rests on the model’s identification — became the methodological bar applied research had to clear. Mitchell’s NBER tradition could not clear it as constituted. Documenting regularities was not enough; theoretical structure had to be brought to the data, and the data’s lessons had to be drawn out under the structure. Within fifteen years, the Cowles approach had defined what counted as serious empirical economics. The institutionalists had been doing something else, and the something else stopped being recognizable as the discipline’s work. (The methodological discipline that became the postwar standard, including the microfoundations program and the formal-modeling turn, lives in ch. 10; relational position at the samuelson node.)
The defeat ran in three converging streams. The cumulation gap made the marginalist apparatus the natural choice for graduate students. The Keynesian capture moved the policy authority. The Cowles methodological standard ruled the institutional tradition out of the discipline’s mainstream of empirical practice. The methodological defeat was decisive in the sense that it foreclosed the institutional program’s natural path of return. Cumulation could in principle have been built; policy ground could in principle have been recaptured; but a program whose central empirical practice had been ruled methodologically inadmissible could not survive as the discipline’s working economics. The other two pressures became surveyable problems for a program that no longer had a methodological place to stand.
Survival, where it occurred, was outside the discipline-shaping methodological standard. John Kenneth Galbraith’s American Capitalism (1952) developed the doctrine of countervailing power: large concentrations of economic power generate, over time, opposing concentrations (large unions facing large firms, large retailers facing large producers) that constrain market outcomes the marginalist framework could not predict. Gunnar Myrdal’s circular causation framework treated regional and racial economic stratification as cumulative institutional patterns rather than convergent equilibria. Both were institutional analyses in everything but name. Both retained influence in policy debate, in development economics, in sociology. Neither produced a research program inside the discipline. Galbraith was a public intellectual; Myrdal worked in development and social policy. The institutional method survived as critique. As a research program inside the discipline that was now defining itself by Cowles methodology, it had been displaced. The methodological vulnerability the reader carries forward into the next section is what the second wave would have to address.
Coase did not rescue the institutional tradition. He showed that the institutional question could be posed in the language of the tradition that had defeated it.
Ronald Coase published “The Nature of the Firm” in Economica in 1937. He was twenty-six. The essay was short, argumentative, and had no obvious doctrinal home. It became, over the following four decades, the founding text of new institutional economics (NIE), the second wave of institutional analysis the chapter walks in §13.4 and §13.5. The essay’s framework owes nothing to Veblen, Commons, or Mitchell. Coase had read Commons; the legal-institutional sensibility is recognizably present; but the analytical apparatus is entirely marginalist. He was not synthesizing the old tradition with the new mainstream. He was demonstrating that an institutional question could be posed within the marginalist program, and that the demonstration mattered. The bridge between old and new institutionalism is not a synthesis but a proof of possibility, and the proof was what the second wave would build on.
Coase’s 1937 question was simple. The marginalist framework presents the market as the efficient mode of resource coordination: prices guide producers and consumers to allocations that satisfy wants given technology. If the framework is correct, why do firms exist at all? Why is so much economic activity organized inside hierarchical organizations whose internal allocations are not made by prices but by managerial directive? An automobile is assembled inside a single firm rather than by contracts among ten thousand independent specialists, each producing one component and selling it to the next. The framework that explains why markets allocate resources efficiently does not explain why so many resource allocations are made outside markets, by managers giving orders.
The answer Coase proposed is the apparatus the chapter calls a methodological hinge. Using the price mechanism is itself costly. Search costs of finding the right counterparty; negotiation costs of reaching terms; contract-writing costs of specifying the obligations; monitoring costs of verifying performance; enforcement costs of recovering damages when performance fails. A transaction cost, in Coase’s usage, is any cost of using the market that is not part of the production cost of the underlying good. (Williamson would later refine the concept, distinguishing ex-ante drafting and bargaining costs from ex-post monitoring and dispute-resolution costs; the refinement waits for §13.4.) Transaction costs are pervasive. For repeated, complex, asset-specific exchange, the cumulative cost of running the relationship through markets exceeds the cost of running it through internal organization. Inside the firm, the boss directs; the relationships are governed by the employment contract’s residual rights of decision rather than by piecemeal price negotiation.
Internal organization saves on the costs of using the price mechanism, but it creates costs of its own: managerial coordination becomes harder as the firm grows; agency costs accumulate as employees pursue personal rather than firm objectives; the bureaucratic apparatus required to substitute directive for price becomes itself a tax on activity. The firm’s boundary is set where these two cost curves cross. At the margin, a transaction is brought inside the firm if the marginal cost of internal organization is lower than the marginal cost of buying it on the market; left outside if the comparison runs the other way. The firm is not the alternative to the market. The firm is the institutional response to the cost of using the market for transactions where that cost is high. The size and shape of any actual firm reflects the structure of transaction costs in its environment.
Coase says the firm exists because using the market is costly — but where exactly does the firm stop? The boundary is not a definition; it is a crossing. Drag the market friction slider (search, negotiation, contract-writing, monitoring, enforcement) and watch the make-vs-buy boundary move. Raise the friction and the firm absorbs more transactions; lower it and more activity returns to the market. The boundary is endogenous to transaction costs — which is the whole of Coase’s 1937 argument.
