Fall 1995
Harkness 334, x57252 F 1:40-4:30 pm
Harkness 112 / 329
PSC 588
Institutions are enduring systems of social constraint on human behavior. Through such constraint, human society achieves "order," such as when the enforcement of laws against theft effectively protect property rights. These constraints are not merely negative, however, as illustrated by two examples. First, an appropriate system of property rights makes possible contracting, investment, and economic development; institutions make can make it possible to commit oneself to complex acts of exchange, vastly expanding the opportunities available to members. Second, the existence of a language, which is a basic form of social institution, makes it possible to communicate with other people, and thus to exchange information and to coordinate activities, to the mutual advantage of all the communicators; institutions define common expectations that enlarge the set of available actions people can take.
Although we will briefly survey diverse ideas about the nature of institutions, the course is concerned primarily with the treatment of institutions in rational actor theories. Despite the title of this course, there is no generally recognized "theory of institutions" abroad in the discipline; we will be engaged in inventing one. Our central focus will be on the question of how institutional constraints can be maintained when actors are rational, and have at most only an instrumental interest in the institution for its own sake. The major theme of the course is that institutions themselves should be viewed as equilibria of rational behavior. A solid understanding of the theory of institutions from this standpoint should equip students both to make original theoretical contributions at an important new research frontier, and to formulate and address empirical and normative research questions on political institutions with a powerful set of conceptual tools.
Usually this course has Game Theory as a prerequisite.
This year, however, special circumstances have dictated that we learn what
we need as we go along. Early in the semester we will take a break from
the Theory of Institutions in order to cover some game-theoretic preliminaries,
and I will try to keep you posted in advance on any new concepts we'll
need for the readings. As before, most of the course will be built around
game-theoretic ideas and techniques.
Your grade in this course will be derived from three sources. First, each week I will assign one or more students to take charge of class discussion of readings. In the case of technical, theoretical papers, this will consist of presenting the details of proof of theorems to the class. In the case of less technical readings, this may instead involve a presentation of major concepts, issues, and problems, and leading discussion more generally. You can each expect to have this duty several times during the semester, and will be graded on your mastery of the assinged readings and the quality of your presentation.
Second, while the duly appointed stooge is making this presentation, I expect everyone else to be an active listener. It should be made apparent to me each week, through your participation in discussion, that each of you has thoroughly read and thought about the assigned material. If you sit through the class in silence, I will assume that you are not doing any work. So if all else fails, be prepared to raise important questions.
Third, you have a choice of two written products to produce. Option A: During the course, produce a total of five reports or précis on assigned readings of your choice, NOT including readings that you are assigned to present or discuss in class. Your précis should very briefly summarize the main point and method of a piece, assess its importance in relation to important questions in the field, and critique its analysis of its subject. In particular, it should assess these aspects of the article against other readings from the course, particularly from the same week's assignment. Each report should probably be about four to five double-spaced pages in length, but I will be assessing quality rather than length. If you choose Option A, you must turn in each report on a given reading within one week of the class for which that reading was assigned. You may turn in at most one report for each week's set of assigned readings. (For good grades, don't choose trivially short readings on which to make your reports!) The fifth and final report must be in my hands by Friday, Dec. 15. There will be no "free" incompletes under Option A. Reports submitted later than one week following the relevant class discussion will be penalized.
Option B: do a research paper on a topic related
to the course. This will probably consist of a presentation of new theorems
and proofs; however, I am also amenable to any pithy application of concepts
from the course to a real-world problem. If you choose Option B, you must
clear your topic with me in advance, in detail. Under Option B, as usual,
if your paper is not turned in by the end of the semester I will report
a grade of "N" and await your completion indefinitely.
All readings are required, except as noted. I expect
all students to have read the required readings before coming to
the class for which they are assigned. Please note that this practice differs
from the one common to our graduate Economics courses; we will not necessarily
make an effort to cover all important assigned material at the blackboard,
but that material is still important, and relevant questions should be
raised in the session for which the reading is assigned. I provide the
following survey as a partial roadmap to my view of the subject of this
course:
[recommended:] Randall Calvert, "The Rational Choice Theory of Social Institutions: Cooperation, Coordination, and Communication." In J. Banks and E. Hanushek, eds., Modern Political Economy: Old Topics, New Directions (Cambridge University Press, 1995).
What are institutions, and (how) do they matter?
Definitions of social order, institutions, rules, norms, and culture. Why
a theory of institutions is needed. Individual action and social context.
Social choice instability vs. noncooperative-game equilibrium. Also, some
important questions that are based on notions about social and political
institutions.
