Institutions – this was the common theme in the two workshops, in which I participated during the last two weeks (in Frankfurt and Knoxville). It is clear that institutions play an immensely important role in the rise of complex societies. But what precisely do they do? And how can we study institutions theoretically and empirically? I have been thinking very hard about these questions in the last several years, and the intense discussions during the two workshops have been extremely helpful in clarifying my thinking. In today’s, and the following, posts I will try to share some of the insights that emerged from these discussions. Right away, I want to acknowledge the huge debt of gratitude I owe to other people who participated in our subgroup on the evolution of institutions in Frankfurt and to the working group on modeling institutions at NIMBioS.
A fair warning: what follows may seem somewhat pedantic. But doing such careful development of terms, concepts, and interactions/interrelations is a central part of what theoretical scientists do. This is the all-important conceptual web that is a kind of “soft cocoon” clothing the “hard” mathematical results. It’s this conceptual work that makes it possible to interpret the math and relate it to observable reality.
First, what are institutions? There are many definitions, but they tend to fall into two classes. One is “institutions as equilibria.” As an example, this is the definition used by Wikipedia (which follows Samuel Huntington’s 1965 book Political Development and Political Decay). Wikipedia defines institutions as “stable, valued, recurring patterns of behavior.”
An alternative is to think of institutions as rules. In our working group we went this route and defined institutions as “systems of interrelated rules that incentivize and structure human behavior and regulate social relations.” Without going into details, the reason I like the institutions-as-rules approach is because it makes much more sense within the theoretical framework of cultural evolution—my preferred tool for understanding how large complex societies evolved. Definitions should match theory (in fact, when building theory you start with provisional definitions and later fine-tune them as you develop the theory).
A very simple, elementary institution can have just one rule, for example, “drive on the right side of the road.” But most institutions are a combination of many rules (for example, think about the traffic rules that you had to learn when passing your driver’s license exam). When the first cars (carts, chariots, carriages) appeared on roads, there were no rules regulating the behavior of drivers, resulting in traffic accidents and jams. This was a socially inefficient outcome, so a system of rules was invented, which told drivers what to do in different situations. This system of interlocked rules gradually evolved and became quite complex, and it also adapted to technological developments.
Most importantly, it acquired sanctions imposed on those who broke the rules (e.g., a speeding ticket). This is what “incentivize” means in the definition: following rules is rewarded, while breaking them is punished. You don’t have to follow the rule, but you know that you will pay a price if you are caught.
Driving on the right side of the road is actually a self-enforcing rule. Once everybody is doing it, it is stupid to break it, because you will get killed in a head-on collision. But in most interesting institutions there is often a temptation to break a rule.
By “interesting” I mean those institutions that regulate social relations within large-scale complex societies. These rules allow them to function (more or less) efficiently without falling apart. Most importantly, they are a key element in the ability of societies to produce various kinds of public goods.
However, the production of public goods is very vulnerable to free riding. Institutions are very helpful in solving coordination problems, such as driving on the right side of the road, in which there is no temptation to defect. But institutions by themselves are not enough to solve cooperation problems, situations in which a purely self-regarding rational agent should choose to enjoy the publicly produced good, but avoid contributing to it.
Let’s illustrate this idea with the institution of democratic governance in which rulers are elected in contested popular elections. As most institutions, this one has a multitude of interlocked rules, but I will focus on one: once the ballots are counted, the losers should gracefully yield the power to the winners.
When all parties follow this rule, the result is a public good: absence of political strife or even civil war. Everybody benefits because people are not killed, property is not destroyed, and economic growth is not stunted by the conditions of political instability. But some (the losing party) face a stiff price, and they are tempted not to accept the result.
This is what we see in many countries that are nominally democratic. For example, the results of the last presidential elections in Afghanistan were not accepted by the losing party, who claimed massive amounts of electoral fraud (and they may well be right).
The two main contenders in Afghan presidential elections in 2014: Abdullah Abdullah and Ashraf Ghani. Source
Compare this to the United States presidential elections of 2000. If the Supreme Court allowed the Florida recount, these elections would probably be won by Al Gore.
Yet Al Gore and the Democratic Party did not rise up in rebellion, or even threaten insurrection. Once the final decision by the highest arbiter was in, they acquiesced to it. (In fact, Al Gore conceded on the night of elections, although he subsequently retracted it).
The difference between the two outcomes is not due to the democratic institutions of the United States being better than those of Afghanistan. In fact, I suspect that the Constitution of Afghanistan, written in 2002–4, is a better document than the American Constitution, which was written more than 200 years ago.
In the next installment we will discuss what it is apart from institutions that makes them work well or poorly.