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Institutions–the structures of rules and norms governing economic transactions–are widely assigned a central role in economic development. Yet economic history is still dominated by the belief that institutions arise and survive because they are economically efficient. This article shows that alternative explanations of institutions, particularly those incorporating distributional effects, are consistent with economic theory and supported by empirical findings. Distributional conflicts provide a better explanation than efficiency for the core economic institutions of pre-industrial Europe: serfdom, the community, the craft guild, and the merchant guild. The article concludes by proposing four desiderata for any economic theory of institutions.