Risk, Institutions And Growth: Why England And Not China?

The authors analyze the role of risk-sharing institutions in transitions to modern economies. Transitions require individual-level risk-taking in pursuing productivity-enhancing activities including using and developing new knowledge. Individual-level, idiosyncratic risk implies that distinct risk-sharing institutions - even those providing the same level of insurance - can lead to different growth trajectories if they differently motivate risk-taking. Historically, risk sharing institutions were selected based on their cultural and institutional compatibility and not their unforeseen growth implications. They simulate the growth model incorporating England's and China's distinct pre-modern risk-sharing institutions.