Figure 13.2 (interactive). The firm’s boundary as a moving intersection. The marginal cost of internal organization rises with firm size (managerial diseconomies); the marginal cost of using the market falls with size but is scaled by market friction. The boundary sits where the two cross. Drag the sliders; the boundary moves.
More friction in the market — harder to find the right supplier, harder to write and enforce the contract — pushes the crossing rightward: the firm internalizes more, because organizing transactions inside is now cheaper than running them through the price mechanism. Cheap, frictionless markets pull the crossing left: buy, don’t make. The firm is not the opposite of the market; it is the institutional response to the cost of using the market where that cost is high.
Let firm size $n$ index the number of internalized transactions. The marginal cost of internal organization rises in $n$: $MC_{\text{internal}}(n) = m\cdot n$ (managerial diseconomies, steepness $m$). The marginal cost of using the market falls in $n$ but is scaled by friction $f$: $MC_{\text{market}}(n) = f\cdot(a - b\,n)$ over the relevant range.
The firm’s boundary $n^\*$ solves $MC_{\text{internal}}(n^\*) = MC_{\text{market}}(n^\*)$. Raising $f$ shifts the market curve up, moving $n^\*$ right (more internalized); raising $m$ steepens the internal curve, moving $n^\*$ left. The boundary is the marginal-cost-equality condition Coase named, not a fixed definition of the firm. The formal transaction-cost-economics treatment lives in economics ch. 18; the Coase-theorem corner case in economics ch. 4.
Notice what the argument did and did not do. It did not abandon marginalism; the apparatus is marginal-cost reasoning applied to a new object (the boundary of the firm rather than the boundary of consumption). It did not invoke habits of thought, evolutionary critique, or the legal-institutional embedding of markets. It did not cite Veblen or Commons. What it did was bring the existence of institutions inside the marginalist analysis as something the framework could explain rather than something it had to assume. The Veblenian or Commonsian institutionalist would have said: of course firms exist, the question is why we should pretend they do not. Coase agreed firms existed and asked the marginalist framework to account for them. The reframing was the move. Once institutions could be objects of marginalist analysis, the discipline that had defeated old institutionalism on methodological grounds could pose institutional questions without abandoning the methodology by which it had won.
The 1960 essay extended the move into welfare economics. “The Problem of Social Cost” (Journal of Law and Economics 1960) addressed the textbook treatment of externalities. The standard Pigovian framework prescribed corrective taxation: a factory whose production imposes pollution costs on its neighbors should be taxed an amount equal to the marginal external damage, internalizing what the price system had not. Coase’s argument turned the framework on its head by considering what the parties to the externality could do without the tax. If the rancher’s cattle stray onto the farmer’s crops, the rancher and the farmer can negotiate. If transaction costs are zero, they will negotiate to whatever allocation maximizes their joint surplus, regardless of which one starts with the legal right (the rancher’s right to let cattle range freely, the farmer’s right to be free of trespass). The bargain produces the same efficient outcome either way. The initial assignment of the right affects who pays whom, but not what allocation the parties end up with.
This is what later writers would call the Coase theorem: if transaction costs are zero, the assignment of property rights does not affect the efficiency of resource allocation; bargaining will produce the efficient outcome regardless of who initially holds the right. The textbook treatment of externalities, in welfare-economics terms, formalizes this result and works through its implications; it lives in economics ch. 4. The chapter here pauses on what Coase actually argued, because the textbook framing has obscured it.
Coase did not propose the theorem as the operative result. The theorem identifies a corner case in which the welfare problem dissolves. The substantive 1960 argument is that transaction costs are pervasive, the corner case does not obtain in any economically interesting situation, and rights assignment therefore matters, not as a defect to be corrected by Pigovian tax but as a feature of the institutional environment that determines how the parties bargain, what bargains are possible, and which surplus they can capture. If transaction costs make bargaining infeasible, the assignment of the right determines the allocation directly: the right-holder uses the resource as the right permits, the non-holder lives with the consequences. If transaction costs are positive but bargaining is feasible, the assignment determines the bargaining position and therefore the distribution of surplus, even if it does not determine the allocation. The Pigovian tax may correct the externality, but it presupposes the regulator knows the marginal damage, which the regulator typically does not; the assignment of rights, by contrast, is observable.
The textbook tradition has tended to teach the Coase theorem as the canonical Coasean result and to mention transaction costs as a complication. The reading inverts what Coase wrote. The corner case is the foil. The substantive argument is that transaction costs are pervasive and rights assignment matters in the world the corner case excludes. Reading the theorem as the central claim collapses the institutional argument into a welfare-economics theorem about a frictionless world the argument was meant to characterize as theoretically possible but practically rare.
