On the complexity of the link between institutions and complexity: an overview

Eric Alston, Lee J. Alston and Bernardo Mueller

Chapter 1 in Handbook on Institutions and Complexity, 2025, pp 1-22 from Edward Elgar Publishing

Abstract: Considering the link between institutions and complexity theory results in a better understanding of both institutional emergence and design, as well as the complex socio-economic orders that the institutions are intended to govern. We devote the first topic in our Handbook to how human societies can be better understood using the tools of complexity theory, a recognition which is long standing among major institutional and economic thinkers. Uncertainty within non-ergodic and coevolving systems begets incomplete information on the part of institutional designers, such that these characteristics are essential for understanding the effects of institutions on the individuals and organizations they are intended to govern. We devote the second topic in our Handbook to show how complexity theory can illuminate the historical development of societies across centuries, including how institutional equilibria and effectiveness are greatly determined by the predominant beliefs about how outcomes will unfold, beliefs that are essentially incomplete. Yet complexity theory is also useful for understanding governance processes at a smaller scale, such that our third topic concerns how the institutions determining property, hybrid firms, and cities are also usefully illuminated through granular consideration of the principles governing complex systems. While uncertainty, non-ergodicity, incomplete information, and belief stickiness are all reasons for humility on the part of institutional designers, the study of complex systems also yields affirmative lessons for such design. Modularity, computational techniques, and polycentricity all present limited means by which institutional designers can better accommodate the non-ergodicity of the systems within which they must nonetheless make choices about governance. Paradoxically, the study of governance within complex systems reveals that governance is made essential by this same complexity, even as that governance is fundamentally constrained in its foresight and effectiveness due to the uncertainty and incomplete knowledge that essentially characterize complex systems.

Keywords: Complexity; Institutions; Uncertainty; Incomplete information; Governance; Beliefs; Non-ergodicity; Modularity; Institutional design; Institutional analysis; Institutional economics (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035309719
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