The endogenous origin of institutions: Scale, information spreading, and learning about the past to sustain cooperation


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( Background/Question/Methods Throughout human evolution, societies, from simple hunter-gatherer groups to modern nation states, have developed and enforced rules to regulate social interactions within groups. Institutional rules exist at all scales, a continuum from small groups, sharing local resources like irrigation systems, fishing grounds, or pastures, to the entire world, sharing the biosphere, the climate, or global security. Besides ranging from local to global problems, the mechanisms for adoption of institutions also span opposing scales: entities decide individually or collectively to enroll and support institutions. Nevertheless, we observe that institutions do not always emerge and succeed in sustaining cooperation. This raises important questions about how collectives choose institutions, when institutions thrive, and when they become extinct. Based on the literature of decisions made by real people, we propose a mathematical and computational model to answer these questions. We define a reference frame to study institution formation, dividing the analysis into four scenarios dependent on the scale of the cooperation problem and the scale at which institutional decisions are made. We explore which setups are ideal to forming an effective institution and sustaining cooperation and compare these findings with the results from a recently developed experimental literature on the endogenous choice of institutions. Results/Conclusions We find that, while small groups have an advantage over large group, confirming previous argumentation, the more important factors are the matching of the scale of the institution with the scale of the cooperation problem, the cost and leverage of the institution, individuals’ ability to remember prior interactions, and the available information about other individuals’ experiences. Notably, these different factors have different effects depending on the scale of the public good and of the decision-making process. We observe that, if the decision is individual, which is the case when individuals can avoid punishment by others, finding components of the good that are local and treating it as a multitude of different small-scale goods improves cooperation. Also, the global components of the public good are more easily managed by a decision that is of the same scale as the goods, i.e., collective, especially when agents are aware of the benefits of the agreement and retain its consequences in terms of the behavior of the agents in its absence. However, in the collective decision, including as part of the decision individuals that are outside of the good provision increases the frequency in which the support for the institution slowly decays.