Coase’s two essays did not win him a research community in the 1940s or 1950s. “The Nature of the Firm” was cited occasionally as a curiosity for two decades; “The Problem of Social Cost” took until the 1970s to be absorbed into the law-and-economics tradition that grew up around the journal he founded. The Nobel Prize was awarded in 1991, fifty-four years after the first essay. What Coase had supplied was a methodological possibility, not a research program. The research program required someone to take up the apparatus and apply it to substantive institutional questions. Two such people, Oliver Williamson and Douglass North, would do so in the next two decades, and a generation later Daron Acemoglu would supply the empirical-identification strategy that turned the apparatus into a research program at the discipline’s mainstream. (Coase’s relational position in the counter-revolution era cluster sits at the coase node.) The bridge had been built. What followed depended on who would walk across it.
The second wave built three things on Coase’s bridge: a theory of the firm as governance structure (Williamson), a theory of nations as institutional configurations (North), and an empirical identification strategy that turned the framework into a research program (Acemoglu, Johnson, Robinson). The chapter calls this last move the IV revolution and treats it as the methodological success that succeeded where Mitchell’s measurement program had failed.
Oliver Williamson, working from Berkeley through the 1970s and 1980s, took Coase’s 1937 question and built it into a theory of organizational form. Markets and Hierarchies (1975) and The Economic Institutions of Capitalism (1985) are the framework manifestos. The firm, on Williamson’s account, is one of several governance structures available for organizing transactions: spot-market exchange, long-term contracts (hybrids), and unified ownership inside a hierarchical firm. Which structure is efficient depends on three transaction attributes. Asset specificity, Williamson’s key concept, is the degree to which an asset is specialized to a particular use or relationship and would lose value if redeployed elsewhere. A coal mine sitting next to a particular power plant has high asset specificity; a standardized commodity has none. Uncertainty about future contingencies; frequency of repeated dealings; the contractual hazards (holdup, opportunism) that arise when high asset specificity meets uncertainty. The governance-structure typology is compressed here; the formal modeling treatment lives in economics ch. 18. The substantive claim is that the firm is the rational response to transactions whose hazard structure makes contractual governance prohibitively costly. Williamson cited Herbert Simon’s bounded rationality as a foundation; the cognitive-foundations side of the argument is the territory of the behavioral-economics lineage. The firm-as-production-function (the textbook neoclassical treatment) was displaced by the firm-as-governance-structure for any analytical question where institutional choice mattered.
Douglass North moved the frame outward. Where Williamson asked how firms organize transactions, North asked how nations organize themselves. Institutions, Institutional Change and Economic Performance (1990) was the synthesis. Institutions, on North’s account, are the rules of the game; they reduce uncertainty by structuring repeated interaction; their long-run economic consequences are the long-run economic outcomes. Two further claims followed. The first was that institutions can be inefficient and persistent, because path dependence — the present configuration depends on the historical sequence of changes that produced it; small early advantages get locked in by network effects and increasing returns; switching costs prevent transitions to better arrangements — operates at the level of national institutional histories as it does at the level of technology. The QWERTY keyboard problem (Brian Arthur’s example) generalized to constitutional regimes. The second was that successful economies are those whose institutions reduce transaction costs across the broadest range of productive activity. Persistent cross-country income gaps were therefore institutional, in the sense that countries with extractive institutional configurations had remained poor and countries with secure-property-rights configurations had grown rich. The framework was a research program in waiting; what it required was identification. Hayek and North agree on rules-as-institutions and path-dependence; they differ on whether design is possible. Hayek frames spontaneous order as a defense of markets against design; North frames institutions as the explananda economic theory must explain. The Austrian program lives in ch. 6.
Why do inefficient institutions persist if everyone would be better off switching? North’s answer is path-dependence: increasing returns plus switching costs lock in whatever got an early lead, efficient or not. Two competing standards, A and B, each gaining payoff as more adopt it. Nudge an early advantage to one standard and set the switching cost. Give a small early lead to the worse standard with high switching costs, and it locks in — and stays locked even when you try to dislodge it.
Figure 13.3 (interactive). Standard A is efficient (higher intrinsic payoff); standard B is inefficient. Adoption share evolves by relative payoff with network-effect amplification; the switching cost sets a hysteresis band. Give B an early lead with high switching cost, run, then try to dislodge it.
Each adoption makes a standard more valuable to the next adopter (the QWERTY problem Brian Arthur formalized). With low switching costs, the efficient standard always wins eventually. With high switching costs, whatever got the early lead locks in — and a later attempt to move everyone to the better standard fails, because no individual will pay the switching cost to be the first to defect from a standard everyone else still uses. History gets remembered in the institutional configuration; the better arrangement available in principle is not reachable in practice.
Let $x_t$ be the share on standard B. Each standard’s perceived payoff is intrinsic value plus a network term: $\pi_A = v_A + \lambda(1-x_t)$, $\pi_B = v_B + \lambda x_t$, with $v_A > v_B$ (A efficient) and network strength $\lambda$. Adopters move toward the higher-payoff standard, but only if the gain exceeds the switching cost $s$: a defection from B to A requires $\pi_A - \pi_B > s$.
For $\lambda$ large and $s$ large, two stable equilibria exist ($x^\*\approx 0$ and $x^\*\approx 1$): which one is reached depends on the initial nudge, not on which standard is efficient. The switching cost $s$ sets the width of the hysteresis band that prevents transitions even when $v_A > v_B$ — North’s claim that inefficient institutions persist. North’s and Hayek’s shared path-dependence premise (differing on whether design is possible) is in ch. 6.
