Institutional Change and Institutional Inertia: Auctions, Contracts and Property Rights
Abstract: There is ample evidence that institutions governing human relationships are persistent over time. I address this issue by stressing the role of commitment after a change in institutions is made. I explore under what conditions a new institution that is a best- t for the new technology will emerge. I accommodate claims made in the Political Economy literature, by focusing on the individuals that have the right to decide the change, and claims made in the New Institutional Economics literature, that more e efficient institutions tend to emerge. I propose a general model and two dierent institutions. Depending on the parameters of the model one mechanism is more e efficient than the other. I use a particular historical episode, irrigators communities is southern Spain, in which farmers changed from a market institution (auctions) to a non-market institution ( quotas) in the 1960s. I show that by focusing only of the distribution of power or the e ciency of each available institution we are unable to explain the institutional change. Moreover, I show how the role of collateral, due to the increase in savings, solve the commitment problem and lead to a change to a more e cient institution.
