Beliefs and the Persistence of Inefficient Institutions
Abstract: This paper examines the emergent process through which institutions arise in the process of development by focusing on the evolution of the shared beliefs that guide a society’s choice of institutions. Beliefs are anaylzed using fitness landscapes where evolution is treated as a search algorithm for fit design. While the persistence of sub-optimal institutions is primarily due to vested interests that impede the changes and reforms that would induce growth and prosperity, the difficulty of revising and updating misguided beliefs is additionally responsible for the surprisingly small number of countries that have transitioned from underdevelopment to sustained growth in history.