Daron Acemoglu, Simon Johnson, and James Robinson supplied the identification. The 2001 American Economic Review paper “The Colonial Origins of Comparative Development” (AJR hereafter) addressed the central empirical problem: institutions and incomes are correlated, but the correlation is consistent with reverse causation (rich countries can afford good institutions) and with omitted variables (something else, perhaps geography or culture, drives both). To establish a causal effect of institutions on income, AJR needed an instrumental variable: a source of variation in institutions that affects income through institutions and through no other channel. Their candidate was settler mortality in 17th- to 19th-century European colonization. Where European settlers could survive (low mortality from tropical disease), they brought political institutions modeled on the home country, with secure property rights and constraints on executive power; where they could not (high mortality), they extracted what could be extracted from the local population through coercive labor systems and sent the surplus home. The early colonial institutions persisted, by path-dependence, into the modern era. The 2002 Quarterly Journal of Economics paper “Reversal of Fortune” documented that the colonial reversal (rich pre-colonial regions becoming poor, poor pre-colonial regions becoming rich) ran exactly where the institutional-extraction logic predicted. Why Nations Fail (2012) consolidated the framework for a general audience under the binary of extractive institutions (concentrating political and economic power in a narrow elite that extracts surplus from the broader population) and inclusive institutions (broad political participation, secure property rights, and contract enforcement available to many). The framework, in its theoretical form, was largely complete in North; what AJR added across 2001 to 2012 was the identification strategy. Why Nations Fail is the empirical program’s consolidation, not a new theoretical contribution. The formal AJR regression specification (a two-stage least-squares estimator with settler mortality as the excluded instrument) is compressed here; the regression and its identification diagnostics live in economics ch. 18. Stated in prose, the identification claim is this: settler mortality in 17th-19th century European colonization is a valid instrument for current institutional quality if (a) settler mortality predicted European settlement patterns, (b) settlement patterns shaped early colonial institutions, (c) early institutions persisted to shape modern institutions, and (d) settler mortality has no other channel through which it affects current income. The colonial extractive-institution evidence base AJR draws on is treated historically in economic-history ch. 10; the postwar developmental-state record that grounded NIE’s reach is in economic-history ch. 14.
The chapter’s central comparative argument lives here. Walk the same family of questions across two methodological eras. In 1913, Mitchell wanted to identify the causes of business cycles by documenting their empirical regularities and letting theory emerge from the data. The discipline ruled in 1947 that this was not enough; theory had to be brought to the data; the regularities had to be interpreted under a structural model whose identification was specifiable in advance. Mitchell’s program failed the standard. Coase’s 1937 essay had shown that institutional questions could be posed in marginalist terms; through the 1970s and 1980s, Williamson and North built the marginalist-institutional theory the questions required. By the late 1990s, the framework was complete; what it lacked was an identification strategy that could turn theoretical relationships into causal estimates the discipline’s methodology would accept. AJR’s settler-mortality instrument was that strategy. The same family of questions Mitchell had asked — what do institutions cause; how much do they explain — could finally be answered to the discipline’s methodological standard, because the answer was now framed in the structural-modeling vocabulary the standard demanded. The four stations are the chapter’s argument compressed: Mitchell’s measurement-without-theory program; the Cowles methodological defeat that ruled it inadmissible; Coase’s methodological hinge that posed the institutional question inside the marginalist framework; AJR’s instrumental-variable identification that turned the framework into mainstream empirical practice. The contrast is not between two intellectual moods. It is between two methodological eras separated by a specific defeat and a specific successful response.
What this account does not say matters as much as what it says. It does not say NIE is institutionalism done right while old institutionalism was institutionalism done wrong. The substantive content of Mitchell’s business-cycle empiricism, Commons’s legal-institutional framework, and Veblen’s evolutionary critique was not refuted; what was ruled methodologically inadmissible was the empirical practice (measurement without prior theoretical structure) by which old institutionalism had built its case. NIE could meet the methodological standard because it had already accepted the marginalist apparatus the standard presupposed. The old tradition, asked to convert, would have had to abandon the framework that defined what it was. The succession is real but it is a succession with a substantive cost. The institutional method’s content was lost as a research program; the institutional question survived because Coase had shown how to pose it inside the framework that had defeated it. The chapter’s position is that this is what the historical succession actually accomplished, not the Whig narrative in which the discipline finally got it right after fifty years of heterodoxy and not the recovery narrative in which Veblen has been retroactively vindicated.
The implicit debate the second wave generated is between Acemoglu’s institutional answer to the long-run growth question and Jeffrey Sachs’s geographic answer. Sachs’s argument, developed across The End of Poverty (2005) and a body of work in development macroeconomics, is that the persistent poverty of tropical regions has direct geographic causes: the disease environment of malaria and other endemic tropical diseases reduces life expectancy and raises healthcare burdens; tropical agriculture is less productive than temperate-zone agriculture, with thinner soils, more pests, and less reliable rainfall; landlocked countries lack access to ocean transport, which has historically been the cheapest mode of bulk freight. Jared Diamond’s Guns, Germs, and Steel (1997) made an adjacent argument about the deep-historical sources of European economic and military advantage, locating them in the latitudinal orientation of the Eurasian landmass and the availability of domesticable plants and animals. The geographic case is not crazy. The empirical correlations between tropical climate and contemporary poverty are strong.
