In the social sciences, there are two things one can do with a theory and the aspect of reality it
is meant to explain: one can use the theory to improve reality2, or one can use reality to improve
the theory. The purpose of the present thesis is very much to do the latter. The empirical
problem concerns the proper scope of government3, which we will use to examine the new
institutional economics (hereafter: NIE) as it was developed starting with the work of Ronald
Coase.4 For reasons that will be explained below, we will focus particularly on the history of
the railway industry in Western Europe.