1. Genesis of social institution Erika Seki Department of Economics University of Aberdeen How existing institutions have emerged How to design mechanisms to induce desirable institutions

2. Examples Erika Seki Department of Economics University of Aberdeen Judicial system (large society) Soulmate (medium size society) Communal irrigation committee (medium size society) SIRE (small society)

3. 1)Lottery selects a centre 2)Centre sets a 3)Individual member decides whether or not to pay a to become a formal agent or remain to be an informal agent 4)All agents are randomly matched to play a PD game Timeline of institution formation

4. 1)Lottery selects a centre 2)Centre sets a 3)Individual member decides whether or not to pay a to become a formal agent or remain to be an informal agent 4)All agents are randomly matched to play a PD game Issue of commitment Existing level of cooperation: Size of society: Timeline of institution formation

5. Summary of results

6. Nature of social interactions Erika Seki Department of Economics University of Aberdeen One period Bilateral random matching No possibility of re-matching

7. Nature of social interactions Erika Seki Department of Economics University of Aberdeen One period Bilateral random matching No possibility of re-matching Two periods Possibility of re-matching after being matched in the first period

8. Nature of social interactions Erika Seki Department of Economics University of Aberdeen Possible effect of re-matching NPV of being formal => => collective commitment

9. Nature of social interactions Erika Seki Department of Economics University of Aberdeen Trading externality: Diamond (1982) Welfare enhancing effect of divorce: Chiappori and Weiss (2006) Option contract

10. Collective production technology Erika Seki Department of Economics University of Aberdeen How endowment invested in interaction produce output? How output is shared? E.g. use of CPR, partnership Collective choice literature: e.g. Efficient cost sharing in PG production: Roemer and Silvestre (1989) 2 nd best outcome of equal profit sharing in partnership : Farrell and Scotchmer (1988)

11. Further questions Erika Seki Department of Economics University of Aberdeen Optimal size of society Co-existence of formal and informal agents Multiple layered institution