The Subjective Game Form and Institutional Evolution as Punctuated Equilibrium

Masahiko Aoki

Working Papers from Stanford University, Department of Economics

Abstract: September 1998

The major purpose of this lecture is to provide a conceptual framework for analyzing the mechanism of institutional evolution as "punctuated equilibrium." Section 1 introduces reasons why an equilibrium view of institutions may be appropriate. Section 2 introduces a simple apparatus, called the COSE box, to represent the structure of the game. Section 3 then provides an equilibrium-related conception of institutions satisfying the four observed features: summary representation, continuity, multiplicity, and common knowledge. Section 4 drops the assumption of fixedness of agents choices sets in classical and evolutionary game theories and introduces the notion of subjective game forms. By discussing how the agents revise own subjective game forms in response to external shocks in a correlated manner, it attempts to describe a possible mechanism of institutional change. Section 5 deals with two important objective mechanisms for selecting new institutions: institutional complementarity and embeddedness. Section 6 provides some examples.

Date: 1998-09
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