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ISNIE Session Information for ASSA Annual Meeting

The Dynamics of Economic Institutions

January 3, 2009, 2:30 p.m.
Marriott Hotel/Yerba Buena Salon 12
San Francisco, CA
American Economic Association website

Presiding: Avner Greif, Department of Economics, Stanford University

Masahiko Aoki, Stanford University, "On the Mechanism of Institution-Belief Co-evolution"
view abstract

Institutions may be conceptualized as shared beliefs regarding the salient ways by which societal games are recursively played in a population (e.g., Aoki 2001). However, how do such shared beliefs becomes possible? Recent developments of game theory, cognitive science, evolutionary theory and so on seem to suggest possible roles of "public indicators", capacity of the players to reason symmetrically, culturally-accumulated knowledge and the like for such shared beliefs to evolve. From this perspective I discuss the role of entrepreneurial experiments, public discourses, strategic interactions of the players across economic, social and political exchange domains of games in the evolution of societal rules.

Samuel Bowles, Santa Fe Institute and University of Siena, "Preferences, Institutions, and Comparative Advantage"
(with Marianna Belloc, Sapienza University of Rome)
view abstract

Country differences in factor endowments influence comparative advantage induce specialization and support welfare gains from inter-country trade. The same can be said of any country differences affecting the ratio of marginal costs of goods in autarchy that will not be eliminated by the introduction of trade. Included are cultural differences, for example in the extent of social preferences such as reciprocity, truth telling, and the work ethic. The reason is that goods and technologies differ in the feasibility or implementation costs of complete contracts for the hiring of inputs and the distribution of outputs, and social preferences may substitute for complete contracts where the latter are prohibitively costly. Thus a country where social preferences are widespread may have a comparative advantage in the production of those goods for which the impediments to complete contracting are especially great. Country differences in the distribution of preferences may persist indefinitely because contracts and preferences coevolve, giving rise to a potentially large number of asymptotically stable cultural-institutional equilibria. We provide experimental and historical evidence consistent with our view of the coevolution of preferences and institutions and provide a model of the underlying processes giving rise durable cultural differences that influence comparative advantage among otherwise similar nations.

Gérard Roland, University of California at Berkeley, "Institutional Clusters"
(with Jon Jellema, University of California at Berkeley)
view abstract

We ran principal component regressions of growth and income on existing measures of institutions to assess which institutions are the most important for economic performance. We varied the sets of variables to search for robust effects of institutions. Our major finding is that broadly defined institutions of checks and balances limiting the power of the executive are the most robust institutional determinants of growth. There is also some evidence that a democratic, participatory and anti-authoritarian culture matters. These effects are even stronger in instrumental variable regressions.

Eric Brousseau, EconomiX, University of Paris X, "Climbing the Hierarchical Ladders of Rules: the Dynamics of Institutional Framework"
(with Emmanuel Raynaud, INRA, SADAPT, University of Paris & Centre ATOM at University of Paris I)
view abstract

We analyze the process of emergence and evolution of institutions by pointing out how self-interests shape the design of institutional settings. We provide a framework in which "local and voluntary" institutions endogenously turn into more "generic and mandatory" ones. This leads us to analyze how a competitive process is automatically launched when institutions are decentrally created by agents, which leads to a race for generalization by which promoters of local orders are led to promote adhesion to their preferred rules among alternatives. We see then institutions as sponsored by groups of core members often the founders) who have incentives, in certain circumstances, to cooperate with other sponsors playing on the same battlefield or imposing a higher rank order.

Discussants:

John Nye, Department of Economics, George Mason University

Peter Grajzl, Department of Economics, Central European University, Budapest