A Paper on Institutional Change
There is an agreement among institutional economists that institutions persist. This agreement is in contrast with some evidence that while there are so many long lived institutions, there are at the same time, many institutions that change rapidly. The frequent alteration of less-developed countries between dictatorship and democracy and at the same time persistence of economic structure of these countries is an apparent example of this dual faces of institutions.
In an article, Acemoglu and Robinson (“De Facto Political Power and Institutional Persistence”; AEA Papers and Proceedings, VOL. 96, NO. 2, May 2006, pp. 325-30) try explain some important mechanisms underlying simultaneous change and persistence in institutions. The main ides is that there are two sources of political power that push for change or prevent it; one is de jure power given by law to citizens and the other de facto power that incumbent elite’ posses and use for support their benefits. They show that even when an institution changes and results in a change in de jure power change (like a change from non-democracy to democracy), the elite, predicting the result, may invest more in de facto power and keep the existing beneficial institutions (like labor market structure): “The result that investment in de facto power exactly offsets the additional de jure power of citizens in democracy is special” (p328).
Furthermore they argue that even if the incumbent elite leave the power and another group comes in, the newcomers, sometimes with a popular mandate, once in power don’t have inventive to change the oligarchic structure and instead use the existing structure for their own benefits.
I think in any theory about the change in power in Iran, theories like this would help a lot. There have been so many shifts in power during last 100 years but still some institutions are the same. The incentives of rulers, no matter who are they, are the same. So called “Iron Law of Oligarchy”.
I believe the model can be improved in some direction. In particular I am interested to see what happens if there is a budget constraint on elites so they, when deciding about more investment on de facto power, have to face a tradeoff.
In an article, Acemoglu and Robinson (“De Facto Political Power and Institutional Persistence”; AEA Papers and Proceedings, VOL. 96, NO. 2, May 2006, pp. 325-30) try explain some important mechanisms underlying simultaneous change and persistence in institutions. The main ides is that there are two sources of political power that push for change or prevent it; one is de jure power given by law to citizens and the other de facto power that incumbent elite’ posses and use for support their benefits. They show that even when an institution changes and results in a change in de jure power change (like a change from non-democracy to democracy), the elite, predicting the result, may invest more in de facto power and keep the existing beneficial institutions (like labor market structure): “The result that investment in de facto power exactly offsets the additional de jure power of citizens in democracy is special” (p328).
Furthermore they argue that even if the incumbent elite leave the power and another group comes in, the newcomers, sometimes with a popular mandate, once in power don’t have inventive to change the oligarchic structure and instead use the existing structure for their own benefits.
I think in any theory about the change in power in Iran, theories like this would help a lot. There have been so many shifts in power during last 100 years but still some institutions are the same. The incentives of rulers, no matter who are they, are the same. So called “Iron Law of Oligarchy”.
I believe the model can be improved in some direction. In particular I am interested to see what happens if there is a budget constraint on elites so they, when deciding about more investment on de facto power, have to face a tradeoff.
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