North & Weingast (1989)

Theory Questions:

What is the author's hypothesis?

The author believes that England was able to develop its economy and dominate the world because it had a secure property rights system. This enabled investment and growth.

The key threat to the property rights system was the monarchy -- who was unable to credibly commit upholding property rights. In particular, wars would frequently starve the monarchy of revenue -- thus tempting the monarch to violate property rights and expropriate money from the population (mainly the nobility).

The authors show that the Glorious Revolution introduced an institutional arrangement that strengthened property rights. The key institutional feature was the Parliament, which provided a veto point against the monarch.

Parliament was able to make this commitment credible by:

• Credibly showing its ability to remove the monarch if necessary (which was shown by the Glorious Revolution).
• In exchange for its new power, putting the government on more secure financial footing by agreeing to higher taxes. This removed a major driver of arbitrary violations of property rights.

How does the author test the hypothesis?

The paper doesn't include a formal model or an empirical section -- it is mostly a description of historical events.