“Everyone knows” the institution of private proprety is important to a society, but proving just how important has, somewhat surprisingly, been tricky. A new paper by Daron Acemoglu (MIT), Simon Johnson (MIT), and James Robinson (Berkeley), makes the case that “differences in economic institutions appear to be the robust causal factor underlying the differences in income per capita across countries.” (Emphasis added.) The authors define good “economic institutions” as including “enforcement of property rights for a broad cross-section of society so that all individuals have an incentive to invest, innovate and take part in economic activity.” Additionally, there must be “some degree of equality of opportunity in society, including such things as equality before the law, so that those with good investment opportunities can take advantage of them.” In an earlier paper, the authors coined the term “institutions of private property” to cover this idea, and the term “extractive institutions” to cover situations where “the rule of law and property rights are absent for large majorities of the population.”

The paper, Institutions as the Fundamental Cause of Long-Run Growth, makes fascinating reading, even for a non-economist. It is available for purchase from the National Bureau of Economic Research (NBER subscribers can download it for free). A less-than-final draft, dated April 29, is also available on Professor Acemoglu’s webpage.