ABSTRACT
We hypothesize that the institutions that are created to enable functioning of a political and economic system serve to protect that framework. In turn, these institutions increase the individual freedom. Empirical results confirm that the presence of political freedom and institutions have a significant impact on individual freedom considering all 176 countries in the sample. Economic freedom, on the other hand, has no impact on incarceration rates and, in turn, on individual freedom. The auxiliary hypotheses tested confirm that increased wealth and income inequality lead to higher incarceration rates, i.e. lesser individual freedom. This suggests that economic institutions are built in a way that disproportionally protects rights of more affluent segments of societies.