Response #2

“Institutions,” by Douglass C. North, and “Why Doesn’t the United States Have a European-Style Welfare State?” by Alesina, et al., both describe the way formal and informal institutions can influence each other’s development and in turn affect human behavior on many levels.

North begins by outlining the basic collective action dilemma we saw in lecture: cooperation is difficult to sustain when the game is not repeated, when uncertainty exists, and when the group is very large. He then discusses generally the evolution from a tribal society to an urban one, explaining how institutions were gradually developed to overcome this game theory dilemma which arises under the conditions mentioned above. His discussion successfully demonstrates how, when informal institutions like kinship ties can no longer be relied on, other more formal institutions are necessarily created, giving as an example “effective, impersonal contract enforcement.” This is necessary because when people are dealing with strangers, rather than individuals with whom they or their kin have a long and storied report, uncertainty increases, necessitating a formal institution to lower that uncertainty and facilitate exchange.

The article by Alesina, et al., argues that certain political, economic, and social institutions peculiar to the United States (at least in relation to Europe) have caused its government to steer away from the more progressive redistribution schemes popular in Europe. This article gives a convincing overview of the differences in the two economic systems, but fails to convincingly link many of the institutions within the United States and Europe to the economic policies. For example, the authors use data showing Europeans are less charitable than are Americans to suggest that “Europe’s more generous provision of welfare does not stem from a greater innate endowment of altruism in Europe.” As we learned earlier in the month, arguments often confuse correlation for causation, and that may be the case here. It may even be a case of causation in the opposite direction: perhaps Europeans feel less of an obligation to give to the poor because the government redistributes a greater percentage of their income (at least among the wealthier classes) to the poor already, and because poverty levels are relatively moderate in many European countries. The authors also fail to substantiate many of their assumptions about American views toward the poor (which may be correct) in the rigorous manner in which they treated the data which pointed to the differences in the American and European redistributional schemes.