Toward a theory of induced institutional innovation

In this paper we elaborate a theory of institutional innovation in which changes in the demand for institutional innovation are induced by changes in relative resource endowments and by technical change. We illustrate, from agricultural history, how changes in resource endowments and technical change have induced changes in private property rights and in the development of non‐market institutions. We also consider the impact of advances in social science knowledge and of cultural endowments on the supply of institutional change. In a final section we present the elements of a model of institutional innovation that maps the relationships among resource endowments, cultural endowments, technology, and institutions.