The chapter’s position is that the Acemoglu-Sachs argument is partly a debate where the two sides answer different questions. Acemoglu and Robinson are answering: what is the proximate cause of long-run growth differences between countries with similar geographies? The settler-mortality IV identifies the institutional channel by holding geography roughly constant: countries within the same climatic zones, but with different colonial-institutional histories driven by exogenous variation in disease environment for European settlers, have ended up with different long-run incomes. The IV evidence on this question favors institutions. Sachs is answering: what is the absolute constraint on development in tropical regions? The disease environment, the agricultural productivity, the transport access have direct effects on per capita income that institutional reform alone may not be sufficient to overcome. The second question is real, and it does not collapse into the first. A reformer in a tropical landlocked country still faces a malaria burden and high transport costs; building inclusive institutions is necessary, possibly, but not sufficient. The two arguments can be true together, applied to the questions each is properly answering. The debate has been framed (often by participants) as institutions-versus-geography, with each side taking the other to be denying its own claim. The framing is wrong. Institutions do most of the proximate causal work the IV identifies; geography sets the absolute constraints the proximate effects operate within. The IV evidence does not vindicate institutional reform as sufficient policy; it does identify institutions as the proximate causal channel through which the variation runs. The chapter takes the call: on the historical-causation question, the IV evidence favors institutions; on the absolute-constraint question, the geographic considerations remain real and partly distinct. The live policy debate, where the two arguments meet practical decisions about aid, governance, and development strategy, runs forward to Walkthrough 02.
Is the institutions-vs-geography debate two answers to one question, or two questions? Two model countries, A and B, on a multi-decade GDP-per-capita path. Set each country’s institutional quality: raise A above B and their paths fan apart — the Acemoglu mechanism, institutions driving divergence across similar geographies. Now move the geography weight: it shifts both paths together — the Sachs channel, geography as an absolute level constraint. Institutions and geography move the picture along different axes. That is the chapter’s call, made drivable rather than asserted.
Figure 13.4 (interactive). Two stylized growth paths. Institutional quality drives divergence between A and B (the axis the settler-mortality IV identifies); geography weight shifts both paths’ common level (the axis Sachs is answering on). A stylized illustration of the two-questions structure, not the AJR regression. Move institutions; then move geography; watch which axis each one travels.
Better rules pull two otherwise-similar countries apart — that is the difference the IV holds geography constant to identify. Harsher geography lowers both countries together — that is a constraint on the level, not an explanation of the gap between them. Because the two sliders move the picture along different axes, the position falls out of the manipulation: Acemoglu answers “what makes similar-geography countries diverge?” (institutions); Sachs answers “what is the absolute constraint on tropical development?” (geography). They are not trading off; they are answering different questions.
Each country grows as $y_t = y_0\,\exp\big[(g_{\text{base}} + k_{\text{inst}}\cdot \text{inst} - k_{\text{geo}}\cdot \text{geoWeight})\,t\big]$. The institutional term $k_{\text{inst}}\cdot\text{inst}$ enters each country separately, so $\text{inst}_A \ne \text{inst}_B$ fans the paths apart (divergence). The geography term $-k_{\text{geo}}\cdot\text{geoWeight}$ is common to both, so it shifts the level without changing the gap.
The orthogonality is the point: institutions are identified on the between-country axis (what the settler-mortality IV exploits, holding geography roughly constant); geography acts on the common-level axis. The exclusion restriction — settler mortality affects income only through institutions — and the two-stage least-squares regression that estimates it live in economics ch. 18; this widget illustrates the mechanism, not the identification.
By 2012, the second wave had a complete framework, an empirically credible identification strategy, and a popular synthesis. The institutional question was respectable mainstream economics. The relational positions of the principal figures sit on the modern-pluralism era cluster of the timeline (north, acemoglu, institutional_economics, why_nations_fail). What the framework did not capture — what neither Williamson’s firms-and-markets dichotomy nor North’s national-institutional-regimes frame could see — is the subject of the next section.
You just drove the institutions-vs-geography axes apart, and read the IV that made the institutional answer credible. This is the for-voice the walkthrough opens the long-run-growth debate with.
The institutionalist answer says the proximate cause is the rules: inclusive institutions secure property and broad participation; extractive ones concentrate power in a narrow elite. Acemoglu’s settler-mortality instrument — the IV you just saw fan the two countries’ paths apart — is what made that answer empirically credible rather than merely plausible. Sachs’s geography reply is answering a different question: not what makes similar-geography countries diverge, but what absolute constraint tropical regions face. The walkthrough carries both into the live aid-and-development debate.
The Acemoglu-vs-Sachs argument is closed here at the intellectual level. Where it meets practical decisions about aid, governance, and development strategy, it is a live policy debate.
