This paper by Daron Acemoglu and Simon Johnson evaluates the importance of "property rights institutions" and "contracting institutions" in economic development. Property rights institutions protect citizens from expropriation by the government and powerful elites, while contracting institutions enable private contracts between citizens. The authors use exogenous variation in these institutions driven by colonial history to document strong relationships between property rights institutions and the determinants of European colonization (settler mortality and population density before colonization), and between contracting institutions and the identity of the colonizing power. Using instrumental variables (IV) strategy, they find that property rights institutions have a significant first-order effect on long-run economic growth, investment, and financial development. In contrast, contracting institutions appear to matter only for the form of financial intermediation, with countries having greater legal formalism having less developed stock markets. The authors interpret this as individuals often altering the terms of their contracts to avoid the adverse effects of contracting institutions but being unable to do so against the risk of expropriation. The paper also discusses the limitations of the analysis and compares its findings with other recent literature.This paper by Daron Acemoglu and Simon Johnson evaluates the importance of "property rights institutions" and "contracting institutions" in economic development. Property rights institutions protect citizens from expropriation by the government and powerful elites, while contracting institutions enable private contracts between citizens. The authors use exogenous variation in these institutions driven by colonial history to document strong relationships between property rights institutions and the determinants of European colonization (settler mortality and population density before colonization), and between contracting institutions and the identity of the colonizing power. Using instrumental variables (IV) strategy, they find that property rights institutions have a significant first-order effect on long-run economic growth, investment, and financial development. In contrast, contracting institutions appear to matter only for the form of financial intermediation, with countries having greater legal formalism having less developed stock markets. The authors interpret this as individuals often altering the terms of their contracts to avoid the adverse effects of contracting institutions but being unable to do so against the risk of expropriation. The paper also discusses the limitations of the analysis and compares its findings with other recent literature.