Optimal Political Institutions in the Shadow of Conflict

Andrea Canidio (IMT Lucca & INSEAD)
Joan Esteban ( Barcelona Graduate School of Economics)

Abstract : Two groups with conflicting interests independently choose their investment. In case of peace, common political institutions distribute the resulting output as a function of these investments. However, each group may unilaterally trigger a conflict, whose outcome also depends on the players' investments. We assume full information and full commitment. Despite this, political institutions capable of maintaining peace may not exist. Furthermore, to maintain peace, political institutions may distort the players' investments away from their first best level. Therefore, we provide a novel explanation to why rational players may engage in an inefficient conflict, and to why inefficient political institutions exist.

The Impact of Institutions on Social Polarization

Norbert Pierre (Office of the Comptroller of the Currency)

Abstract : Representing social institutions in terms of the well-known DeGroot model of information transmission and social learning, the paper shows the ability of institutions to facilitate or prevent social consensus. It is also shown that the disconnectedness of institutions from the social network has a profound impact on the time required to achieve consensus.