Laws, contracts, corporate guidelines, manners, and institutions - the interaction of rules shapes the economy and society. But which rules are best suited to coordinate economic activity? And what mechanisms ensure enforcement? This successful textbook provides answers and covers the entire range of topics in institutional economics, from principal-agent theory to economic constitutional theory. The 3rd edition has been revised and expanded to include the following topics: theory of clubs, worldwide governance indicators, debt and strict liability, behavioral economics, acceptance of social market economy, specific investments, and the holdup problem with limited rationality.