(a.) What are institutions? (to be covered in introductory session, Sept. 8)
(i.) Political science views
David B. Truman, The Governmental Process,
2nd edition (New York: Alfred A. Knopf, 1971) (first edition, 1951), chapter
2 -- pages 23-33 only, required; whole chapter, recommended.
[recommended:] Jackson, ed., Institutions
in American Society (1990), Introduction and Chapter 1 (especially
pages 9-22).
Kathleen Thelen and Sven Steinmo, "Historical
Institutionalism in Comparative Politics" (pages 1-13 required; whole
chapter recommended). In Steinmo, Thelen, and Longstreth, eds., Structuring
Politics: Historical Institutionalism in Comparative Analysis (Cambridge,
1992).
(ii.) Sociological views
Emile Durkheim, The Rules of Sociological Method
(Preface to the Second Edition, 1913, sections II and III, pp. 38-46 of
the 1982 volume edited by Steven Lukes).
James March and Johan Olsen, Rediscovering Institutions:
The Organizational Basis of Politics (1989), chapter 2 (pp. 21-28,
38).
(iii.) Economic views
[recommended:] Douglass North, Institutions,
Institutional Change, and Economic Performance (Cambridge, 1990), chapter
1. (See also the North reading in part (c.) below.)
[recommended:] Thrainn Eggertsson, Economic
Behavior and Institutions (Cambridge, 1990), chapter 1.
(b.) The problem of social order (to be covered
in introductory session, Sept. 8)
Friedrich Hayek, Law, Legislation, and Liberty.
Vol. I: Rules and Order (Univ. Chicago Press, 1973): Chapter 2, "Cosmos
and Taxis," pages 35-38, required; pages 38-54, recommended.
[recommended:] Jon Elster, The Cement of
Society: A Study of Social Order (Cambridge, 1989). Introduction (pages
1-16).
Talcott Parsons, The Social System (Free Press, 1951), pages 3-6 only.
(c.) Institutions and economic performance
(Sept. 15)
North, "Institutions and Their Consequences
for Economic Performance," in Cook and Levi, eds., The Limits of
Rationality (Univ. of Chicago Press, 1990): 383-401.
(d.) Social choice theory and spatial modeling
(Sept. 15)
[recommended:] McKelvey, "Intransitivities
in Multidimensional Voting Models and Some Implications for Agenda Control,"
Journal of Economic Theory (1976): 472-82.
Shepsle, "Institutional Arrangements and Equilibrium
in Multidimensional Voting Models," American Journal of Political
Science 23 (1979): 27-59.
Riker, "Implications from the Disequilibrium
of Majority Rule for the Study of Institutions," American Political
Science Review 74 (1980): 432-5.
(e.) Constitutions and political order (Sept.
15)
James M. Buchanan, "The Constitution of Economic
Policy." Science 237 (1987): 1433-37.
Robert D. Putnam, Making Democracy Work: Civic
Traditions in Modern Italy (Princeton, 1993). Chapter 6, "Social
Capital and Institutional Success" (pp. 163-185).
(f.) Language and meaning (Sept. 15)
Donald Davidson, "Toward a Unified Theory of
Meaning and Action." Grazer Philosophische Studien 11 (1980):
1-12.
Paul Grice, Studies in the Way of Words (Harvard,
1989), chapters 2 (pp. 22-31 only) and 5 (pp. 86-105 only).
(a.) Noncooperative games and Nash equilibrium
(special meeting Sept. 20, 4:00-6:00)
Jean Tirole, The Theory of Industrial Organization (MIT Press, 1988), chapter 11, "Noncooperative Game Theory: A User's Manual." Omit subsections 11.5.2 through 11.5.4.
(b.) Games of coordination, cooperation, and
communication; multiple equilibria; signaling and cheap talk
Thomas C. Schelling, The Strategy of Conflict
(1960), chapters 3-4.
Michael Taylor, The Possibility of Cooperation
(Cambridge, 1987), chapters 1 (pp. 1-20 only) and 3.
Joseph Farrell, "Cheap Talk, Coordination, and
Entry". Rand Journal of Economics 18 (1987): 34-39.
Thomas Gilligan and Keith Krehbiel, "Organization
of Informative Committees by a Rational Legislature." American
Journal of Political Science 34 (1990): 531-64.
(c.) The folk theorem
Drew Fudenberg and Eric Maskin, "The Folk Theorem
in Repeated Games with Discounting and with Incomplete Information".
Econometrica 54 (1986): 533-545 (the "discounting" part)
only.
[recommended:] Jay B. Barney and William G.
Ouchi, "Transaction Cost Economics: Governing Economic Exchanges."
In Barney and Ouchi, eds., Organizational Economics (Jossey-Bass,
1986).
Ronald Coase, "The Nature of the Firm,"
Economica 4 (1937): 386-405. Reprinted in Barney and Ouchi, ibid.:
80-98.
