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A Theory of Endogenous Institutional Change

  • AVNER GREIF (a1) and DAVID D. LAITIN (a1)
Abstract

This paper asks (a) why and how institutions change, (b) how an institution persists in a changing environment, and (c) how processes that it unleashes lead to its own demise. The paper shows that the game-theoretic notion of self-enforcing equilibrium and the historical institutionalist focus on process are both inadequate to answer these questions. Building on a game-theoretic foundation, but responding to the critique of it by historical institutionalists, the paper introduces the concepts of quasi-parameters and self reinforcement. With these concepts, and building on repeated game theory, a dynamic approach to institutions is offered, one that can account for endogenous change (and stability) of institutions. Contextual accounts of formal governing institutions in early modern Europe and the informal institution of cleavage structure in the contemporary world provide illustrations of the approach.

Copyright
Corresponding author
Avner Greif is Professor of Economics, Mail Code 6072, Stanford University, Stanford CA 94305 (avner@stanford.edu).
David D. Laitin is Professor of Political Science, Mail Code 6044, Stanford University, Stanford, CA 94305 (dlaitin@stanford.edu).
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American Political Science Review
  • ISSN: 0003-0554
  • EISSN: 1537-5943
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