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Modeling Institutional Evolution

  • Bilin Neyapti

    ()

    (Bilkent University)

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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File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1012.pdf
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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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