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Modeling institutional evolution

  • Neyapti, Bilin

This paper proposes a formal framework to analyze the process of institutional evolution in relation with economic progress. Institutions have both formal (F) and informal (N) aspects that may exhibit varying processes of change. N is hypothesized to evolve with the level of capital stock, as in learning by doing, whereas F is chosen optimally by a government that maximizes output subject to social and political costs. F and N together define the production technology and affect the income level. Consistent with evidence, simulations of the model's solution reveal that optimum F exhibits a punctuated pattern.

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File URL: http://www.sciencedirect.com/science/article/pii/S0939362512000799
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Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 37 (2013)
Issue (Month): 1 ()
Pages: 1-16

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Handle: RePEc:eee:ecosys:v:37:y:2013:i:1:p:1-16
DOI: 10.1016/j.ecosys.2012.05.004
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