Rules, Equilibria and Virtual Control: How to Explain Persistence, Resilience and Fragility

Abstract

Institutions are often regarded either as rules or as equilibria sustained by self-interested agents. I ask how these two theories can be combined. According to Philip Pettit’s Virtual Control Theory, they explain different things: rules explain why regularities persist; self-interest why they are resilient. Thus, his theory reconciles the two theories by adjusting their domains of application. However, the available evidence suggests that rules and self-interest often combine as sources of motivation. Because of this, it is better to integrate the theories rather than to reconcile them. Inspired by Cristina Bicchieri’s theory of social norms, I incorporate the notion of rule-following into a game-theoretic account of institutions. According to the resulting Rules-and-Equilibrium Theory, institutions are rule- or norm-governed social practices. The theory does not only explain their persistence and resilience, but also their fragility, which provides another reason for preferring the proposed integration to Pettit’s reconciliation.

The nature and significance of social ontology

“…More recently, one of us has proposed 'the Rules-and-Equilibria Theory' (Hindriks, 2019(Hindriks, , 2021(Hindriks, , 2022a. Instead of coordination games, it pertains to mixed-motive games and cooperation problems, such as public goods games or the famous Prisoner's Dilemma game.…”

“…So, the notion of norm-governance connects rules to equilibria without gluing them together. This is why this second theory is called 'the Rules-and-Equilibria Theory' (see Hindriks 2019Hindriks , 2021Hindriks , 2022a.…”

Institutions and their strength

“…What I am looking for, however, are generic factors that apply to all institutions. The two key factors, I propose, are motivation and 18 For a more elaborate comparison between RaE and CPT see Hindriks (2021).…”

“…In one respect, RaE is less demanding 17 See Pettit (1995Pettit ( , 2007, Aoki (2001) and Greif and Kingston (2011) for other hybrid theories of institutions. In Hindriks (2021), I compare Pettit's (1995Pettit's ( , 2007 Virtual Control Theory (VCT) to RaE. I argue that VCT accounts for strong institutions, but fails to accommodate weak ones.…”

“…Here I use it to explicate the difference between strong and weak institutions. And in the third part, I discuss why and how equilibrium theories and rule theories should be combined or unified (Hindriks 2021).…”