Economics Dictionary of Arguments

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Institutions: Institutions are social structures that organize and guide human behavior. They can be formal or informal, and they can be public or private.
Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

Author Concept Summary/Quotes Sources

Daron Acemoglu on Institutions - Dictionary of Arguments

Acemoglu I 74
A. Def Inclusive institutions: (...) such as those in South Korea or in the United States, are those that allow and encourage participation by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish. To be inclusive, economic institutions must feature secure private property, an unbiased system of law, and a provision of public services that provides a level playing field in which people can exchange and contract; it also must permit the entry of new businesses and allow people to choose their careers.
Property: Secure private property rights are central, since only those with such rights will be willing to invest and increase productivity.
Acemoglu I 75
Secure property rights, the law, public services, and the freedom to contract and exchange all rely on the state, the institution with the coercive capacity to impose order, prevent theft and fraud, and enforce contracts between private parties.
Infrastructure: To function well, society also needs other public services: roads and a transport network so that goods can be transported; a public infrastructure so that economic activity can flourish; and some type of basic regulation to prevent fraud and malfeasance.
State: The state is thus inexorably intertwined with economic institutions as the enforcer of law and order, private property, and contracts, and often as a key provider of public services. Inclusive economic institutions need and use the state.
B. Def Exctractive Institutions/Acemoglu/Robinson: (...) such institutions are designed to extract incomes and wealth from one subset of society to benefit a different subset. Cf. >Pluralism/Acemoglu
Acemoglu I 80
There is strong synergy between economic and political institutions. Extractive political institutions concentrate power in the hands of a narrow elite and place few constraints on the exercise of this power. Economic institutions are then often structured by this elite to extract resources from the rest of the society.
Acemoglu I 81
[The] synergistic relationship between extractive economic and political institutions introduces a strong feedback loop: political institutions enable the elites controlling political power to choose economic institutions with few constraints or opposing forces.
When existing elites are challenged under extractive political institutions and the newcomers break through, the newcomers are likewise subject to only a few constraints.
Inclusice institutions: Inclusive economic institutions, in turn, are forged on foundations laid by inclusive political institutions, which make power broadly distributed in society and constrain its arbitrary exercise. Such political institutions also make it harder for others to usurp power and undermine the foundations of inclusive institutions. Those controlling political power cannot easily use it to set up extractive economic institutions for their own benefit. Inclusive economic institutions, in turn, create a more equitable distribution of resources, facilitating the persistence of inclusive political institutions.
Acemoglu I 82
(...) inclusive economic institutions will neither support nor be supported by extractive political ones. Either they will be transformed into extractive economic institutions to the benefit of the narrow interests that hold power, or the economic dynamism they create will destabilize the extractive political institutions, opening the way for the emergence of inclusive political institutions.
Acemoglu I 92
Extractive institutions: There are two distinct but complementary ways in which growth ((s) even) under extractive political institutions can emerge: cf. >Economic growth/Acemoglu.

Acemoglu I 328
Inclusive Institutions/Acemoglu/Robinson: Inclusive political institutions not only check major deviations from inclusive economic institutions, but they also resist attempts to undermine their own continuation.
[E.g.,] It was in the immediate interests of the Democratic Congress and Senate to pack the court and ensure that all New Deal legislation survived. But, [e.g.] in the same way that British political elites in the early eighteenth century understood that suspending the rule of law would endanger the gains they had wrested from the monarchy, congressmen and senators understood that if the president could undermine the independence of the judiciary, then this would undermine the balance of power in the system that protected them from the president and ensured the continuity of pluralistic political institutions.
Acemoglu I 365
Extractive institutions/vicious circle: extractive political institutions create few constraints on the exercise of power, so there are essentially no institutions to restrain the use and abuse of power by those overthrowing previous dictators and assuming control of the state; and extractive economic institutions imply that there are great profits and wealth to be made merely by controlling power, expropriating the assets of others, and setting up monopolies.
Acemoglu I 366
Reproduction of extractive institutions: When extractive institutions create huge inequalities in society and great wealth and unchecked power for those in control, there will be many wishing to fight to take control of the state and institutions. Extractive institutions then not only pave the way for the next regime, which will be even more extractive, but they also engender continuous infighting and civil wars.
Acemogu I 372
Nations fail today because their extractive economic institutions do not create the incentives needed for people to save, invest, and innovate. Extractive political institutions support these economic institutions by cementing the power of those who benefit from the extraction.

Acemoglu I 463
Literature: The notion of extractive institutions originates from Acemoglu, Johnson, and Robinson (2001)(1). The terminology of inclusive institutions was suggested to us by Tim Besley. The terminology of economic losers and the distinction between them and political losers comes from Acemoglu and Robinson (2000b)(2). In the social science literature there is a great deal of research related to our theory and argument. See Acemoglu, Johnson, and Robinson (2005b)(3) for an overview of this literature and our contribution to it. The institutional view of comparative development builds on a number of important works. Particularly notable is the work of North; see North and Thomas (1973)(4), North (1982)(5), North and Weingast (1989)(6), and North, Wallis, and Weingast (2009)(7).

1. Acemoglu, Daron, Simon Johnson, and James A. Robinson (2001). “The Colonial Origins of Comparative Develo
2.Acemoglu, Daron and Robinson, James A. (2000b). “Political Losers as Barriers to Economic Development.” American Economic Review 90: 126–30.
3.Acemoglu, Daron, Simon Johnson, and James A. Robinson (2005b). “Institutions as the Fundamental Cause of Long-Run Growth.” In Philippe Aghion and Steven Durlauf, eds. Handbook of Economic Growth. Amsterdam: North-Holland.
4. North, Douglass C. and Robert P. Thomas (1973). The Rise of the Western World: A New Economic History. New York: Cambridge University Press.
5.North, Douglass C. (1982). Structure and Change in Economic History. New York: W. W. Norton and Co.
6.North, Douglass C., and Barry R. Weingast (1989). “Constitutions and Commitment: Evolution of Institutions Governing Public Choice in 17th Century England.” Journal of Economic History 49: 803–32.
7.North, Douglass C., John J. Wallis, and Barry R. Weingast (1989). Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History. Princeton, N.J.: Princeton University Press.

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Mause I 107f
Institutions/Robinson/Acemoglu: From the second half of the 1990s onwards, an economic mindset has been established that deals with institutions as determinants of growth and development from a macro-perspective.
Robinson and Acemoglu distinguish between "extractive" and "inclusive" orders. The decisive point here is: Where political rule is monopolised, it is regularly in the interest of the rulers to specifically suppress innovations, because the "creative destruction" (Schumpeter) associated with it could destabilise not only economic sinecures, but also the rule of the political elite. (1)

1. Acemoglu, James A., and James A. Robinson, Why nations fail. The origins of power, prosperity, and poverty. New York 2012.

Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments
The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.

Acemoglu II
James A. Acemoglu
James A. Robinson
Economic origins of dictatorship and democracy Cambridge 2006

Acemoglu I
James A. Acemoglu
James A. Robinson
Why nations fail. The origins of power, prosperity, and poverty New York 2012

Mause I
Karsten Mause
Christian Müller
Klaus Schubert,
Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018

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