Institutional Bottlenecks: What Can Be Done?

Institutional bottlenecks refer to path-dependent institutional arrangements which contribute to economic stagnation. In his research, Timur Kuran identifies several historical institutional bottlenecks which contributed to economic decline and underdevelopment of the Middle East. The authors use Kuran’s research as springboard to ask: what can be done about institutional bottlenecks? To answer this question they draw on the work of F.A. Hayek who emphasized the centrality of institutions for social order and the limits on human reason in constructing a preferable state of affairs. They conclude that focus must be on the meta-rules through which the process of institutional evolution takes place. While the authors cannot know the specific outcomes of this evolutionary process ex ante, they can establish constraints to guide it. Reforms, therefore, should be focused on removing barriers to discovery instead of on selecting specific predefined end states.

Find the working paper at SSRN.com.