Hardin made the prediction in 1968. Ostrom showed it was empirically wrong in the cases that mattered. The chapter places Elinor Ostrom in the institutional tradition as a parallel rather than a successor: her intellectual genealogy and her question are different from the Coase-Williamson-North line, and treating her as a NIE-extension misreads both her contribution and her tradition.
Garrett Hardin published “The Tragedy of the Commons” in Science in 1968. The paper’s central image was a pasture open to all herders. Each herder gains the full benefit of adding one more animal to the herd; the cost of overgrazing is shared across all users. Each individual decision to add another animal is rational; the aggregate is overgrazing, the destruction of the pasture, and the loss of all use value to everyone. Hardin generalized the argument: any common-pool resource (a resource for which exclusion is costly but consumption is rivalrous, distinct from public goods, private goods, and club goods) will be overexploited if left to the herders. The category is technically distinct from public goods (non-rival), private goods (rival and exclusive), and club goods (excludable but non-rival). The policy options Hardin considered were two: privatize the resource (assign property rights, let market discipline govern use) or regulate it through central authority (state-imposed quotas, fees, or prohibitions). The implicit framing was state-or-market; the prediction was that absent one or the other, the resource was doomed. Williamson’s firms-or-markets dichotomy and North’s national-institutional-regimes framework both inherited the same framing. Common-pool resources were either privatized into commodities or governed by state authority. There was no third option in either NIE picture.
Elinor Ostrom, working at Indiana University from the 1960s onward, came to the question through political science and rural sociology rather than through Coase or Williamson. Her training was in the analysis of local governance: how do communities solve collective-action problems when the state cannot or will not? Through the 1970s and 1980s, she and the Workshop in Political Theory and Policy Analysis she co-founded with Vincent Ostrom built a database of case studies of common-pool resources around the world. Governing the Commons (1990) was the synthesis. The book’s argument is empirical: there are documented cases of common-pool resources that have been managed effectively for centuries by local institutions, neither privatized nor centrally regulated. Hardin’s prediction was wrong in those cases. The question was why.
The cases were specific. Swiss alpine pastures in the village of Törbel had been governed for over five hundred years by a system of village statutes that defined who could graze how many animals on the common meadows, when seasonal access opened and closed, and how violations were sanctioned; the meadows had not been overgrazed. Spanish huertas in Valencia and Murcia had managed irrigation water for centuries through tribunals of irrigators (the Tribunal de las Aguas dating to medieval times), allocating scarce water across thousands of small farms with documented effectiveness; the irrigation systems had not collapsed. Japanese mountain commons (iriaichi) had governed forest and grassland use through village associations for centuries, with detailed rules on what wood could be taken, by whom, in what season, and how violations were punished; the forests had not been clear-cut. Maine lobster fisheries (informal harbor-gang territorial systems, sanctions running from cut traplines to social ostracism) carried the same pattern in a contemporary North American setting. Across each case, neither the state had imposed effective regulation nor private property had been instituted; local institutions had done the work. Ostrom’s further case studies of irrigation in Nepal, forest commons in India and the Philippines, and groundwater basins in California extended the pattern across regions, climates, and resource types. Hardin’s prediction was not refuted as a theoretical possibility. It was refuted as an empirical generalization. The cases where local institutions had failed (and there were many) were also documented; the conditions under which they succeeded were the analytical question, and answering it is what gave the program its design principles.
From the case record, Ostrom abstracted what she called the eight design principles characterizing long-enduring common-pool-resource institutions. Clearly defined boundaries, both of the resource and of the user community. Congruence between local conditions and the rules governing appropriation and provision. Collective-choice arrangements that let most users participate in modifying the rules. Active monitoring of resource conditions and user behavior, often by the users themselves. Graduated sanctions that escalate from minor warnings to severe penalties depending on context and prior history. Accessible, low-cost conflict-resolution mechanisms within the community. Recognition by external authorities of the user community’s right to organize. For larger resources, nested enterprises: multiple layers of governance, each handling a different scale of problem. The principles are presented as empirical generalization across the documented cases, not as a formal theory and not as prescriptive best-practice for new institutional design. Where the principles obtained, the institutions endured; where one or more was absent, the institutions tended to fail. The relationship is empirical regularity, not derivation from first principles. Ostrom resisted the impulse to turn the principles into a checklist. The cases were specific; what worked in one community was not guaranteed to work elsewhere; the principles were a structured way to read the case record, not a recipe.
What actually makes the difference between the commons collapsing and the commons enduring? A shared fishery regenerates each round; users extract. With few of Ostrom’s design principles in force, extraction outruns regeneration and the stock collapses — Hardin’s tragedy. Switch on the principles that matter (monitoring, graduated sanctions, and clear boundaries do the heaviest lifting) and the system moves to a sustainable steady state — Ostrom’s finding. The difference is the rules, not privatization or central control.
Figure 13.5 (interactive). A stylized common-pool resource. The stock regenerates logistically and is drawn down by extraction; the active design principles cap over-extraction. The heavy-hitting principles (monitoring, graduated sanctions, boundaries) are weighted to flip the outcome, matching Ostrom’s empirical generalization that the principles are not equally decisive. Toggle principles, set the pressure, and run.
