James A . Robinson * Equity , Institutions and the Development Process

in new technologies and ways of doing things, is the basic activity that makes a country prosperous. When markets are imperfect many socially desirable investment opportunities will be passed up. Moreover, the extent to which they are passed up can depend on the distribution of resources and hence the extent of equity. A more equitable society may be more efficient because it allows the relatively poor to invest (see for example Banerjee and Newman, 1993). However, equitable societies don’t just do better for a given set of institutions, they also tend to have better institutions. To make this argument I need to broaden the set of institutions under consideration beyond the types of market institutions which are the usual focus of economists. Obviously the nature of product, land, labor and capital markets are crucial for the allocation of resources and development. But market institutions exist and function in the context of a whole set of non-market and political institutions. I argue here that the nature of these other institutions and the way they function are influenced by how equitable society is. The most obvious institutions complementary to market activities are the definition James A. Robinson*