The Emergence of Institutions

Santiago Sanchez-Pages, Stephane Straub

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

This paper analyses how institutions aimed at coordinating economic interactions may emerge. Starting from a hypothetical state of nature, agents can delegate the task of enforcing cooperation to one of them in exchange for a proper compensation. Both individual and collective commitment problems stand in the way of institution formation. These problems imply first that a potentially efficient institution may fail to emerge and also that if it emerges, it may do so inefficiently. We show that big and untrustworthy societies are more likely to support institutions whereas their emergence is more difficult in small and trusting societies, but if institutions do emerge, they tend to be more inefficient in the former type of societies. Finally, we show that the threat of secession by a subset of agents may alleviate the latter problem.
Original languageEnglish
Article number84
Number of pages37
JournalThe B.E. Journal of Economic Analysis & Policy
Volume10
Issue number1
DOIs
Publication statusPublished - 2010

Keywords / Materials (for Non-textual outputs)

  • institution
  • coordination
  • secession
  • state of nature

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