IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/28760.html
   My bibliography  Save this paper

The Theory of Institutional Change Revisited: The Institutional Dichotomy, Its Dynamic, and Policy Implications in a More Formal Analysis

Author

Listed:
  • Elsner, Wolfram

Abstract

The original institutionalist theory of institutional change as elaborated by Paul D. Bush (1987) in the traditions of Veblen, Ayres and J.F. Foster (called here the VAFB-paradigm), provides a most important theoretical and empirical device for critical institutional analysis, with its clarification of the value base and of different forms and dynamics of value-behavior patterns. Bush’s paper was certainly one of the most important ones in Institutionalism. The Theory of Institutional Change pushed Institutionalism to a certain limit by elaborating its logical relations and systems that have been underexplored for so long. Coming from different ‘galaxies’, established formal approaches and methods, such as system dynamics, econometrics, network analysis, graph theory, or game theory—in fact, often applied only bluntly in the mainstream—have been interpreted, developed and applied by institutional and evolutionary economists in an evolutionary-institutionalist perspective in recent decades. However, a theoretical and methodological gap somehow still existed until recently that those practicing institutionalists had to deal with. This gap seems to become closed in different areas (such as the Theory of Institutional Change or the Social Fabric Matrix Approach) currently. This paper tries to demonstrate that careful proper interpretations allow, in a ‘dialectical’ process, to bridge the remaining gap and reveal surprising equivalences and complementarities with resulting synergies for the future. The example here is the mutual approximation of the VAFB-paradigm and evolutionary-institutionally interpreted game theory, called the EIGT-paradigm here. Should such bridge-building be corroborated in the near future, Institutionalism would be enabled to cut across traditional and long lasting boundaries with respect to deeper both empirical and logical analysis. This might turn out to be a historical project of the extension of Institutionalism’s reach. The particular asymmetry of the logics of instrumental vs. ceremonial warrants explains a general dominance of the ceremonial. The forms of change of institutional value-behavior structures derived are (1) (reinforced) ‘ceremonial encapsulation’, (2) regressive institutional change and (3) progressive institutional change. In the cases (2) and (3), the degree of ceremonial dominance will have to increase (decrease) and the system’s ‘permissiveness’ to decrease (increase). The conceptualization of institutions, the asymmetric schematization of value-behavior-structures, the reason for ceremonial dominance, and the possibility of progressive institutional change will be reconsidered and compared in this paper using a game-theoretic perspective, with its basically instrumental comprehension of institutions and with the ceremonial warrant comprehensible only as a degeneration of the instrumental. We refer to a most simple social dilemma interaction structure and a supergame solution. Surprising equivalences and complementarities emerge, with potentials of cross-fertilization. An initially instrumental institution is considered to develop (in fact degenerate), together with (1) the emergence, or reproduction, of status and power differentials in hierarchical systems, and (2) the striving for easy, smooth, and cheap decision-making, or ‘economies of scale’ of decision-making, first into a still instrumental norm and eventually into a ceremonial or abstract norm. The latter takes place, when original conditions have changed but the institutional structure will not properly adapt because of the two motives of status gain and economies of scale of institutionalized decision-making. In a game-theoretical perspective, ceremonial dominance and ceremonial encapsulation preventing a new progressive institutional change would translate into an insufficient new collective action capacity, due to (1) habituation, (2) an insufficient incentive structure and (3) a neglect of the common future. The conclusion of the critical role of policy to initiate, accelerate, and stabilize progressive institutional change is shared in the original institutionalist and the game-theoretic perspectives as well. A well-defined institutional policy approach, inferable in some detail from the game-theoretic logic, may initiate a lock-out of ceremonial encapsulation, through a change of the incentive structure and an increase of the importance and awareness of interdependence and a common future. The public agent must be capable of ‘meritorizing’ the private-interaction outcomes through a negotiated, participatory social process. Thus, the public agent would interact with the interaction system of the private agents in a well-defined way, i.e., ‘institutional policy’ as a double interactive policy. In all, large potentials for cross-fertilization of institutionalism and game theory.

Suggested Citation

  • Elsner, Wolfram, 2011. "The Theory of Institutional Change Revisited: The Institutional Dichotomy, Its Dynamic, and Policy Implications in a More Formal Analysis," MPRA Paper 28760, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:28760
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/28760/1/MPRA_paper_28760.pdf
    File Function: original version
    Download Restriction: no

