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2 The Social conflict view: Institutions emerge as a result of economic agents’ conflicting preferences. They are not necessarily effi cient. North: there is a:“persistent tension between the ownership structure which maximizes the rents to the ruler (and his group) and an effi cient system that reduces transaction costs and encourages economic growth”.

Why are institutions not “effi cient”? Notion of effi ciency: Pareto effi ciency? Growth maximizing? Major barrier to effi ciency: commitment problems. 3 The ideology/beliefs view: Different institutions chosen as a result of different beliefs. But where do beliefs come from? 4 The incidental institutions view: Institutions emerge as a byproduct of other interactions. Historical accidents. 1 and 2 (but not 3 and 4) are based on “consequentialist” reasoning. Daron Acemoglu (MIT) Political Economy Lecture 1 February 7, 2017 8/42