Institutional Change and Magna Carta

How do we get “good” institutions? This question has been the theme of my recent research (see here). And together with Desiree Desierto and Jacob Hall, I’ve just finished a new draft of our paper Magna Carta, which I’m excited about.

Now is a good time to revisit this topic in light of the recent Nobel Prize awarded to Daron Acemoglu, Simon Johnson, and James Robinson (henceforth AJR) for the study of institutions.

The Effects of Institutions or the Emergence of Institutions?

The majority of initial attention on AJR’s work focused on the effects of institutions. The authors of scientific background for the prize state this clearly:

In two seminal papers from the early 2000s, Acemoglu, Johnson, and Robinson provided compelling evidence on the crucial impact of conditions during colonization on long-run prosperity. They also showed that these conditions shaped the type of institutions established by European colonizers, and that the impact on long-run prosperity can plausibly be tied to the type of institutions chosen by the colonizers.

And, as many people have observed, these two papers have been hugely influential. Again, the Nobel committee:

These two papers shaped the subsequent empirical research agenda along a number of dimensions. First, they moved the literature from examining the proximate correlates of growth – for example, savings rates, productivity, and human capital – to examining the fundamental determinants of growth, such as institutions. Second, they introduced a new standard by illustrating the power of an explicit empirical research design for identifying a causal relationship pertaining to a broad macroeconomic question. Third, they pioneered a new literature on the historical determinants of contemporary institutional quality, productivity, innovation, and growth, using quasi-experimental research designs.

While scholarship has moved beyond the findings of these specific papers, their influence is undeniable. They made possible subsequent research such as Nathan Nunn’s work on slavery and Melissa Dell’s work on the Peruvian Mita, two major contributions to our understanding of persistent underdevelopment.

But while much of the profession became interested in the effects of institutions, less attention has been paid to the question of institutional change. Why was this? I think the answer is simple: studying the effects of institutions allowed economists to deploy the new causal inference tools developed in the 1990s and early 2000s. IVs, DID, and RDDs could be fruitfully used to disentangle the effects of institutions from other factors