The central premise of Institutional and Organizational Analysis is that institutions matter in determining economic outcomes. This point was painfully obvious in May 2020 as protests swept across the United States in response to the killing of George Floyd by police officers in Minneapolis. Institutions matter because they are the “rules of the game” for our economic lives. Economic historians see a clear link between legacies of slavery and Jim Crow and current institutional racism and discrimination. Institutional and organizational analysis (IOA) as a field offers significant potential for scholars seeking to understand why these legacies persists, how they could be changed, and the incentives parties face to do so. While several economists in this tradition have won the Nobel prize—Coase, Demsetz, Williamson—the field is not as widely utilized by economists as it could be. This book may help to change that, providing the first serious effort to fully introduce the intellectual tools of IOA. Guided by clear examples and an analytic framework that requires no formal background in mathematics, political science, or economics, the authors build a framework for assessing the role of institutions in economics. Institutions are defined as “rule[s] that recognized entities devise and enforce,” which, in a departure from much of the previous literature, are viewed strictly as these formal arrangements (p. 13). Informal arrangements, “longstanding patterns of behaviors,” are defined as social norms and are generally not the focus of the book (p. 13).

The book is structured in three parts which are quite distinct. Part I will be familiar to economists, focusing on property rights, transaction costs, and contracts. In a world of complete, perfectly competitive markets, there is no need to analyze the economics of organizations and institutions: centralized governmental planning works as well as laissez-faire; equal initial wealth endowments lead to the same outcomes as unequal; gender and racial wage-gaps cannot exist. While economists often think of perfectly competitive markets as a useful allegory, we do not often study the transaction costs that make institutions and organizations matter. By holding institutions fixed, IOA’s study of transaction costs provides insight into contract structure, firm organization, and the incomplete governance of natural and environmental resources.

For many economic historians, the book’s central premise, that institutions matter, is an easy thesis to get behind. Perhaps because the course of history displays far more institutional variety than other economic disciplines or because of the rich institutional traditions in the academic study of history, economic historians tend to explore institutions in considerable depth. Less familiar to economists may be the material covered in Part II of the book, which provides an almost encyclopedic discussion of the cyclical relationship between politics and institutions. Here, the authors hold constitutions as fixed but allow for changes in institutions, which occur through political processes.

The book systematically explores how interest groups, executives and legislatures, bureaucracies, and the judiciary affect the formation of institutions. I have not seen this information presented so comprehensively or clearly. But the exposition also raised some questions about the generalizability of the literature in this area because it focuses to a large degree on the in-power groups of the American national political system. This is not a direct criticism of the authors, who provide a comprehensive set of examples through time and across the world that offer a more diverse perspective than is apparent in the literature they cite.

The missing aspects of IOA provide a terrific opportunity for scholars to explore how politics and institutions interact to affect underrepresented groups, historical policies and their legacies, and a more diverse set of political systems. It also points to key weaknesses in IOA. When economic outcomes are institution-dependent and institutions everywhere are different, findings may not be externally valid. This is partially a small-N problem: there’s only a few sets of different institutions to test and innumerate potential explanatory variables. There are also potential pitfalls associated with explaining institutions using the rational behavior of participants, namely when explanation becomes rationalization of unjust or immoral institutions.

To partially address this issue, Part III of the book leaves the safe realm of wellestablished findings to make a series of testable, but not fully established claims about broader societal change. The fundamental motivating question is why do developmental trajectories diverge when slower growing countries could merely adopt a set of institutional best practices? However, an equally apt question would be why do unfair or immoral economic institutions persist and how are they changed? According to the authors, constitutions and core beliefs represent the highest level of societal decision making, and are key determinants of societal structure and economic growth, yet can be changed during periods of “critical transition.” In navigating these transitions, which rarely occur, leadership plays a key role in shaping beliefs and choosing a constitutional path. These moments are “fuzzy and fraught with uncertainty (p. 282).” It is not simply a matter of choosing good institutions. Instead, what happens in these moments of transition is a complex, and understudied, area of inquiry.

Despite the relative newness of these claims, our present period makes this type of analysis enticing. Indeed, the authors chose the U.S. Civil Rights Movement of the 1960s as one example to illustrate a critical transition and the role of leadership. Perhaps the fundamental request of the protesters of the current era is to once again revisit our core beliefs and to implement, at a fundamental level, a new paradigm for America’s treatment of people of color. Likewise, what the authors of this book propose is that research in IOA should focus more effort on the positive analysis of exactly these Part III transitions.