Hardin assumed the only fixes were privatize or regulate from the center. The cases Ostrom documented — Swiss alpine pastures, Spanish huertas, Japanese mountain forests, Maine lobster fisheries — did neither, and the resource survived for centuries. What did the work was the rule-set: monitoring so defection is seen, graduated sanctions so it is cheap to punish and costly to repeat, and boundaries so the open-access free-for-all never starts. Toggle them one at a time and watch which ones flip collapse to endurance. The point is not that “good governance” helps; it is that specific rules do specific work, and the design space is larger than state-or-market.
The stock evolves $S_{t+1} = S_t + r\,S_t(1 - S_t/K) - E_t$, with logistic regeneration (intrinsic rate $r$, carrying capacity $K$) and extraction $E_t$. Extraction is the pressure $p$ scaled down by the active rule-set: $E_t = p\cdot S_t \cdot \max(0,\,1 - \sigma\sum_i w_i a_i)$, where $a_i\in\{0,1\}$ is whether principle $i$ is in force and $w_i$ its weight.
The weights are unequal — monitoring, graduated sanctions, and boundaries carry the largest $w_i$ — so the combination of heavy-hitters flips the steady state from collapse ($S\to 0$) to a sustainable interior fixed point. This is a stylized model of Ostrom’s qualitative finding, not a calibrated bio-economic model; the principles are an empirical generalization across her case record, not a derivation.
Polycentric governance is the term Ostrom used for the broader institutional pattern her case studies revealed: polycentric governance denotes institutional arrangements in which multiple decision centers (different levels of government, civic organizations, user associations) coordinate without a single hierarchical authority. The opposite of monocentric (state) or atomized (pure-market) governance. The framing extends beyond commons cases. Many institutional environments are best understood as polycentric: federal systems, networked civil-society arrangements, professional self-regulatory bodies, hybrid public-private regimes. The state-or-market dichotomy that Hardin’s framing made canonical, and that Williamson and North inherited, captures only a slice of the institutional design space. Polycentric arrangements occupy the territory the dichotomy missed.
Ostrom belongs in this chapter on two grounds the section has been building, and the section closes by stating both. The first is intellectual genealogy. The Coase-Williamson-North line begins with Coase’s 1937 essay, builds through Williamson’s governance-structure framework, extends through North’s national-institutional analysis, and culminates in AJR’s identification strategy. Ostrom’s line begins with the rural-sociology and political-science traditions Vincent and Elinor Ostrom drew on at Indiana, builds through the systematic case-study method the Workshop developed, extends through her engagement with collective-action theory in political science (the Mancur Olson tradition rather than the marginalist tradition), and culminates in Governing the Commons’s empirical synthesis. The two lines do not share teachers, books, or analytical apparatus. They share the institutional method in the broadest sense (treating institutions as objects of analysis), and they came to overlap as Ostrom’s work was absorbed into economics in the 1990s and 2000s, but the absorption was a meeting of separate traditions, not the addition of a fifth chapter to the Coase-Williamson-North line. The second ground is the question. Coase, Williamson, and North asked: what determines the boundaries of firms and the long-run institutional configurations of nations? Ostrom asked: how do communities govern common-pool resources without firms or nations as the primary institutional vehicle? The question is different at the level of the institutional unit and at the level of the policy stake. Treating Ostrom as Coase-Williamson-North’s successor folds her question into theirs and loses what is distinctive about her contribution.
The 2009 Nobel Memorial Prize, awarded jointly to Ostrom and Williamson, was recognized in the discipline as recognition that the institutional tradition had a third pillar the state-or-market framing had not captured. Ostrom was the first woman to win the prize. Her relational position, her edges to the broader institutional-economics field, and her distance from the Coase-Williamson-North influence path appear at the ostrom node on the timeline. Common-pool-resource governance is part of the institutional toolkit the live policy debate considers (Walkthrough 02). The point of the parallel-thread argument is not that Ostrom’s work is more important than NIE’s but that the institutional design space is larger than NIE’s firms-and-nations dichotomy could see. The chapter’s recurrence argument, which the next section takes up, has to register Ostrom’s thread as a separate strand of the third return rather than as the same strand the AJR program ran.
The institutional tradition has returned three times. The recurrence is not coincidence.
The first return was Veblen, Commons, and Mitchell against the marginalists. Its prompt was the failure of the marginalist framework to explain what economic life looked like in industrializing America: pecuniary culture, the legal-institutional conditions under which markets operated, the cyclical phenomena that ran through a money-and-credit economy. The Great Depression sharpened the prompt. Business cycles, on the marginalist account, were deviations from a frictionless equilibrium that should self-correct; the 1930s revealed cycles that did not self-correct, and the explanation required attention to institutional features the framework had bracketed. Mitchell’s NBER had been the discipline’s organized response. The institutional moment passed because the methodological standard moved against the tradition’s empirical practice, but the prompt was real. Business cycles required institutional explanation; the discipline absorbed that explanation under a new framework after defeating the tradition that had supplied it.
