Reform Paths and Institutional Resilience

Clemens Buchen

VfS Annual Conference 2021 (Virtual Conference): Climate Economics from Verein für Socialpolitik / German Economic Association

Abstract: Broadly speaking, institutional reformers decide about the sequencing of types of reforms, either addressing institutional quality or macroeconomic stability. This paper develops a dynamic population game, in which agents play a simple anonymous-exchange game of cooperating or defecting. Agents switch to the strategy with higher expected payoff. Reformers can affect the payoff structure of the stage game in order to maximize the number of cooperators in the population by either enacting legal reform (rule of law) or focusing on the macro outlook of the economy facilitating cooperation. Reform is cumulative and starts from initial conditions. Reform effort per period of time is capped. On the basis of the theoretical model the paper makes predictions under which conditions which types of reforms should be enacted first and under which conditions reform will not be successful. In addition, the notion of institutional resilience is introduced as a minimum threshold of legal quality, which allows the population to better withstand exogenous shocks.

JEL-codes: C61 C72 C73 D78 P16 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-gth and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc21:242422

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