Endogenous dynamics of institutional change

A parsimonious set of mechanisms explains how and under which conditions behavioral deviations build into cascades that reshape institutional frameworks from the bottom up, even if institutional innovations initially conflict with the legally codified rules of the game. Specifically, we argue that this type of endogenous institutional change emerges from an interplay between three factors: the utility gain agents associate with decoupling from institutional equilibria, positive externalities derived from similar decoupling among one’s neighbors, and accommodation by state actors. Where endogenous institutional change driven by societal action is sufficiently robust, it can induce political actors to accommodate and eventually to legitimize institutional innovations from below. We provide empirical illustrations of our theory in two disparate institutional contexts—the rise of private manufacturing in the Yangzi delta region of China since 1978, focusing on two municipalities in that region, and the diffusion of gay bars in San Francisco in the 1960s and 1970s. We validate our theory with an agent-based simulation.

Institutional Change

This chapter traces developments in historical institutionalist approaches to institutional change. Originally, historical (like rational choice and sociological) institutionalism focused on institutions as “independent” variables, favoring a “comparative statics” mode of analysis. Institutions were relatively fixed and unproblematically enforced rules, while change came through periodic “critical junctures.” A dualistic institutional imagery treated institutions as exogenous for some analytical purposes, highly plastic for others. More recently, historical institutionalists have turned their attention to the dynamics of institutional evolution through political contestation and contextual change. This has allowed the identification of previously neglected processes of incremental and endogenous institutional change.

Adaptive Informal Institutions

Historical institutionalism (HI) has traditionally focused on formal institutions designed and enforced by official entities in advanced industrial democracies. Yet the modalities of endogenous institutional change delineated by HI reveal that the causal mechanisms of institutional transformation are typically informal. This chapter proposes a more inclusive ontology of institutions that views institutions as a single two-dimensional Möbius strip with both formal and informal components—regardless of regime type or level of economic development. Focusing on “adaptive informal institutions” that arise in a multi-tiered institutional context can show how informal institutions compromise, subvert, and even facilitate reforms of formal institutions.