Game theory
Farshad Momeni; Reza Shohreh
Abstract
Over the past half-century, the impact of the prisoner’s dilemma has transcended its initial boundaries, influencing a broad spectrum of institutional studies and analyses of interdependent systems, such as collective action, public goods, governance of the commons, social norms, and social capital. ...
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Over the past half-century, the impact of the prisoner’s dilemma has transcended its initial boundaries, influencing a broad spectrum of institutional studies and analyses of interdependent systems, such as collective action, public goods, governance of the commons, social norms, and social capital. Given this extensive influence, the latent fundamental flaws in this model can lead to misleading result for researchers and policymakers. As a descriptive–analytical research, the present study employed evolutionary game theory to examine the shortcomings of the iterative and evolutionary prisoner’s dilemma. It went on to introduce an alternative framework to explain the emergence and transformation of institutions. The critical discussion highlighted fundamental deficiencies of the prisoner’s dilemma manifested in four distinct levels of institutional analysis: the definition of institutions, identification of their function, explanation of their emergence, and description of their transformations. Consequently, the model is not capable of explaining institutional issues mentioned above. Addressing the role of uncertainty and considering the impact of small-world networks on payoff distribution, the second part of the study used a semi-parametric stag hunt matrix to model the cooperation problem. The results indicated that the non-spontaneous overlap between strong and weak ties can accumulate synergistic flows between content and structure, creating an environment conducive to institutionalizing capacity for achieving public goods on a large scale. Therefore, the process of overcoming social traps begins not with the punitive rules proposed by the prisoner’s dilemma, but with synergetic institutions that enhance the opportunity to discover common interests.IntroductionThe relation between institutions and development has been well recognized for quite some time. Numerous studies have delved into collective action, public goods, the governance of the commons, informal institutions, social capital, and the like. These areas serve as a common ground between two realms of economics: the theory of institutions and game theory. However, the majority of game theory studies are based on the assumption that the payoff distribution follows the prisoner’s dilemma. In the payoff matrix of the prisoner’s dilemma, the additional benefit of unilateral non-cooperative action results in a dominant strategy, preventing rational players from attaining the mutual benefits of cooperation. The central question in this literature is: how have human beings successfully established society and built civilization? There are three general solutions in the literature on the iterative and evolutionary prisoner’s dilemma. The initial solution, incorporating concepts like meta-game, folk theorem, reputation effect, and the norm of reciprocity, asserts that if the game repeats endlessly, cooperation becomes a foresight-driven choice. Contrary to this approach that suggests a form of spontaneous order, some sociologists argue that negative externalities of individual actions cannot be resolved by foresight or reciprocity, so the evolution of cooperation is only achievable through authoritative relations and punitive norms. The third solution, rooted in a biological assumption, contends that the prisoner’s dilemma can be solved through instincts without the need for rationality. The current article critically examined each of these approaches, and then introduced another payoff distribution matrix to explain how cooperation evolves in human society.Materials and MethodsThis study used a descriptive–analytical method as well as evolutionary game theory.Results and DiscussionThe article can be categorized into two main sections: the critical discussion and modeling. In the critical discussion, the results drawn from agent-based networks indicated that, even in the case of an endlessly repeating game, the emergence of the first cooperators would remain unexplained within the specific payoff matrix. Then, it was demonstrated that a substantial gap between theory and observation arises due to the inadequacy of the Prisoner’s dilemma in representing uncertainty. The discussion also addressed the contradiction stemming from overlooking the institutional context, particularly in defining reciprocity and explaining the emergence of norms. Moreover, the discussion highlighted some tautologies hidden in these definitions and explanations. Finally, three reasons were presented to underscore that the biological approach falls short of explaining how cooperation evolves in small-world networks.The discussions highlight fundamental deficiencies in the prisoner’s dilemma across four distinct levels of institutional analysis: the definition of institutions, identification of their function, explanation of their emergence, and description of their transformations. At the definitional level, the logic is fundamentally flawed due to its oversight of uncertainty as well as the mere emphasis on non-cooperative payoffs. Concerning the identification of function, the model predominantly stresses control and punishment, neglecting synergetic institutions that enhance opportunities to discover common interests, foster social synthesis on a large scale, lay the foundation for social contracts, and legitimize punitive rules. Moreover, an evolutionary model can only explain the endogenous emergence and transformation of institutions if it first demonstrates how a payoff matrix, where non-cooperation is a dominant strategy, can create a sustainable learning process. According to the results of agent-based networks, such a process cannot be explained in the prisoner’s dilemma.Nevertheless, evolutionary models, by sidestepping the assumptions of perfect rationality and information, possess a suitable capacity for studying interdependent systems and institutional analysis. Therefore, an alternative model can be formulated by implementing some reforms, including the utilization of the stag hunt matrix to account for uncertainty, incorporating small-world networks to better align with human societies, and ultimately introducing a semi-parametric payoff matrix to incorporate the influences of social structures.The results from the revised stag hunt model showed that the non-spontaneous overlap between strong and weak ties can accumulate synergistic flows, creating a conducive environment to institutionalizing capacity for achieving public goods on a large scale. Therefore, the process of overcoming social traps begins not with the free ride punishments proposed in the prisoner’s dilemma, but with synergetic institutions that enhance the opportunity to discover common interests.ConclusionThe prisoner’s dilemma describes a great challenge concerning micro-level conflicts of interest. However, using this model to explain the emergence and transformations of institutions is bound to yield highly misleading results for researchers and policymakers. Instead, the theoretical framework proposed in this study should find application across a broad spectrum of institutional studies, including analyzing the impacts of inclusive institutions on overcoming social traps, designing society-oriented methods for governing the commons, explaining the accumulation and modeling the measurement of social capital, and examining the social consequences of economic inequality.Keywords: Institutions, Cooperation Problem, Evolutionary Game Theory, Prisoner’s Dilemma, Stag HuntJEL Classification: C73, O43.