    File URL: https://mpra.ub.uni-muenchen.de/30712/1/MPRA_paper_30712.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Fudenberg, Drew & Levine, David, 1998. "Learning in games," European Economic Review, Elsevier, vol. 42(3-5), pages 631-639, May.
    2. Ver Eecke, W., 1998. "The concept of a "merit good" the ethical dimension in economic theory and the history of economic thought or the transformation of economics into socio-economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 27(1), pages 133-153.
    3. Gabrielle Demange & Wooders Myrna, 2005. "Group Formation in Economics: Networks, Clubs and Coalitions," Post-Print halshs-00576778, HAL.
    4. Geoffrey M. Hodgson & Warren J. Samuels & Marc R. Tool (ed.), 1994. "The Elgar Companion to Institutional and Evolutionary Economics," Books, Edward Elgar Publishing, volume 0, number 228.
    5. Wolfram Eisner, 2001. "Interactive Economic Policy: Toward a Cooperative Policy Approach for a Negotiated Economy," Journal of Economic Issues, Taylor & Francis Journals, vol. 35(1), pages 61-83, March.
    6. Offerman, Theo & Sonnemans, Joep, 1998. "Learning by experience and learning by imitating successful others," Journal of Economic Behavior & Organization, Elsevier, vol. 34(4), pages 559-575, March.
    7. Wyn P. Grant (ed.), 1995. "Industrial Policy," Books, Edward Elgar Publishing, number 480.
    8. Tackseung Jun & Rajiv Sethi, 2009. "Reciprocity in evolving social networks," Journal of Evolutionary Economics, Springer, vol. 19(3), pages 379-396, June.
    9. Demange,Gabrielle & Wooders,Myrna (ed.), 2005. "Group Formation in Economics," Cambridge Books, Cambridge University Press, number 9780521842716.
    10. Drew Fudenberg & David K. Levine, 1998. "The Theory of Learning in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061945, December.
    11. Elsner, Wolfram & Heinrich, Torsten, 2009. "A simple theory of 'meso'. On the co-evolution of institutions and platform size--With an application to varieties of capitalism and 'medium-sized' countries," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(5), pages 843-858, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elsner, Wolfram, 2015. "Policy Implications of Economic Complexity and Complexity Economics," MPRA Paper 63252, University Library of Munich, Germany.
    2. Michele Bernasconi & Matteo Galizzi, 2010. "Network formation in repeated interactions: experimental evidence on dynamic behaviour," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 9(2), pages 193-228, December.
    3. Thierry Vignolo, 2010. "Imitation and selective matching in reputational games," Journal of Evolutionary Economics, Springer, vol. 20(3), pages 395-412, June.
    4. Alós-Ferrer, Carlos & Ritschel, Alexander, 2021. "Multiple behavioral rules in Cournot oligopolies," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 250-267.
    5. Wolfram Elsner, 2007. "Why Meso? On “Aggregation” and “Emergence”, and Why and How the Meso Level is Essential in Social Economics," Forum for Social Economics, Taylor & Francis Journals, vol. 36(1), pages 1-16, January.
    6. Wolfram Elsner, 2010. "The process and a simple logic of ‘meso’. Emergence and the co-evolution of institutions and group size," Journal of Evolutionary Economics, Springer, vol. 20(3), pages 445-477, June.
    7. Robert S. Gazzale, 2009. "Learning to Play Nash from the Best," Department of Economics Working Papers 2009-03, Department of Economics, Williams College.
    8. Galbiati, Marco & Soramäki, Kimmo, 2011. "An agent-based model of payment systems," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 859-875, June.
    9. Laurent Lamy, 2013. "“Upping the ante”: how to design efficient auctions with entry?," RAND Journal of Economics, RAND Corporation, vol. 44(2), pages 194-214, June.
    10. Ianni, A., 2002. "Reinforcement learning and the power law of practice: some analytical results," Discussion Paper Series In Economics And Econometrics 203, Economics Division, School of Social Sciences, University of Southampton.
    11. ,, 2011. "Manipulative auction design," Theoretical Economics, Econometric Society, vol. 6(2), May.
    12. Benaïm, Michel & Hofbauer, Josef & Hopkins, Ed, 2009. "Learning in games with unstable equilibria," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1694-1709, July.
    13. Dieter Balkenborg & Rosemarie Nagel, 2016. "An Experiment on Forward vs. Backward Induction: How Fairness and Level k Reasoning Matter," German Economic Review, Verein für Socialpolitik, vol. 17(3), pages 378-408, August.
    14. William L. Cooper & Tito Homem-de-Mello & Anton J. Kleywegt, 2015. "Learning and Pricing with Models That Do Not Explicitly Incorporate Competition," Operations Research, INFORMS, vol. 63(1), pages 86-103, February.
    15. Siegfried Berninghaus & Werner Güth & M. Vittoria Levati & Jianying Qiu, 2006. "Satisficing in sales competition: experimental evidence," Papers on Strategic Interaction 2006-32, Max Planck Institute of Economics, Strategic Interaction Group.
    16. Ball, Richard, 2017. "Violations of monotonicity in evolutionary models with sample-based beliefs," Economics Letters, Elsevier, vol. 152(C), pages 100-104.
    17. Tsakas, Elias & Voorneveld, Mark, 2009. "The target projection dynamic," Games and Economic Behavior, Elsevier, vol. 67(2), pages 708-719, November.
    18. Sandholm,W.H., 2003. "Excess payoff dynamics, potential dynamics, and stable games," Working papers 5, Wisconsin Madison - Social Systems.
    19. Yoo, Seung Han, 2014. "Learning a population distribution," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 188-201.
    20. Anthony Ziegelmeyer & Frédéric Koessler & Kene Boun My & Laurent Denant-Boèmont, 2008. "Road Traffic Congestion and Public Information: An Experimental Investigation," Journal of Transport Economics and Policy, University of Bath, vol. 42(1), pages 43-82, January.

    More about this item

    Keywords

    Emergence of Institutions; Institutional Change; ‘institutional-game-theoretic’formalism ; Interactive Policy;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:28760. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.