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INSTITUTIONS AND INSTITUTIONAL CHANGE IN THE CONTEXT OF GAME THEORY

TERRA ECONOMICUS, , Vol. 18 (no. 1),

This study is inspired by a terminological collision, which can be expressed by the following question: if institutions are the «rules of the game», how do they relate to game theory? We admit that most researchers who have applied a gametheoretic approach in the context of institutional problems do not explicitly define «institution» within a simulated game. So it is not always clear what are the «rules of the game» in the specific game setting? The article aims to consider existing approaches to understanding and modelling institutions by various schools of institutionalism relying on the game theory formalism. As the starting point, we consider two limiting cases among the existing approaches, namely, institutions are presented as games themselves and as equilibria in the games. We pay special attention to the understanding of the institutions as game equilibria, but also analyze such approaches to institutions as game forms, correlation devices, information systems, and so on. Given the multifaceted nature of game theory, we focus on those types of game settings that may be useful for understanding institutional change, i.e., for modelling endogenous institutions. We treat endogenous institutions as subsystems in repeated games. We also compare two programs for modelling institutional change – the evolutionary-institutional approach to the institutions that regulate cooperation in the context of social dilemmas, as well as the modern political economy approach based on the commitment problem in the games with political power. A review of the requirements for game-theoretic formulation needed to model institutional change completes the study.
Citation: Gareev, T. R., Eliseeva, N. A. (2020). Institutions and institutional change in the context of game theory. Terra Economicus, 18(1), 102–120. DOI: 10.18522/2073-66062020-18-1-102-120


Keywords: institutions; institutional change; game theory; game equilibrium; evolutionary-institutional approach

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Publisher: Southern Federal University
Founder: Southern Federal University
ISSN: 2073-6606