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Mechanisms of Endogenous Institutional Change

Mar 2006
Working Paper
By  Masahiko Aoki
This paper proposes an analytical-cum-conceptual framework for understanding the nature of institutions as well as their changes. In doing so, it attempts to achieve two things: First, it proposes a way to reconcile an equilibrium (endogenous) view of institutions with the notion of agents’ bounded rationality by introducing such concepts as a summary representation of equilibrium common to the agents and their internalized game-forms. Second, it specifies some generic mechanisms of institutional coherence and change -- overlapping social embededdness, Schumpeterian bundling innovations and dynamic institutional complementarities -- useful for understanding the dynamic interactions of economic, political, social and organizational factors.