Oliver Williamson, "Transaction-Cost Economics:
The Governance of Contractual Relations," Journal of Law and Economics
22 (1979): 233-261. Reprinted in Barney and Ouchi, ibid.: 98-129.
Ronald Coase, "The Problem of Social Cost,"
Journal of Law and Economics 3 (1960): 1-44.
Harold Demsetz, "When Does the Rule of Liability Matter?" Journal of Legal Studies 1 (1972): 13-28.
Barry R. Weingast and William Marshall, "The
Industrial Organization of Congress." Journal of Political Economy
96 (1988): 132-63.
Kenneth A. Shepsle and Barry R. Weingast, "The
Institutional Foundations of Committee Power," American Political
Science Review 81 (1987): 85-104.
Keith Krehbiel, Kenneth A. Shepsle, and Barry R.
Weingast, "Controversy: Why are Congressional Committees Powerful?"
American Political Science Review 81 (1987): 929-45.
Andrew Schotter, An Economic Theory of Institutions
(1981), chapters 1 & 2.
Randall Calvert, "Rational Actors, Equilibrium,
and Social Institutions." Photocopy, 1992. Forthcoming in J. Knight
and I. Sened, eds., Explaining Political Institutions (Univ. of
Michigan Press).
Paul Milgrom, Douglass North, and Barry Weingast,
"The Role of Institutions in the Revival of Trade: The Law Merchant,
Private Judges, and the Champagne Fairs", Economics and Politics
2 (1990).
Avner Greif, Paul Milgrom, and Barry Weingast, "Coordination,
Commitment, and Enforcement: The Case of the Merchant Guild." Journal
of Political Economy 102 (1994): 745-76.
David P. Baron and John A. Ferejohn, "Bargaining
in Legislatures." American Political Science Review 83 (1989):
1181-1206.
David P. Baron, "A Noncooperative Theory of
Legislative Coalitions." American Journal of Political Science
33 (1989): 1048-1084.
David P. Baron, "A Spatial Bargaining Theory of Government Formation in Parliamentary Systems." American Political Science Review 85 (1991): 137-164.
Russell Hardin, "Why a Constitution?" in
B. Grofman and D. Wittman, eds., The Federalist Papers and the New Institutionalism
(Agathon Press, 1989).
Jeffrey Banks and Randall Calvert, "A Battle
of the Sexes Game with Incomplete Information", Games and Economic
Behavior (1992).
Michael Hechter, Debra Friedman, and Satoshi Kanazawa,
"The Attainment of Global Order in Heterogeneous Societies."
Photocopy, 1992. [In J.S. Coleman and T. Farro, eds., Rational Choice
Theory: Advocacy and Critique (Sage)?]
Edward J. Bird, "The Decay of Social Norms:
Implications for Income Support Policy." Photocopy 1995.
John A. Ferejohn, "Rationality and Interpretation:
Parliamentary Elections in Early Stuart England", chapter 11 in K.R.
Monroe, ed., The Economic Approach to Politics (New York: Harper
Collins, 1991). How culture and interpretivism are consistent with game-theoretic
equilibrium.
Avner Greif, "Cultural Beliefs as a Common Resource
in an Integrating World", photocopy, Stanford University (1991).
David Kreps, "Corporate Culture and Economic
Theory", in Alt and Shepsle, eds., Perspectives on Political Economy
(1990).
James Johnson, "On the Cultural Dimensions of
Rational Choice Theory."
Joseph Farrell, "Meaning and Credibility in
Cheap Talk Games." Games and Economic Behavior 5 (1993): 514-31.
Hyun Song Shin and Timothy Williamson, "How
Much Common Belief is Necessary for a Convention?" Photocopy, 1994.
Jack Knight, Institutions and Social Conflict
(Cambridge, 1992), chapter 2 (pp. 21-47) and pp. 123-151 of chapter 5.
Vincent Crawford and Hans Haller, "Learning
How to Cooperate: Optimal Play in Repeated Coordination Games." Econometrica
58 (1990): 571-95.
Robert Axelrod, "More Effective Choice in the
Prisoner's Dilemma," Journal of Conflict Resolution 24 (1980):
379-403.
H. Peyton Young, "The Evolution of Convention."
Econometrica 61 (1993): 57-85.
Vincent P. Crawford, "Adaptive Dynamics in Coordination
Games." Econometrica 63 (1995): 103-43.
Matthew Rabin, "A Model of Pre-game Communication."
Journal of Economic Theory 63 (1994): 370-91.
Yong-Gwan Kim and Joel Sobel, "An Evolutionary Approach to Pre-Play Communication." Econometrica 63 (1995): 1181-93.