Lacking an appropriate theoretical framework, economists and economic historians have paid little attention to the relations between culture and institutional structure. This limits the ability to address a question that seems to be at the heart of developmental failures: Why do societies fail to adopt the institutional structure of more economically successful ones? This paper integrates game-theoretical and sociological concepts to conduct a comparative historical analysis of the relations between culture and institutional structure. It examines cultural factors that have led two premodern societies--one from the Muslim world and the other from the Latin world--to evolve along distinct trajectories of institutional structure. It indicates the theoretical importance of culture in determining institutional structures, in leading to their path dependence, and in forestalling successful intersociety adoption of institutions. Since the distinct institutional structures found in the late medieval period resemble those differentiating contemporary developing and developed economies, the paper suggests the historical importance of distinct cultures in economic development.

Social institutions were often founded by the elite to avoid social upheavals. Institutions helped mitigate the threat of violent social responses to labor-saving innovations. But their organizational forms were influenced by preexisting cultural and social factors. The differences in Chinese and English social institutions explain why England became the first modern economy. Using an English panel of poor relief and social unrest from 1650 to 1830, we document that poor relief was statistically significant in reducing social disorder. Social instability, in turn, negatively influenced innovations, while innovations were positively and significantly related to poor relief.

We interpret historical evidence in light of a repeated-game model to conclude that merchant guilds emerged during the late medieval period to allow rulers of trade centers to commit to the security of alien merchants. The merchant guild developed the theoretically required attributes, secured merchants' property rights, and evolved in response to crises to extend the range of its effectiveness, contributing to the expansion of trade during the late medieval period. We elaborate on the relations between our theory and the monopoly theory of merchant guilds and contrast it with repeated-game theories that provide no role for formal organization.

How to sustain cooperation is a key challenge for any society. Different social organizations have evolved in the course of history to cope with this challenge by relying on different combinations of external (formal and informal) enforcement institutions and intrinsic motivation. Some societies rely more on informal enforcement and moral obligations within their constituting groups. Others rely more on formal enforcement and general moral obligations towards society at large. How do culture and institutions interact in generating different evolutionary trajectories of societal organizations? Do contemporary attitudes, institutions and behavior reflect distinct pre-modern trajectories? This paper addresses these questions by examining the bifurcation in the societal organizations of pre-modern China and Europe. It focuses on their distinct epitomizing social structures, the clan and the city, that sustain cooperation through different mixes of enforcement and intrinsic motivation. The Chinese clan is a kinship-based hierarchical organization in which strong moral ties and reputation among clan’s members are particularly important in sustaining cooperation. In Medieval Europe, by contrast, the main example of a cooperative organization is the city. Here cooperation is across kinship lines and external enforcement plays a bigger role. But morality and reputation, although weaker, also matter and extend beyond one’s kin.

The Administrative Foundations of Self-Enforcing Constitutions by Yadira Gonzalez de Lara, Avner Greif and Saumitra Jha. Published in volume 98, issue 2, pages 105-09 of American Economic Review, May 2008

The authors interpret historical evidence in light of a repeated-game model to conclude that merchant guilds emerged during the late medieval period to allow rulers of trade centers to commit to the security of alien merchants. The merchant guild developed the theoretically required attributes, secured merchants' property rights, and evolved in response to crises to extend the range of its effectiveness, contributing to the expansion of trade during the late medieval period. The authors elaborate on the relations between their theory and the monopoly theory of merchant guilds and contrast it with repeated-game theories that provide no role for formal organization. Copyright 1994 by University of Chicago Press.