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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.

Suggested Citation

  • Bilin Neyapti, 2010. "Modeling Institutional Evolution," Koç University-TUSIAD Economic Research Forum Working Papers 1012, Koc University-TUSIAD Economic Research Forum.
  • Handle: RePEc:koc:wpaper:1012
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    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1012.pdf
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    References listed on IDEAS

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    Cited by:

    1. Neyapti, Bilin & Arasil, Yavuz, 2016. "The nexus of economic and institutional evolution," Economic Modelling, Elsevier, vol. 52(PB), pages 574-582.

    More about this item

    Keywords

    Institutional evolution; punctuated equilibria; growth;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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