Genesis of social institution How existing institutions have

Genesis of social institution • How existing institutions have emerged • How to design mechanisms to induce desirable institutions Erika Seki Department of Economics University of Aberdeen

Examples • Judicial system (large society) • Soulmate (medium size society) • Communal irrigation committee (medium size society) • SIRE (small society) Erika Seki Department of Economics University of Aberdeen

Timeline of institution formation 1) 2) 3) 4) Lottery selects a centre Centre sets a Individual member decides whether or not to pay a to become a formal agent or remain to be an informal agent All agents are randomly matched to play a PD game

Timeline of institution formation 1) 2) 3) 4) Lottery selects a centre Centre sets a Individual member decides whether or not to pay a to become a formal agent or remain to be an informal agent All agents are randomly matched to play a PD game • • Issue of commitment Existing level of cooperation: • Size of society:

Summary of results

Nature of social interactions • One period • Bilateral random matching • No possibility of re-matching Erika Seki Department of Economics University of Aberdeen

Nature of social interactions • One period • Bilateral random matching • No possibility of re-matching • Two periods • Possibility of re-matching after being matched in the first period Erika Seki Department of Economics University of Aberdeen

Nature of social interactions • Possible effect of re-matching • NPV of being formal commitment => => collective Erika Seki Department of Economics University of Aberdeen

Nature of social interactions • Trading externality: Diamond (1982) • Welfare enhancing effect of divorce: Chiappori and Weiss (2006) • Option contract Erika Seki Department of Economics University of Aberdeen

Collective production technology • How endowment invested in interaction produce output? • How output is shared? E. g. use of CPR, partnership • Collective choice literature: e. g. Efficient cost sharing in PG production: Roemer and Silvestre (1989) 2 nd best outcome of equal profit sharing in Erika Seki partnership : Farrell and Scotchmer (1988) Department of Economics University of Aberdeen

Further questions • Optimal size of society • Co-existence of formal and informal agents • Multiple layered institution Erika Seki Department of Economics University of Aberdeen