Morality, social norms and the rule of law as transaction cost-saving devices: the case of ancient Athens

Abstract

The importance of the institutional framework for economic development is widely accepted today and it is duly stressed in the economic literature. The protection of property rights, the enforcement of contracts and an efficient legal system are the pillars of the contemporary rule of law. However, formal institutions cannot function without being internalized by the citizens and without the strong backing of social norms. Morality and social norms are the major elements of the informal institutional structure, the social capital, which is also critical for social welfare and economic development. In this paper we will discuss both the formal and the informal institutional framework of Ancient Athens, which was a free market society with economic problems similar to contemporary market societies. Athenians developed a highly sophisticated legal framework for the protection of private property, the enforcement of contracts and the efficient resolution of disputes. Such an institutional framework functioned effectively, cultivating trust and protecting the security of transactions. This entire system however was based on social norms such as reciprocity, the value of reputation and widely accepted business ethics. Conformity to social norms as well as moral behavior was fostered by social sanction mechanisms (such as stigma) and moral education. The Athenian example is a further proof of the The first draft of the paper was presented in the 11th conference of the European Society of the History of Economic Thought, Strasbourg, July 2007. We wish to thank the participants and especially Stephano Solari for their valuable comments and suggestions. The authors also extend many thanks to Christos Baloglou, Aspasia Tsaoussi and an anonymous referee for their helpful comments and Danai Avgeri for her excellent research assistance. The usual disclaimer applies. The translations of the original Greek texts used in this paper are based on the English translations of the Perseus Project importance of morality and social norms as transaction cost-saving devices even in quite sophisticated legal systems. Their absence or decline leads inevitably to the need for more regulation and litigation and to a growing preference for clear-cut rules instead of discretionary standards. Athenian law was pioneering in the development of rules and institutional mechanisms suitable for the reduction of transaction costs, many of them surviving in the most complex contemporary legal systems.

War, disenfranchisement and the fall of the ancient Athenian democracy

“…For example, high Athenian income inequality γ leads the decisive Athenian poor to choose war, and so does a large poor Athenian's comparative gain from war, captured by 1 − δ, since victory increases his income. On account of these findings, the increased wealth inequality that is presumed to have taken place in the fifth century (see Karayiannis and Hatzis, 2012, and the references therein) explains the unremitting engagement of Athens in war. On the other hand, a high Athenian income Y implies that war risks a sizable Athenian loss decreasing the likelihood of the Athenian poor to choose war.…”

“…Kyriazis (2009) uses a public choice framework to examine the Athenian public finances during the 4th century and especially the bargains struck between rich and poor in financing civilian and navy expenditures. Bitros and Karayiannis (2010) and Karayiannis and Hatzis (2012) dwell on the moral norms of Athens including virtue, moderation, honour, respect of the liberty of others, defence of the Athenian way of living and aversion towards the acquisition of undue individual power, and argue that the economic success of Athens was based on market-friendly, growth-promoting institutions administered by men motivated by such moral norms. Pitsoulis (2011) discusses the origins of the majority voting rule.…”

Democracy, Institutional Changes and Economic Development: The Case of Ancient Athens

“…Finley (1973);Ober (1989;; Kagan (1991); Gabrielsen (1994);Cohen (1997;; Hansen (1999); Manville and Ober (2003); Amemiya (2007); Migeotte (2007); Dunham (2008); Bitros and Karayiannis (2008). For the establishment of the rule of law and various institutions under a democratic regime in Athens see Foxhall and Lewis (1996); Harris (2006); Bitros and Karayiannis (2010); Karayiannis and Hatzis (2011). 30 The main elements of the governance under the rule of law were well stressed by the Athenians.…”

The grammar of institutions: The challenge of distinguishing between strategies, norms, and rules

“…We do not want to deny that a tangible fine is often required to ensure that many institutions are followed. However, many scholars have pointed outand the evidence is mounting -how particularly important those delta parameters are for running an institutional system (Casebeer, 2008: 12;Karayiannis and Hatzis, 2007;Lin et al, 2001;Milinski and Rockenbach, 2007;Smith and Dickhaut, 2005). The grammar of institutions allows us to introduce those emotional factors into analysis with the help of delta parameters (Ostrom, 2005b: 168).…”