The Emergence of Institutions
AbstractThis paper analyzes how institutions aimed at coordinating economic interactions may appear. We build a model in which agents play a prisoners’ dilemma game in a hypothetical state of nature. Agents can delegate the task of enforcing cooperation in interactions to one of them in exchange for a proper compensation. Two basic commitment problems stand in the way of institution formation. The first one is the individual commitment problem that arises because an agent chosen to run the institution may prefer to renege ex post. The second one is a “collective commitment” problem linked to the lack of binding agreements on the fee that will be charged by the centre once it is designated. This implies first that a potentially socially efficient institution may fail to arise because of the lack of individual incentives, and second that even if it arises, excessive rent extraction by the institution may imply a sub-optimal efficiency level, explaining the heterogeneity of observed institutional arrangements. An institution is less likely to arise in small groups with limited endowments, but also when the underlying commitment problem is not too severe. Finally, we show that the threat of secession by a subset of agents may endogenously solve part of the second commitment problem.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 148.
Date of creation: Dec 2006
Date of revision:
Institution; Coordination; State of nature; Secession.;
Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-16 (All new papers)
- NEP-CBA-2006-12-16 (Central Banking)
- NEP-CBE-2006-12-16 (Cognitive & Behavioural Economics)
- NEP-CDM-2006-12-16 (Collective Decision-Making)
- NEP-DEV-2006-12-16 (Development)
- NEP-GTH-2006-12-16 (Game Theory)
- NEP-POL-2006-12-16 (Positive Political Economics)
- NEP-SOC-2006-12-16 (Social Norms & Social Capital)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Straub, Stéphane, 2005.
"Informal sector: The credit market channel,"
Journal of Development Economics,
Elsevier, vol. 78(2), pages 299-321, December.
- Glen Ellison, 2010.
"Cooperation in the Prisoner's Dilemma with Anonymous Random Matching,"
Levine's Working Paper Archive
631, David K. Levine.
- Ellison, Glenn, 1994. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 567-88, July.
- Avner Greif, . "Micro Theory and Recent Developments in the Study of Economic Institutions Through Economic History," Working Papers 96001, Stanford University, Department of Economics.
- Kandori, Michihiro, 1992.
"Social Norms and Community Enforcement,"
Review of Economic Studies,
Wiley Blackwell, vol. 59(1), pages 63-80, January.
- Herschel I. Grossman, 1997.
""Make Us a King": Anarchy, Predation, and the State,"
NBER Working Papers
6289, National Bureau of Economic Research, Inc.
- Grossman, Herschel I., 2002. ""Make us a king": anarchy, predation, and the state," European Journal of Political Economy, Elsevier, vol. 18(1), pages 31-46, March.
- Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
- Roemer, John E. Roemer & Roger Howe, 1980.
"Rawlsian Justice as the Core of a Game,"
Cowles Foundation Discussion Papers
544, Cowles Foundation for Research in Economics, Yale University.
- Routledge, Bryan R. & von Amsberg, Joachim, 2003. "Social capital and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 167-193, January.
- Avinash Dixit, 2003.
"On Modes of Economic Governance,"
Econometric Society, vol. 71(2), pages 449-481, March.
- Daron Acemoglu, 2002.
"Why Not a Political Coase Theorem? Social Conflict, Commitment and Politics,"
NBER Working Papers
9377, National Bureau of Economic Research, Inc.
- Acemoglu, Daron, 2003. "Why not a political Coase theorem? Social conflict, commitment, and politics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 620-652, December.
- Andreoni,J. & Samuelson,L., 2003.
"Building rational cooperation,"
4, Wisconsin Madison - Social Systems.
- Kranton, Rachel E, 1996. "Reciprocal Exchange: A Self-Sustaining System," American Economic Review, American Economic Association, vol. 86(4), pages 830-51, September.
- Morgan, John, 2000. "Financing Public Goods by Means of Lotteries," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 761-84, October.
- Marcouiller, Douglas & Young, Leslie, 1995. "The Black Hole of Graft: The Predatory State and the Informal Economy," American Economic Review, American Economic Association, vol. 85(3), pages 630-46, June.
- Yoshiaki Azuma & Herschel I. Grossman, 2002.
"A Theory of the Informal Sector,"
NBER Working Papers
8823, National Bureau of Economic Research, Inc.
- Moselle, Boaz & Polak, Benjamin, 2001. "A Model of a Predatory State," Journal of Law, Economics and Organization, Oxford University Press, vol. 17(1), pages 1-33, April.
- Jay Pil Choi & Marcel Thum, 2005.
"Corruption And The Shadow Economy,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 817-836, 08.
- Jay Pil Choi & Marcel Thum, 2002. "Corruption and the Shadow Economy," CESifo Working Paper Series 633, CESifo Group Munich.
- Choi, Jay Pil & Thum, Marcel, 2003. "Corruption and the shadow economy," Dresden Discussion Paper Series in Economics 02/03, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
- Bernstein, Lisa, 1992. "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry," The Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 115-57, January.
- McMillan, John & Woodruff, Christopher, 1999. "Dispute Prevention without Courts in Vietnam," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 637-58, October.
- Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-50, October.
- Kai A. Konrad & Wolfgang Leininger, 2007.
"Self-enforcing Norms and the Efficient Non-cooperative Organization of Clans,"
Ruhr Economic Papers
0016, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
- Konrad, Kai A & Leininger, Wolfgang, 2007. "Self-enforcing Norms and the Efficient Non-cooperative Organization of Clans," CEPR Discussion Papers 6333, C.E.P.R. Discussion Papers.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gina Reddie).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.