Abstract

Given that institutions are “humanly devised” (North, 1991, p. 97), what determines which institutions are chosen? Different societies have different understandings of how the world works and consequently tend to choose different institutions even when pursuing similar purposes. Therefore, culture matters, as culture determines the mental models that people use to understand and interpret the world, including beliefs, values and preferences. Yet culture has been relatively absent from economic inquiry, even among economists that focus on institutional economics. In this chapter, I review an emerging literature that focuses on understanding the interrelationship between culture and institutions. This literature shows that not only does culture influence which institutions different societies choose and how they work, but also that institutions can subsequently feedback and affect culture. That is, culture and institutions coevolve. This literature is still in the formative stages and there are many research opportunities for the interested researcher.