Institutions and Growth

Brink Lindsey quotes a Nobel Prize-winner on the importance of institutions for economic success.

"How effectively agreements are enforced is the single most important determinant of economic informance," states Douglass North, a pioneer in the fast-growing field of institutional economics. The rich countries of the West thrive because their institutions — both the "hard" institutions of police, courts, and bureaucracies, and the "soft" institutions of cultural values — allow agreements to be enforced between total strangers across the span of years and continents.

Discussion Question. Lindsey gives the example of being able to rent a car simply by presenting a piece of plastic. What institutional arrangements are necessary to make this possible?