1. Introduction

This chapter presents the main purpose of the study that focuses on the role of institutions and law over the economic performance of the Ottoman Empire during the early modern period. In this sense, tax-farming institutions and the legal structure of the Ottoman Empire are at the center of this study. A long-standing assumption of the recent literature is that efficient institutions in establishing cooperation are achieved to direct financial resources toward productive activities. The economic growth and divergence follow the evolution of institutions. On the other hand, our results show that the Ottoman rulers lost their absolute power during the evolution of tax-farming institutions. The long-standing presumptions argue that the Ottoman sultans as other Muslim rulers had absolute power for several reasons, the game-theoretical perspective shows that contractual relations could not satisfy neither Pareto efficiency nor Pareto inefficient equilibrium(s) or outcome(s). Instead, the Ottoman Empire is between these two equilibria due to the lack of absolute power of the state. It is shown that the powerful groups achieved to limit the power of the state, or the institutional structure promoted partial rule of law in the Ottoman Empire. The partial rule of law, however, entails limited economic growth according to competing European societies.