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This paper introduces the notion of surprising institutions. Because we often carry incorrect beliefs about the world surrounding us and we are therefore often mistaken about the nature of the institutional structure facing us. The story told in this paper shows that an institution may come as a surprise, even though its origins lies some 500 years back, and that the information we receive as feedback on our actions does not necessarily improve our understanding of the institutional structure. It turns out that it is possible for an "ordinary citizen" to win a case against a multinational corporation, and against a government agency with more than 350 years on its neck (what a surprise!) but it also transpires that even if you win, you lose (not quite a surprise).

Abstract:This paper explores the institutional and economic development in ancient Athens from around 600 BC into the fourth century, a period during which the Athenians experienced oligarchy, tyranny, a gradually evolving but eventually far-reaching male democracy, followed by a return to more influence for the elite. Concomitantly, economic life changed qualitatively and quantitatively. Self-sufficient farming gradually gave way to market relationships and there was substantial economic growth. This analysis of institutional changes in Athens emphasizes the importance of credible commitments from those in power to other groups in society. It is furthermore likely that the increasing reliance on market relationships gradually transformed individual behaviour and individual beliefs, leading to changes in the formal and informal rules in society. Taxation played an important role: it pushed people into market relationships, illustrated the need for credible commitments, and helps to explain why foreigners were so prominent in trade in ancient Athens.

This paper explores the institutional and economic development in ancient Athens from around 600 BC into the fourth century, a period during which the Athenians experienced oligarchy, tyranny, a gradually evolving but eventually far-reaching male democracy, followed by a return to more influence for the elite. Concomitantly, economic life changed qualitatively and quantitatively. Self-sufficient farming gradually gave way to market relationships and there was substantial economic growth. This analysis of institutional changes in Athens emphasizes the importance of credible commitments from those in power to other groups in society. It is furthermore likely that the increasing reliance on market relationships gradually transformed individual behaviour and individual beliefs, leading to changes in the formal and informal rules in society. Taxation played an important role: it pushed people into market relationships, illustrated the need for credible commitments, and helps to explain why foreigners were so prominent in trade in ancient Athens.

This paper explores the mutual influence between the institutional development in Athens in the archaic and classical periods and the contemporary changes in economic life. This enhances our understanding of the causes and consequences of institutional change. It is also worth exploring in view of the suggested connections between economic development, markets and democracy. Between 600 and 322 B.C., Athenian society underwent significant institutional change. Rule by a birth aristocracy gave way to (changing) democratic institutions. Political pay was introduced for magistrates, jurors, and assemblymen. Legislation and execution was transferred to the Assembly and to the courts. The nature and extent of taxation changed. In the same period, economic life changed both qualitatively and quantitatively. Trade and specialisation increased, coinage was introduced and self-sufficient farming gradually gave way to reliance on imports and on the market for necessary goods. These changes not only influenced institutional change, they also affected people's perception of the world. The influence of institutions on the presence and nature of economic transactions is obvious. The influence on institutional change from changes in economic behaviours and outlook seems however potentially equally important.

From a beginning of small isolated settlements around 1000 B.C., the city-state (polis) emerged in Greece in the course of four centuries as a political, geographical and judicial unit, with an assembly, council, magistrates and written laws. Using a rational-actor perspective, it is shown how this process was driven by competition among the members of the elite. A crucial ingredient was the gradual consolidation of boundaries, which contributed to population growth, inter-state conflicts, colonisation and competition for power. Variations over time in the conditions for competition explain both the introduction of formal political institutions and their overthrow by tyrants.

Around 600 B.C., Athens was ruled by a birth aristocracy. Some 150 years later, the city-state was a "democracy". A rational-actor perspective, as perceived in the new institutional economics, sheds additional light on this intriguing transformation by focussing our attention on the incentives of individual actors, for example. Furthermore, it illustrates the unpredictable nature of the long-run consequences of institutional change. Repeatedly, a result of the intra-elite competition for power was that members of the elite unwittingly contributed to the changes that eventually undermined their own dominant position as a group.

In Classical Athens, being at war was much more common than peace. The military expenditures were correspondingly large. The real enigmatic issue, however, is not financial but where they found the manpower needed for this policy. The number of warships (triremes) was so great that there is no way that the citizen could have dominated in the crews. The main source is likely the non-citizen, free population of Attica. Slaves, one the other hand, would have been very popular as rowers during the final phase of the Peloponnesian war, but not necessarily before. The manpower losses in connection with naval conflicts must have had a significant impact on Athenian society in several ways. We discuss three examples: the switch from ostracism to the graphe paranomon, the new law on citizenship under Perikles, and why the Athenian Assembly put the victorious generals on trial after the victory at Arginoussai.

Perikles is usually seen as a great statesman and clever leader of the Athenians. In the mid fifth century BC, he seems however to have been in serious political trouble and may well have been in danger of losing the struggle for power and of being ostracised. The fact that his incentives changed considerably at this point in time is ignored in traditional historical accounts. In contrast, we see the fierce competition as a motivation for several important policy measures introduced by Perikles at this particular time: the pay to jurors, the new law on citizenship (which has been a puzzle to many historians), and the building projects on the Acropolis and elsewhere. Compared to traditional analyses, an economic rational-actor approach thus provides a diachronic analytical benefit by focusing on the way incentives change over time and it provides a synchronic benefit by dealing with various decisions in a common framework.

AbstractWe use the Economic Freedom Index to characterize the institutions of the Athenian city-state in the fourth century BCE. It has been shown that ancient Greece witnessed improved living conditions for an extended period of time. Athens in the fourth century appears to have fared particularly well. We find that economic freedom in ancient Athens is on level with the highest ranked modern economies such as Hong Kong and Singapore. With the exception of the position of women and slaves, Athens scores high in almost every dimension of economic freedom. Trade is probably highly important even by current standards. As studies of contemporary societies suggest that institutional quality is probably an important determinant of economic growth, it may also have been one factor in the relative material success of the Athenians.