Planning and Budget
Hamid Reza Ghasemi; Ali Arabmazar Yazdi; Reza Zamani
Abstract
In the approach of new institutionalism, the budgeting system's complexities have roots in its formation's historical development. Understanding this historical development from the perspective of institutions and organizations has made it easier to understand the complexities that the country's budgeting ...
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In the approach of new institutionalism, the budgeting system's complexities have roots in its formation's historical development. Understanding this historical development from the perspective of institutions and organizations has made it easier to understand the complexities that the country's budgeting system is facing today. Using the social order approach and relying on the three elements of institutions, organizations, and violence control, this research has examined the budgeting system of Iran between years of the constitutional revolution and the end of the Qajar dynasty. In this period, the approval of the constitution, the internal regulations of the parliament, the law on the formation of the Ministry of Finance, the law on public accounts, the law on the Court of Accounts, and the writing of the budget law, as well as more predictability of resources and cost allocations by limiting the period of the budget have taken place. Also, checking the accounts of ministers, preventing illegal transfers, preparing and deducting the budget, increasing the power of tax collection, organizing the country's treasury and prohibiting the imposition of taxes based on personal opinion, and providing executive methods related to the budgeting system in addition to the formation of the parliament and the budget commission, the Audit Bureau, the Ministry of Finance and the commission for handling the income and expenditure of the ministries have led to the improvement of the quality of institutions and the development of contractual organizations with a permanent life in the budgeting system, which has caused the control of violence. By examining the budgeting system, one can conclude that the dominant coalition member groups in the period under review were princes, nobles, scholars, businessmen, landowners, the intellectual class, Russian and British governments. Examining institutions, organizations, and violence control show that the budgeting system has changed from a fragile limited access order to a basic limited access order in this period.
Monetary economy
Abolfazl Shahabadi; Razieh Davarikish; Mahdi Jafari
Abstract
The significant difference between the growth rate of liquidity and the rate of economic growth creates a kind of inflationary potential in the economy. Part of this difference occurs as overt inflation, but the other part will remain latently as potential inflation in the economy. Potential inflation ...
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The significant difference between the growth rate of liquidity and the rate of economic growth creates a kind of inflationary potential in the economy. Part of this difference occurs as overt inflation, but the other part will remain latently as potential inflation in the economy. Potential inflation should have appeared in the economy but was delayed, and this could cause inflation shock and inflationary uncertainty in the country's economy. Therefore, potential inflation is one of the main problems of any country that the fear of bursting and its occurrence causes instability and economic turmoil. The uncertainty resulted leads to huge bewilderment of investors and to reduced investment and employment. Residual factor and institutional quality is one of the factors affecting potential inflation. Because, with the improvement of the Residual factor, the appropriate institutional quality and the high rule of law and order, the concerns related to the growth of liquidity are eliminated. In this case, the growth of liquidity is commensurate with the economic growth and more growth in liquidity than economic growth is prevented. The purpose of this study is to investigate the effect of residual factor and institutional quality on the potential inflation of selected countries rich in natural resources for the period 1996-2019 using the fully modified ordinary least squares (FMOLS) method. The results of this study indicate that the variables of residual factor, institutional quality and exchange rate have a negative and significant effect on potential inflation. Also, according to the research results, the variable of government spending has a positive and significant effect on potential inflation.
Saeed Isa Zadeh; Akbar Ahmadzadeh
Volume 13, Issue 40 , October 2009, , Pages 1-28
Abstract
The neo-classical growth models explain the difference between economic growth of economies as a result of difference in economic factors such as capital (in the form of fiscal and human) and factor productivity، but according to new institutional economist those differences in fact originate from institutional ...
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The neo-classical growth models explain the difference between economic growth of economies as a result of difference in economic factors such as capital (in the form of fiscal and human) and factor productivity، but according to new institutional economist those differences in fact originate from institutional qualities and structures in different countries. In this regard، the main reason of having low level of per capita income in less developed countries is the lack of good quality institutions for economic activities and capital accumulation.Researches show the positive impacts of institutions on economic growth in different economies. In this study، we investigate evaluate the effects of institutional qualities and other economic factors on economic growth in 50 countries for the period of 1996 - to 2005. Institutional quality is formed by combination of six basic indices as followes: voice and accountibility، political stability، control of corruption، rule of law، regulatory of quality، and government effectiveness. The results show athe direct relationship between economic growth and institutional qualities.
