Institutions: Why Are They Persistent, and Why Do They Change?” (unpublished

This paper presents a model of institutional choice over time, where institutional arrangements arise endogenously in response to the need for protection of property. Variable returns to investment in new technology create technological inequality between households, which in turn influences what institutional arrangement is chosen. The type of institution chosen in one period then affects subsequent economic outcomes in a way that tends to reinforce the existing institutional arrangement in the next period. This feedback effect makes institutions persistent over time. A change in the prevailing institution occurs only when particular realizations of the technological development process happen to counteract the institutional feedback effect. The longer a particular institution is in place, the less likely it is that this feedback effect can be overcome