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Modeling Institutional Evolution

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  • Bilin Neyapti

    () (Bilkent University)

Abstract

This 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 Info

Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1012.

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Length: 21 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:koc:wpaper:1012

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Related research

Keywords: Institutional evolution; punctuated equilibria; growth;

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  1. Yang Yao, 2004. "Political Process and Efficient Institutional Change," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(3), pages 439-, September.
  2. Jac C. Heckelman, 2007. "Explaining the Rain: The Rise and Decline of Nations after 25 Years," Southern Economic Journal, Southern Economic Association, vol. 74(1), pages 18-33, July.
  3. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
  4. Daron Acemoglu, 2006. "A Simple Model of Inefficient Institutions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 515-546, December.
  5. Bonnie Wilson & Dennis Coates & Jac Heckelman, . "Special-Interest Groups and Growth," Working Papers 2007-01, Saint Louis University, Department of Economics.
  6. Casson, Mark C. & Della Giusta, Marina & Kambhampati, Uma S., 2010. "Formal and Informal Institutions and Development," World Development, Elsevier, vol. 38(2), pages 137-141, February.
  7. Granville, Brigitte & Leonard, Carol S., 2010. "Do Informal Institutions Matter for Technological Change in Russia? The Impact of Communist Norms and Conventions, 1998-2004," World Development, Elsevier, vol. 38(2), pages 155-169, February.
  8. Coates, Dennis & Heckelman, Jac C, 2003. " Interest Groups and Investment: A Further Test of the Olson Hypothesis," Public Choice, Springer, vol. 117(3-4), pages 333-40, December.
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