Modeling Institutional Evolution
AbstractThis paper proposes an original formal framework to analyze institutional evolution. Institutions have formal (F) and informal (N) aspects that may evolve at different paces, although eventually converging towards each other through an dynamic interactive process. N evolves with capital accumulation, as in learning by doing, and F is optimally chosen by the government who maximizes output given the social and political costs of changing F. As transaction-cost-reducing mechanisms, F and N together define the production technology and affect the income level. As consistent with the evidence, calibrations of the model reveal that optimum F exhibits a punctuated equilibra.
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Bibliographic InfoPaper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1012.
Length: 21 pages
Date of creation: Apr 2010
Date of revision:
Institutional evolution; punctuated equilibria; growth;
Find related papers by JEL classification:
- E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
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