The Evolution of Institutions: the Medium, the Long, and the Ultra-long, Run

Desiree Desierto (University of the Philippines)
John VC Nye (George Mason University)

Abstract: How do institutions evolve when subject to random shocks? And how does this affect the convergence of informal and formal institutions? We propose to model these changes in an evolutionary game in which we distinguish between the Meta set of all existing and potential institutional arrangements and the de facto set of institutions that agents actually choose to uphold in equilibrium. We propose new evolutionary dynamics which relax some of the more rigid features of evolutionary games that limit their adaptability to social phenomena. In general we can provide a plausible model of institutional path dependence in which the destruction of “old” institutions and the creation of new are unpredictable. We can distinguish between the medium run – when the risk dominant, more “rational choice” strategy persists – vs. the long and ultra-long run when complex change may cause too much drift wafy from the risk dominant strategy in equlibrium. In general this provides a richer, and more intuitive framework in which to consider the role of path dependence in the endogenous evolution of social institutions.