Institutional Persistence and Change: An Evolutionary Approach

We propose an evolutionary theory of institutional persistence and change. Many institutional changes are decentralized, with a large number of private actors informally adopting new practices that are later confirmed by changes in formal governance structures. For example, land tenure norms, conventional crop shares, inheritance practices, and traditional property rights all are informal institutions, or conventions, that persist for long periods of time and sometimes experience rapid changes due to social conflict, despite the absence of government interventions. We model these types of institutional transitions by extending evolutionary game theory to incorporate social conflict and endogenous social classes in a “bottom-up” evolutionary contract game. The driving mechanism in our model comes from small probabilities of agents engaging in collective action, leading to some contracts being selected over others in the long-run. We show that non-risk dominant contractual conventions will be highly persistent under a stochastic evolutionary dynamic when the size of the poorer class is relatively large, as it is more difficult for them to generate enough collective action to upset the unequal equilibrium. We then show that this same result obtains when we endogenize class sizes using an intergenerational mobility dynamic, with the result that societies with more barriers to mobility will also have more inequality between rich and poor. Finally, we extend the model to allow the rate of collective action to increase in the inequality of a contract, and introduce a government motivated to support the long-term interest of one of the groups, identifying the conditions under which redistribution implemented by non-democratic states. JEL codes: D02 (Institutions), D3 (Distribution), C73 (Stochastic and Dynamic Games; Evolutionary Games) ∗Sogang University, [email protected]. ‡Corresponding Author, Columbia University, [email protected]. †Sante Fe Institute and the University of Siena, [email protected]. We also thank Robert Axtell, Oded Galor, Tone Ognedal, Elisabeth Wood, Peyton Young, and seminar participants at Brown, MIT, and UC Berkeley for comments and the Behavioral Sciences Program of the Santa Fe Institute, the Russell Sage Foundation, National Science Foundation, European Science Foundation, and the Social Sciences and Humanities Research Council of Canada, for support of this project.