On the Inter-relations and Economic Implications of Economic, Social, Political, and Normative Factors: Reflections From Two Late Medieval Societies

This paper utilizes transaction cost economics, game theory, and insights from sociology and psychology to conduct a comparative historical study of the institutional structure of two late Medieval societies, one from the Muslim world and one from the Latin world. The analysis indicates that understanding institutional path dependence, distinct trajectories of organizational development, and the relations between institutions and economic efficiency requires analyzing institutional structure as a system of inter-related economic, social, political, and normative components. Interestingly, the distinct institutional structures found in the late medieval period resemble those found by social psychologists to differentiate contemporary developing and developed economies. Hence this paper suggests the historical importance of distinct cultures and the related societal organizations in economic development. * This paper was prepared under a cooperative agreement between the Institute for Policy Reform (IPR) and the Agency for International Development (AID), Cooperative Agreement No. PDC-0095-A-001126-00. Views expressed in this paper are those of the author and not necessarily those of IPR or AID. The paper draws from my earlier works, particularly, "Cultural Beliefs and the Organization of Society," the Journal of Political Economy October, 1994. The research reflected in these papers was supported by National Science Foundation Grants # 9009598 and 9223974. Donald N. McCloskey, Bent Holmstrom, and anonymous referee provided helpful comments.