The new comparative economics
Simeon Djankov,a Edward Glaeser,b Rafael La Porta,c Florencio Lopez-de-Silanes,d and Andrei Shleifer b,∗
a World Bank, Washington, DC 20433, USA b Harvard University, Cambridge, MA 02138, USA c Dartmouth College, Hanover, NH 03755, USA d Yale University, New Haven, CT 06520, USAReceived 15 March 2003; revised 7 July 2003
Djankov, Simeon, Glaeser, Edward, La Porta, Rafael, Lopez-de-Silanes, Florencio, and Shleifer, Andrei—The new comparative economics In recent years, the ﬁeld of comparative economics refocused on the comparison of capitalist economies. The theme of the new research is that institutions exert a profound inﬂuence on economic development. We argue that, tounderstand capitalist institutions, one needs to understand the basic tradeoff between the costs of disorder and those of dictatorship. We apply this logic to study the structure of efﬁcient institutions, the consequences of colonial transplantation, and the politics of institutional choice. Journal of Comparative Economics 31 (4) (2003) 595–619. World Bank, Washington, DC 20433, USA; HarvardUniversity, Cambridge, MA 02138, USA; Dartmouth College, Hanover, NH 03755, USA; Yale University, New Haven, CT 06520, USA. 2003 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.
JEL classiﬁcation: H1; K1; P1; P14; P16; P37; P5; P51
1. Introduction The traditional ﬁeld of comparative economics dealt mostly with the comparison of socialism andcapitalism.1 Under socialism, the principal mechanism of resource
* Corresponding author.
E-mail address: email@example.com (A. Shleifer).
1 This ﬁeld has its own category in the Journal of Economic Literature, called Economic Systems. The
subcategories are capitalist systems, socialist systems, socialist institutions, other economic systems, and comparative economic systems. 0147-5967/$ – seefront matter 2003 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved. doi:10.1016/j.jce.2003.08.005
S. Djankov et al. / Journal of Comparative Economics 31 (2003) 595–619
allocation is central planning. Under capitalism, this mechanism is the market. Traditional comparative economics, which dates back at least to the discussions of marketsocialism in the 1930s, studied under what circumstances either the plan or the market delivers greater economic efﬁciency. By the time socialism collapsed in Eastern Europe and the Soviet Union, this question lost much of its appeal. Socialism produced misery and inefﬁciency, not to mention mass murder by several communist dictators who practiced it. Capitalism, in contrast, typically producedgrowth and wealth. If capitalism is triumphant, is comparative economics dead? As this paper and the others in the symposium show, traditional comparative economics is evolving into a new ﬁeld. This ﬁeld shares with its predecessor the notion that, by comparing alternative economic systems, we can understand better what makes each of them work. However, the key comparisons are those of alternativecapitalist models prevailing in different countries. Each capitalist economy has many public and private institutions. These institutions function to select political leaders, to secure property rights, to redistribute wealth, to resolve disputes, to govern ﬁrms, to allocate credit, etc. Political economy over the last two centuries, as well as recent empirical research, demonstrates that theseinstitutions differ tremendously and systematically among countries. These differences and their consequences for economic performance are the subject of the new comparative economics. Since the days of the Enlightenment, economists have agreed that good economic institutions must secure property rights, enabling people to keep the returns on their investment, make contracts, and resolve disputes....