Sunday, August 25, 2013
Re-reading Bowles and Aoki
Although it has become fashionable to quote “Why Nations Fail” by Acemoglu and Robinson, as the standard explanation of why institutions matter in economic development, there are better sources in my view to understand the role of institutional factors and its interaction with preferences and economic behavior. That is why I am re-reading the books by Masahiko Aoki ("Toward a Comparative Institutional Analysis") and by Samuel Bowles ("Microeconomics") and finding that they mention authors that I have been reading for other reasons between my first reading and the current one, such as Basu and Allen. Bowles and Aoki have in common that they offer a game theoretic view of institutions, which is presented as a critique of, and in dialogue with, standard economic theory. Both of these authors present their view of institutions as a platform to initiate the reader in the foundations of evolutionary economics. They also show interdisciplinary science at its best, namely not as an excuse to reduce rigour, but as an encouragement to find better mathematical models and other scientific techniques, such as evolutionary and agent-based modelling. A common theme is that economic outcomes are not necessarily the result of human design, but often they are the unintended consequences of human behavior, which does not exclude the role of collective action. Aoki is especially illuminating when he presents his view of social reality as a set of domain games (commons, social networks, exchange, organizations and polity) and how the linkages between these domains create complementarities. For example, the free rider problem in the contribution to public goods may be alleviated by the threat of social ostracism in a game of social interaction. All of this is better grounded in social (and other) sciences than “Why Nations Fail”, but it is slightly more complex, which is why you will not see it mentioned in the popular media. But I plan to teach it in my courses (more than I have done so far).