Engineering the Rule of Law in Ancient Athens

Abstract: While there is broad agreement that the “rule of law” – a stable and predictable process by which laws are implemented, enforced, and changed – is important to economic growth, the nature of the circumstances under which a rule of law arises, and why some states are able to achieve an effective rule of law while others are not, remain open questions. In this paper, we develop a model in which the nature of the wealth creation process determines the benefits to and costs from committing to a rule of law, and apply the model to what may be the earliest example of a rule of law state, ancient Athens. The Athenians engineered a rule of law in the 4th century BCE after operating without one (indeed, dismantling checks to impede one) in the 5th century BCE. Our analysis illustrates three things: 1) the benefits of the rule of law do not always exceed the costs; 2) institutions can be successfully redesigned to promote the rule of law; and 3) whether an institution is “good” or “bad” depends on the nature of society’s most important activities.