The second return was Coase, Williamson, and North against the Solow-Samuelson postwar synthesis. The prompt was the persistence of cross-country income gaps the postwar growth framework could not account for within its production-function apparatus. Solow’s 1956 model attributed long-run growth differences to technology, capital, and population, with the residual absorbing what the structural variables could not capture. By the 1980s the residual was unmistakably large, persistent, and patterned across countries with similar factor endowments. North’s answer (the institutional configuration determines what inputs become productive) reframed the question; AJR’s identification turned the reframing into a research program. Persistent income gaps required institutional explanation; the discipline absorbed the explanation by extending its framework rather than by changing its methodology.
The third return is the long arc Acemoglu and Ostrom were already running through the 1990s and 2000s, which the post-2008 reckoning retroactively validated. Honesty about what this means matters. Ostrom’s Governing the Commons was published in 1990, her Nobel was awarded in 2009, and both predate the crisis the schema treats as the reckoning. She is the parallel thread the recurrence schema partly absorbs and partly does not fit. Her work was not a response to the crisis; the crisis confirmed something she had been working on independently for two decades. The same is largely true of Acemoglu’s program through the 2000s. The third return is a pattern visible in retrospect: institutional analysis already underway, and post-2008 events that made it discipline-wide visible as the necessary analytical frame. The institutional moments were specific. Regulatory capture: financial regulators whose rule-making had been shaped by the regulated firms whose risk-taking they were nominally supposed to constrain. Shadow banking: a system of credit creation operating outside the regulatory perimeter the postwar framework had been designed for, with maturity transformation and leverage the regulatory structure was not equipped to track. Too big to fail: firms above a certain size could not be allowed to fail without triggering systemic collapse, which gave their managers asymmetric incentives to take risk while socializing losses. None is a phenomenon the marginalist framework can analyze without a theory of the institutional structure of finance. The post-2008 reckoning was the financial-stability prerequisite revealed as institutional.
Each return marks a moment when the mainstream’s bracketing of institutions becomes empirically untenable: the Great Depression and the cycle question; the persistent income gaps and the growth question; the post-2008 reckoning and the financial-stability question. The figure consolidates the structure.
The relational view of the principal figures and works that carry the tradition through its waves appears below as a filtered subgraph of the intellectual-history timeline.
The chapter’s closing position follows from the recurrence pattern. Institutional economics is not a competing paradigm to neoclassical economics. It is the questions the dominant paradigm cannot pose with its bracketing assumptions. The marginalist framework treats preferences, technology, property rights, and the rules of exchange as exogenous and asks what allocations follow. What it cannot do is treat the bracketed objects as analytical content. Where do those preferences come from? Why are these property rights enforced and not those? Whose institutional configuration produces secure contract enforcement and whose produces predatory expropriation? The framework cannot pose those questions inside its assumptions. It can only pose them by going outside, which requires a different framework, which is the institutional one.
The clearest contemporary case of the institutional question reasserting itself is the antitrust revival, where market power is read as an institutional artifact rather than a natural reward to efficiency — the old-institutionalist reading returning as live policy.
The tradition keeps coming back because the question it asks is the question neoclassical economics is structurally unable to answer. Whenever the discipline encounters a phenomenon the bracketing makes invisible, the institutional question reasserts itself, and the framework reaches for whichever institutional apparatus is at hand. The disposition of NIE relative to the New Keynesian synthesis (absorbed or overthrown) is the territory of ch. 17; this chapter has carried the lineage explanation and the recurrence-as-symptom argument.
The Acemoglu-vs-Sachs debate is closed in this chapter at the intellectual level; the reader takes it forward to Walkthrough 02 as a live policy question. The institutional thread alongside the value, money, growth, and expectations lineages runs through the cross-cutting lineage walkthroughs. The formal NIE apparatus and the AJR regression details the chapter compressed live in economics ch. 18; the Coase theorem in formal welfare-economics terms lives in economics ch. 4. The third-return event-context is at the financial_crisis_2008 node on the timeline. The institutional question is not closed by any of these onward routes. It is the question the discipline keeps re-encountering and the framework keeps re-absorbing. The recurrence will continue.
Veblen, The Theory of the Leisure Class (1899); Veblen, The Theory of Business Enterprise (1904); Commons, Institutional Economics (1934); Mitchell, Business Cycles (1913); Coase, “The Nature of the Firm” (1937); Coase, “The Problem of Social Cost” (1960); Williamson, Markets and Hierarchies (1975); Williamson, The Economic Institutions of Capitalism (1985); North, Institutions, Institutional Change and Economic Performance (1990); Acemoglu, Johnson, Robinson, “The Colonial Origins of Comparative Development” (AER 2001); Acemoglu, Johnson, Robinson, “Reversal of Fortune” (QJE 2002); Acemoglu and Robinson, Why Nations Fail (2012); Ostrom, Governing the Commons (1990); Hardin, “The Tragedy of the Commons” (Science 1968); Sachs, The End of Poverty (2005); Diamond, Guns, Germs, and Steel (1997); Galbraith, American Capitalism (1952); Myrdal, circular causation; Koopmans, “Measurement Without Theory” (1947); Samuelson, Foundations of Economic Analysis (1947).