According to Transparency International’s corruption index, corruption is “sticky.” Over time corrupt countries tend to remain corrupt, while clean countries remain clean. This makes it tempting to lean on cultural interpretations to explain the persistence or absence corruption. Hong Kong provides a compelling counterexample, showing that a change in rules can defeat a culture of corruption. Though it once had high levels of corruption, comparable to those in mainland China in the 1970s, the British government was able to effectively banish corruption.

Most economists think that they are building cranes that suspend important theoretical structures from a base that is firmly grounded in first principles. In fact, they almost always invoke a skyhook, some unexplained result without which the entire structure collapses. Elinor Ostrom won the Nobel Prize in Economics because she works from the ground up, building a crane that can support the full range of economic behavior. When I started studying economics in graduate school, the standard operating procedure was to introduce both technology and rules as skyhooks.

At a recent talk in London, Chris Blattman asked if a charter city could fail in the same way that public housing failed in Chicago. After the seminar and in his follow up post, we started a discussion of the deeper issue: What kind of dynamics would be desirable in the space of rules? To frame the discussion, it helps to have some vocabulary. A rule set is a large collection of rules that are tightly linked.

Bob Haywood is the former head of the World Economic Processing Zones Association and the current executive director of the One Earth Future foundation. He wrote in with an interesting example: a recent treaty between two countries that specified the charter for a city. In 1984, China and the UK signed a treaty called the Sino-British Joint Declaration. It specified the charter under which Hong Kong would operate for 50 years after the handover to China in 1997.

A friend wrote in to ask, “Can more than a handful of charter cities succeed?” The best way to answer his question is to pose a slightly different one. “How many big cities can there be?” The first question implicitly presumes a winner-take-all competition where only a few cities survive. The increasing returns associated with successful cities tend to encourage this kind of thinking. Big cities seem to have permanent advantages and some types of economic activity concentrate in just a few places.