This paper integrates game-theoretical and sociological concepts to conduct a comparative historical analysis of the relations between culture and institutions. It indicates the importance of culture, and in particular cultural beliefs, in determining institutions, in institutional path dependence, and in forestalling intersociety successful adoption of institutions. Examination of institutional change in two premodern societies from the Muslim and the Latin worlds yields that their distinct institutional structures resemble those found by social psychologists to differentiate contemporary developing and developed economies. This suggests the historical importance of distinct cultures and the related societal organizations in economic development. Copyright 1994 by University of Chicago Press.

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.

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.

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.